Required By Law
Required By Law
Valuation under Companies Act, 2013 is governed by Section 247 read with Companies (Registered Valuers and Valuation) Rules, 2017. Section 247 permits only Registered Valuers to undertake valuation of any stock, share, debenture, security. Goodwill, asset, liability or net worth of the company as required under this act.
CA, 2013 defines when valuation is required. As per Rule 16 of Companies (Registered Valuers and Valuation) Rules, 2017, a valuation is required to be performed as per the Central Government notified valuation standards. Until any standard is notified, the Registered Valuer shall perform the valuation according to:
- Valuation standards of any valuation professional organization
- Internationally accepted Valuation Methodology
- Valuation Standards specified by SEBI, RBI, or any other regulatory body.
- Reserve Bank of India guidelines mandates valuation of shares under FEMA for the following transactions undertaken:
- Transfer or acquisition of equity shares by an Indian company in an overseas company, triggering Overseas Direct Investment (ODI) valuations.
- Issue or transfer of Indian company’s compulsory convertible instruments or equity shares between a resident company and non-resident company triggering Foreign Direct Investment (FDI) valuations.
- While in ODI valuations, no methodology is prescribed, FDI adopts internationally accepted principles as the basis of valuation. This valuation can be performed only by Merchant Banker (CAT-1) registered with SEBI if the transaction is related to swapping shares or exceeds $5 Million. In all other cases, a Chartered Accountant or a Certified Public Accountant is authorized to conduct the valuation.
- Apart from the above transactions, as per FEMA (Transfer or Issue of Security by a Person Resident Outside India Regulations, 2017 a person resident outside India can transfer his capital asset held in an Indian company by way of sale to a person resident in India and vice-versa. The guidelines require this transaction to take place at arm’s length price in accordance with the internationally accepted methodology. Discounted Cash Flow technique is primarily accepted as an internationally accepted methodology.
Valuation under Income tax act becomes necessary for determining Fair Market Value under various rules that include Rule 11U, Rule 11UA, Rule 11UAA, Rule 11UAB, Rule 11UAE, and Rule 11UB. This inculcates the valuation of various assets and securities to bring a clear picture for taxation of the transactions involving such assets and securities.
| Regulation | Regulation No. | Applicability |
|---|---|---|
| SEBI (Listing Obligations and Disclosure Requirements Regulations), 2015 | 87C(1)(ii) | Issuers with listed securities receipts on a recognized stock exchange |
| SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 | 158(6)(b) | Under the Debt restructuring scheme, the conversion price of debt shall be certified by 2 independent registered valuers. |
| SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 | 163(3) | In case of preferential issue of specified securities for a consideration other than cash, the assets received against the issue of equity shares shall be done by a valuer. |
| SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 | 165 | In case of an issuer’s shares not trading frequently on a stock exchange, the valuation shall be done and a certificate shall be obtained from such valuer for submission to the stock exchange. |
| SEBI (Issue and Listing of Securitized Debt Instruments and Security Receipts) Regulations, 2008 | 38G(1)(a) | Issuers with listed securities receipts on a recognised stock exchange. |
| SEBI (Appointment of Administrator and Procedure for refunding to Investors) Regulations, 2018 | 7(2)(b) | For valuation of the properties attached by the Recovery Officer |
| SEBI (Appointment of Administrator and Procedure for refunding to Investors) Regulations, 2018 | 8(1) | For valuation before initiating the process of the sale of the properties attached |
RegulationSectionApplicabilityIBC, 201646 (2)For avoiding undervalued transactions, adjudicating authority may require assessment of the value of the transaction by an expert.IBC, 201659(3)(b)(ii)A valuation report from a registered valuer shall accompany the Declaration of Insolvency when the proposal of voluntary winding up is made.IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016Regulation 35For determination of liquidation value corporate debtor and fair value of assets to be sold.IBBI (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017Regulation 34Registered Valuer shall submit an estimate of liquidation value and fair value to the resolution professional.