OPPORTUNITIES OF REGISTERED VALUER

1. OPPORTUNITIES OF REGISTERED VALUER • CA Madhumita Karar • Registered Valuer-Securities or Financial Assets

2. VALUATION INDUSTRY IN INDIA • Valuation is a niche area of business worldwise. • However, Indian business valuation profession lacked direct oversight by any regulatory agencies nor any professional business valuation organisations . • Valuation practices were not uniform and there were varied perspectives of the valuers, regulators and other stakeholders with regard to valuation. (FEMA, Income Tax , Wealth Tax , SEBI etc )

3. NEW ERA OF VALUATION IN INDIA – REGISTERED VALUERS • The concept of Registered Valuers was brought by section 247 of The Companies Act, 2013 and the Companies (Registered Valuers and Valuation) Rules, 2017 (the Rules),to regulate the practice of Valuation in India and to standardize the valuation in line with International standards. • Section 247 of the Companies Act provides that "where a valuation is required to be made in respect of any property, stocks, shares, debentures, securities or goodwill or any other asset or net worth of a company or its liabilities under the provisions of this Act, it shall be valued by a person having such qualifications and experience and registered as a valuer in such manner and on such terms and conditions as maybe prescribed and appointed by the audit committee or in its absence by the Board of Directors of that company". • It was clarified that conduct of valuation by any person under any law other than the Act, or these rules shall not be effected by virtue of coming into effect of these rules unless the relevant other laws or other regulatory bodies require valuation by such person in accordance with these rules in which case these rules shall apply for such valuation also from the date specified under the laws or by the regulatory bodies

4. MCA NOTIFICATION Sec 247 & Rules MCA by way of notification on 23 October 2017, To administer and perform functions under the said rules , has specified the Insolvency and Bankruptcy Board of India (IBBI) as the responsible authority. Hence IBBI will be regulator administer and perform the functions of Central Government. Thus IBBI has powers to regulate the valuation domain both under companies Act & IBC. Effective from 18th Oct 2017. Transitional Arrangement upto 31st March, 2018. 30th September 2018 by way of issuing notification. Further extended the date by 4 months more to 31st January 2019.

5. IBBI NOTIFICATION Circular of IBBI dated 17th October 2018 which mandates as under : “In view of the above, every valuation required under the Code or any of the regulations made there under is required to be conducted by a ‘registered valuer’, that is, a valuer registered with the IBBI under the Companies (Registered Valuers and Valuation) Rules, 2017. It is hereby directed that with effect from 1st February, 2019, no insolvency professional shall appoint a person other than a registered valuer to conduct any valuation under the Code or any of the regulations made there under”.

6. OPPORTUNITIES FOR VALUER Field of Valuation as an area of practice is still untapped, demanding the experts possessing the right knowledge and capabilities which brings upon the realization that professionals in India can provide the much needed support by forming a strong team of valuers in India Knowledge Execution Recognisition Communication ROLE AND REQUIREMENT OF VALUERS WILL BECOME PARAMOUNT Relevance

7. ROLE OF VALUER IS CRITICAL • Valuation of assets is a key factor for an "informed decision making" • Transparent and credible determination of value of the assets to facilitate comparison and informed decision making. • Valuation is a very serious area as this is lying at the heart of the entire process. If valuations are faulty, the outcomes will be undesirable.

8. Companies Act 2013 & Rules • Insolvency & Bankruptcy Code & Regulations • SEBI Regulations

9. OPPORTUNITIES OF REGISTERED VALUER UNDER COMPANIES ACT

10. REGISTERED VALUER APPLICABILITY UNDER COMPANIES ACT Sections under Companies Act 2013 Requirement for Valuation • Valuation Report determining the price of the shares or other securities to be issued on a preferential basis, either for cash or for consideration other than cash. • Section 62(1)(c) read with Rule 13(1) of the Companies • (Share Capital and Debentures) Rules, 2014 • Issue of sweat equity shares- Rule 8 of the Companies • (Share Capital and Debentures) Rules, 2014 • The valuation of intellectual property rights or of know how or value additions for which sweat equity shares are to be issued, shall be carried out by a registered valuer, who shall provide a proper report addressed to the Board of directors with justification for such valuation • Rule 16(1)(c ) of the Companies (Share Capital and Debentures) Rules, 2014 • Valuation at which shares to be purchased for the scheme of provision of money by company for purchase of its own shares by employees or by trustees for the benefit of their employees

11. REGISTERED VALUER APPLICABILITY UNDER COMPANIES ACT Sections under Companies Act 2013 Requirement for Valuation • Valuation of assets involved in arrangement of non-cash transactions involving directors of the company or its holding, subsidiary or associate company or a person connected with him. Section 192(2) • Section 230(2)(c)(v) and Section 230(3) Valuation of shares, property and assets of the company under a scheme of corporate debt restructuring. • Valuation of shares, property and assets of the company under a scheme of Merger and Amalgamation of companies, the valuation report if any, would be circulated for meeting of creditors/members. • Section 232 (2) (d) • Section 232(3)(h) • The Tribunal shall make provision for valuation report for exit opportunity to the shareholders of transferor company – under the scheme of compromise/arrangement in case the transferor company is listed company and the transferee company is an unlisted company.

12. REGISTERED VALUER APPLICABILITY UNDER COMPANIES ACT Sections under Companies Act 2013 Requirement for Valuation • Valuation of equity shares held by the minority shareholders* • Section 236(2) • Valuing assets for submission of report by liquidator • Section 281(1) • Rule 2(c)(ix) and Rule 6(1) of the Companies (Acceptance of Deposit) Rules, 2014 • Any amount (principal + interest) raised by issue of bonds or debentures by creating charge on assets excluding intangible assets shall not exceed the market value of such assets as assessed by a registered valuer. * “minority shareholders” mean shareholders holding less than ten percent share capital of the company

13. OPPORTUNITIES OF REGISTERED VALUER UNDER INSOLVENCY & BANKRUPTCY CODE, 2016 (IBC)

14. REGISTERED VALUER APPLICABILITY UNDER IBC Sections/Regulation under IBC Requirement for Valuation Sec 59(3)(b)(ii) of Insolvency and Bankruptcy Code, 2016 In case of voluntary liquidation proceedings Corporate Debtor have to file a report of the valuation of the assets of the company prepared by a registered valuer. . • Regulation 27 Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 • Resolution professional shall within seven days of his appointment, appoint two registered valuers to determine the fair value and the liquidation value of the corporate debtor in accordance with Regulation 35 • Regulation 35 Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 • In cases not covered under sub-regulation 35(1) or where the liquidator is of the opinion that fresh valuation is required under the circumstances, he shall within seven days of the liquidation commencement date, appoint two registered valuers to determine the realisable value of the assets or businesses under clauses (a) to (f) of regulation 32 of the corporate debtor:

15. REGISTERED VALUER APPLICABILITY UNDER IBC Sections/Regulation under IBC Requirement for Valuation • Regulation 26 Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017 • The resolution professional shall within seven days of his appointment, appoint one registered valuer to determine the fair value and the liquidation value of the corporate debtor in accordance with Regulation 34

16. OPPORTUNITIES OF REGISTERED VALUER UNDER SEBI REGULATIONS

17. REGISTERED VALUER APPLICABILITY UNDER SEBI Regulations under SEBI Requirement for Valuation • Where preferential issue is made of the specified securities to the lenders pursuant to conversion of their debt, as part of a debt restructuring scheme implemented in accordance with the RBI guidelines, Conversion Price is to be certified by two Independent Valuers*.[Reg 158(6)(b) ] • Where preferential issue is made of the specified securities to the person(s) at the time of lenders selling their holding of specified securities or enforcing change in ownership in favour of such person(s) pursuant to a debt restructuring scheme implemented in accordance with the RBI guidelines, Issue Price is to be certified by two Independent Valuers. Reg [158(7)(b) ] Regulation 158 of SEBI (Issue of Capital and Disclosure Requirements) Regulations 2018

18. REGISTERED VALUER APPLICABILITY UNDER SEBI Regulations under SEBI Requirement for Valuation Regulation 163 of SEBI (Issue of Capital and Disclosure Requirements) Regulations 2018 • Where the specified securities are issued on a preferential basis for consideration other than cash, the valuation of the assets in consideration for which the equity shares are issued shall be done by an independent valuer, which shall be submitted to the stock exchanges where the equity shares of the issuer are listed. • Further, if the stock exchange(s) is not satisfied with the appropriateness of the valuation, it may get the valuation done by any other valuer. Regulation 165 of SEBI (Issue of Capital and Disclosure Requirements) Regulations 2018 Where the shares of an issuer are not frequently traded*, the issuer shall submit a certificate stating that the issuer is in compliance of this regulation, obtained from an independent valuer to the stock exchange where the equity shares of the issuer are listed. • As per Regulation 164(5) - “frequently traded shares” means shares of an issuer, inwhich the traded turnover on any stock exchange during the twelve calendar months preceding the relevant date, is at least ten per cent of the total number of shares of such class of shares of the issuer.

19. REGISTERED VALUER APPLICABILITY UNDER SEBI Requirement for Valuation Regulations under SEBI Regulation 38D of SEBI (Issue and Listing of Securitized Debt Instruments and Security Receipts) Regulations 2008 The issuer of the security receipts* shall appoint an Independent Valuer prior to listing of any security receipts on a recognized stock exchange, where the valuer shall undertake valuation of the security receipts provided that such valuation shall not be more than three months old from the date of listing . [Reg 38D(1)] #Reg 87A(1) of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements),2015 also discusses the above provision. Regulation 38G of SEBI (Issue and Listing of Securitized Debt Instruments and Security Receipts) Regulations 2008 An issuer whose security receipts are listed on a recognized stock exchange shall ensure that the listed security receipts are valued at the end of each quarter i.e. as on March 31, June 30, September 30 and December 31 of every year, by an independent valuer. [Reg 38G(1)(a)] #Reg 87c(1) of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements),2015 also discusses the above provision. • * "Security receipts” are defined under section 2 (1) (zg) of SARFAESI Act as under: "security receipt" means a receipt or other security, issued by an asset reconstruction company to any qualified buyer pursuant to a scheme, evidencing the purchase or acquisition by the holder thereof, of an undivided right, title or interest in the financial asset involved in securitization.

20. REGISTERED VALUER APPLICABILITY UNDER SEBI Regulations under SEBI Requirement for Valuation SEBI(Appointmentof Administratorand Procedure for Refunding to the Investors) Regulations 2018 The administrator* appointed , shall engage the services of a registered valuer to evaluate the properties** of defaulter that are attached by the Recovery Officer and for submission of a certified valuation report in accordance with the guidelines issued by the Board. • *“Administrator” means a person registered with the Insolvency and Bankruptcy Board of India as an Insolvency Resolution Professional and who has been engaged by the Recovery Officer for the purposes of these regulations • **As per Regulation 2(k), “property” means and of any kind, whether movable or immovable, tangible or intangible, corporeal or incorporeal and includes assets securities, bank accounts, deposits, any right or interest or legal documents or instruments evidencing title to or interest in the property and where the property is capable of conversion into some other form, then the property in the converted form and also includes the proceeds from the property.

21. REGISTERED VALUER APPLICABILITY UNDER SEBI Requirement for Valuation Regulations under SEBI Regulation 21 of SEBI (Real Estate Investment Trust) Regulations, 2014 • Prior to any issue of REIT units the valuer shall undertake full valuation of all the REIT assets. [Reg 21(7)] • A full valuation shall be conducted at least once in every financial year. [Reg 21(4)] • A half yearly valuation of the REIT assets shall be conducted for the half year ending on September 30 for incorporating any key changes in the previous six months. [Reg 21(5)] • For any transaction of purchase or sale of properties with related partiestwo valuation reports from two different valuers, independent of each other, shall be obtained. [Reg 19(3)(a)] and • Where any properties are leased to related parties to the REIT, both before and after initial offer a fairness opinion from an independent valuer shall be obtained by the manager. [Reg 19(7)] *REIT assets” means real estate assets and any other assets owned by the REIT whether directly or through a [holdco and /or] special purpose vehicle;

22. REGISTERED VALUER APPLICABILITY UNDER SEBI Requirement for Valuation Regulations under SEBI • Regulation 21 of SEBI (Infrastructure Investment Trusts) Regulations 2014 • A full valuation shall be conducted by the valuer not less than once in every financial year. [Reg 21(4)] • A half yearly valuation of the assets of the InvIT shall be conducted by the valuer for the half-year ending September 30th for a publicly offered InvIT for incorporating any key changes in the previous six months. [Reg 21(5)] • Prior to any issue of units by publicly offered InvIT other than bonus issue, where the valuer shall undertake full valuation of all the InvIT assets and include the same in the Offer Document. [Reg 21(7)] *InvIT assets ” means assets owned by the InvIT, whether directly or through a [holdco and/ or] SPV, and includes all rights, interests and benefits arising from and incidental to ownership of such assets

23. REGISTERED VALUER APPLICABILITY UNDER SEBI Regulations under SEBI Requirement for Valuation Regulation 8 of SEBI (Issue of Sweat Equity) Regulations 2002 The valuation of the intellectual property rights or of the know-how provided or other value addition mentioned in Explanation II of sub-section (1) of section 79A of the Companies Act, 1956 to be carried out by a merchant banker and the merchant banker may consult experts and valuer* having regard to the nature of the industry and the nature of the property or other value addition. The merchant banker shall obtain a certificate from an independent Chartered Accountant that the valuation of the intellectual property or other value addition is in accordance with the relevant accounting standards. [Reg 8(1),(2) and (3)] *“valuer” as a Chartered Accountant or a merchant banker appointed to determine the value of the intellectual property rights or other value addition.

24. REGISTERED VALUER APPLICABILITY UNDER SEBI Regulations under SEBI Requirement for Valuation • In case of compulsory delisting where equity shares of a company are delisted by a recognised stock exchange, the recognized stock exchange shall appoint an independent valuer or valuers (from a panel of expert valuers formed by the recognized stock exchange) who shall determine the fair value of the delisted equity shares. [Reg 23(1)] • The promoter of the Company shall acquire delisted equity shares from the public shareholders by paying them the value determined by the valuer, subject to their option of retaining their shares. [Reg 23(3)] Regulation 23 of SEBI (Delisting of Equity Shares) Regulations 2009 *valuer means a chartered accountant within the meaning of clause (b) of section 2 of the Chartered Accountants Act, 1949 who has undergone peer review as specified by the Institute of Chartered Accountants of India constituted under that Act, or a merchant banker appointed to determine the value of the delisted equity shares.

25. REGISTERED VALUER APPLICABILITY UNDER SEBI Regulations under SEBI Requirement for Valuation Regulation 23 of SEBI (Alternate Investment Funds) Regulations, 2012 • Category I* and Category II** Alternative Investment Funds shall undertake valuation of their investments, at least once in every six months, by an independent valuer appointed by the Alternative Investment Fund [Reg 23(2)] * Category I includes investment in startups, SME projects which are socially and economically viable in form of Venture Capital Fund, Infrastructure fund, Angel Fund and Social Venture fund. **Category II includes investment in Equity and Debt securities in form of private equity fund, debt equity fund and fund of funds. (1) valuer is not defined under the regulation.

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