NEW VALUATION REGIME UNDER COMPANIES ACT 2013

Till now, only an ad-hoc framework for valuation professionals was in place, which is basically governed by the Companies Act and the government has designated the Insolvency and Bankruptcy Board of India(IBBI) as the authority to implement the new regime of registered valuers .

The move came at a time when stressed companies worth thousands of cores were up for sale under the Insolvency and Bankruptcy Code(IBC) and there was no standardized formula for valuing these assets nor is there a proper regulatory framework governing the valuation profession. Proper valuation of a company is also a crucial part of any merger and acquisition.

Accordingly, the Ministry of Corporate Affairs introduced the Companies(Registered Valuers and Valuation) Rules, 2017 (“Rules”). The Rules inter alia provided for the eligibility criteria which needs to be fulfilled for obtaining a certification for being a registered valuer and the manner in which the certification maybe obtained.

The Rules also provide that the Insolvency and Bankruptcy Board of India(“IBBI”) established under the Insolvency and   Bankruptcy  Code, 2016 be the” registering authority”  which will hold examinations and grant certifications of the designation of a “registered valuer” .

The valuation by a registered valuer applies to valuation of assets, liabilities, shares, etc required under the Companies Act, 2013 and the rules made thereunder . It does not apply to valuations required under other laws, unless the other laws mandate valuation by a registered valuer.However, certain SEBI Regulations also mandate by RV.

Thus from February  1, 2019, only a registered valuer is allowed to undertake valuation required under the Companies Act.

It is interesting to note that under Section 247(2) of the Companies Act, the registered valuer is required  to

• Make an impartial, true and fair valuation of assets which may be required to be valued

• Exercise due diligence while performing the functions of a valuer

• Make the valuation in accordance with such rules as maybe prescribed

• Not undertake valuation of any assets in which he has direct or indirect interest or becomes so interested at any time during or after the valuation of assets.

Who can be a Registered Valuer?

 A person, who aspire to be a regisrered valuer is required to posses certain qualifications and experience, obtain  membership of a recognized organization of valuers and get itself registered as a valuer with IBBI. The RV Rules sets out in detail the eligibility criteria, educational qualifications(degree), experience and procedure for registration of a valuer. However, such valuer will not undertake valuation of any assets in which he has a direct or indirect or becomes so interested at any time during a period of three years prior to his appointment as valuer or three years after the valuation of assets was conducted by him.

Different qualifications of regisrered valuers for different class of assets

1 For valuation of land& building, a registered valuer must be a graduate or post graduate in Civil engineering, architecture or town planning with minimum experience of 3 to 5 years

2 For valuation of plant& machinery, a registered valuer must a graduate or post graduate in Electrial or Mechanic Engineering with minimum experience of 3 to 5 years

3  For valuation of securities or financial assests, a person must be a member of ICAI, ICSI or Institute of Cost Accountants of India or an MBA  with specialization in Finance, with minimum experience of 3 years in the discipline after completing graduation

The registered valuer is responsible for any negligence or misconduct leading to disciplinary action by IBBI and regulatory penalties and fines.