WIRC Bulletin - February 2019

Valuation Reports : henceforth only from Registered Valuers

Valuation Reports : henceforth only from Registered Valuers
By CMA Harshad S. Deshpande, Treasurer, WIRC
Contact : +91 98904 20201 • E-mail : [email protected]

The concept of Registered Valuers was brought by section 247 of The Companies Act, 2013  to regulate the practice of Valuation in India and to standardize the valuation in line with International standards. However the valuer’s qualification, experience, manner and process was mentioned “as may be prescribed”. Hence it was implied that Rules specifying Registered valuer’s qualification, experience, manner and process to follow.

As per MCA Notification dated 14/12/2016, the Valuation in case of Merger & Amalgamation (including valuation for Purchase of Minority shareholders) shall be done by Independent Merchant Banker registered with Security Exchange Board of India or Independent Chartered Accountant in practice having minimum experience of 10 Years.

The Ministry of Corporate Affairs (MCA) has notified the provisions governing valuation by registered valuers [section 247 of the Companies Act, 2013 (the Act)] and the Companies (Registered Valuers and Valuation) Rules, 2017 (the Rules), both to come into effect from 18 October, 2017.

The Companies (Registered Valuers and Valuation) Rules, 2017 rule 11 specified as under :

Transitional Arrangement.─ Any person who may be rendering valuation services under the Act, on the date of commencement of these rules, may continue to render valuation services without a certificate of registration under these rules upto 31st March, 2018:

It was clarified that conduct of valuation by any person under any law other than the Act, or these rules shall not be effected by virtue of coming into effect of these rules unless the relevant other laws or other regulatory bodies require valuation by such person in accordance with these rules in which case these rules shall apply for such valuation also from the date specified under the laws or by the regulatory bodies.

However on 31st March the Valuation exam just commenced, hence there were no Registered Valuers were available. Considering this MCA extended the date to 30thSeptember 2018 by way of issuing notification.

On 30th September the number of Registered Valuers was limited, hence MCA by way of notification dated 25th September 2018 , further extended the date by 4 months more to 31st January 2019.

To administer and perform functions under the said rules, the MCA by way of notification on 23 October, 2017, has specified the Insolvency and Bankruptcy Board of India (IBBI) as the responsible authority.

We also would like to bring to your notice circular of IBBI dated 17th October 2018 which mandates as under :

“In view of the above, every valuation required under the Code or any of the regulations made there under is required to be conducted by a ‘registered valuer’, that is, a valuer registered with the IBBI under the Companies (Registered Valuers and Valuation) Rules, 2017. It is hereby directed that with effect from 1st February, 2019, no insolvency professional shall appoint a person other than a registered valuer to conduct any valuation under the Code or any of the regulations made there under.

This notification was issued immediately after extension notification on 25th September 2018. IBBI being regulatory body for IBC 2016, has clear cut indicated that valuation under IBC has to be carried out through registered Valuers only post 1st February 2019. The powers of Central Government under Companies Act 2013 have been delegated to IBBI by way of notification on 23rd October. Hence it was evident that that the cutoff date for Companies Act may not get further extension.

The extension for obtaining Valuation Reports from persons other than Registered Valuers has ended on 31st January 2019 under Companies Act 2013 as well as IBC 2016 & allied laws.

Hence the Valuation Reports after 1st Feb 2019 has to be obtained from Registered Valuers registered with IBBI only.

 SPECIFIC PROVISIONS UNDER THE COMPANIES ACT, 2013 WHICH REQUIRES VALUATION REPORT FROM A REGISTERED VALUER

Sl. no. Section Particulars Details
1 62(1)C Valuation report for Further Issue of Shares When a company having share capital proposes to

increase its subscribed share capital by a fresh issue of

shares, such shares shall be offered to:

Ø   Existing shareholders i.e. Rights Issue

Ø  Employees under a scheme of Employees’ Stock Option

Ø  Any other persons except those mentioned above, if authorised by a special resolution: Issue of shares on a Preferential Basis

In all of the above cases, the price of the shares issued must be determined by the valuation report of a registered valuer subject to prescribed conditions.

2 192(2) Valuation of Assets Involved in Arrangement of Non cash transactions involving Directors In case of sale or purchase of any asset involving a company and the directors of the company (or its holding, subsidiary or associate company) or a person connected with the Director for consideration other than cash, the value of the assets has to be calculated by a Registered V
3 230(2)(c)(v) Valuation of shares, property and assets of the Company  under a scheme of Corporate Debt Restructuring In case of a compromise or arrangement between members (such as in mergers or amalgamations) or with creditors (such as in corporate debt restructuring), a valuation report in respect of shares, property or assets, tangible and intangible, movable and immovable of the company, or a swap ratio report by a Registered Valuer is required.

► In case of mergers, the directors are also required to circulate a report to members specifying, inter alia, any

4 230(3) Valuation report along with Notice of creditors/shareholders meeting –Under scheme of compromise/Arrangement In case of a compromise or arrangement between members (such as in mergers or amalgamations) or with creditors, a valuation report in respect of shares, property or assets, tangible and intangible, movable and immovable of the company, or a swap ratio report by a Registered Valuer is required.

 

5 232(2)(d) The report of the expert with regard to valuation, if any, would be circulated for meeting of creditors/Members Same as above
6 232(3)(h) The Valuation report to be made by the tribunal for exit opportunity to the shareholders of transferor Company –Under the scheme of Compromise/Arrangement in case the Transferor company is Listed Company and the Transferee-company is an unlisted Company Same as above
7 236(2) Valuation of equity shares held by the Minority Share Holders In case an acquirer or person acting in concert with the acquirer acquire 90% or more of the equity capital in a company, they can offer to the minority shareholder (or the minority shareholder can offer to the acquirer) to acquire the minority shareholding at a valuation determined by the Registered Valuer.
8 260(2)(c) Powers and duties of Company Administrator A company administrator appointed by the Tribunal under section 258 of the Act to prepare a scheme of revival and rehabilitation of a sick company, shall perform such functions as may be directed by the Tribunal u/s 260. He/she may also cause to be prepared, inter alia, a valuation report in respect of the shares and assets in order to arrive at the reserve price for the sale of any industrial undertaking of the company or for the fixation of the lease rent or share exchange ratio.
9 281(1) Valuing assets for submission of report by liquidator A valuation of assets of the company prepared by the Registered Valuer is required in case of winding up, voluntarily or otherwise.
10 305(2)(d) Declaration of insolvency in case of proposal to wind up voluntarily Where a proposal for voluntary winding up has been made by a company, a declaration must be made by the board of directors that the Company has no debt or whether it will be able to pay its debt in full from the proceeds of assets sold in voluntary winding up. The declaration made must be accompanied by, among other things, a valuation report prepared by registered valuer of the assets of the company.
11 319(3)(b) Power of Company Liquidator to accept shares etc, as consideration for sale of property of the Company Any member of the transferor company who did not vote in favour of the special resolution and expresses his dissent therefrom in writing addressed to the Company Liquidator, and left at the registered office of the company within seven days after the passing of the resolution, may require the liquidator to purchase his interest at a price to be determined by agreement or the registered valuer.
12 Rule 2 of Companies (Acceptance of deposit) Rules, 2014 Exclusions from Deposits As per the rule, deposit includes any receipt by way of deposit or loan or in any other form by a company but does not include, among other things, money raised by issue of debentures secured by a charge on company’s assets. The amount of such debentures shall not exceed the market value of the assets as determined by a registered valuer.
13 Rule 8 of Companies (Share capital and Debentures) Rules, 2014 Issue of Sweat Equity Shares This rule applies to all companies except listed companies issuing sweat equity shares to its directors or employees. The rule prescribes that the sweat equity shares shall be issued at a price determined by a registered valuer as the fair price giving justification for such valuation. Also, the value of the intellectual property or know-how or any other value additions, for which the sweat equity shares have been issued to its directors or employees shall be determined by a valuation report of a registered valuer.

If the sweat equity shares are issued for a non-cash consideration, the value of such non-cash consideration shall be based on a valuation report by a registered valuer. Additionally, if the sweat equity shares are issued pursuant to acquisition of an asset, the value of such asset shall also be determined based on a valuation report by a registered valuer.

 

REGISTERED VALUER UNDER THE INSOLVENCY CODE INSOLVENCY AND BANKRUPTCY BOARD OF INDIA REGULATIONS, 2016 WHICH REQUIRES VALUATION REPORT FROM A REGISTERED VALUER

Under Insolvency Code and Insolvency and Bankruptcy Board of India Regulations, 2016 – Registered Valuer means a person registered as such in accordance with the Companies Act, 2013 and rules made thereunder

Sec 27 Appointment of Registered Valuers : The IRP/RP shall within seven days of his appointment, appoint two registered valuers to determine the liquidation value of the corporate debtor in accordance with Regulation 35:

REGISTERED VALUER UNDER THE SEBI (REIT AND INVIT) REGULATIONS, 2016 WHICH REQUIRES VALUATION REPORT FROM A REGISTERED VALUER

Sl. no. Particulars Details
1 SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 Provisions of Preferential Issue not to apply in certain cases

158(6)(b). Conversion price of debt, as part of a debt restructuringscheme shall be certified by two independent valuer Disclosures to Shareholders

163(3). Where the specified securities are issued on a preferential basis for consideration other than cash, the valuation of the assets in consideration for which the equity shares are issued shall be done by an independent valuer, which shall be submitted to the stock exchanges where the equity shares of the issuer are listed:

Provided that if the stock exchange(s) is not satisfied with the appropriateness of the valuation, it may get the valuation done by any other valuer and for this purpose it may seek any information, as deemed necessary, from the issuer.

Pricing of Infrequently Traded Shares

165. Where the shares of an issuer are not frequently traded, the price determined by the issuer shall take into account the valuation parameters including book value, comparable trading multiples, and such other parameters as are customary for valuation of shares of such companies:

Provided that the issuer shall submit a certificate stating that the issuer is in compliance of this regulation, obtained from an independent valuer to the stock exchange where the equity shares of the issuer are listed.

2 SEBI (Appointment of Administrator and Procedure for refunding to the Investors) Regulations,2018 Functions of the Administrator

7(2)(b). the Administrator shall engage the services of a registered valuer to evaluate the properties of defaulter that are attached by the Recovery Officer and for submission of a certified valuation reporting accordance with the guidelines issued by the Board

Sale of Properties

8(1). The Administrator shall undertake the process of sale of properties after conducting an independent valuation of such properties by a registered valuer.

3 SEBI (Listing Obligations And Disclosure Requirements) Regulations, 2015 Valuation, Rating and NAV disclosure

87C(1)(ii). An issuer whose security receipts are listed on a stock exchange shall ensure that the valuation is conducted by an independent valuer.

4 SEBI (Real Estate Investment

Trust) Regulations, 2014

Valuation of Assets

21(4). A full valuation shall be conducted by the valuer atleast once in every financial year:

Provided that such full valuation shall be conducted at the end of the financial year ending March 31st within three months from the end of such year.

21(5). A half yearly valuation of the REIT assets shall be conducted by the valuer for the half-year ending on September30 for incorporating any key changes in the previous six months and such half yearly valuation report shall be prepared within forty five days from the date of end of such half year.

5 SEBI (Infrastructure Investment

Trusts) Regulations, 2014

Valuation of Assets

21(4). A full valuation shall be conducted by the valuer not less than once in every financial year: Provided that such full valuation shall be conducted at the end of the financial year ending March 31st within two months from the date of end of such year

21(5). A half yearly valuation of the assets of the InvIT shall be conducted by the valuer for the half-year ending September 30th for a publicly offered InvIT for incorporating any key changes in the previous six months and such half yearly valuation report shall be prepared within one month from the date of end of such half year.

6` SEBI (Issue and Listing of Securitized Debt Instruments and Security Receipts) Regulations, 2008. Valuation, Rating and NAV disclosure

38G(1)(a). An issuer whose security receipts are listed on a recognized stock exchange shall ensure that the valuation is conducted by an independent valuer

 

Summing Up

Hence professionals / corpoartes has to ensure hence forth that the Valuation reports has to be obtained ONLY from Registered Valuers. If any other person issued a valuation certificate, that may not be acceptable by respective authorities and issuer may b

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