Registered valuer: A helping hand to the company
The word “REGISTERED VALUER’ has got utmost importance under the companies Act, 2013. It almost covers the 15 areas of the act. In this article, I have tried to elaborate the areas and the valuation of reporting by the Registered Valuer.
SECTION 247 OF THE COMPANIES ACT, 2013 CONTAINS PROVISIONS EXCLUSIVELY REGARDING REGISTERED VALUERS.
‘Registered Valuer’ means a person registered as a Valuer under Chapter XVII of the Act.
Who can act as a registered valuer?
A person who is registered as a Registered Valuer in pursuance of Section 247 of the Act with the Central Government and whose name appears in the register of Registered Valuers maintained by the Central Government or any authority, institution or agency, as may be notified by the Central Government only can act as a registered valuer.
As per Explanation to Rule 12 of Companies (Prospectus and Allotment of Securities) Rules 2014, “Valuation of stock, shares, debentures, securities, shall be conducted by an Independent Merchant Banker registered with Security Exchange Board of India or n Independent Chartered Accountant in practice having experience of at least 10 years”.
The above Explanation has been provided by MCA as the notification of Section 247(1) and finalization of qualification and experience of Valuers is still pending.
What requires valuation by a registered valuer under the Act?
Any property, stocks, shares, debentures, securities or goodwill or any other assets or net worth of a company or its liabilities which requires valuation under the provision of the Companies Act, 2013 shall be valued by a registered valuer.
Under the companies Act 2013, there are atleast 15 instances, where the companies need to have services of Registered Valuer. The need has been classified as under with respect to related sections of the Companies Act 2013:
VALUATION REQUIRED UNDER FOLLOWING SECTIONS OF COMPANIES ACT 2013
1) Sec 62 (1)(c)- for valuing further issue of Shares;
2) Section 192(2) -for valuing Assets involved in Arrangement of Non-cash transactions involving directors;
3) Section 230 (2)(c)(v)-for valuing shares property and assets of the Company under a scheme of Corporate Debt restructuring;
4) Section 230(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.;
5) Section 232(2)(d)-the report of the expert with regard to valuation, if any would be circulated for meeting of creditors/members;
6) 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 shareholder of transferor company, valuation may be required to be made by the tribunal;
7) Section 236(2) for valuing equity shares held by minority shareholders.;
8 ) Section 260(2)(C) for preparing valuation report in respect of shares and assets to arrive at the reserve price for company administrator;
9)section 281 (1) for valuing assets for submission of report by liquidator;
10)section 305(2)(d) for report on the assets of the company for preparation of declaration of solvency under voluntary winding up; and
11)section 319(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
METHODS OF VALUATION
(a) Asset approach;
(b) Income approach;
c) Market approach
A registered valuer shall make a valuation of any asset as on valuation date, in accordance with any one or more of the following methods:
(a) Net asset value method – represents the value of an entity’s assets less the value of its liabilities
(b) Market Price method: Under this method the current price at which the subject of valuation is bought or sold in the market between unrelated third parties is taken into account;
(c) Yield method / Profit Earning Capacity Value (PECV): Under this method the value is calculated by capitalizing the average of the after tax profits for the preceding three years (or such other period. Provided adequate justification is available for choosing another period) at capitalisation rates specified in the report
(d) Discounted Cash Flow Method (DCF): This method expresses the present value of the business as a function of its future cash earnings capacity.
(e) Comparable Companies Multiples Methodology (CCM): This Method uses the valuation ratios of a publicly traded company and applies that ratio to the company being valued.
(f) Comparable Transaction Multiples Method (CTM) – entails valuation on the basis of similar transactions among unrelated parties in the peer group companies.
(g) Price of Recent Investment method (PORI) – entails valuation on the basis of recent investment received in the company from an independent investor.
(h) Sum of the parts valuation (SOTP) – where each part of the business is valued according to method(s) appropriate to that business, and the results are summed up to obtain total value of the business
(i) Liquidation value – if the value is being calculated in a liquidation scenario
(j) Weighted Average Method – Under this method the weights are assigned to the values calculated under different valuation approaches.
(k) Any other method accepted or notified by the Reserve Bank of India, Securities and Exchange Board or Income Tax Authorities.
(l) Any other method(s) that the valuer may deem fit to adopt, provided that adequate justification for use of such method(s) must be included in the report.
Appointment of registered valuer [Section 247(1)]:
Registered Valuer shall be appointed by the By the audit committee, wherever applicable, or in its absence, by the Board of Directors of the company in a duly held Board Meeting of the company..
PENAL PROVISIONS [SECTION 247(3) & (4)]
a. If a valuer contravenes the provisions of this section or the rules made thereunder, the valuer shall be punishable with fine which shall not be less than Rs. 25,000/- but which may extend to Rs. 1, 00, 000/-.
b. If the valuer has contravened such provisions with the intention to defraud the company or its members, he shall be punishable with imprisonment for a term which may extend to 1 year and with fine which shall not be less than Rs. 1, 00, 000/- but which may extend to Rs. 5, 00, 000/-.
c. Where a valuer has been convicted as above, he shall be liable to—
(i) refund the remuneration received by him to the company; and
(ii) pay for damages to the company or to any other person for loss arising out of incorrect or misleading statements of particulars made in his report.