THE LEGAL BRIDGE

Judiciary & Law Notes Series

THE COMPANIES ACT, 2013

CHAPTER XVII

Registered Valuers

Section 247

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Valuation Profession • Duties • Asset Classes • IBBI

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Chapter XVII — Registered Valuers

Chapter XVII of the Companies Act, 2013 consists of a single section — Section 247 — but its impact is disproportionately large. Valuation is the quiet artery that runs through virtually every major corporate transaction: the issue of sweat equity, preferential allotments, mergers and amalgamations, share exchange ratios, squeeze-outs under Section 236, class action compensation under Section 245, winding up, and asset disposals under Section 180. Before 2013, valuation was conducted by any chartered accountant or merchant banker the company nominated, with no unified regulatory architecture. Section 247 changes that — it introduces the concept of a 'Registered Valuer' and makes valuation a regulated profession.

The provision was notified with effect from 18 October 2017 and is given operational teeth by the Companies (Registered Valuers and Valuation) Rules, 2017, administered through the Insolvency and Bankruptcy Board of India (IBBI), which serves as the 'authority' under the Rules.

Why Section 247 Matters — The Regulatory Rationale

Section 247 was the legislative response to a long-standing concern that unregulated valuation was vulnerable to conflicts of interest, inadequate expertise, and inconsistent methodology. Issues highlighted in cases like Hindustan Lever Employees' Union v. Hindustan Lever Ltd. (1995) showed that share exchange ratios are matters of commercial judgment — but that judgment must rest on professional, transparent, and accountable valuation. Section 247 institutionalises this by requiring:

• A central register of professionals qualified to conduct valuation under the Act;
• Minimum qualifications, experience, and integrity standards;
• Categorisation by asset class — land and buildings, plant and machinery, securities or financial assets;
• Accountability for negligent or fraudulent valuation — civil and criminal;
• Recognition of Registered Valuer Organisations (RVOs) that enrol, regulate, and discipline member valuers.

Section 247 — Text and Structure

(1) Requirement of Registered Valuer

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.

This sub-section creates a statutory monopoly — only a registered valuer, qualified under the Rules, can conduct any valuation required under the Act. Audit committee appoints where constituted; otherwise the Board. The valuer cannot be appointed by the management alone or by the promoters — ensuring that the appointment is through a layer of independent oversight.

(2) Duties of the Valuer

The valuer appointed under sub-section (1) shall —

1. Make an impartial, true, and fair valuation of any assets which may be required to be valued;Exercise due diligence while performing the functions as valuer;Make the valuation in accordance with such rules as may be prescribed;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.

Duty (a) — impartiality — mirrors the auditor's duty of independence. Duty (b) — due diligence — is the professional-negligence yardstick. Duty (c) requires compliance with the Valuation Standards framed under the Rules. Duty (d) is a rigid conflict-of-interest rule: the valuer must not hold any direct or indirect interest in the asset being valued, at any time during or after. The 'after' prong is unusual — the valuer is precluded from even subsequent acquisition of the asset she has valued.

(3) Punishment for Contravention

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 ₹25,000 but which may extend to ₹1,00,000. Where 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 ₹1,00,000 but which may extend to ₹5,00,000.

(4) Additional Liability

Where a valuer has been convicted under sub-section (3), he shall be liable to —

• Refund the remuneration received by him to the company; and
• 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.

The Companies (Registered Valuers and Valuation) Rules, 2017

The Rules operationalise Section 247 and form the actual working code. The salient features are:

Who is the 'Authority'?

The Insolvency and Bankruptcy Board of India (IBBI) has been designated as the 'authority' under the Rules (w.e.f. 23 October 2017). IBBI maintains the register of valuers, recognises Registered Valuer Organisations (RVOs), issues the unique registration number (URN), and exercises disciplinary oversight.

Asset Classes

Valuation under the Act is categorised into three asset classes:

A valuer must be registered for a specific asset class — or for more than one, subject to qualifying thresholds. The Central Government may notify further asset classes from time to time.

Eligibility Criteria

• An individual applicant must be a fit and proper person, have passed the recognised educational qualification (graduation in the specialised area), have the prescribed years of experience, be a member of an RVO, pass the valuation examination conducted by the IBBI, and not be an undischarged insolvent, person of unsound mind, etc.
• Partnership firms or companies may also register as valuers, subject to prescribed conditions — including that the partners/directors, to the extent prescribed, are themselves registered individual valuers, and the partnership or company has not been convicted of any offence punishable with imprisonment of six months or more.
• The valuer exam syllabus covers valuation standards, ethics, micro and macro-economics, accounting, financial statement analysis, and sector-specific methodology.

Conduct and Standards

The Rules enjoin the Registered Valuer to adhere to the Model Code of Conduct, which emphasises integrity, fairness, professional competence, maintenance of confidentiality, independence, and avoidance of conflict of interest. The valuer must not accept assignment that involves conflict, must disclose any material fact that could affect independence, and must not solicit work in an unprofessional manner. Departure from standards can result in cancellation of registration by the IBBI.

Valuation Standards

The Rules require valuation to be carried out in accordance with Valuation Standards notified by the Central Government. Pending such notification, a valuer may use Indian Valuation Standards (IVS) issued by the Institute of Chartered Accountants of India (ICAI), or International Valuation Standards (IVS) issued by the International Valuation Standards Council (IVSC), or any other valuation standards which the valuer considers appropriate, provided those are disclosed in the report.

Transactions Under the Act Requiring Registered Valuer Valuation

A non-exhaustive list of sections that trigger valuation by a Registered Valuer:

Registered Valuer Organisations (RVOs)

RVOs are professional bodies, recognised by the IBBI, which enrol and regulate individual valuers. The key RVOs presently recognised include:

• IOV Registered Valuers Foundation (IOVRVF) — for Land and Buildings / Plant and Machinery;
• ICSI Registered Valuers Organisation — for Securities or Financial Assets;
• ICAI Registered Valuers Organisation (ICAI RVO) — for Securities or Financial Assets;
• CVSRTA Registered Valuers Association — for Land and Buildings and Plant and Machinery;
• Insolvency Professional Agency of Institute of Cost Accountants of India (formerly Division III) — for Securities or Financial Assets;
• PIRC Valuation Organisation — Plant and Machinery.

Each RVO maintains its own code of conduct, offers pre-registration training, and conducts disciplinary proceedings against its members for professional misconduct (subject to overriding review by IBBI).

Consequences of Valuation by a Non-Registered Person

Where any valuation required to be made under the Act is made by a person who is not a registered valuer under Section 247:

• The valuation is not merely irregular — it is ultra vires the statute;
• Any transaction based on such valuation is vulnerable to challenge before the Tribunal;
• The directors or officers who commissioned such valuation may face action under the relevant substantive provision (e.g., preferential allotment under Section 62(1)(c) at a price not determined by a registered valuer is a serious breach);
• The un-registered person who conducted the valuation is also liable to action — though the punishment in Section 247(3) is specifically directed at 'a valuer' — i.e., a registered valuer — the broader penal architecture of the Act (including Section 447 for fraud) may apply if the valuation was incorrect with intent to deceive.

Valuation Standards — The Technical Framework

Although brief, Section 247 rests on a technical framework of valuation standards. The Indian Valuation Standards (IVS) 101–303, notified by the ICAI for its members, cover:

• IVS 101 — Definitions (fair value, market value, intrinsic value, liquidation value);
• IVS 102 — Valuation Bases;
• IVS 103 — Valuation Approaches and Methods (Market Approach — CCM, CTM; Income Approach — DCF, Relief-from-Royalty; Cost Approach — Reproduction or Replacement Cost);
• IVS 201 — Scope of Work, Analyses and Evaluation;
• IVS 202 — Reporting and Documentation;
• IVS 301 — Business Valuation;
• IVS 302 — Intangible Assets;
• IVS 303 — Financial Instruments.

A registered valuer, while conducting valuation under the Act, must follow these standards (or globally accepted equivalents) and disclose in the report the methodology used, the assumptions, the data sources, and any limitations.