Registered Valuer (RV) Report in Indore

Accurate asset valuation plays a critical role in the intricate world of finance and business. A registered valuer report is a reliable and impartial document that captures the fair market value of an asset as of a specific date. This report is crucial in various financial decisions and legal proceedings.

This blog delves into the world of registered valuer reports, explaining their purpose, who needs them, the process of obtaining one, and the key components that make them valuable.

Why are Registered Valuer Reports Important in Indore?

Imagine you’re about to sell your car. You wouldn’t simply guess its value, right? You’d likely check online listings for similar cars, consult with a mechanic, or consider their age and condition. Similarly, businesses and individuals need an objective assessment of an asset’s worth for various reasons:

• Informed Decision Making: A registered valuer report provides a reliable estimate of an asset’s value, enabling stakeholders to make informed decisions. This could involve buying, selling, borrowing against, or settling disputes related to the asset.
• Enhanced Transparency: The report fosters transparency by presenting a neutral and professional valuation based on established methodologies and market data.
• Regulatory Compliance: Certain situations, as mandated by law or regulations, necessitate a registered valuer report for specific assets. Some examples include loan applications, mergers and acquisitions, and tax assessments.
• Dispute Resolution: During legal proceedings involving asset valuation, a registered valuer report acts as strong evidence, facilitating fair and swift settlements.

Who is a Registered Valuer?

Imagine an expert who can assess the worth of various assets, from company shares and bonds (securities) to ideas and inventions (intangible assets) to buildings and machinery (tangible assets). That’s a Registered Valuer (RV)!

These professionals come from diverse backgrounds, like Chartered Accountants (for valuing company shares), engineers (for property valuation), or specialized valuation professionals. To become an RV, they undergo training, gain over 3-5 years of experience, and maintain a valid certificate of practice (COP).

The Insolvency and Bankruptcy Board of India (IBBI) grants and oversees RV qualifications through Registered Valuer Organisations. So, when you hire an RV, ensure they have a valid COP and registration number.

When are Registered Valuers Required?

The Companies Act mandates an RV report in specific situations, especially when valuing company shares (equity shares). Here are some key scenarios:

• Issuing new shares to existing shareholders (except rights issues)
• Mergers, acquisitions, or restructuring involving valuing assets, shares, or calculating share swap ratios
• Existing shareholders acquiring minority shares (over 90% ownership)
• Allotting shares for non-cash considerations or sweat equity
• Share buybacks from some or all shareholders
• Company liquidation under the Insolvency and Bankruptcy Code

Beyond Mandatory Situations:

While not always mandatory, an RV report is recommended for:

• Rights issues to existing shareholders
• Capital reduction of a company

In general, having an RV report is a good practice whenever assigning a value to shares or securities.

What are the common overlaps of valuation requirements under various statutes?

Often, companies need valuations for reasons beyond the Companies Act. Here’s where things can get tricky:

• Multiple Statutes: Several laws might require valuations, including the Foreign Exchange Management Act (FEMA), Income Tax Act, SEBI guidelines, and even international tax requirements.
• Factors Affecting Applicability: The specific laws that apply depend on factors like the company type, buyer/seller details, and the transaction itself.
• Example: A company issuing shares to an overseas investor might trigger valuation needs under the Companies Act, FEMA, and Income Tax.

Valuation Differences Across Statutes:

• Pricing Restrictions: FEMA regulations may restrict share transactions exceeding/falling below a valuer-determined price.
• Tax Implications: Income tax laws may penalize buyers or sellers for significantly deviating from the fair market value.
• Valuation Basis: While most laws allow “fair value” (income or market approach), Income Tax might require a “net-worth” approach, leading to lower valuations and potential tax implications.

Who Can Conduct Valuations (Currently):

• FEMA: Currently, Chartered Accountants (CAs) or CA firms handle FEMA valuations.
• Income Tax: CAs or merchant bankers (depending on the clause) might be required.
• SEBI: SEBI guidelines often align with CA reports.
• International Tax: A CA report usually suffices.

Educational Background for Registered Valuers in Indore

The Insolvency and Bankruptcy Board of India (IBBI) sets the qualification criteria for registered valuers. These qualifications focus on the overall valuation process, not necessarily requiring a specific educational background for each asset type. To become a registered valuer, an individual typically needs:

• A bachelor’s degree or equivalent in a relevant field, such as commerce, finance, or engineering
• OR a postgraduate degree or equivalent in a relevant field

Experience Requirements:

On top of educational qualifications, aspiring registered valuers must have a minimum of 3-5 years of experience in the valuation field.

Valuation Expertise:

While specific degrees aren’t mandated for valuing different asset classes, registered valuers often develop expertise in particular areas through experience and ongoing professional education. Here’s a breakdown of some common examples:

• Land & Building Valuation: Valuers specializing in this area might hold a degree in civil engineering, architecture, or town planning.
• Plant & Machinery Valuation: Valuers focusing on this area might have a background in electrical or mechanical engineering.
• Securities or Financial Asset Valuation: Valuers in this field might come from a finance background, being members of professional bodies like ICAI, ICSI, or the Institute of Cost Accountants of India, or hold an MBA with a specialization in finance.

Important Note:

Registered valuers have the ultimate responsibility to ensure they possess the necessary knowledge and skills to conduct valuations for a specific asset class. They are liable for any negligence or misconduct, which could lead to disciplinary action by IBBI and potential penalties.

In a nutshell, becoming a registered valuer involves meeting general educational and experience requirements. Valuers can then develop specialization through experience and continuing education to cater to specific asset types, but there’s no requirement for a specific degree in each asset class by the IBBI.

Who Needs a Registered Valuer Report?

The need for a registered valuer report extends to various entities involved in financial transactions or legal proceedings concerning assets. Here are some key players:

• Businesses: Companies require registered valuer reports for various assets, such as land, buildings, plant and machinery, intellectual property, and intangible assets like goodwill. This is crucial for mergers, acquisitions, loan applications, tax purposes, and internal financial reporting.
• Individuals: When buying or selling a property, individuals can benefit from a registered valuer report to ensure they’re getting a fair deal. It’s also valuable for settling inheritance disputes or obtaining loans secured by assets.
• Financial Institutions: Banks, investment firms, and other financial institutions rely on registered valuer reports to assess the risk associated with loans secured by assets. This helps them determine the appropriate loan amount and mitigate potential risks.
• Government Agencies: Government bodies might require registered valuer reports for various purposes, such as property acquisition for public infrastructure projects, tax assessments, or resolving disputes involving asset valuation.

Who Can Prepare a Registered Valuer Report in Indore?

Not just anyone can create a registered valuer report. In Indore, for instance, only professionals registered with the Insolvency and Bankruptcy Board of India (IBBI) are authorized to do so. These professionals come from different backgrounds:

• Practicing Company Secretaries registered with IBBI
• Chartered Accountants registered with IBBI
• Cost Accountants registered with IBBI

These professionals possess the requisite qualifications, experience, and adhere to a strict code of conduct, ensuring the report’s credibility and objectivity.

Information Needed for a Registered Valuer’s Report (Companies Act 2013)

To prepare a valuation report under the Companies Act 2013, a registered valuer will typically require the following information from your startup:

Business Fundamentals:

1. Detailed Business Model Description: A clear explanation of how your startup generates revenue and creates value for its customers.
2. Major Business Model Risks: Identification of the key factors that could potentially hinder your startup’s success.

Financial Data:

3. Past Audited Financials (2 Years): Audited financial statements for the past two financial years to establish a historical performance baseline.
4. Financial Statements Till Date: Unaudited financial statements up to the most recent date to capture your current financial position.
5. Five-Year Financial Projections: Forecasted income statements, balance sheets, and cash flow statements for the next five years, providing a roadmap for future growth.
6. Projection Assumptions Justification: Clear explanations for the key assumptions made while creating the financial projections (e.g., sales growth rate, working capital requirements, capital expenditures).

Investment and Market Context:

7. Prior Investment Details (if applicable): Information about any previous investments received by your startup, including the valuation used during those investments.
8. Competitive Landscape: Identification of your major competitors, both listed and unlisted, to understand the competitive environment.
9. Comparable Company Funding Details (if available): Details of recent funding rounds raised by companies similar to yours, providing a market benchmark for valuation.

Legal Agreement:

10. Term Sheet: The term sheet outlining the key terms and conditions of the proposed investment deal.

The rules for Registered Valuers (RVs) in Indore 

1. The Companies (Registered Valuers and Valuation) Rules, 2017:

This is the main set of rules governing RVs. It outlines the following:

• Eligibility and Qualifications: Who can become a Registered Valuer (practicing company secretaries, chartered accountants, or cost accountants registered with IBBI).
• Registration Process: The steps involved in registering as an RV with the Insolvency and Bankruptcy Board of India (IBBI).
• Code of Conduct: RVs must adhere to ethical standards while performing valuations. This includes maintaining objectivity, avoiding conflicts of interest, and exercising due diligence.
• Valuation Report Format and Contents: Specify the minimum requirements for what a registered valuer report should include (as discussed in the previous section).
• Renewal of Registration: RVs need to renew their registration periodically to maintain their active status.
• Continuing Professional Education (CPE): RVs are required to participate in ongoing education programs to stay updated with valuation practices and regulations.

2. The Companies Act, 2013 (Section 247):

This Act mandates that valuations of specific assets undertaken by companies require a registered valuer. These assets can include:

• Shares, stocks, debentures
• Property (land & buildings)
• Goodwill and other intangible assets
• Plant & machinery

3. Income Tax Act, 1961:

• Valuation for Tax Purposes: The Income Tax Act might necessitate asset valuation for various tax calculations. These could include:
  • Capital Gains Tax: When calculating capital gains from the sale of assets like property, shares, or investments, a registered valuer report can provide a reliable estimate of the asset’s cost and fair market value, impacting the taxable amount.
  • Depreciation: Businesses can claim depreciation on certain assets over their useful life for tax purposes. A registered valuer report can help establish the asset’s value for calculating appropriate depreciation charges.
  • Wealth Tax Act (Abolished): Though no longer in effect, the Wealth Tax Act previously required the valuation of certain assets for wealth tax calculations. Registered valuer reports played a role in determining the taxable wealth.

4. Transfer of Property Act, 1882:

• Valuation for Property Transactions: This Act governs property sale and transfer procedures. In some cases, registered valuer reports might be beneficial for property transactions:
  • Stamp Duty Calculations: Depending on the jurisdiction, stamp duty (a tax levied on property transactions) might be based on the property’s market value. A registered valuer report can provide a credible estimate of this value for accurate stamp duty calculations.
  • Dispute Resolution: During property disputes related to valuation, a registered valuer report can serve as strong evidence in court, aiding in fair settlements.

5. The Insolvency and Bankruptcy Code (IBC), 2016:

• Valuation for Insolvency Proceedings: The IBC governs corporate insolvency and bankruptcy proceedings. Registered valuers can play a crucial role in these situations:
  • Asset Valuation: Accurate valuation of assets belonging to a distressed company is essential for determining its financial health and potential for revival. Registered valuers can provide reliable valuations for assets like machinery, property, and intangible assets.
  • Liquidation Process: During a company’s liquidation, assets are sold to repay creditors. Registered valuer reports can ensure fair market value is obtained for these assets, maximizing returns for creditors.

6. Other Acts (Depending on the Asset):

• Specific Industry Regulations: Certain industries might have their own regulations that require asset valuation by registered valuers. For instance, regulations governing banks and financial institutions might mandate registered valuer reports for loan collateral or investment valuations.
• Environmental Laws: In some cases, environmental regulations might necessitate asset valuation for clean-up costs or decommissioning purposes. Registered valuers can provide estimates of these costs.

The Process of Obtaining a Registered Valuer Report in Indore

The process of obtaining a registered valuer report typically involves these steps:

1. Selecting a Registered Valuer: Choose a qualified professional with experience in valuing the specific type of asset for which you require a valuation.
2. Engagement Letter: A formal agreement outlining the scope of work, fees, timelines, and any relevant disclosures is established between the client and the valuer.
3. Information Gathering: The valuer will gather essential information about the asset, including its physical characteristics, legal documents, market data, and relevant financial information.
4. Valuation Approach: The valuer will employ appropriate valuation methods based on the asset type. Common methods include the market comparison approach, income capitalization approach, and the cost approach.
5. Analysis and Report Writing: The valuer will analyze the collected data, apply the chosen valuation methods, and prepare a comprehensive report outlining the valuation methodology, key findings, and the estimated fair market value of the asset.
6. Review and Delivery: The valuer will review the finalized report and present it to the client, along with any supporting documentation.

Key Components of a Registered Valuer Report

A well-structured registered valuer report typically includes the following elements:

1. Introduction:
   
   • Title: Clearly states the purpose of the report as a “Registered Valuer Report.”
   • Client Details: Identifies the client who commissioned the report.
   • Valuation Date: Specifies the specific date the asset was valued.
   • Asset Description: Briefly outlines the type of asset being valued.
2. Scope of Work:
   
   • Engagement Letter: References the formal agreement between the client and valuer outlining the scope of work.
   • Valuation Standards: Clarifies the valuation standards and methodologies employed (e.g., market comparison approach, income capitalization approach, cost approach).
   • Limitations: Mention any limitations to the valuation process or report (e.g., data availability, assumptions made).
3. Description of the Asset:
   
   • Physical Characteristics: This section provides detailed information about the asset’s physical attributes (e.g., property size, and machinery specifications).
   • Location: Specifies the geographical location of the asset.
   • Legal Documents: Lists relevant legal documents pertaining to the asset’s ownership, title, and any restrictions.
   • Market Data: Presents relevant market data used in the valuation process, such as comparable asset prices or industry trends.
4. Valuation Methodology:
   
   • Justification: Explains the rationale behind choosing the specific valuation methodologies used for the asset.
   • Methodology Explanation: Briefly outline the key steps involved in each valuation approach employed.
   • Assumptions: Clearly states any assumptions made during the valuation process and the basis for those assumptions.
5. Analysis and Valuation:
   
   • Data Analysis: This section presents a clear breakdown and analysis of the data collected that is relevant to the valuation methods used.
   • Valuation Calculations: This section shows the calculations performed using the chosen methodologies to arrive at the asset’s fair market value.
6. Valuation Conclusion:
   
   • Fair Market Value: Clearly states the estimated fair market value of the asset as of the valuation date.
   • Qualifications: Mention any qualifications or limitations to the reported fair market value.
7. Appendices:
   
   • Supporting Documents: Includes copies of relevant documents used in the valuation process, such as property deeds, financial statements, or market data sources.
   • Valuer’s Qualifications: Provides details about the registered valuer’s qualifications and experience.

Additional Considerations:

• The specific format and content of a registered valuer report may vary depending on the type of asset being valued and the regulations of the jurisdiction.
• The report should be clear, concise, and well-organized, allowing stakeholders to easily understand the valuation process and the estimated fair market value of the asset.

Legal Requirements and Considerations

Registered valuer reports are highly relevant to financial and legal contexts, and it is crucial to understand the legal framework surrounding them.

Legal Requirements:

• The Companies Act, 2013 (Section 247): This Act mandates that a registered valuer conduct valuations of various assets, including shares, stocks, debentures, properties, goodwill, and other assets, in specific situations.
• The Companies (Registered Valuers and Valuation) Rules, 2017: These rules elaborate on the eligibility, qualifications, and registration process for valuers. They also outline the code of conduct that registered valuers must adhere to while performing valuations.
• Other Relevant Acts: Depending on the specific asset and situation, other legal acts, such as the Income Tax Act, Wealth Tax Act, and Transfer of Property Act, might also influence the valuation process and report requirements.

Legal Complications and Considerations:

While registered valuer reports offer numerous benefits, there can be potential legal complications to consider:

• Negligence: If a registered valuer fails to exercise due diligence, adhere to professional standards, or provide an inaccurate valuation due to negligence, they could face legal repercussions.
• Misrepresentation: Intentionally misrepresenting information or manipulating the valuation process for personal gain can lead to legal consequences for the valuer and potentially invalidate the report.
• Conflicts of Interest: Registered valuers must maintain objectivity and avoid conflicts of interest. Any pre-existing relationships with the client or the asset being valued could raise legal concerns and potentially render the report inadmissible in court.
• Challenging the Report: The accuracy and validity of a registered valuer report can be challenged in court if there’s evidence of negligence, misrepresentation, or a flawed valuation methodology.

Key Legal Acts and Sections:

Here’s a breakdown of some key legal acts and sections relevant to registered valuer reports:

• The Companies Act, 2013:
  • Section 247: Mandates valuation by registered valuers for specified assets under certain circumstances.
  • Section 149: Deals with the appointment and qualifications of company secretaries, some of whom can be registered valuers.
• The Companies (Registered Valuers and Valuation) Rules, 2017:
  • Chapter II: Outlines eligibility, qualifications, and registration process for valuers.
  • Chapter III: Defines the code of conduct for registered valuers.
  • Chapter IV: Specifies the valuation report format and contents.
• The Insolvency and Bankruptcy Board of India (IBBI) Act, 2016: Establishes the IBBI, responsible for regulating registered valuers.

Need for a Valuation Report under the Companies Act, 2013

The Companies Act, 2013 mandates a valuation report in certain situations to ensure transparency and fairness in share issuances. Here’s a breakdown:

When a Valuation Report is Required:

• Issuing New Shares: Whenever a company issues equity shares, preference shares, or compulsorily convertible debentures (CCDs) to investors through a private placement, a valuation report becomes necessary. This protects investors by establishing a fair market value for the shares they’re acquiring.

When a Valuation Report is Not Required:

• Rights Issue to Existing Shareholders: Companies issuing equity shares to existing shareholders through a rights issue process are exempt from the valuation report requirement. This is because existing shareholders already have a stake in the company and are presumed to have an understanding of its value.
• Convertible Notes: Valuation reports are not mandatory when a company raises funds through convertible notes. Convertible notes are essentially debt instruments that can be converted into equity shares under certain conditions.

Cost and Timeframe for Obtaining a Valuation Report in Indore

The cost of obtaining a valuation report from a registered valuer in Indore can vary depending on the complexity of the valuation and the location. However, a typical report may cost around Rs. 29,000 and can be completed within 7 business days.

In essence, a valuation report acts as a safeguard for both companies and investors in private placement scenarios by ensuring fair share pricing.

Advantages of Registered Valuer Reports in Indore

Registered valuer reports offer a multitude of advantages for individuals, businesses, and legal proceedings. Here’s a closer look at the key benefits they provide:

1. Enhanced Objectivity and Credibility:

• Independent Expertise: Registered valuers are qualified professionals adhering to a strict code of conduct. Their reports offer an unbiased and objective assessment of an asset’s fair market value, minimizing the influence of bias or emotional attachment.
• Standardized Methods: RVs utilize recognized valuation methodologies, ensuring consistency and transparency in the valuation process. This reduces the risk of subjective interpretations or data manipulation.

2. Informed Decision Making:

• Reliable Valuation: A registered valuer report provides a reliable estimate of an asset’s worth, empowering stakeholders to make informed decisions. This can be crucial for:
  • Buying or Selling Assets: Ensures fair pricing for both parties involved in a transaction.
  • Borrowing Money: Provides banks and financial institutions with a clear picture of the asset’s value for loan collateral purposes.
  • Investment Strategies: Helps investors make informed decisions about potential investments based on the asset’s true value.

3. Regulatory Compliance:

• Meeting Legal Requirements: The Companies Act and other regulations mandate registered valuer reports for specific assets in certain situations. Having a compliant report ensures adherence to legal requirements and avoids potential penalties.
• Tax Efficiency: For tax calculations like capital gains or depreciation, registered valuer reports provide a defensible record of the asset’s value, potentially leading to tax optimization.

4. Dispute Resolution:

• Strong Evidence: In legal disputes concerning asset valuation, a registered valuer report acts as strong and credible evidence for courts. This can expedite settlements and lead to fairer outcomes.
• Risk Mitigation: By establishing the asset’s value through a reliable report, stakeholders can mitigate the risk of disputes arising from inaccurate valuations.

5. Transparency and Trust:

• Open Communication: A well-structured registered valuer report provides a clear and transparent overview of the valuation process, methodologies used, and the rationale behind the estimated value. This fosters trust and confidence among stakeholders.
• Improved Market Efficiency: Registered valuer reports ensure accurate and reliable asset valuations and provide transparent pricing information, contributing to a more efficient market.

Conclusion

Understanding when a registered valuer report is necessary plays a crucial role in ensuring transparency and fairness in share issuances. The Companies Act safeguards investors by requiring these reports for private placements. For companies, a registered valuer report can strengthen investor confidence by demonstrating adherence to best practices.

Frequently Asked Questions on Registered Valuer Reports 

Q1. When is a registered valuer report required by the Companies Act?

Ans1. A registered valuer report is mandatory when a company issues equity shares, preference shares, or compulsorily convertible debentures (CCDs) to investors through a private placement.

Q2. When is a registered valuer report not required?

Ans2. Companies issuing equity shares to existing shareholders through a rights issue process and companies raising funds through convertible notes are not required to obtain a registered valuer report.

Q3. Who can prepare a registered valuer report?

Ans3. Only a registered valuer registered with the Insolvency and Bankruptcy Board of India (IBBI) can prepare a valuation report for the Companies Act.

Q4. What are the qualifications of a registered valuer?

Ans4. Registered valuers come from various backgrounds, such as practicing company secretaries, chartered accountants, or cost accountants, and possess specific qualifications and experience in asset valuation.

Q5. What is the estimated cost of a registered valuer report in Indore?

Ans5. The cost of a valuation report in Indore can vary depending on the complexity of the valuation and the location, but a typical report might cost around Rs. 25,000.

Q6. How long does it take to obtain a registered valuer report?

Ans6. The timeframe for obtaining a report can vary, but a registered valuer might complete a report within 4 business days.

Q7. What are the benefits of using a registered valuer report?

Ans7. Benefits include ensuring fair share pricing for investors, fostering transparency in the share issuance process, and potentially strengthening investor confidence in the company.

Q8. Are there any legal implications for not having a registered valuer report when required?

Ans8. Companies failing to obtain a report when mandated by the Companies Act might face penalties or legal challenges.

Q9. Can a registered valuer report be used for purposes other than the Companies Act?

Ans9. Yes, registered valuer reports can be valuable for various purposes, such as loan applications, property transactions, or tax calculations.