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Valuation Rules

Valuation Rules. National CMA Practitioner's Convention 20 th May 2018. Valuation Rules. CMA (Dr.) Ashish P Thatte Cost and Management Accountant Ph: 09820973559, 022-65632353 Email: ashishpthatte@gmail.com. Section and Rules.

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Valuation Rules

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  1. Valuation Rules National CMA Practitioner's Convention 20th May 2018

  2. Valuation Rules CMA (Dr.) Ashish P Thatte Cost and Management Accountant Ph: 09820973559, 022-65632353 Email: ashishpthatte@gmail.com

  3. Section and Rules • Companies (Registered Valuers and Valuation) Rules, 2017 notified on 18th October 2017 • Section 247 also notified on the same date • IBBI is the Authority under the Rules u/s 458 of Companies Act 2013

  4. Welcome ! Agenda for the Session: • Valuation Rules- Origins • Various Chapters in Rules • Scope of CMAs • Possible Areas and Asset Classes for Valuation

  5. What is Valuation and its Scope • Purpose • Law and Regulations • Standards Prescribed/ to be Prescribed • Dispute Resolution Mechanism

  6. Section 247 and Valuation Rules 1) Where a valuation is required to be made in respect of any property, stocks, shares, debentures, securities or goodwill or any other assets (herein referred to as the assets) or net worth of a company or its liabilities under the provision of this Act, it shall be valued by a person having such qualifications and experience and registered as a valuer in such manner, on such terms and conditions as may be prescribed and appointed by the audit committee or in its absence by the Board of Directors of that company. • (2) The valuer appointed under sub-section (1) shall,— • (a) make an impartial, true and fair valuation of any assets which may be required to be valued; • (b) exercise due diligence while performing the functions as valuer; • (c) make the valuation in accordance with such rules as may be prescribed; and • (d) not undertake valuation of any assets in which he has a direct or indirect interest or becomes so interested at any time during or after the valuation of assets. • (3) 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 twenty-five thousand rupees but which may extend to one lakh rupees: • Provided that 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 one year and with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees. • (4) Where a valuer has been convicted under sub-section (3), 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.

  7. Chapter I: Preliminary • Rule 1: Short Title and Commencement • Rule 2: Definitions • Asset Class: “asset class” means a distinct group of assets, such as land and building, machinery and equipment, displaying similar characteristics, that can be classified and requires separate set of valuers for valuation; • (2) Words and expressions used but not defined in these rules, and defined in the Act or in the Companies (Specification of Definitions Details) Rules, 2014, shall have the same meanings respectively assigned to them in the Act or in the said rules.

  8. Chapter II: Eligibility, Qualifications and Registration of Valuers • Rule 3: Eligibility for Registered Valuers • Passing Examination • Resident of India • Not Levied Penalty u/s 271J of IT Act • Fit and Proper Person • Partnership Firm can also be Valuer • Company can also be Valuer

  9. Chapter II: Eligibility, Qualifications and Registration of Valuers • Rule 4: Qualifications and Experience • Post Graduate with 3 years exp. in specified discipline • Graduate with 5 years exp. in specified discipline • Rule 5: Valuation Examination • All Rights given to Authority (IBBI)

  10. Chapter II: Eligibility, Qualifications and Registration of Valuers • Rule 6: Application for Certificate of Registration • Application in Form A (Individual) and Form B (Company or Partnership Firm) of Annex II and some further process to grant certificate • Rule 7: Conditions of Registrations • No Other Assets to be Valued, Comply with Code of Conduct, Partnership and Company to Sign Valuation, Responsibility of Signatory

  11. Chapter II: Eligibility, Qualifications and Registration of Valuers • Rule 8: Conduct of Valuation • How to Conduct Valuation • Valuation from another Valuer accepted • Report should include/ Exclude • Rule 9: Temporary Surrender • There is provision to Temporarily Surrender the registration certificate also.

  12. Chapter II: Eligibility, Qualifications and Registration of Valuers • Rule 10: Functions of Valuer • Valuer to conduct valuation as per Law • Rule 11: Transitional Arrangements • Up to 30th of September Valuation can be done by anyone wherever it is needed under the Act.

  13. Chapter III: Recognition of Registered Valuer Organization • Rule 12: Eligibility for Registered Valuers Organization • RVO can be for Asset class or Classes and should be section 25/ 8 company • A Professional Institute can be RVO • Trusts or Societies are also allowed • Code of Conduct to be enforced • Even present entity can also be RVO but it should comply with rules in 1 year’s time

  14. Chapter III: Recognition of Registered Valuer Organization • Rule 13: Application for Recognition • If the Rule 12 conditions are met then application can be made for RVO in Form D • Further Conditions of being RVO • Rule 14: Conditions for Recognition • Governance and Bye Laws to be adopted and followed forever

  15. Chapter IV: Cancellation or Suspension of Certificate of Registration or Recognition • Rule 15: Cancellation or Suspension of Certification of Registration or recognition • Cancelation can be done under Rule 17 • Rule 16: Complaint against registered Valuer or RVO • Complaint can be filed against Valuer or RVO by paying Rupees 1,000. If complaint against Valuer then RVO should handle it.

  16. Chapter IV: Cancellation or Suspension of Certificate of Registration or Recognition • Rule 17:Procedure to be Followed for cancellation or Suspension • Procedure for cancellation of Registration • Punishments to be given by Authority • What if RVO’s registration is cancelled to its Members ?

  17. Chapter V: Valuation Standard • Rule 18:Committee to Decide Valuation Standards under Rule 19 • Rule 19: Committee to Advise on Valuation Matters • Formation of Committee

  18. Chapter VI: Miscellaneous • Rule 20:Punishment for Contravention • Punishment u/s 469(3) • Rule 21: Punishment for false statement • Any Statement knowing to be false is punished u/s Section 448 of the Act

  19. Annexure I: Model Code of Conduct • Various Matters Covered • Integrity and Fairness • Professional Competence and Due Care • Independence and Disclosure of Interest • Confidentiality • Information Management • Gifts and Hospitality • Remuneration and Costs • Occupation, Employability and restrictions

  20. Annexure II • Form A: Application for Registration as Valuer by an Individual • Form B: Application for Registration as Valuer by Partnership Firm or Company • Form C: Certificate of Registration • Form D: Application for Recognition • Form E: Certificate of Recognition

  21. Annexure III: Governance Structure and Model Bye Laws for Registered Valuer Organization • Part I: Governance Structure • Part II: Model Bye Laws

  22. Annexure IV: Indicative Matrix on Requisite Qualifications/ Experience in Specified Discipline

  23. Annexure IV: Indicative Matrix on Requisite Qualifications/ Experience in Specified Discipline

  24. Annexure IV: Indicative Matrix on Requisite Qualifications/ Experience in Specified Discipline

  25. Areas for Valuation Under Companies Act 2013 • Section 62(1)(c): Valuing Further Issue of Shares • Section 192(2): Restrictions on Non Cash Transactions involving directors • Section 230(2)(c)(v): Power to Compromoise or make arrangements with Creditors and Members • Section 230(3): Scheme of Compromise/ Agreement

  26. Areas for Valuation Under Companies Act 2013 • Section 62(1)(c): Valuing Further Issue of Shares: Company proposes to increase share capital by way of Rights Issue, Employee Stock Option or to any person by special resolution for cash or other than consideration in Cash

  27. Areas for Valuation Under Companies Act 2013 • Section 192(2): Restrictions on Non Cash Transactions involving directors: Director acquiring Assets for Non Cash Transactions or Company Acquiring Assets other than cash must be approved by General Meeting and Resolution in General Meeting must be supported by Valuer’s Certificate

  28. Areas for Valuation Under Companies Act 2013 • Section 230(2)(c)(v): Power to Compromise or make arrangements with Creditors and Members: Kind of Restructuring with creditors or as ordered by Tribunal or under IBC an Affidavit to be submitted along with Valuer’s Certificate

  29. Areas for Valuation Under Companies Act 2013 • Section 230(3): Scheme of Compromise/ Agreement: Similar to earlier section but when meeting is specifically called by Tribunal then Notice should contain Valuer’s Report

  30. Areas for Valuation Under Companies Act 2013 • Section 232(2)(d): Report of Expert with Regard to Valuation • Section 232(3)(h): Where Transferee Company is Unlisted, Exit opportunity to shareholder of transferor company • Section 236(2): For valuing equity shares of Minority Shareholders • Section 260(2): Valuation for arriving at reserve price for company administrator

  31. Areas for Valuation Under Companies Act 2013 • Section 232(2)(d): Report of Expert with Regard to Valuation: u/s 230 when order is made by tribunal for merging companies or division of a company then notice should have valuer’s report along with scheme proposed etc.

  32. Areas for Valuation Under Companies Act 2013 • Section 232(3)(h): Where Transferee Company is Unlisted, Exit opportunity to shareholder of transferor company: Shareholders of transferor company decides to opt out of merger scheme they should be paid with value of share plus other benefits as per pre determined formula or after a valuation is made

  33. Areas for Valuation Under Companies Act 2013 • Section 236(2): For valuing equity shares of Minority Shareholders: If a person or group of persons becomes holder of 90% of shares and wants to buy rest of the shares then they should apply to company for buying rest of the shares for price valued by registered valuer

  34. Areas for Valuation Under Companies Act 2013 • Section 260(2): Valuation for arriving at reserve price for company administrator: Original Section of Companies Act moved to IBC where IRP needs to have certificate of Registered Valuer for arriving at Reserve Price

  35. Areas for Valuation Under Companies Act 2013 • Section 281(1): Valuation of Assets for submission to liquidator • Section 305(2): Declaration of solvency in case of proposal to wind up voluntarily

  36. Areas for Valuation Under Companies Act 2013 • Section 305(2): Declaration of solvency in case of proposal to wind up voluntarily: Converted to IBC and Certificate to be obtained under IBC Only.

  37. Areas for Valuation Under Companies Act 2013 • Section 281(1): Valuation of Assets for submission to liquidator: Moved to IBC and similar provisions in IBC

  38. Possible Areas in Valuation • SEBI Takeover Code: Provision for Valuation of Infrequently traded Shares/Frequently Traded Shares • SEBI Issue of Capital and Disclosure Regulations, 2009 : Regulation 69E (Infrequently Traded Shares), Regulation 72 (Preferential Issue), Regulation 76 (Preferential Issue in case of Infrequently Traded Shares)

  39. Possible Areas in Valuation • SEBI Takeover Code: Provision for Valuation of Infrequently traded Shares/Frequently Traded Shares: Regulation 8(2)(e)/ 8(4) says since shares are infrequently traded should consider following parameters; Book Value, Comparable Trading Multiples and Other Parameters as are customary: Presently merchant Banker or CA with 10 Yrs Exp.

  40. Possible Areas in Valuation • SEBI Issue of Capital and Disclosure Regulations, 2009 : Regulation 69E (Infrequently Traded Shares), Regulation 72 (Preferential Issue), Regulation 76 (Preferential Issue in case of Infrequently Traded Shares): Nothing specified but Merchant Banker or CA like earlier preferred.

  41. Possible Areas in Valuation • SEBI (Alternate Investment Funds), 2012 : Category I and Category II AIF valuation needed every 6 months. Registered Valuer not defined • SEBI Regulations for Infrastructure Investment Trusts and Real Estate Investment Trusts: Valuer is as defined in Companies Act, 2013

  42. Possible Areas in Valuation • SEBI (Alternate Investment Funds), 2012 : Category I and Category II AIF valuation needed every 6 months. Registered Valuer not defined: Funds privately promoted and not normal funds like MF, Gratuity Trust etc. • Cat I: Funds invests in start ups, social ventures etc. • Cat II: Cat III is for Derivatives and Cat II is other than I or III

  43. Possible Areas in Valuation • SEBI Regulations for Infrastructure Investment Trusts and Real Estate Investment Trusts: Valuer is as defined in Companies Act, 2013: InvIT which is like MF registered under SEBI with Min Capital of 10 Lakhs. GMR, Reliance has the InvIT. Valuation to be done every year in 2 months after March

  44. Possible Areas in Valuation • SEBI (Sweat Equity Regulations) 2002 : Merchant Banker to obtain Certificate from CA that Valuation is according to AS • SEBI (Delisting of Equity Shares Regulations), 2009: Stock Exchange to appoint Independent Valuer to determine the value of delisted Equity Shares

  45. Possible Areas in Valuation • SEBI (Sweat Equity Regulations) 2002 : Merchant Banker to obtain Certificate from CA that Valuation is according to AS: Valuation of Intellectual Property is to be done before Issuing of shares. CA and Merchant Bankers are presently considered for Valuation

  46. Possible Areas in Valuation • SEBI (Delisting of Equity Shares Regulations), 2009: Stock Exchange to appoint Independent Valuer to determine the value of delisted Equity Shares: Regulation 23(1) stipulates the same and Regulation 23(3)(b) allows onl CA

  47. Possible Areas in Valuation • FEMA: Many Valuations under FEMA • FDI: Valuations under FDI • Income Tax Act: Valuations includes Section 56 of IT Act, Rule 11UA of IT Rules etc.

  48. Possible Asset Classes (Section 8A of Wealth Tax Act) • Immovable Properties • Agricultural Land • Coffee, Tea, Rubber, Cardamom Plantations • Forest • Mines and Quarries • Shares, Securities Debentures, Share in Partnership Firm Business Assets including Goodwill • Plant and Machinery • Jewellery • Works of Art • Life Interest, Reversions & Interest in Expectancy

  49. Questions?

  50. Thanks ! CMA (Dr.) Ashish P Thatte Cost and Management Accountant Mumbai and Pune Ph: 09820973559, 022-65632353 Email: ashishpthatte@gmail.com

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