REGULATORY FRAMEWORK FOR VALUATION REPORTS IN INDIA

Regulatory Framework for Valuation Reports in India

Valuation reports are crucial documents in various financial and legal transactions, serving as a foundation for informed decision-making in mergers, acquisitions, taxation, and investment. In India, the regulatory framework governing these reports is comprehensive and multifaceted, ensuring that valuations are conducted with transparency, accuracy, and professionalism. This article provides an overview of the key components of the regulatory framework for valuation reports in India.

1. The Companies Act, 2013

The Companies Act, 2013, is one of the primary legislations governing valuation practices in India. Key sections include:

Section 247: This section mandates that only a registered valuer can perform valuations required under the Act. The valuer must be registered with the Insolvency and Bankruptcy Board of India (IBBI) and follow the rules prescribed under the Companies (Registered Valuers and Valuation) Rules, 2017.
Section 62 and Section 192: These sections relate to the issue of shares and the acquisition of assets. They require the valuation of shares and assets to be done by a registered valuer.

2. The Companies (Registered Valuers and Valuation) Rules, 2017

These rules provide detailed guidelines on the registration, qualifications, and functions of registered valuers. Key points include:

Eligibility Criteria: The rules specify the educational qualifications, experience, and professional membership required for an individual to become a registered valuer.
Valuation Standards: Registered valuers must adhere to the valuation standards notified by the Central Government, ensuring consistency and reliability in the valuation process.
Code of Conduct: The rules also prescribe a code of conduct for valuers, emphasizing integrity, confidentiality, and professional competence.

3. The Insolvency and Bankruptcy Code (IBC), 2016

The IBC, 2016, plays a critical role in the valuation of assets during insolvency proceedings. Key aspects include:

Role of Valuers: During insolvency proceedings, registered valuers are appointed to determine the fair value and liquidation value of the assets of the debtor.
Valuation in Resolution Plans: The valuation reports prepared by registered valuers are crucial in the formulation and approval of resolution plans under the IBC.

4. The Securities and Exchange Board of India (SEBI) Regulations

SEBI, as the regulator of the securities market in India, has laid down specific regulations for valuations related to capital markets. Key regulations include:

SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018: These regulations require companies to obtain valuation reports for pricing shares during public offers, rights issues, and preferential allotments.
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011: Valuation reports are necessary in cases of open offers and delisting of shares to determine the offer price.

5. The Income Tax Act, 1961

Valuation is also essential for various tax purposes under the Income Tax Act. Key sections include:

Section 56(2)(x): This section deals with the taxation of gifts and requires a valuation report to determine the fair market value of properties received as gifts.
Rule 11UA and Rule 11UAA: These rules provide the methodology for the valuation of various assets, including shares, securities, and immovable property, for tax purposes.

6. International Valuation Standards (IVS) and Indian Accounting Standards (Ind AS)

International Valuation Standards (IVS): Though not mandatory, many valuers in India adopt the IVS to ensure global comparability and consistency in their reports.
Indian Accounting Standards (Ind AS): Ind AS 113 (Fair Value Measurement) provides guidance on the measurement of fair value, which is crucial for preparing financial statements under Ind AS.

The regulatory framework for valuation reports in India is comprehensive, ensuring that valuations are conducted with the highest standards of professionalism and accuracy. Compliance with these regulations is crucial for maintaining the integrity of the valuation profession and for fostering trust in financial and legal transactions. As the Indian economy continues to grow, the role of robust valuation practices will only become more significant in ensuring transparency and fairness in the market.