• All valuations under the Act to be done by a Registered Valuer.
• The following persons shall be eligible to apply for being registered as a valuer:

• Persons referred to in (a) and (b) shall be in respect of requirement for a “financial valuation” and the persons referred to in (c) and (d) shall be in respect of requirement for a “technical valuation” and a person or a firm or Limited Liability Partnership or merchant banker possessing both the qualifications may act in dual capacity.

• The individual and firms shall make an application for registration as valuer in draft Form No. 17.1and others in draft Form No. 17.2.The Valuer shall be appointed by the Audit Committee or the Board of Directors of the company.

• The Valuer shall conduct valuation in accordance with the provisions of rules which provides that the registered valuer before adopting the method of valuation shall decide the approach to valuation based upon its purpose.

• Following are the methods of valuation prescribed in draft Rule 17.6:
1. Asset approach;
2. Income approach;
3. Market approach.
• Further, it is also provided that the valuation of any asset as on valuation date shall be made in accordance with any one or more of the following methods:
1. Net asset value method
2. Market Price method
3. Yield method / Profit Earning Capacity Value (PECV)
4. Discounted Cash Flow Method (DCF)
5. Comparable Companies Multiples Methodology (CCM)
6. Comparable Transaction Multiples Method (CTM)
7. Price of Recent Investment method (PORI)
8. Sum of the parts valuation (SOTP)
9. Liquidation value
10. Weighted Average Method
11. Any other method accepted or notified by the Reserve Bank of India, Securities and Exchange Board or Income Tax Authorities.
12. Any other method(s) that the valuer may deem fit to adopt in the given circumstances of the case, provided that adequate justification for use of such method(s) (and not any of the methods above) must be included in the report.
• The draft Rules prescribe that the following points are to be considered while undertaking valuation:
(a) Nature of the business and the History of the Enterprise from its inception;
(b) Economic outlook in general and outlook of the specific industry in particular;
(c) Book value of the stock and the financial condition of the business;
(d) Earning capacity of the company;
(e) Dividend –paying capacity of the company;
(f) Goodwill or other intangible value;
(g) Sales of the stock and the size of the block of stock to be valued;
(h) Market prices of stock of corporations engaged in the same or a similar line of business;
(i) Contingent liabilities or substantial legal issues, within India or abroad, impacting the business;
(j) Nature of instrument proposed to be issued, and nature of transaction contemplated by the parties.
• The Valuer shall exercise due diligence while performing his job.
• The Valuer is required to make an impartial, true and fair valuation of any asset required to be valued.
• The Valuer is prohibited from undertaking valuation of any assets in which he has a direct or indirect interest.
• The report of valuation prepared by a registered valuer shall contain all such information as provided in Form No. 17.3
• If the Valuer commits any default under the Act or the Rules with an intention to defraud the company or its members, he shall be punishable with imprisonment for a term which may extend to one year and with fine of at least Rs 1 lakh but which may extend to Rs 5 lakh and in any other case, the valuer shall be punishable with fine which shall not be less than Rs 25 thousand but may extend to Rs 1 lakh.
• If the valuer has been convicted for the default committed by him, he shall be liable to refund the remuneration received by him from the company and pay for damages to the company or to any other person for loss arising out of incorrect or misleading statements made in his report.

Companies Act 2013: Sections for valuations

• Section 62(1)(c) – For Valuing further Issue of Shares
• Section 192(2) – For Valuing Assets involved in Arrangement of Non Cash transactions involving Directors
• Section 230(2)(c)(v) – For Valuing Shares, Property and Assets of the company under a Scheme of Corporate Debt Restructuring
• Section230(3) – Under a Scheme of Compromise/Arrangement, along with the notice of creditors/shareholders meeting, a copy of Valuation Report, if any shall be accompanied
• Section 232(2)(d) - The report of the expert with regard to valuation, if any would be circulated for meeting of creditors/members
• Section 232(3)(h) - Where under a Scheme of Compromise/Arrangement the transferor company is a listed company and the transferee company is an unlisted company, for exit opportunity to the shareholders of transferor company, valuation may be required to be made by the Tribunal
• Section 236(2) – For Valuing Equity Shares held by Minority Shareholders
• Section 260(2)(c) – For preparing Valuation report in respect of Shares and Assets to arrive at the Reserve Price for Company Administrator
• Section 281(1) –For Valuing Assets for submission of report by Liquidator
• Section 305(2)(d) – For report on the Assets of the company for preparation of declaration of solvency under voluntary winding up
• Section319(3)(b) –For Valuing the interest of any dissenting member of the transferor company who did not vote in favour of the special resolution, as may be required by the Company Liquidator

For very long, the concept of valuation was debated in India as to whether it was an art or a science. Substantial number of litigation in mergers & acquisitions (M&A) are about valuation, due to the element of subjectivity that gets exercised. There are no standards for valuation of business in India, specifically for unlisted and private companies. Also, generally accepted global valuation practices are not followed and judicial guidance on the subject is limited too.

Though there is some consensus among professional valuers about generally accepted approaches, methods, and procedures, but there are numerous conceptual controversies that remain even among the best practitioners. Therefore, a need was felt for education, training, regulation and standardization of the prevalent practices. The introduction of the concept of Registered Valuer in the Companies Act, 2013, will lead to the setting up of Indian Valuation Standards that will improve transparency and governance.

• The increase in requirements for valuation will lead to a substantial increase in professional opportunities for CAs, CSs and CWAs..
• Fine for misleading and incorrect information and imprisonment for intention to defraud a company or its members will ensure that valuation reports disclose a true, fair and complete view and that valuation procedures are more objective.
• Stakeholder confidence would be boosted with the increased transparency and fairness in the valuation system.
• Government revenues may improve as loopholes in valuations may be plugged. 

Issues that need review

• The Valuer is required to exercise due diligence. In reality, most valuation reports carry caveats that valuers have not done any due diligence as the general practice is to rely on facts and numbers placed before them though the valuer should check the data for consistency and reasonableness and apply professional due care and suitable adjustments, due diligence is a broad term and such exercise does not come within the scope of the valuer.