New draft Companies Valuation rules for Sebi-registered firms stir debate

Sebi registered merchant bankers excluded from such jobs; reactions invited till June 27

Most merchant bankers registered with the Securities and Exchange Board of India (Sebi) might be excluded as valuers in areas such as valuation of shares issued by companies for consideration other than cash or valuation of assets under a scheme of corporate debt restructuring.

The draft Companies (Registered Valuers and Valuation) Rules, issued by the ministry of corporate affairs (MCA), say only individuals and partnership entities are eligible. Most Sebi-registered merchant bankers are companies. A few are limited liability partnerships (LLPs), which may be allowed, by these rules.

The other areas where these rules are proposed to apply are issuance of shares by unlisted companies to unrelated parties, valuation of assets in insolvency, merger or acquisition, approved by the National Company Law Tribunal.

These rules are proposed to cover only activities under the Companies Act, 2013. So, these will not cover areas of valuation that come under the Sebi, Reserve Bank of India (RBI) and Income Tax Acts.

In the earlier draft rules, issued three years earlier, Sebi-registered merchant bankers were deemed to be valuers under the Companies Act.

"As much as 95 per cent of Sebi-registered merchant bankers are companies and only five per cent are LLPs," said Chander Sawhney, partner and head, valuations and deals, at Corporate Professionals Capital.

The rules were a step in the right direction but should be aligned with the norms prescribed by Sebi and RBI, he said.

Though these rules are officially in draft form, there is a specific date, July 15, proposed for their enforcement. Comments on these have been invited till June 27.

Sawhney said it was probable these rules excluded companies from the work of valuers as these have limited liabilities, whereas individuals and partnership entities have unlimited liabilities.

When asked why LLPs were proposed to be included as valuers, as these specifially have limited liabilities, experts said MCA should clarify. An LLP is a partnership in which partners do not have liabilities of other partners.

The rules say valuers should not disclaim liability for expertise. This means a valuer will be entirely responsible for the work done. However, the data provided by a company for the purpose of valuation would not form part of his responsibility, the rules say.

The rules talk of coming out with standards for valuation but these are yet to be formed. Till then, international standards or the norms set by other statutory bodies such as Sebi and RBI may be adhered to.

"The registered valuer requirement seems to be applicable to both listed and unlisted companies. We hope that gradually the eligibility of valuers under Sebi, RBI and income tax Acts would sync with these new rules", says Harish H V, partner, Grant Thornton India.

Under the rules, those with a graduation degree must have at least five years of experience to be registered as a valuer and those with a post-graduation degree should have at least three years. Members of professional institutes set up under an Act of Parliament, such as The Institute of Chartered Accountants of India, are also required to have at least five years of experience. Also, to clear an exam to be set by a proposed registration authority or an institute prescribed by such an authority. This has also irked some, who do not approve of equating members of a professional institute with those having a graduation degree.

However, if an individual is over 50 years and has experience of at least 10 valuation assignments, he may continue as valuer.