Govt moves to set valuation norms for unlisted companies

The ministry of corporate affairs (MCA) has come up with rules on valuation of unlisted companies in order to bring about some amount of standardisation in valuation norms of companies during share transfers as well as mergers and acquisitions.

The draft rules relate to registration and of valuers for the conduct of valuation and the rules for actual valuation of companies will have to be formulated by the valuers' body based on international practices.

The Rules, inter alia, provide for registration of valuers for conduct of valuation under the Companies Act, 2013. The valuers, who may be individuals or partnership entities or companies, would be required to be registered with the authority specified by the central government.

The rules provide for registration of different categories of valuers and lay down the requirements on their eligibility, qualifications and experience. The registered valuers are also required to be members of the Registered Valuers Organisations (RVOs), recognised by the authority under the rules.

The eligibility norms for RVOs to be recognised have also been provided in the rules, which, inter alia, include an internal governance structure which should provide for enforcement of a code of conduct on the registered valuers, training and conduct of educational courses for the valuation of specific asset classes for which the RVO concerned is recognised.

The rules also lay down the mechanism to prescribe valuation standards and syllabus for conduct of valuation education courses as well as specify the requirements with regard to the contents of the valuation report.

The rules provide for a transition period up to 31 March 2018 for registration of valuers with the authority, keeping in view the period which would be required by the valuers' organisations and the valuers to fulfil the requirements under the law. During this transition period any person who may be rendering valuation services under the Companies Act, 2013 may continue to render such services without getting registered under the rules.

The role and powers of the authority with regard to registration/recognition and ancillary matters have been provided in the rules. It is proposed to specify Insolvency and Bankruptcy Board of India (IBBI) as the authority under the rules. The relevant notification under section 458 of the Act in this regard is being issued separately.