DECODING THE COMPANIES REGISTERED VALUER VALUATION RULES 2017

DECODING THE COMPANIES (REGISTERED VALUER & VALUATION) RULES 2017 Yogesh Gupta FCS, FCMA, I. P. , PGDFM, DIM, LIII VYAS Advisors Pvt Ltd ykgupta 64@yahoo. co. in 9810030521

Code of Conduct Valuation always be base on Limited Data/Information Professional has to use their personal Judgment Experience Assumptions Valuation Standards Universally Accepted

Section 247 of Companies Act 2013 States that a Registered Valuer would carry out Valuation in respect of any • Property, ( Non Movable) • Stocks, ( Movable) • Shares, Debentures, Securities or Goodwill or any other assets or Net Worth of a company or its liabilities • and that the valuer shall have such qualifications and experience • and *being a member of an organisation which is recognised, • on such terms and conditions as may be prescribed.

MCA Notified The Companies (Registered Valuer and Valuation) Rules 2017 on 18 th October 2017 G. S. R 1316 (E). - In exercise of the power conferred by section 247 read with section 458, 459 and 469 of the Companies Act, 2013 (18 of 2013), the Central Government hereby makes the Rule. Section 247 - Valuation by registered valuers. Section 458 - Delegation by Central Government of its Power and Functions. Section 459 - Power of Central Government or Tribunal to accord approval, etc. , Subject to condition and to prescribe fee on application. Section 469 - Power of Central Government to make rule

Valuation for Assets Class A- Land & Building - (Civil Engineering) B- Plant & Machinery - (Mechanical OR Electrical Engineering) C- Securities and Financial Assets - (CMA, CS, CA, MBA, PGDFM, M Com)

Valuation Examination- Assets Class. Securities or Financial Assets Curriculum form RVO (50 Hour of Training) Syllabus (100 Marks) S. No Content Marks Hour of Training A Micro Economics 4 2 B Finance 3 1 C Professional Ethics and Standard 5 1. 5 D Financial Statement analysis 3 2 E General Law and Judicial Pronouncement 18 9. 5 F Overview of Valuation 5 2 G Valuation Approach and Methodology 5 2 H Valuation Application 33 18 I Law and Regulation relevant to financial Assets Valuation 10 9 J Case Studies 14 3 100 50 Total

Rule for Examination Format of Examination A. The examination is conducted online with objective multiple-choice questions B. The duration of the examination is 2 hours; C. A candidate is required to answer all questions; D. Wrong answer attracts a negative mark of 25% of the marks assigned. E. Candidate needs to secure 60% of marks for passing; F. Successful candidate is awarded a certificate by the Authority; G. Candidate is issued a temporary mark sheet on submission of answer paper; and H. Candidate may use a non-memory based calculator. No mobile phone is allowed. Frequency of Examination A. The examination is available from a number of locations in the country B. The examination is available on every working day C. A candidate needs to provide PAN and Aadhaar to enrol for the examination. Registration A. The educational course for the asset class shall be delivered by the RVO in not less than 50 hours. B. Candidate having the required qualification and experience and having completed the education course specified above shall be eligible for registration as a valuer on passing the valuation examination of the asset class conducted by the Authority. C. The educational course will be reviewed on a yearly basis.

Syllabus S. No Coverage Weight (%) a Macro Economics - National Income Accounting - Basics of Fiscal Policy - Basics of Monetary Policy - Understanding Business cycles 4 b Finance - Basic Concepts of Finance - Decisions in Finance - Financial Markets and Securities Markets 3 c Professional Ethics and Standards - Model Code of Conduct as notified by MCA - Other Engagement Considerations 5 d Financial Statement Analysis - Assets, Liabilities, Income and Expenses - Performance Analysis, Capital Structure Analysis - Credit Analysis - Cash Flow Analysis 3

e General laws and Judicial Pronouncements • Registered Valuers and Valuation Rules, 2017 - Valuation Standards - Registered Valuers Organisation - Registration of Valuers -Asset Classes • Indian Contract Act, 1872 - Offer, Acceptance and Revocation - Legal Contract, Void and Voidable Contracts - Contingent Contracts - Performance of Contracts - Consequences of Breach of Contract -Agency Agreements • The Sale of Goods Act, 1930 - Contract of Sale - Definition of Goods - Price of Goods - Conditions and Warranties -Unpaid Seller • The Transfer of Property Act, 1882 - Definition of Immovable Property - Transfer and Sale of Property - Rights and Labilities of Buyer and Seller - Mortgage of Property - Rights and Liabilities of Mortgager and Mortgagee - Gift of Immovable Property - Lease 18

• Indian Stamps Act, 1899 - Basics of Indian Stamp Act - Valuation for Duty - Instruments on which duty is levied • Income Tax Act, 1961 - Taxes on Individuals - Taxes on Companies and other entities - Heads of Income- Salary, House Property, Business Income, Capital gain and Income from other sources - Clubbing and Set off provisions • Insolvency and Bankruptcy Code, 2016 - Corporate Insolvency Resolution –Chapter -II - Corporate Liquidation –Chapter -III • Judicial Pronouncements - Important Judicial Precedents of Valuation f Overview of Valuation - Meaning of Value - Premise of Valuation - Purpose of Valuation - Valuation Engagements - Valuation Process - Valuation Report - Documentation 5 g Valuation Approaches and Methodologies - Income Approach - Market Approach - Cost Approach 5

h Valuation Application • Equity / Business Valuation - Analysis of Business Environment - Entity’s Business Strategy Analysis - Business Combination- Amalgamation, Merger, Demerger, Arrangement & Restructuring - Forecasting - Cash flow Analysis - Appropriate Cost of Capital / Rate of Return - Valuation Adjustments • Fixed Income Securities - Types of Different Debt Instruments - Terms used in Fixed Income Securities - Credit Rating of Bonds - Embedded Options - Interest Rate Derivative Products - Related FIMMDA Circulars ( Fixed Income Money market and Derivative Association of India) • Option Valuation - General Principles - Option Valuation Models – Black and Scholes Valuation Methodology, Black and Scholes Merton Option Pricing Method - Binomial Tree Method, Monte Carlo Simulation 33

• Valuation of other Financial Assets and Liabilities • Intangible Assets - Nature and Classification of Intangibles - Identification of Nature of Intangible Assets - Purpose of Intangibles Valuation - Valuation Approaches • Situation Specific Valuation - Business Combination – Amalgamation, Merger, Demerger, Arrangement & Restructuring - Distressed Asset Valuation - Start-up Entities Valuation - Valuation of Small and Medium Enterprises - Valuation of Cyclical Firms - Valuation of Investment Entities - Valuation for Insurance Coverage i Laws and Regulations relevant to Financial Assets Valuation • Financial Reporting - (Indian Accounting Standards), Ind AS 113(Fair Value Measurement) • The Companies Act, 2013 - Chapter IV - Share Capital and Debenture - Chapter XV - Compromise Arrangements and Amalgamation and Relevant Rules - Chapter XX - Winding Up 10

• SEBI Regulations - SEBI (ICDR), 2009 - SEBI (LODR), 2015 - SEBI (Mutual Fund) Regulations, 1996 - SEBI (Share based Employee Benefits) Regulation, 2014 - SEBI (SAST) Regulations, 2011, - SEBI(Delisting) Regulations - ESOP Valuation • RBI and FEMA Regulations - FEMA (Transfer or Issue of Security by a Person Resident Outside India), Regulations, 2017 - Foreign Direct Investment (Pricing Guidelines) - Direct Investment by Residents in Joint Venture/ Wholly Owned Subsidiary abroad. - Prudential Norms for Classification, Valuation and Operation of Investment Portfolio by Banks. - Guidelines on Sale of Stressed Assets by Banks - SARFESI Act, 2002 • Income Tax and Other Statues - Capital Gain on Transfer of Assets - Taxation on Income of Corporate Entities, Partnership - Carry Forward of Losses - Compliance of DTAA Agreements J Case Studies (This section will have 2 case studies for application of valuation techniques. There will be two comprehensions narrating the transaction based on which questions will be asked from each case. ) 14

Registered Valuers Orgnisation S. No 1 2 3 RVO Recognition Number Name of RVO IBBI/RVO/2017/001 Institution of Estate Managers and Appraisers Yes No No IOV Registered Valuers Foundation Yes Yes ICSI Registered Valuers Organisation Yes Yes IBBI/RVO/2017/002 IBBI/RVO/2018/003 Class of Assets Land Building Plant and Machinery Securities or Financial Assets

Who Can be a Registered Valuer Orgnisation(RVO)- Rule 12 An RVO shall be Registered under Ø Section 8 of the Companies Act, 2013 Ø A Professional Institute establish by an Act of Parliament. (CMA, CS) Ø Condition Apply OR Subject to

Annexure III – Governance Structure & Model Bye laws for RVOs Part-I 1. Governance Structure v Sole object to carry on as RVO v Not to be controlled by persons resident outside India v Not more than 49% capital by persons resident outside India v Not a subsidiary - more than one layer v Shall be fit & proper persons if holding more than 10% 2. RVOs to have Bye laws- as per part-II 3. Amendment of Bye laws 4. Composition of the Governing Board Part-II - Model Bye laws of a RVO

Scope For Registered Valuers Insolvency Code IBBI Regulations 2016 : - Valuation Report from a Registered Valuer SEBI Regulations, 2016 : - Valuation Report from a Registered Valuer Companies Act 2013 : - • Section 62(1)(c) – For Valuing further Issue of Shares • Section 192(2) – For Valuing Assets involved in Arrangement of Non Cash transactions involving Directors • Section 230(2)(c)(v) – For Valuing Shares, Property and Assets of the company under a Scheme of Corporate Debt Restructuring • Section 230(3) – Under a Scheme of Compromise/Arrangement, along with the notice of creditors/shareholders meeting, a copy of Valuation Report, if any shall be accompanied • Section 232(2)(d) - The report of the expert with regard to valuation, if any would be circulated for meeting of creditors/members

• Section 232(3)(h) - Where under a Scheme of Compromise/ Arrangement the transferor company is a listed company and the transferee company is an unlisted company, for exit opportunity to the shareholders of transferor company, valuation may be required to be made by the Tribunal • Section 236(2) – For Valuing Equity Shares held by Minority Shareholders • Section 260(2)(c) – For preparing Valuation report in respect of Shares and Assets to arrive at the Reserve Price for Company Administrator • Section 281(1) –For Valuing Assets for submission of report by Liquidator • Section 305(2)(d) – For report on the Assets of the company for preparation of declaration of solvency under voluntary winding up • Section 319(3)(b) –For Valuing the interest of any dissenting member of the transferor company who did not vote in favour of the special resolution, as may be required by the Company Liquidator

Other Scope for valuation Ø Business valuation Consultants Ø Merger valuation and Swap Ratio Consultants Ø Fairness Opinion Consultants Ø RBI valuation Consultants Ø ESOP valuation Consultants Ø Income Tax valuation Consultants Ø Registered Valuers Ø Ind As valuation Consultants

Appointment of Registered Valuers As per Rule 27 and 35 of (Insolvency Resolution Process for Corporate Persons) Regulation 2016 The Resolution Professional has to appoint within seven days of his appointment, two registered valuers to determine the liquidation value of the corporate debtor Provided that the following person shall not be appointed as Registered Valuers: Ø a relative of the resolution professional, Ø a related party of the corporate debtor, Ø an auditor of the corporate debtor in the five year preceding the insolvency commencement date, or Ø a partner or director of the insolvency professional entity.

COMPANIES (REGISTERED VALUERS AND VALUATION) RULES, 2017 Chapter I Preliminary Chapter II Eligibility, Qualification , examination, registration, Chapter III Recognition of RVOs – eligibility & registration Chapter IV Cancellation OR Suspension of RVOs Chapter V Valuation Standards and Committee Chapter VI Miscellaneous - penalties Annexure III Annexure IV Model Code Of Conduct For Registered Valuers Forms Governance Structure & Model Bye Laws for RVOs Qualification/experience in specified discipline

COMPANIES (REGISTERED VALUERS AND VALUATION) RULES, 2017 Rule 2 - Important Defintions 2(c) Asset Class – means a distinct group of assets, such as land building, machinery and equipment, displaying similar characteristics, that can be classified and requires separate set of valuers for valuation 2(e) Certificate of Registration -means the certificate of recognition granted to a registered valuers organisation under sub-rule (5) of rule 13 and the term “recognition” shall be construed accordingly; 2(f) Partnership Entity-means a partnership firm registered under the Indian Partnership Act, 1932 (9 of 1932) or a limited liability partnership registered under the Limited Liability Partnership Act, 2008 (6 of 2009) 2(j) Valuer - means a person registered with the authority in accordance with these rules and the term “registered valuer” shall be construed accordingly

COMPANIES (REGISTERED VALUERS AND VALUATION) RULES, 2017 Rule 3 - Eligibility for Registered Valuers • valuer member of a RVO • recommended by RVO • passed the valuation examination under rule 5 within three years • possesses the qualifications and experience as specified in rule 4 • not a minor • not of unsound mind • not an undischarged bankrupt, or has not applied to be adjudicated as a bankrupt • a person resident in India • has not been convicted • has not been levied a penalty under section 271 J of Income-tax Act • is a fit and proper person

COMPANIES (REGISTERED VALUERS AND VALUATION) RULES, 2017 Rule 4 – Qualification and Experience Post Graduate in the specified discipline – 3 yrs experience Graduate in the specified discipline – 5 yrs experience Member of a professional institute ie CS, CMA, CA - 3 yrs experience Specified discipline - shall mean the specific discipline which is relevant for valuation of an asset class for which the registration as a valuer or recognition as a registered valuers organisation is sought under these rules. • Qualifying education and experience and examination or training for various asset classes, is given in an indicative manner in Annexure— IV of these rules. • •

COMPANIES (REGISTERED VALUERS AND VALUATION) RULES, 2017 Rule 5 – Valuation Examination • 50 Hours of Educational course from RVO • Separate Syllabus for each stream of valuation • Syllabus, format and frequency of examination published on the IBBI website • An individual who passes the valuation examination, shall receive acknowledgement of passing the examination. • An individual may appear for the valuation examination any number of times.

COMPANIES (REGISTERED VALUERS AND VALUATION) RULES, 2017 Rule 6 – Application for Registration • • • Individual in Application in Form A of Annexure II Fee Rs 5000/-- Non Refundable Partnership Entity or Company in Form B of Annexure II Fee Rs 10000/- Non Refundable 21 days to remove any deficiencies in the application To grant certificate in Form C of the Annexure II within 60 days Reasons for not granting to communicate within 45 days Applicant to reply within 15 days Accept or reject within 30 days

COMPANIES (REGISTERED VALUERS AND VALUATION) RULES, 2017 Rule 7 – Conditions for Registration • • • Shall be eligible as per rule 3 and 4 Comply with the bye laws Not to conduct valuation of other classes Take prior permission to port to another RVO Maintain records for 3 years Comply with code of conduct of each RVO Only partner or director to sign the documents Partner who signs and firm is jointly and severally liable Company and director who signs are liable jointly and severally Inform the authority for any removal of Partners or Director immediately

COMPANIES (REGISTERED VALUERS AND VALUATION) RULES, 2017 Rule 8 – Conduct of Valuation • The registered valuer shall conduct a valuation as per valuation standards as notified or modified under rule 18 • Till notified - a valuer shall make valuations as per‑ (a) internationally accepted valuation standards; (b) valuation standards adopted by any registered valuers organisation • The registered valuer may obtain inputs for his valuation report or get a separate valuation for an asset class conducted from another registered valuer, in which case he shall fully disclose the details of the inputs and the particulars etc. of the other registered valuer in his report and the liabilities against the resultant valuation, irrespective of the nature of inputs or valuation by the other registered valuer, shall remain of the first mentioned registered valuer.

COMPANIES (REGISTERED VALUERS AND VALUATION) RULES, 2017 Rule 8 – Conduct of Valuation- contents of valuation report Ø Ø Ø background information of the asset being valued purpose of valuation and appointing authority identity of the valuer and any other experts involved in the valuation disclosure of valuer interest or conflict, if any date of appointment, valuation date and date of report inspections and/or investigations undertaken nature and sources of the information used or relied upon procedures adopted in carrying out the valuation and valuation standards followed restrictions on use of the report, if any major factors that were taken into account during the valuation conclusion caveats, limitations and disclaimers

COMPANIES (REGISTERED VALUERS AND VALUATION) RULES, 2017 Rule 10 Functions of a Valuer This provisions applicable on valuation as per – Companies Act, 2013 – Insolvency Code, 2016 – SEBI Regulations, 2016 However, other regulatory authorities may use these valuation rules But need to modified their Law/Regulations like Income Tax, RBI, GST etc

COMPANIES (REGISTERED VALUERS AND VALUATION) RULES, 2017 Rule 11 Transitional Arrangement Any person (Not having a member of RVO), may continue the work upto 31 st March 2018 and if assignment has not completed till 31 st March 2018, than further 3 month extension is granted for completion of work. Amendment in Rule 11 Amends Rule 11 to extend “Transitional Arrangement” from 31 st Mar. 2018 to 30 th Sept. 2018 If already taken assignment and is not completed before 30 th Sep 2018 – 3 months time

COMPANIES (REGISTERED VALUERS AND VALUATION) RULES, 2017 Rule 12 – Eligibility of RVOs Rule 13 – Application for registration of RVOs Form D of Annexure -II Rule 14 – Conditions for Recognition of RVOs Rule 15 -17 – Cancellation or suspension of Certificate of Registration or Recognition Rule 18 - Valuation Standards – to be notified by the Central Govt on the recommendations of the Committee set up under Rule 19

COMPANIES (REGISTERED VALUERS AND VALUATION) RULES, 2017 Rule 18 Valuation Standard Rule 19 - Committee to Advice on Valuation Matters No of Member In The Committee 1 MCA 1 IBBI 1 Law Department Upto 4 Nominated BY CG Valuer Upto 4 Representative of RVO Upto 2 Member who represent industry and other stakeholder nominated by CG in consultation with the authority The Chairperson and Member of Committee shall gave a tenure of 3 Year and they shall not have more than 2 Tenure

COMPANIES (REGISTERED VALUERS AND VALUATION) RULES, 2017 Rule 20 – Punishment for contravention. - Without prejudice to any other liabilities where a person contravenes any of the provision of these rules he shall be punishable in accordance with sub-section (3) of section 469 of the Act. Sec 469 – Upto Rs 5000 or Rs 500 per day for any continuing Act Rule 21. Punishment for false statement. — If in any report, certificate or other document required by, or for, the purposes of any of the provisions of the Act or the rules made thereunder or these rules, any person makes a statement, — (a) which is false in any material particulars, knowing it to be false; or (b) which omits any material fact, knowing it to be material, he shall be liable under section 448 of the Act.

Fine and Penalty Rule 20 & 21 Companies Act 2013 Section 247 (3) If a valuer contravenes the provisions of this section or the rules made there under, the valuer shall be Punishable with fine which shall not be less than 25, 000/- but which may extend to 1, 000/Provided that if 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, 000/- but which may extend to 5, 000/Where a valuer has been convicted under sub-section (3), he shall be liable to— (i) refund the remuneration received by him to the company; and (ii) 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.

Annexure I Model Code Of Conduct For Registered Valuers Annexure II Form of Application and Certificates Annexure III Governance Structure and Model Bye Laws for RVOs Annexure IV Indicative Matrix on requisite Qualification/experience in specified discipline

Annexure - I Model Code of Conduct for registered valuers. 1 - Integrity and Fairness 2 - Professional Competence and due care 3 - Independence and Disclosure of Interest 4 - Confidentiality 5 - Information Management 6 - Gifts and Hospitality 7 - Remuneration and Costs 8 - Occupation, Employment and Restriction

Annexure-II S. No Form Applicability 1 Form A Application for Registration as a valuer by an Individual 2 Form B Application for Registration as a valuer by a Entity Partnership/ LLP/ Company 3 Form C Certificate of Registration 4 Form D Application for Recognition-RVO 5 Form E Certificate of Recognition

Annexure-III Governance Structure and model Bye Laws for RVO Part-I 1 -Governance Structure 2 -R VO to have Bye-Law 3 -Amendment of Bye-Law 4 -Composition of the Governing Board Part-II 1 -General 2 -Definition 3 -Objective 4 -Duties of Organisation 5 -Committee of the Organisation 6 -Membership 7 -Duties of members 8 -Monitoring of members 9 -Grievance Redressel Mechanism 10 -Disciplinary Proceedings 11 -Surrender of membership and expulsion from membership

Annexure-IV Qualification and Experience for registered valuers Qualification Asset Class (I) Securities or financial Assets Experience Post graduate Degree/Diploma 3 Year Bachelor’s Degree 5 Year Membership of professional institute establish by an act of parliament 3 year Educational qualification in specified discipline Graduate level Post Graduate level Experience in Specified Discipline (II) (IV) Graduate in any stream (1) (2) (3) Any other Graduate level qualification in accordance with rule 4 as may be specified by the authority for a registered values organization in its conditions of recognition. Member of the Institute of chartered Accountants or the Institute of cost Accountants of India or the Institute of company secretaries of India; MBA/PGDBM specialization in finance or; Post Graduate Degree in finance Any other post Graduate level qualification in accordance with rule 4 as may be specified by the authority for a registered values organization in its conditions of recognition. Three year of Experience in the discipline after completing graduation. Valuation Specific Education Course (V) Courses as per syllabus specified under rule 5 At least five years Courses as per and three years of syllabus under experience in case rule 5 of graduate level degree and post graduate level degree respectively. Any other asset class along with corresponding qualification and experience in accordance with rule 4 as may be specified by the authority for a registered valuers organization in its conditions of recognition.

Certificate Registration Recognition Granted Under sub –`Rule(6)of Rule 6 Granted Under sub –Rule(5)of Rule 13 Annexure -II Form C Registered Valuers Form E Registered Valuers Orgnisation

Yogesh Gupta FCS FCMA IP PGDFM DIM LII VYAS Advisors Pvt Ltd ykgupta 64@yahoo. co. in 9810030521