Valuation
is a process to determine the value of assets. Generally, the term value and
price are used interchangeably. However, both are different terms having
different meaning. Price of an asset can be same for everyone but value of that
asset can not be same for everyone. To ascertain the value, valuation is
required.
As
business valuation is a complex financial analysis, it should be undertaken by
a qualified valuation professional with the professional integrity. Report of
independent third party registered valuer help the business owners to negotiate
a strategic sale of their business, minimize the risk of litigation matter,
provide defence in a scrutiny cases along with many other benefits, which might
not be available if valuation is done by the owner himself or his related
party.
The
Ministry of Corporate Affairs (MCA) vide its notification dated October 18,
2017, brought into force the provisions
of Section 247 of the Companies Act, 2013, which deals with the Valuation of,
inter alia, property, stocks, shares, debentures or net worth of a company by
the Registered Valuers.
As
per the provisions of Section 247 of companies Act, 2013 any valuation required
to be done under the Companies Act, 2013, has to be done by the professional
called Registered Valuer hence no professional other than Registered Valuer is
eligible to perform the valuation task under Companies Act, 2013.
At
present IBBI (Insolvency and Bankruptcy Board of India) is the governing body
for Registered Valuers.
There
are three categories of registered Valuer: -
a. Registered Valuer for Securities
and Financial Assets
b. Registered Valuer for Land and
Building
c. Registered Valuer for Plant and
Machinery
Numbers
of Registered Valuers as on 30th September, 2020 |
|||
Land
& Building |
Plant
& Machinery |
Securities
and Financial Assets |
Total |
1798 |
360 |
1252 |
3410 |
Below
table is the brief introduction of various provisions of Companies Act, 2013,
where Valuation is required: -
S.
No. |
u/s |
Rule |
Subject |
Provisions |
1. |
62(1)(c) |
8(6)
of Companies
(Share Capital and Debentures) Rules, 2014 |
Issue
of Sweat Equity Shares |
The sweat equity
shares to be issued shall be valued at a price determined by a registered
valuer as the fair price giving justification for such valuation. |
2. |
62(1)(c) |
8(7)
of Companies
(Share Capital and Debentures) Rules, 2014 |
Valuation
of IPR/ know-how/Value addition for Issue of Sweat Equity Shares |
The valuation of
intellectual property rights or of know how or value additions for which
sweat equity shares are to be issued, shall be carried out by a registered
valuer, who shall provide a proper report addressed to the Board of directors
with justification for such valuation. |
3. |
62(1)(c) |
13(2)(g)
of Companies
(Share Capital and Debentures) Rules, 2014 |
Issue
of shares on preferential basis |
The price of the
shares or other securities (Equity or Convertible Securities) to be issued on
a preferential basis, either for cash or for consideration other than cash,
shall be determined on the basis of valuation report of a registered valuer; |
4. |
67 |
16(1)(c)
of Companies
(Share Capital and Debentures) Rules, 2014 |
Provision
of money by company for purchase of its own shares by employees or by
trustees |
Where shares of a
company are not listed on a recognized stock exchange, the valuation at which
shares are to be purchased shall be made by a registered valuer. |
5. |
192 |
|
||
6. |
236 |
|
Purchase
of minority shareholding |
Majority
shareholders (90%) shall offer to the minority shareholders of the company
for buying the equity shares held by such shareholders at a price determined
on the basis of valuation by a registered valuer in accordance with such
rules as may be prescribed. |
7.
|
305(2)(d) |
|
Declaration
of solvency 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. |
8. |
281(1(a) |
|
||
9. |
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. |
10. |
230(2)(c)(v) |
|
Compromise
or Arrangements with creditors and members |
In case of an
application of a compromise or arrangement of a company proposed between a
company and its members or creditors submitted to the Tribunal, the Tribunal
may call for a meeting of the members or creditors. Among
the disclosures to be made by the applicant to the Tribunal, a scheme of
corporate debt restructuring
submitted must include a valuation report by a registered valuer in respect
of the shares, and tangible and intangible property of the Company. |
11. |
232 |
|
The
Institute of Chartered Accountants of India (ICAI), after recognising the need
to have the consistent, uniform and transparent valuation policies and
harmonise the diverse valuation practices in use in India, constituted the
Valuation Standards Board (VSB) on 28th February, 2017. ICAI issued Valuation
Standard applicable w.e.f. 01st July, 2018. Total 8 Valuation
Slandered has been issued by ICAI till now.
S.
No. |
ICAI
Valuation Standard |
1 |
101- Definitions |
2 |
102- Valuation
Bases |
3 |
103 - Valuation Approaches and Methods |
4 |
201 - Scope of
Work, Analyses and Evaluation |
5 |
202 - Reporting and
Documentation |
6 |
301 - Business
Valuation |
7 |
302 - Intangible
Assets |
8 |
303 - Financial
Instruments |