Valuation requirement in India under different laws

Purpose of valuation

Under law

Fresh issues of shares

• Reserve Bank of India- FDI
• Reserve Bank of India- ODI
• Income Tax Law
• Company Law
• SEBI Law

Transfer of Shares

• Reserve Bank of India- FDI
• Reserve Bank of India- ODI
• Income Tax Law

Business Combination / Scheme of Arrangement

• Company law
• SEBI Laws
• Financial Reporting

ESOP/Sweaty Equity

• Income Tax Law
• Company Law
• Financial Reporting

Serial No.

Reference

Activity

Trigger Point of Valuation

1.

Section 39 read with Rule 12(5) of the Companies (Prospectus and Allotment of Securities) Rules, 2014

Issue of shares for consideration other than cash - requirement for valuation of the consideration

When filing the return of allotment for issue of shares for consideration other than cash

2.

Section 54 read with Rule 8(6) of the Companies (Share Capital) Rules, 2014

Fair price justification for issue of sweat equity shares

Before the approval of issue of sweat equity shares

3.

Section 54 read with Rule 8(7) of the Companies (Share Capital) Rules, 2014

Valuation of IP / know how acquired by issue of sweat equity shares to be valued

Before the approval of issue of sweat equity shares

4.

Section 62(1)(c) read with Rule 13(1) of the Companies (Share Capital and Debentures) Rules, 2014.

Share issue (other than rights and ESOP)

Before pricing the issue

5.

Section 67(3) read with Rule 16(1)(c) of the Companies (Share Capital and Debentures) Rules, 2014

Determination of price of issue by an unlisted entity when shares are issued to employees / trust to which the company is providing loan for such purchase

Before the approval of the transaction

6.

Section 73 read with Rule 2(ix) of the Companies (Acceptance of Deposits) Rules, 2014

To determine that bonds / debentures issued are secured (and hence not a deposit), valuation of the assets provided as security

Before the issue of such bonds / debentures

7.

Section 230(2) and Section 230(3)

Filing of a compromise or arrangement amongst creditors / shareholders

Before the filing of application.

8.

Section 232

Mergers and amalgamations

When Board  places them report to the members

Before making such offer for the buyout of the shares from the minority holders

Once the Liquidator is appointed

Serial No.

Reference

Activity

Trigger Point

1.

Regulation 27 read with Regulation 35 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016

Valuation by two registered valuers to be appointed by the RP

Once the company is placed into CIRP

2.

Regulation 27 read with Regulation 35 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016

A third valuer's valuation when the RP is not satisfied with the two valuation reports and the variance between these values are significant

If the RP determines this is required after the first two valuer's reports are received by him.

3.

Regulation 35 of IBBI (Liquidation Process) Regulations, 2016

Valuation of assets when a company is placed under liquidation, if the liquidator decides that the valuation at the time of CIRP may no longer be relevant.

When the Liquidator makes such an assessment once the liquidator is appointed

Serial No.

Reference

Activity

Trigger Point

1.

Ind AS 16 – Property Plant & Equipment

Revaluation of PPE

Date of Revaluation/Period End

2.

Ind AS 109 – Financial Instruments

Fair value of unlisted investments held as FVTPL or FVTOCI

At Initial recognition/Period End

3.

Ind AS 40 – Investment Property

Fair valuation of investment properties for the disclosure in financials

Year end

4.

Ind AS 36 – Impairment of Assets

Fair Valuation for impairment testing

Period end when impairment indicators are available

5.

Ind AS 102 – Share Based Payments

ESOP/ SAR Accounting

At the time of option grant.

6.

Ind AS 102 – Share Based Payments

ESOP with performance criteria affecting the option price / SAR accounting

Period End

7.

Ind AS 103 – Business Combination

Accounting for Business combination

At the time of acquisition

8.

Ind As 105 – Noncurrent

assets held for sale and discontinued operation

Non – Current held for disposal

At the time of classification

9.

Ind As 105 – Noncurrent assets held for sale and

discontinued operation

Non – Current held for disposal

At each period end.

10.

Ind AS 116 – Leases

Leases

At the time of acquisition of a fresh lease contract

11.

Ind AS 116 – Leases

Leases

At the time of lease modification

12.

Ind AS 19 - Employee Benefits

Plan assets of employee benefit schemes

Period end

Serial No.

Reference

Activity

Trigger Point

1.

Master Direction on FDI

Inbound foreign investment in an unlisted entity

At the time of investment

2.

Master Direction on FDI

Conversion of CCP / CCD where the conversion terms were not pre-determined

At the time of conversion

3.

Master Direction on FDI

When there is a transaction to swap shares between companies involving foreign shareholders

Before approval of the swap transaction

4.

Master Direction on FDI

At the time of transfer of shares in unlisted Indian entities between a resident and non- resident or vice versa

At the time of the transaction

5.

Master Direction on ODI

At the time of investment in entities abroad / acquisition of shares / stake in entities abroad by a resident

At the time of the transaction

6.

Master Direction on ODI

At the time of transfer / disposal of shares / stake in foreign entities by a resident

At the time of the transaction

Serial No.

Reference

Activity

Trigger point

1.

Section 56(2)(x) read with Rule 11UA

When there is purchase of shares in unlisted company

At the time of Transfer

2.

Section 50 CA read with Rule 11UA

When there is sale of shares in unlisted company

At the time of Transfer.

3.

Section 56(2) (vii)(b) read with Rule 11UA

When a company in which public are not substantially interested issues shares at a premium

At the time of issue

4.

Section 17 read with rule 3(8)

When ESOP shares in Unlisted Company is exercised - by determining of perquisite value by issuing company.

At the time of exercise of options.

5.

Section 92 and 93

For determining the arm length pricing, if and when required

At the time of

contracting the transaction

6.

Section 50B and Rule 11UAE

When a slump sale is -affected, to determine the fair value of the slump sale

At the time of effecting the

slump sale.

7.

Section 115WC and Rule 40C

Valuation of specified security or sweat equity share being a share in the company

At the date on which the option

vests with the employee

8.

Section 115WC and Rule 40D

Valuation of specified security not being an equity share in the company.

At the date on which the option vests with the employee

Sr No

Law

Reference

Activity

Trigger Point

1.

Securities and Exchange Board of India (Listing Obligations

and Disclosure Requirement) Regulations,

2015

Regulation 87C - Valuation, Rating and NAV disclosure

Quarterly

For NAV in case of an issuer whose security receipts are listed on a stock exchange

2.

Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011

Regulation 8(16)-Offer Price

Direct acquisition effected under SEBI Takeover Code - in determining the offer price, one of the criteria when the shares are not frequently traded

At the time of open offer where the direct acquisition is of an entity where shares are not frequently traded

3.

SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018

Regulation 158(6)- Preferential Issue

Preferential issue – conversion of debt into equity under strategic debt restructuring scheme

At the time of      determination of conversion price in case of conversion of debt into equity under strategic debt restructuring scheme

4.

SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018

Regulation 163(3)- Disclosures to Shareholders

In case of issuance of specified securities on a preferential basis for consideration other than cash

At the time of issuance of specified securities on a preferential basis for consideration other than cash.

5.

SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018

Regulation 165- Pricing of Infrequently Traded Share

Pricing of the infrequently traded shares

At the time of pricing of shares of an issuer which are not  frequently traded in line with the requirements of Regulation 165 of the SEBI (ICDR) Regulations, 2018

Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations,

2014

Regulation 21 (7) - Valuation of Assets

Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014

Regulation 21 (7) - Valuation of Assets

Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2021

Regulation 33 - Delisting of equity shares of a company by a recognised stock exchange

Determination of fair value of the delisted equity shares, in case where equity shares are delisted by a recognized stock exchange

At the time of delisting of equity shares of a company by a stock exchange