Regulatory Valuation

Regulatory Valuation is a complex exercise as it requires not only number crunching but prudent judgement on the part of a Valuer to ensure that the value is derived in consonance with respective laws and regulations. Laws that govern Valuation in India are Companies Act, SEBI Regulations, Income Tax Act, Stamp Duty, FEMA Regulations, Accounting Standards (AS/ IndAS) and Insolvency and Bankruptcy Code. 

It is pertinent for organizations to reinforce compliance with commercial and tax laws, and other regulatory provisions. This requires an independent and expert opinion for a fair evaluation of the subject being valued.  Our valuation and modeling specialists, together with our legal, accounting and tax advisors, provide significant insights related to the analysis of financial, accounting, and tax implications of corporate dealings.

Our valuation reports empower the client to understand and document transactions meeting with the highest professional standards, benchmark, and scrutiny of regulatory authorities. They help to optimize deal structures with appropriate documentation. The massive shift in the regulatory environment of India has made it mandatory for organizations to divulge all relevant information considered in valuing a business or any transaction. 

Company Law Compliances

All valuations under the Companies Act after January 31, 2019 must be conducted by a Registered Valuer recognized under Section 247 and relevant rules thereunder. The MCA has designated the Insolvency and Bankruptcy Board of India (IBBI) as the authority for implementing the new regime of registered valuers. Following sections cover the laws around valuation of equity shares, assets and other financial instruments in various types of transactions: 

Section No.Description
Section 62(1)( c )For valuing further issue of shares
Section 192 (2)For valuing assets involved in arrangement of non-cash transactions involving directors
Section 230 (2)(c )(v)For valuing shares, property and assets of the company under a scheme of corporate debt restructuring
Section 230(3) and
Section 232(2)(d)
For valuation including share swap ratio under a scheme of compromise/ arrangement.
Section 236(2)For valuing equity shares held by minority shareholders
Section 281(1)(a)For valuing assets for submission of report by company liquidator
Section 232(3)(h)Where under a scheme of compromise/ arrangement, the transferor company is a listed company and the transferee company is an unlisted company, for exit opportunity to the shareholders of transferor company, valuation may be required to be made by the Tribunal

Income Tax Act

Although buying or selling equity shares in India is covered by multiple laws, Income tax is usually applicable irrespective of the circumstances of the transaction. In equity share transactions, most buyers assume that tax valuations are required for capital gains, but miss the fact that tax under the head “other income” may be triggered. Tax valuations are actually required frequently, in order to support the buyer and seller’s position to the tax authorities.


Tax valuations are usually triggered in fund-raising and when shares are bought/sold below the Fair Market Value (FMV). In the majority of transactions for going concerns and profitable businesses, this does not apply as consideration is usually well above FMV. However, in many businesses, it may either be below FMV or close enough to FMV to trigger taxation. FMV also changes depending on the balance sheet date and may therefore cause a shock post-transaction if significant movements have occurred. Importantly, CFOs and tax heads must remember that it is not only the obvious ‘gains’ that are covered by the Income Tax Act – it is also the notional and potential gains that are in the tax net.

Following are various sections in Income Tax Act under which valuation is required: 

Section No.Description
Section 92CAny international transaction between associated entities needs to be done at arm’s length price. In case where issue or transfer of shares, business or certain rights is involved in such case valuation is required
Section 56(2)(x)Where any person receives money or specified property for inadequate or without consideration
Section 56(2)(viib)Where a company receives any consideration for further issue of shares from a resident person.
Section 50CAWhere consideration for transfer of unquoted shares is less than FMV of such share
Section 50BCertificate of net worth from Chartered Accountant for the purpose of computation of capital gains under slump sale
Method as per rule 11UAFair Market Value = (A+B+C+D-L)X(PV)/(PE)
A = BV of assets excl. Jewellery, shares, immovable property etc.
B =Jewellery valued by reg. valuer
C = Shares and securities valued as per rule 11UA
D = Value adopted for stamp duty value L = Adjusted liabilities PV = paid up value of shares to be valued
PE = total paid up value of equity share capital

SEBI Regulations

As per SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, where the shares of an issuer are not frequently traded, the price determined by the issuer shall take into account the valuation parameters including book value, comparable trading multiples, and such other parameters as are customary for valuation of shares of such companies. 

SEBI regulations require a company to conduct valuations in various transactions such as during fresh issue of equity shares, Business Combinations or Scheme of Arrangement etc.

ParticularsRelevant SEBI RegulationsContent
Preferential AllotmentSEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018

Chapter V
“preferential issue” means an issue of specified securities by a listed issuer to any select person or group of persons on a private placement basis in accordance with Chapter V of these regulations and does not include an offer of specified securities made through employee stock option scheme, employee stock purchase scheme or an issue of sweat equity shares or depository receipts issued in a country outside India or foreign securities

Pricing for Listed Shares
1.Should not be lesser than-
The greater of 2 Weeks or 26 weeks average weekly high/low
(If Listed for less than 26 weeks then consider Issue price as well).
2.Should not be less than 2 weeks weekly high/low (If issued to Qualified Institutional Buyers)

Adjustments to be made for Infrequently traded shares
Takeover Regulations Code for Open OfferSEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011Pricing will be highest of the Following -
1.Highest Negotiated Price
2.The volume-weighted average price paid or payable for acquisitions during the fifty-two weeks immediately preceding the date of the public announcement
3.The highest price paid or payable for any acquisition during the twenty-six weeks immediately preceding the date of the public announcement
4.The volume-weighted average market price of such shares for a period of sixty trading days immediately preceding the date of the public announcement

Adjustments to be made for Infrequently traded shares
DelistingSEBI (Delisting of Equity Shares) (Amendment) Regulations, 2019Pricing done through Book Building as per Schedule II (This price should not be lower than Floor Price determined under Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011)
BuybackSecurities and Exchange Board of India (Buy-back of Securities) Regulations, 2018Pricing decided Through Stock Exchange(Volume Weighted Average Price) or Book Building Process
( In case of buyback through Stock Exchange, the buy-back offer shall open not later than seven working days from the date of public announcement and shall close within six months from the date of opening of the offer)
(In case of buyback through Book Building, The offer for buy-back shall remain open to the securities holders for a period not less than fifteen days and not exceeding thirty days.)
Share WarrantsSEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018The price or formula for determination of exercise price of the warrants shall be determined upfront and disclosed in the offer document and at least twenty-five per cent of the consideration amount based on the exercise price shall also be received upfront;
Provided that in case the exercise price of warrants is based on a formula, twenty-five per cent consideration amount based on the cap price of the price band determined for the linked equity shares or convertible securities shall be received upfront.
Merger - Issue of shares to a select class of investors of Unlisted CompaniesSEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018Preferential Allotment Pricing Mechanism will prevail in such a case

Pricing will be as follows

Should not be lesser than-
The greater of 2 Weeks or 26 weeks average weekly high/low
(If Listed for less than 26 weeks then consider Issue price as well).


The transfer of capital instruments are regulated under Foreign Exchange Management (Non-Debt Instruments), 2019. This regulation permits the person resident outside India, holding capital instruments of an Indian company or units in accordance with these Regulations to transfer the same to a person resident in India or vice versa by way of sale at value prescribed by the pricing guidelines. As per the pricing guidelines under FEMA, the transfer by way of sale shall be done at an arm’s length price which should be valued as per any internationally accepted pricing methodology.

Internationally accepted pricing methodology primarily includes market-approach, income-approach and asset-approach methods.

As per Regulation 11 of FEMA 20(R):

ParticularsFor Unlisted Company
Issue by an Indian company or transfer from a resident to non-resident – Price should not be less thanThe fair value worked out as per any internationally accepted pricing methodology for valuation on an arm’s length basis, duly certified by a Chartered Accountant or a SEBI registered Merchant Banker or a practicing Cost Accountant
Transfer from a non-resident to resident – Price should not be more than
The fair value as per any internationally accepted pricing methodology for valuation on an arm’s length basis, duly certified by a Chartered Accountant or a SEBI registered Merchant Banker

*For transactions relating to Listed Companies, one is required to follow the pricing guidelines prescribed SEBI.

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