II. Guidance Note on Limitations, Caveats and Disclaimers
1. In general, valuation is required in the context of the following:
a) consummation of certain transactions like acquisition, disposal, merger, amalgamation;
b) internal decision making/Corporate Governance;
c) regulatory Compliance: Companies Act, SEBI Regulations, Income Tax, Wealth Tax, FEMA, etc.;
d) fund Mobilisation – both equity and debt;
e) disputes (within and outside the courts);
f) borrowing and lending decisions; and
g) insolvency and recovery proceedings.
Rule 10 read with section 247 of the Companies Act, 2013 (Act) require that a RV shall conduct valuations required under the Act. The Insolvency and Bankruptcy Code (Code) read with the regulations mandates that the valuations required under the Code or any of the regulations made thereunder shall be conducted by a registered valuer.
Understanding the Guidelines on Use of Limitations, Caveats and Disclaimers by the Registered Valuers in Valuation Reports
Insolvency and Bankruptcy Board of India having office at 7th Floor, Mayur Bhawan, New Delhi – 110001 issued Guidelines on Use of Limitations, Caveats and Disclaimers by the Registered Valuers in Valuation Reports on 1st September, 2020, Some key features are mentioned below for knowledge gain purposes of the whole fertanity & the ecosystem attached to it.
2. In the recent past there has been public concern on valuation and its impact on a company’s shareholders, creditors and other stakeholders. Fund providers, both equity and debt, have been active in asking for enquiries into valuations submitted by companies for mobilizing funds and restructuring. Regulators have also been raising questions on the valuations submitted in the context of transactions entailing purchase/sale, income tax assessment, fund mobilization and corporate restructurings. Banks and financial institutions are concerned at the sharp dip in valuation of the assets of the borrower when the borrowers’ accounts are stressed and become a non performing asset in their books. In the context of the Code, the Adjudicating Authority has on several occasions raised concern about the sharp difference between the valuations arrived at by two different RVs or the variation between the amount offered by a successful resolution applicant and the amount stated in the valuation report.
3. A detailed and fully reasoned valuation report should be prepared in every case of valuation done in respect of both mandatory and discretionary valuation, where a registered valuer is appointed. The following aspects need to be considered during the preparation of a valuation report.
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