RULES FOR REGISTERED VALUERS AND VALUATION WITH INCOME TAX DEPARTMENT-ALL YOU NEED TO KNOW

RULES FOR REGISTERED VALUERS

AND

VALUATION WITH

INCOME TAX DEPARTMENT

Registered valuers prior to the introduction of the Companies Act, 2013, chartered accountants used to conduct a valuation of shares including assets, and the net worth of companies.

To ease the workload of chartered accounts in this regard, the Government of India made the first attempt by introducing the Valuation Professional Bill, 2008.

However, the bill was delayed for many years due to the dissolution of parliament. Subsequently, the Government of India introduced the Companies (Removal of Difficulties) Second Order, 2017 (dated 23rd October 2017) to conduct valuation which required to be performed by the person possessing the essential requirements, skills, and working as a valuer needed to register with the authority.

The rules also provide that the Insolvency and Bankruptcy Board of India (“IBBI”) established under the Insolvency and Bankruptcy Code, 2016 be the “registering authority” which will hold examinations and grant certifications of the designation of a “registered valuer.”

The concept of a “registered valuer” under the Indian law was introduced for the first time vide Section 247 of Chapter XVII of the Indian Companies Act for matters requiring valuation under the said Act. The Ministry of Corporate Affairs introduced the Companies (Registered Valuers and Valuation) Rules, 2017 (“Rules”). The concept of a registered valuer opens a new area of professional opportunity.

PART-1

Valuation procedure based on the Companies Act, 2013

S. NO.	RELEVANT SECTION AND TYPE OF VALUATION	TYPE OF ISSUE
1.	Section 42 read with Rule 12(5) of the Companies (Prospectus of Securities) Rules, 2014;valuation of the consideration against which securities are issued	Private placement of securities for consideration other than cash
2.	Section 62(1)(c) read with Rule 13 of the Companies (Share Capital and Debentures) Rules, 2014;valuation of price of shares which are being issued	Preferential issue of further shares
3.	Section 52 read with Rule 8 of the Companies (Share Capital and Debentures) Rules, 2014;valuation of intellectual property rights or of know-how or value additions for which sweat equity shares are to be issued	Issue of sweat equity shares to directors/employees at a discount or for consideration other than cash
4.	Rule 2(ix) of the Companies (Acceptance of Deposits) Rules, 2014;assessment of the market value of such assets	Amount raised by the issue of bonds or debentures secured by a first charge or a charge ranking pari passu with the first charge on any assets referred to in Schedule III of the Act excluding intangible assets of the company
5.	Section 192;valuation of assets involved	Arrangement with a director of the company, its holding, subsidiary or associate company, or any person connected with him or her for the acquisition of assets for consideration other than cash
6.	Section 230(2)(c)(v)	Valuation report in respect of the shares and the property and all assets, tangible and intangible, movable and immovable, of the company under the scheme of corporate debt restructuring
7.	Section 230(3) & 232(2)(d)	In case of a compromise or arrangement between members or with creditors, a valuation report in respect of shares, property or assets, tangible and intangible, movable and immovable of the company, or a swap ratio report
8.	Section 232(2)(h)	Under the scheme of compromise/arrangement in case the transferor company is a listed company and the transferee company is an unlisted company—a valuation report is required to be made by the tribunal for exit opportunity to the shareholders of the transferor company
9.	Section 236(2)	For valuing equity shares held by minority shareholders
10.	Section 281(1)(a)	For valuing assets for submission of report by the company liquidator
11.	Section 305(2)(d)	For a report on the assets of the company for preparation of declaration of solvency under voluntary winding up
12.	Section 319(3)(b)	For valuing the interest of any dissenting members of the transferor company in case of liquidation

Accordingly, The Ministry of Corporate Affairs (MCA) has implemented Companies (Registered Valuers and Valuation) Rules for all eligible individuals to register as registered valuers. A valuer shall be identified as a person who is registered with a registered value organization as per sub-rule (5) of rule 13. The registration for a Registered Value Organization shall be established as per the Insolvency and Bankruptcy Code, 2016. The company rules are applicable to the following entities:

Property
Shares
Debentures
Securities
Stocks
Goodwill
Any other assets, the net worth of the company or
Liabilities under the provision as per the Companies (registered valuers and valuation) Rules

The rules also provide the rules related to registering as an individual or organization registered valuer, valuation standards, identifying “asset class,” and certification.

Important Definitions:

“Act”means the Companies Act, 2013 (18 of 2013)
“Certificate of registration” means the certificate of registration granted to a valuer under Rule 7(6)and the term“registration”shall be construed accordingly
“Certificate of recognition” means the certificate of recognition grantedtoavaluationprofessionalorganizationunderRule13or14andtheterm“recognition”shall be construed accordingly
“Partnership entity” means a partnership firm registered under the Indian Partnership Act, 1932 or a limited liability partnership registered under the Limited Liability Partnership Act, 2008 (6 of 2009)
“Valuation professional organization” means a valuation professional organization recognized under Rule 13(5)
“Registered valuer” is a value registered with the Registration Authority under Rule 7(6) for carrying out valuation of assets belonging to a class or classes of assets
“Registration Authority” means the Insolvency and Bankruptcy Board of India established under the Insolvency and Bankruptcy Code, 2016 (31 of 2016)
“Schedule”means a schedule to these rules
“Valuation standards” means standards on valuation referred to in Rule 16

Bye-Laws for Valuation of Professional Organizations

The bye-laws in this regard are listed hereunder:

To register as a Valuation of Professional Organizations (VPO), the company should submit the bye-laws to the registered authority along with the application
The bye-laws should provide all the details as per the model bye-laws in Part II of the rules
All the details provided in the bye-laws and policies shall be published on the website of the company

Amendment of Bye-Laws

The following are the relevant points to note in this regard:

The bye-laws should be amended only by a resolution passed through votes as per sub-rule (1)
The favor of the votes shall not be cast three times for any favorable resolution
The company shall apply for registration to the Registration Authority within 7 days after passing the resolution
After receiving approval from the Registration Authority, the company shall amend the bye-laws on the 7th day or as stipulated by the Registration Authority
The VPO shall send a printed a copy to the Registration Authority within 15 days from the date of amending the bye-laws

Eligibility for VPO

The eligibility conditions for a VPO are listed hereunder:

The company should have been set up through an Act of Parliament
For companies registered before 1st April 2017
- The company should be registered through Section 25 of The Companies Act, 1956
- Registered as a society through Societies Registration Act, 1860 or as per any relevant state law
- Established as a trust governed by the Indian Trust Act, 1882
For companies established after 1st April 2017, it should be registered as Section 8 of The Companies Act, 2013. The bye-laws should be published as per Schedule III.
The company should be eligible to conduct exams, provide certificates, grant memberships, or certificates
It shall also be eligible to grant memberships and certificates to individuals or partnership entities related to the valuation of the asset class
Should be eligible to conduct training to individuals before providing certificates
Should provide continuing education, monitor, and review the quality of service
Should not have disqualifications as mentioned in sub-rule (1)(f) to (i)
The company shall not be undergoing a bankruptcy process or insolvency resolution
The company should not have the majority of its partners practicing abroad
The company should have its proportionate number of partners as registered valuers

Documents Required to Register as VPO

The documents required in this regard are listed hereunder:

Proof of address, corporate identification number, permanent account number, and other relevant identification numbers
Details on designations of members as mentioned in the application provided to the Registration Authority
Documents on the number of members registered with the VPO who practice valuation
Details of the examination conducted for the members
The company should have made the list of registered members public

Application Process

The application process is listed hereunder:

The company shall apply to the Registration Authority on Form D as per Schedule II
The Registration Authority shall scrutinize the application made by the company. In the case of any mismatch, the Registration Authority shall provide support to rectify it.
After verifying the documents, the Registration Authority shall ask the applicant to appear in person to provide clarifications or rectification for processing the application
Upon successful validation, the Registration Authority shall grant the certificate in Form E as per Schedule II
However, upon rejection of certification, the company shall provide detailed information for providing the certification. The company shall provide all the necessary documents within 15 days from the date of the communication.

Register of Members

A company should ideally store the following important information:

Name, identity proof, contact details, and address
The date of enrolment as well as the membership number
Date and registration number with the Registration Authority
Details of pending grievances
Details of disciplinary proceedings pending against the member of the organization
Details of disciplinary orders passed against the individual by the Registration Authority

Registering as a Valuer

Qualification

The following are the required qualifications in this regard:

The individual should have a post-graduate degree or post-graduate diploma from a recognized institution or university
The individual should have a minimum of 3 years of experience in the specified discipline such as plant and machinery, land and building, and securities or financial (Annexure-IV)
If the individual possesses only a bachelor’s degree or bachelor in diploma they should possess 5 years of experience in the specified discipline
The individual shall have a membership with a professional institute registered through an Act by the Parliament. The membership shall be attained as the Companies (Registered Valuers and Valuation) Fourth Amendment Rules, 2018
Any individual who does not register as a valuer shall be liable for punishment as per Section 247(3) of the Act

Eligibility

The eligibility conditions in this regard are listed hereunder:

The valuer shall apply for registration only if the applicant has cleared within 3 years
If the applicant is above 50 years of age and has been involved in at least 10 valuation assignments of the assets, the applicant is not required to clear the examination. The asset valuation should have crossed 5 crore rupees.
The applicant should possess the desired as well as essential qualification
The age of the valuer should not be less than 18 years
The valuer should be a sound-minded individual
The valuer should not have been bankrupt or applied for bankruptcy
The valuer should be a resident of India
The valuer should not have been convicted for an offense or moral code of conduct

Application Process for Registering as a Valuer

The application process for registering as a valuer is listed hereunder:

To register, the applicant shall apply to the Registration Authority in Form A as per Schedule II.
Along with the application form, the fee for registration should be attached in favor of the Registration Authority
The Registration Authority shall examine the application made by the individual. In the case of any mismatch, the Registration Authority shall provide support to rectify it.
After verifying the documents, the Registration Authority shall ask the applicant to appear in person to provide clarifications or rectification for processing the application
Upon successful validation, the Registration Authority shall grant the certificate in Form C as per Schedule II within 60 days of the application.
However, upon rejection of certification, the individual shall provide detailed information for providing the certification. The individual shall provide all the necessary documents within 15 days from the date of the communication.

Fee for Registration:

For Registration as a Valuer

For registering as a valuer, the applicant shall pay a nonrefundable fee of Rs.5,000 in favor of the Registration Authority along with Form A

For Registration as a Partnership Entity

For registering as a partnership entity, the applicant shall pay a nonrefundable fee of Rs.10,000 in favor of the Registration Authority or partnership entity along with Form B.

SOURCE LINK:

PART-2

VALUATION WITH

INCOME TAX DEPARTMENT

REGISTRATION OF VALUERS UNDER SECTION 34 AB OF WEALTH TAX ACT-1957