Issuu

Registered Valuers under the Companies Act Eligibility and Valuation Requirements for Listed and Unlisted Companies

CS Neha Sharma Team - Research and Advisory, Taxmann

Registered Valuers under the Companies Act Eligibility and Valuation Requirements for Listed and Unlisted Companies

CS Neha Sharma Team - Research and Advisory, Taxmann

Contents 1.

Introduction

Meaning of Registered Valuer

Eligibility and Qualification of Registered Valuer

Statutory Requirement for Valuation by a Registered Valuer under Companies Act

Valuation requirement under SEBI Regulations

Conclusion

1. Introduction Valuation plays an important role in several corporate transactions, particularly where the value of shares, securities, assets, liabilities or business interests needs to be determined. The Registered Valuer framework ensures that qualified, experienced, and independent professionals carry out such valuations. A Registered Valuer must meet eligibility, qualification, experience, examination, and registration requirements. Depending on the nature of the transaction, applicable law may prescribe a specific valuation methodology or require an independent valuation report. Therefore, before appointing a valuer, identify the transaction, applicable legal provision, asset class, and valuation requirement.

2. Meaning of Registered Valuer “Valuer” means a person registered with the authority in accordance with these rules and the term “registered valuer” shall be construed accordingly. “Authority” means an authority specified by the Central Government under section 458 of the Companies Act, 2013 to perform the functions under these rules. “Valuer” shall have the same meaning as assigned to it under section 247 of the Companies Act, 2013 as amended from time to time. “Valuer” means a person who is registered under section 247 of the Companies Act, 2013 and the relevant rules framed thereunder or as specified by the Board. Accordingly, a Registered Valuer must satisfy the eligibility, qualification, experience, examination, registration and other requirements prescribed under the Companies (Registered Valuers and Valuation) Rules, 2017.

3. Eligibility and Qualification of Registered Valuer 3.1

Eligibility of a Registered Valuer

A person shall be eligible to be a registered valuer if he (a) is a valuer member of a registered valuers organisation; (b) is recommended by the registered valuers organisation of which he is a valuer member for registration as a valuer; (c) has passed the valuation examination within three years preceding the date of making an application for registration;

Registered Valuers under the Companies Act Eligibility and Valuation Requirements for Listed and Unlisted Companies

(d) possesses the qualifications and experience as specified in rule 4; (e) is not a minor; (f)

has not been declared to be of unsound mind;

(g) is not an undischarged bankrupt, or has not applied to be adjudicated as a bankrupt; (h) is a person resident in India; (i)

has not been convicted by any competent court for an offence punishable with imprisonment for a term exceeding 6 months or for an offence involving moral turpitude, and a period of five years has not elapsed from the date of expiry of the sentence. If a person has been convicted of any offence and sentenced in respect thereof to imprisonment for a period of seven years or more, he shall not be eligible to be registered;

(j)

has not been levied a penalty under section 271J of Income-tax Act, 1961 and time limit for filing appeal before Commissioner of Income-tax (Appeals) or Incometax Appellate Tribunal, as the case may be has expired, or such penalty has been confirmed by Income-tax Appellate Tribunal, and five years have not elapsed after levy of such penalty;

(k) Is a fit and proper person:

3.2 Qualifications and Experience required for Registered valuer An individual must satisfy one of the following qualifications and experience prescribed under Annexure IV. Annexure IV: Eligibility Qualification and Experience for Registration as Valuer Asset Class

Qualification

Experience in Specified Discipline

Plant and Machinery

Graduate: Mechanical, Electrical, Electronic and 5 years Communication, Electronic and Instrumentation, Production, Chemical, Textiles, Leather, Metallurgy or Aeronautical Engineering, or Graduate in Valuation of Plant and Machinery or equivalent. Post Graduate: In the above-mentioned courses. 3 years

Land and Building

Graduate: Civil Engineering, Architecture or Town 5 years Planning or equivalent. Post Graduate: In the above-mentioned courses 3 years and also in Valuation of Land and Building or Real Estate Valuation (two-year full-time postgraduation course).

Registered Valuers under the Companies Act Eligibility and Valuation Requirements for Listed and Unlisted Companies

Asset Class

Qualification

Experience in Specified Discipline

Securities or Financial Member of the Institute of Chartered Accoun- 3 years Assets

tants of India, Institute of Company Secretaries of India or Institute of Cost Accountants of India; or MBA / Post Graduate Diploma in Business Management with specialisation in Finance. Post Graduate: In Finance.

3 years

3.3 Disqualifications of the Registered Valuer No partnership entity or company shall be eligible to be a registered valuer if(a) it has been set up for objects other than for rendering professional or financial services, including valuation services and that in the case of a company (b) it is a subsidiary, joint venture or associate of another company or body corporate; (c) it is undergoing an insolvency resolution or is an undischarged bankrupt; (d) three or all the partners or directors, whichever is lower, of the partnership entity or company, as the case may be, are not registered valuers; or (e) none of its partners or directors, as the case may be, is a registered valuer for the asset class, for the valuation of which it seeks to be a registered valuer. (f) it is not a member of a registered valuers organisation. It shall not be a member of more than one such registered valuers organisation at a given point of time.

3.4 Examination to become a registered valuer (a) The authority shall, either on its own or through a designated agency, conduct valuation examination for one or more asset classes, for individuals who possess the qualifications and experience and have completed their educational courses as members of a registered valuers organisation. (b) The authority shall determine the syllabus for various valuation-specific subjects or asset classes for the valuation examination on the recommendation of one or more Committees of experts constituted by the authority in this regard. (c) The syllabus, format and frequency of the valuation examination, including qualifying marks, shall be published on the website of the authority at least three months before the examination. (d) An individual who passes the valuation examination shall receive acknowledgement of passing the examination. (e) An individual may appear for the valuation examination any number of times.

Registered Valuers under the Companies Act Eligibility and Valuation Requirements for Listed and Unlisted Companies

3.5 Application process for obtaining Registered Valuer certificate An eligible individual, partnership entity or company may apply for registration in the prescribed form with the applicable non-refundable fee: (a)

In case of individual, Form A along with the fee of Rs. 5,000 shall be filed.

(b)

In case of Partnership entity/Company, Form B along with the fees of Rs. 10,000 shall be filed.

(c)

The Authority may allow 21 days to rectify deficiencies or furnish additional documents/clarifications and may require the applicant to appear for clarification.

(d)

If satisfied with the applicant’s eligibility, the Authority may grant the Certificate of Registration in Form C within 60 days, excluding the time taken by the applicant for providing additional information or appearing before the Authority.

(e)

Where registration is proposed to be rejected, the Authority communicates the reasons within 45 days. The applicant gets 15 days to submit an explanation. After considering the explanation, the Authority may grant or reject the application by a reasoned order and must communicate its decision within 30 days of receiving the explanation.

4. Statutory Requirement for Valuation by a Registered Valuer under Companies Act Section 247(1) provides that where valuation is required to be made under the Companies Act in respect of any property, stocks, shares, debentures, securities, goodwill, other assets, net worth or liabilities of a company, such valuation shall be made by a person having the prescribed qualifications and experience, registered as a valuer and appointed by the Audit Committee or, in its absence, by the Board of Directors.

4.1 Important Transactions Requiring Valuation The Companies Act, 2013 and the rules made thereunder contain several provisions in which valuation is significant. Some of the important situations are discussed below.

4.1.1 Further Issue of Shares [Section 62] Where a company proposes to issue securities on a Private Placement basis, it must appoint a registered valuer to determine the price at which the securities shall offer and allotted. Section 62(1)(c) deals with issue of further shares to persons other than existing shareholders under specified conditions, including pricing based on a valuation report of a Registered Valuer, subject to the applicable rules.

4.1.2 Non-cash Transactions Involving Directors [Section 192] Section 192 applies where a company enters into an arrangement involving a director of the company or its holding, subsidiary or associate company, or a person connected with

Registered Valuers under the Companies Act Eligibility and Valuation Requirements for Listed and Unlisted Companies

such director, in relation to the acquisition of assets for consideration other than cash or vice versa. Whenever a company acquires or sells assets of the company with directors or persons connected with directors, for non-cash consideration, it shall be required to obtain the valuation report before passing the resolution.

4.1.3 Compromise, Arrangement, Merger or Amalgamation [Sections 230–232] Valuation plays a significant role in schemes of compromise, arrangement, merger and amalgamation proposed under section 230-232. Under the framework governing such schemes, the company may be required to place a valuation report before the members and creditors, as applicable. The valuation report is particularly important where the scheme involves determination of the share-exchange ratio or valuation of shares, securities, assets or other interests.

4.1.4 Purchase of Minority Shareholding [Section 236] Where an acquirer becomes the registered holder of 90% or more of the issued equity share capital of a company, section 236 provides for acquisition of the remaining equity shares from minority shareholders. In the case of an unlisted company, the price payable is determined on the basis of the fair value of the shares, as determined in accordance with the prescribed valuation framework. The price payable to the minority shareholders in case of an unlisted company must be determined by a Registered. The valuation therefore forms the basis for determining the consideration payable to the minority shareholders.

4.1.5 Valuation in Winding Up [Section 281] Section 281 requires the Company Liquidator, in the circumstances specified therein, to prepare a report containing particulars regarding the assets, liabilities and other affairs of the company. The report includes information concerning the value of assets, including cash and negotiable securities, as required by the statutory framework. The valuation of assets in a winding-up situation should be undertaken in accordance with the applicable provisions governing the liquidation process. Therefore, section 281 should not be broadly stated to mean that every valuation under the section is necessarily a valuation report independently prepared by a Registered Valuer. The exact requirement depends upon the applicable rules and directions of the Tribunal.

5. Valuation requirement under SEBI Regulations Valuation and valuation report are not necessarily the same requirement. A law may prescribe a particular method for determining the price or value without requiring a separate valuation report from a Registered Valuer. Conversely, some transactions

Registered Valuers under the Companies Act Eligibility and Valuation Requirements for Listed and Unlisted Companies

specifically require a valuation report or certification. Therefore, the requirement for valuation and the requirement for a Registered Valuer should be examined separately.

5.1

Pricing of Preferential issue of frequently traded shares

Regulation 164 of the SEBI ICDR Regulations prescribes the minimum/floor price for a preferential issue of frequently traded shares. (a) For shares listed for 90 trading days or more, the issue price must be at least the higher of the 90-trading-day VWAP preceding the relevant date or the 10 trading day VWAP preceding the relevant date. (b) Shares listed for less than 90 trading days, the price must be at least the highest of the prescribed benchmarks, including the IPO issue price/scheme value and applicable VWAPs. (c) Where the price is determined under the less-than-90-trading-days formula, it is recomputed after completion of 90 trading days. If the recomputed price is higher, the difference must be paid by the allottees to the issuer. (d) Where specified securities are allotted to not more than five QIBs, the price must generally not be less than the 10-trading-day VWAP preceding the relevant date, subject to the prescribed conditions. (e) If the Articles of Association prescribe a method resulting in a higher floor price, the higher price will apply. (f) Shares are considered frequently traded if the traded turnover during the preceding 240 trading days is at least 10% of the total shares of that class, subject to the prescribed conditions.

5.2 Valuation of Preferential issue of frequently traded shares Where the shares of an issuer are not frequently traded, the issue price must be determined by considering relevant valuation parameters, including: (a) Book value of the shares; (b) Comparable trading multiples; and (c) Other customary valuation parameters applicable to such companies. The issuer must also submit to the stock exchange a certificate from an independent Registered Valuer confirming compliance with Regulation 165.

5.3 Valuation of Preferential issue for specified non-cash consideration The company may issue specified securities for consideration other than cash only through a share swap supported by a valuation report from an independent Registered Valuer, which must be submitted to the stock exchange(s). If the stock exchange is not satisfied with the valuation, it may obtain a valuation from another valuer and seek necessary information from the issuer. The special resolution must also specify the relevant date for determining the price of equity shares to be allotted upon conversion or exchange of convertible securities.

Registered Valuers under the Companies Act Eligibility and Valuation Requirements for Listed and Unlisted Companies

5.4 Determination of Offer Price for Open Offer under SEBI SAST Regulations For a direct acquisition or specified indirect acquisition, the open offer price must be the highest of the prescribed price parameters, including the highest negotiated price, acquisition price during the preceding 52 weeks, and highest acquisition price during the preceding 26 weeks, and the 60-trading-day volume-weighted average market price where the shares are frequently traded. For infrequently traded shares, the price is determined by an independent Registered Valuer, considering parameters such as book value, comparable trading multiples and other customary valuation parameters. For other indirect acquisitions, similar prescribed parameters apply. Where these parameters cannot determine the offer price, an independent Registered Valuer determines a fair price. In specified cases, the acquirer must also disclose the per-share value and valuation methodology in the letter of offer. The offer price may be revised in certain circumstances, including a higher acquisition price during the offer period.

5.5 Valuation of Investments by Alternative Investment Funds (a) Category I and Category II AIFs: The AIF must value its investments at least once every six months through an independent valuer. This period may be extended to one year if approved by at least 75% of investors by value of their investment. The AIF must also provide investors with details of its valuation procedure and methodology. (b) Category III AIFs: The calculation of NAV must be independent of the fund management function. NAV must be disclosed to investors at least quarterly for close ended funds and monthly for open-ended funds. For NAV calculation, investments in unlisted securities and listed debt securities must be valued by an independent valuer.

6. Conclusion The Registered Valuer framework aims to ensure that valuations are carried out by qualified, independent and accountable professionals. However, not every transaction involving valuation automatically requires a Registered Valuer. The requirement depends on the specific transaction and the applicable legal provision. Therefore, before obtaining a valuation report, the company should check whether a valuation is required, whether a Registered Valuer is specifically prescribed, and which valuation method applies. Where a Registered Valuer is required, the valuation should comply with the applicable rules and valuation standards.

Registered Valuers under the Companies Act Eligibility and Valuation Requirements for Listed and Unlisted Companies

About Us

Our Journey Founded

1972

Evolution

From a small family business to a leading technology-oriented Publishing/Product company

Expansion

Launch of Taxmann Advisory for personalized consulting solutions

Our Vision

Aim

Growth

Future

Achieve perfection, skill, and accuracy in all endeavour

Evolution into a company with strong independent divisions: Research & Editorial, Production, Sales & Marketing, and Technology

Continuously providing practical solutions through Taxmann Advisory

Our Strength Core Editorial and Research Division

Team Over 200 motivated legal professionals (Lawyers, Chartered Accountants, Company Secretaries)

Expertise Monitoring and processing developments in judicial, administrative, and legislative fields with unparalleled skill and accuracy

Impact Helping businesses navigate complex tax and regulatory requirements with ease

Taxmann Today Legacy

Innovation

Commitment

Over 60 years of domain knowledge and trust

Technology-driven solutions for modern challenges

Ensuring perfection, skill, and accuracy in every solution provided

Our Core Domain Areas Income Tax Corporate Tax Advisory Trusts & NGO Consultancy TDS Advisory Global Mobility Services Personal Taxation Training Due Diligence

Goods & Services Tax Transaction Advisory Business Restructuring Classification & Rate Advisory Due Diligence Training Trade Facilitation Measures

Foreign Exchange Management Laws

UAE Corporate Tax

Due Dilligence Advisory Services Assistance in compounding of offences Transactions Services Investment outside India

Corporate Tax Advisory Corporate Structuring VAT Advisory Residential Status

Your Partners for Frictionless Advice Tax Advisory High-quality advice for all your Income-tax, GST, FEMA, and UAE Corporate Tax queries From a distinguished panel of experts

Tax Research Support Get real-time research support

Tax Restructuring and Implementation Support

By a team of trained researchers

Structure your business and processes in a tax-efficient way

To upscale the quality of your advice

Implement the SOPs for tax compliances

And save your manpower cost

Automate your ERPs to handle tax compliances

A Glimpse of the People Behind Taxmann

Naveen Wadhwa

Vinod K. Singhania

V.S. Datey

Research and Advisory [Corporate and Personal Tax]

Expert on Panel | Research and Advisory (Direct Tax)

Expert on Panel | Research and Advisory [Indirect Tax]

Chartered Accountant (All India 24th Rank)

Over 35 years of experience in tax laws

Holds 30+ years of experience

14+ years of experience in Income tax and International Tax

PhD in Corporate Economics and Legislation

Engaged in consulting and training professionals on Indirect Taxation

Expertise across real estate, technology, publication, education, hospitality, and manufacturing sectors

Author and resource person in 800+ seminars

A regular speaker at various industry forums, associations and industry workshops Author of various books on Indirect Taxation used by professionals and Department officials

Contributor to renowned media outlets on tax issues

S.S. Gupta

Expert on Panel | Research and Advisory [Indirect Tax] Chartered Accountant and Cost & Works Accountant 34+ Years of Experience in Indirect Taxation Bestowed with numerous prestigious scholarships and prizes Author of the book GST – How to Meet Your Obligations', which is widely referred to by Trade and Industry

Manoj Fogla

Nirav Shah

Expert on Panel | Research and Advisory [Charitable Trusts and NGOs]

Expert on Panel | Research and Advisory [UAE Corporate Tax]

Over three decades of practising experience on tax, legal and regulatory aspects of NPOs and Charitable Institutions

25+ years of experience and practicing in the UAE

Law practitioner, a fellow member of the Institute of Chartered Accountants of India and also holds a Master's degree in Philosophy

Has previously worked with the KPMG

PhD from Utkal University, Doctoral Research on Social Accountability Standards for NPOs Author of several best-selling books for professionals, including the recent one titled 'Trust and NGO's Ready Reckoner' by Taxmann Drafted publications for The Institute of Chartered Accountants of India, New Delhi, such as FAQs on GST for NPOs & FAQs on FCRA for NPOs. Has been a faculty and resource person at various national and international forums

Chartered Accountant (All India 36th Rank)

Contact Us Taxmann Delhi 59/32, New Rohtak Road New Delhi – 110005 | India Phone | 011 45562222 Email | sales@taxmann.com Taxmann Mumbai 35, Bodke Building, Ground Floor, M.G. Road, Mulund (West), Opp. Mulund Railway Station Mumbai – 400080 | Maharashtra | India Phone | +91 93222 47686 Email | sales.mumbai@taxmann.com Taxmann Pune Office No. 14, First Floor, Prestige Point, 283 Shukrwar Peth, Bajirao Road, Opp. Chinchechi Talim, Pune – 411002 | Maharashtra | India Phone | +91 98224 11811 Email | sales.pune@taxmann.com Taxmann Ahmedabad 7, Abhinav Arcade, Ground Floor, Pritam Nagar Paldi Ahmedabad – 380007 | Gujarat | India Phone: +91 99099 84900 Email: sales.ahmedabad@taxmann.com Taxmann Hyderabad 4-1-369 Indralok Commercial Complex Shop No. 15/1 – Ground Floor, Reddy Hostel Lane Abids Hyderabad – 500001 | Telangana | India Phone | +91 93910 41461 Email | sales.hyderabad@taxmann.com Taxmann Chennai No. 26, 2, Rajan St, Rama Kamath Puram, T. Nagar Chennai – 600017 | Tamil Nadu | India Phone | +91 89390 09948 Email | sales.chennai@taxmann.com

www.taxmann.com

Taxmann's Analysis | Registered Valuer: Eligibility & Valuation Rules