Introduction
The Companies Act, 2013 marked a significant shift in Indian corporate regulation by formally institutionalizing the practice of valuation and creating a distinct professional class — the Registered Valuer — to conduct it. Prior to this Act, valuations for corporate purposes in India were largely unregulated, often conducted by chartered accountants, merchant bankers, or other professionals without a uniform statutory framework governing their qualifications, conduct, or accountability. The 2013 Act, through Section 247, along with the Companies (Registered Valuers and Valuation) Rules, 2017 (notified in October 2017), changed this by mandating that wherever the Act requires a valuation of any property, stocks, shares, debentures, securities, goodwill, net worth, or other assets or liabilities of a company, such valuation must be conducted only by a person registered as a Registered Valuer with the Insolvency and Bankruptcy Board of India (IBBI), which functions as the Authority under the Rules.
Who is a Registered Valuer
A Registered Valuer is an individual, partnership entity, or company that has met the eligibility criteria prescribed under the 2017 Rules — including relevant educational qualifications, work experience, and successful completion of a valuation examination conducted by IBBI or a recognized Registered Valuers Organisation (RVO). Valuers are registered under one of three asset classes: (i) Land and Building, (ii) Plant and Machinery, and (iii) Securities or Financial Assets. A valuer can only issue reports within their registered asset class, and their conduct is governed by a Model Code of Conduct annexed to the Rules, covering independence, conflict of interest, confidentiality, and professional competence.
Key Situations Requiring Valuation
Several provisions across the Companies Act, 2013 trigger a mandatory valuation requirement:
- Issue of shares for consideration other than cash / preferential allotment (Section 62(1)(c)): When a company issues shares on a preferential basis or through private placement, the price must be determined by a registered valuer to ensure the issue is not made at an undervalue that could prejudice existing shareholders.
- Sweat equity shares (Section 54): Companies issuing sweat equity shares to directors or employees for non-cash consideration (such as intellectual property or know-how) must obtain a valuation report from a registered valuer to justify the value of such consideration.
- Non-cash transactions involving directors (Section 192): Where a company proposes to acquire an asset from, or transfer an asset to, a director (or a person connected with a director) for consideration other than cash, the transaction requires prior valuation by a registered valuer, followed by approval through a resolution of the company (and holding company, where applicable).
- Compromise, arrangement, mergers and amalgamations (Sections 230–232): In any scheme of merger, demerger, or amalgamation, a valuation report determining the fair share exchange ratio is a mandatory annexure to the scheme filed before the National Company Law Tribunal (NCLT). This is one of the most significant and closely scrutinized uses of valuation under the Act, since the swap ratio directly affects shareholder rights of both transferor and transferee companies.
- Purchase of minority shareholding (Section 236): When an acquirer or group of persons acting in concert becomes registered holders of 90% or more of the issued equity share capital of a company, the Act enables a squeeze-out of minority shareholders. The price offered to minority shareholders for such compulsory acquisition must be determined by a registered valuer, ensuring minority shareholders receive fair value rather than an arbitrarily fixed price.
- Reduction of share capital (Section 66): While not always mandatory in every case, valuation reports are frequently required or sought by the NCLT and Registrar of Companies while approving schemes of capital reduction, to assess the fairness of the reduction to shareholders and creditors.
- Corporate insolvency and liquidation: Though primarily governed by the Insolvency and Bankruptcy Code, 2016, valuations conducted by IBBI-Registered Valuers (in the Securities/Financial Assets or Plant & Machinery/Land & Building classes) play a critical role in determining the fair value and liquidation value of a corporate debtor's assets during the Corporate Insolvency Resolution Process (CIRP) and liquidation, feeding directly into resolution plan evaluation and distribution waterfalls.
- Delisting and buy-back scenarios: While buy-backs are governed by SEBI regulations for listed entities, valuation principles under the Companies Act framework are often applied for private and unlisted companies undertaking buy-backs or exit offers, to substantiate the fairness of the offer price.
Valuation Approaches and Standards
Registered Valuers are expected to apply internationally recognized valuation approaches — the Asset Approach (net asset value method), Income Approach (discounted cash flow and capitalization of earnings methods), and Market Approach (comparable companies and comparable transactions multiples) — selecting the most appropriate method or a combination thereof, depending on the nature of the asset, availability of information, and purpose of valuation. The ICAI has also issued Valuation Standards (ICAI Valuation Standards, 2018) to bring further rigor and consistency to the profession, covering scope, bases of value, and reporting requirements.
Reporting and Accountability
A valuation report under the Rules must be a comprehensive, reasoned document — disclosing the purpose of valuation, the valuer's identity and registration details, the bases and premises of value adopted, sources of information relied upon, assumptions and limiting conditions, and a clear statement of the value conclusion. Registered Valuers face disciplinary action, including suspension or cancellation of registration, for professional misconduct, and Section 247(3) of the Act itself prescribes penalties — including fine and, in cases involving fraudulent intent, imprisonment — for valuers who furnish incorrect or misleading valuation reports.
Significance
Collectively, these provisions reflect the legislative intent to embed independent, professionally accountable valuation into critical corporate actions — protecting minority shareholders, creditors, and other stakeholders from undervaluation or manipulation, and lending credibility to transactions that come under judicial and regulatory scrutiny before the NCLT, Registrar of Companies, and other authorities.