Company Valuation

Section 247 of the Companies Act 2013 requires a Registered Valuer (RV) enrolled with IBBI under the Companies (Registered Valuers and Valuation) Rules 2017 for valuations done for mergers, buybacks, preferential allotments, and reduction of share capital. An RV in the Securities or Financial Assets class must hold the relevant IBBI certificate; a CA acting as RV must additionally be registered with an IBBI-recognised valuer organisation.

Under FEMA 20(R) and the RBI Master Direction on Foreign Investment in India, shares issued to a non-resident must be at a price not less than the fair value determined by a SEBI-registered Merchant Banker or a Chartered Accountant using an internationally accepted pricing methodology. For unlisted companies the most common method is DCF. The valuation report must accompany the FC-GPR filing on the FIRMS portal within 30 days of allotment.

Rule 11UA of the Income-tax Rules 1962 prescribes the method. For equity shares of an unlisted company the FMV is the higher of (i) net asset value per share per the balance sheet on the valuation date and (ii) DCF value as determined by a merchant banker or CA. Under ITA 2025 (applicable from TY 2026-27 onwards), gains from transfer are taxable under Section 67 (equivalent to Section 45 of ITA 1961); Rule 11UA continues to apply by cross-reference.

Ind AS 113 Fair Value Measurement, notified under the Companies (Indian Accounting Standards) Rules 2015, governs how fair value is defined, measured, and disclosed. It requires a three-level hierarchy: Level 1 quoted prices, Level 2 observable inputs, Level 3 unobservable inputs. For business combinations, Ind AS 103 additionally requires a purchase price allocation (PPA) with identifiable intangibles recognised at fair value at the acquisition date.

Yes. Under the Companies (Share Capital and Debentures) Rules 2014, Rule 12, the exercise price of ESOPs must be determined by a registered valuer or merchant banker. The report must state the valuation date, methodology (typically DCF or comparable companies), discount rate, terminal growth rate, and concluded per-share value. For listed companies, SEBI (Share Based Employee Benefits and Sweat Equity) Regulations 2021, Regulation 18, additionally requires the valuation to be at market price as defined therein.