Companies Act Section 247

Companies Act, Section 247: Valuation by Registered Valuers

Section 247 of the Companies Act, 2013 lays down the legal framework and procedural guidelines for conducting valuations of a company’s assets, liabilities, or net worth under various provisions of the Act. It mandates that such valuations must be carried out by qualified and registered valuers, ensuring independence, objectivity, and professional standards in all valuation-related matters.

This section aims to promote accuracy, transparency, and fairness in the valuation process, which is especially crucial during events such as mergers, acquisitions, issue of shares, restructuring, compromise arrangements, and liquidation.

Sub-section (1): Requirement for Valuation by a Registered Valuer

Wherever any provision of the Companies Act requires a valuation to be conducted in respect of:

Any property, Stocks or shares, Debentures or other securities, Goodwill or any other tangible or intangible asset, or The net worth or liabilities of a company, such valuation must be performed by a person who meets the following criteria:

1. Qualified and Experienced: The valuer must possess the prescribed qualifications and experience required for performing professional valuations.
2. Registered: The valuer must be registered as a valuer with the appropriate regulatory authority.
3. Member of a Recognised Organisation: The valuer must be a member of a registered valuation organisation that is recognised in accordance with the prescribed rules.
4. Appointed by Proper Authority: The appointment of the valuer must be made by the Audit Committee of the company. If the company does not have an Audit Committee, then the Board of Directors shall make the appointment.
This requirement ensures that only competent, independent professionals are entrusted with the critical task of valuation under the Act.

Sub-section (2): Duties and Conduct of the Valuer

A valuer appointed under sub-section (1) must adhere to a high standard of professional and ethical conduct. The duties of the valuer include the following:

(a) Objectivity and Fairness

The valuer must conduct the valuation in an impartial, true, and fair manner. The valuation report should reflect the actual worth or condition of the asset or liability, without any bias or external influence.

(b) Due Diligence

The valuer is required to perform due diligence in the execution of their responsibilities. This includes thoroughly analysing data, verifying documents, and applying accepted valuation methodologies.

(c) Compliance with Prescribed Rules

The valuation must be conducted in accordance with the rules prescribed under the Companies (Registered Valuers and Valuation) Rules, or any other applicable regulations notified by the Central Government or other competent authority.

(d) Avoidance of Conflict of Interest

The valuer must not undertake the valuation of any asset in which he has a direct or indirect interest. This restriction applies both retrospectively and prospectively:

Three years prior to his appointment, and Three years after the valuation is completed.
This provision is designed to eliminate any potential conflict of interest and uphold the integrity and independence of the valuation process.

Sub-section (3): Penalty for Contravention

If a valuer contravenes any provision of this section or any rule made under it, the following consequences apply:

(i) Standard Contravention

The valuer shall be liable to pay a penalty of ?50,000.

(ii) Contravention with Intent to Defraud

If the valuer has willfully violated the provisions with the intention to defraud the company or its members, a more serious penalty applies:

Imprisonment for a term that may extend to one year, and Fine of not less than ?1 lakh, which may extend up to ?5 lakhs.
This acts as a strong deterrent against fraudulent or negligent valuation practices that could harm the interests of the company, its members, or creditors.

Sub-section (4): Additional Liabilities in Case of Fraud

Where a valuer has been convicted under sub-section (3) for acting fraudulently or making incorrect or misleading statements in their valuation report, he shall also be liable to:

(i) Refund Remuneration

Repay the fees or remuneration received from the company for conducting the valuation.

(ii) Pay Damages

Compensate the company or any other affected person for any loss incurred due to the incorrect or misleading particulars in the valuation report.

This provision provides for civil remedies in addition to penal consequences and ensures accountability on the part of the valuer for any damage caused due to professional misconduct or negligence.