Regulatory Valuation
Businesses must comply with commercial and tax laws, as well as other regulatory requirements. The laws that regulate valuation in India such as Companies Act, SEBI Regulations, Income Tax Act, Stamp Duty, FEMA Regulations, Indian Accounting Standards (IND AS), and the Insolvency and Bankruptcy Code. An impartial and expert opinion is required for a reasonable evaluation of the subject being valued. Regulatory valuation is a challenging process that requires not only number crunching but also prudent judgement on the part of the Valuer to ensure that the value is measured in compliance with relevant laws and regulations.
Section 247(2) of the Companies Act specifies how the valuation is to be carried out. A registered valuer must value a company's assets in a fair, impartial, and true manner. The act also requires the valuer to conduct due diligence during the valuation. Rule 16 of the Companies (Registered Valuers and Valuation) Rules, 2017 establishes valuation standards for registered valuers. This Rule states that valuations must be performed in accordance with the valuation standards notified by the central government from time to time.
Companies are now required to undergo valuation at various stages of their business and in various circumstances. This valuation paradigm shift indicates that companies are now required to comply with valuation requirements on an ongoing basis.
In India, various regulators have prescribed different valuation requirements to be applied in specific situations. In addition to applicable laws and regulations, some regulators have recently mandated that valuation be conducted in accordance with internationally accepted valuation guidelines. Some regulators have added the requirement of adhering to international valuation standards. Despite being highly regulated, there are times when a valuation is required but no valuation methodology is prescribed by any regulator or under applicable law, leaving the valuation to the valuer's discretion.
Aside from valuation methodology, eligibility to perform valuations varies by regulation. It is mandatory to obtain valuations only from a Registered Valuer under the applicable provisions of the Companies Act, 2013, the Insolvency and Bankruptcy Code, the SEBI ICDR Regulations, 2018, and the SEBI (REIT and InvIT) Regulations, 2016.
The regulatory environment is becoming increasingly complex, and particularly M&A transactions are being inspected by tax and other regulatory authorities in India and around the world. Many regulations now require a valuation before a transaction can be implemented.
Given the changing regulatory environment in India, it is critical to keep updated on valuation requirements. It may be necessary to hire an appropriate valuation professional in certain transactions. Accounting for transactions in India can differ significantly from the currently prescribed guidance for US GAAP and IFRS.
We, at Pure Value Advisory Services, in conjunction with our legal, accounting, and tax advisors, valuation and modelling experts, provide useful insights into the financial, accounting, and tax implications of corporate transactions.
Our valuation reports provide clients the details they need to understand and document transactions that adhere to the highest professional standards, benchmarks, and regulatory requirements.