Fast Track Webinar Series

Batch for
XI IBBI Valuation Exam (SFA)
Day 1
CODE OF CONDUCT &
The Companies (RV & Valuation) Rules

Sunday ! 2nd MAY 2021 ! 08:30 AM to 09:30 AM ! www.3spro.blogspot.com

Dr GOPAL KRISHNA RAJU
Chartered Accountant, Insolvency Professional & Registered Valuer
Chairman, Valuation Standards Board, AIIOVF (RVO Recognised by IBBI)
 IBBI Valuation Exam - New Syllabus – 73:27
S No Topic Weightage

1 Macroeconomics 3

2 Finance and Financial Statement Analysis 6

3 Professional / Business Ethics & Standards 4

4 General Laws 18

5 Financial Reporting under IND AS (36, 103, 109, 113) 5

6 Overview of Valuation 4

7 Valuation Approaches 3

8 Valuation Application 35

9 Judicial Pronouncements (6 cases) 2

10 Case Studies (4x2 + 2x3x2) 20

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 Professional/Business Ethics and Standards (4 Marks)

• Model Code of Conduct under the Companies (Registered Valuers and

Valuation) Rules, 2017: professional competence and due care,

independence and disclosure of interest, confidentiality, information

management, gifts and hospitality

• Integrity and fairness, remuneration and costs, occupation, employability

and restrictions, business ethics

• Ethical considerations under terms of engagements: engagement letter,

management representation, guidance on use of work of experts, independence

and conflict of interest, quality review process of valuers, rights and

responsibilities of valuers

• Chapter XVII - Registered Valuers; The Companies (Registered Valuers and

gkr@icai.org | www.3spro.blogspot.com
Valuation) Rules, 2017
 Model Code of Conduct

Section Para

Integrity & Fairness 1-5

Professional Competence & Due Care 6 - 11

Independence & Disclosure of Interest 12 - 18

Confidentiality 20

Information & Management 21 – 24

Gifts & Hospitality 25 – 26

Remuneration & Costs 27 - 28

Occupation, Employability & Restrictions 29 - 30

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 Pointers
• Professional Ethics & Model Code of Conduct carries 4 to 7
Marks

• Annexure I – Model Code of Conduct – 30 Points have to be

thoroughgoing

• Question will be focused on Code of Conduct and also its

sections

ü Tip: Write minimum once the entire 30 points of model code

• The Companies (Registered Valuers and Valuation) Fourth

Amendment Rules, 2018, w.e.f. 13-11-2018

• Rules carry 3 Marks | 21 rules | 4 Annexures | 5 Forms

https://ibbi.gov.in//webadmin/pdf/legalframwork/2018/Nov/The%20Companies%20(Registered%20Valuers%20and%20Valuation)%20
Rules,%202017%20(Upto%2013.11.2018)_2018-11-19%2016:13:01.pdf gkr@icai.org | www.3spro.blogspot.com
 Annexure

I
MODEL CODE OF CONDUCT FOR REGISTERED
VALUERS

FORMS – RV & RVO II

III
Governance Structure and Model Bye Laws for
registered valuers organisation (Part I & Part II)

IV
Eligibility qualification and Experience for Registration
as Valuer

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 Forms

Application for registration as a valuer by an individual A

Application for registration as a valuer by a partnership entity/Company B
CERTIFICATE OF REGISTRATION C
APPLICATION FOR RECOGNITION D
CERTIFICATE OF RECOGNITION REGISTERED VALUERS ORGANISATION E
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 ANNEXURE-I
MODEL CODE OF CONDUCT FOR REGISTERED VALUERS
[See clause (g) of rule 7 and clause (d) of sub-rule (2) of rule 12]

Integrity & Fairness

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 3
A valuer shall endeavour to ensure that he/it provides true
and adequate information and shall not misrepresent
any facts or situations.

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1. A valuer shall endeavour to ensure that he/it
provides true and …….. information and shall
not misrepresent any facts or situations.

a) Relevant

b) Fair

c) Adequate

d) Reasonable

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 5
A valuer shall keep public interest foremost while
delivering his services.

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2. A valuer shall keep …….. foremost while
delivering his services.

a) Client Interest

b) Private Interest

c) Public Interest

d) Bankers Interest

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 2

A valuer shall maintain integrity by being honest,

straightforward, and forthright in all professional

relationships.

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3. A valuer shall maintain integrity by being
honest, straightforward, and forthright in all
………………. relationship

a) Business

b) Professional

c) Client

d) Legal

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4. A valuer shall maintain integrity by being
……….., straightforward, and forthright in all
professional relationship

a) Loyal

b) Honest

c) Responsible

d) Disciplined

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 4
A valuer shall refrain from being involved in any action
that would bring disrepute to the profession.

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5. A valuer shall ……. from being involved in
any action that would bring disrepute to the
profession.

a) Ignore

b) Avoid

c) Refrain

d) Sojourn

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Professional Competence &
Due Care

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 6

A valuer shall render at all times high standards of

service, exercise due diligence, ensure proper care

and exercise independent professional judgment.

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6. A valuer shall render at all times high standards
of service, exercise due diligence, ensure proper
care and exercise independent …………..
judgment.

a) Professional

b) Correct

c) Adept

d) Natural

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 7

A valuer shall carry out professional services in accordance

with the relevant technical and professional

standards that may be specified from time to time.

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7. A valuer shall carry out professional services in
accordance with the relevant ………. and
professional standards that may be specified from
time to time.

a) Regulation

b) Technical

c) Accounting

d) Valuation

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 9
In the preparation of a valuation report, the valuer shall
not disclaim liability for his/its expertise or deny
his/its duty of care, except to the extent that the
assumptions are based on statements of fact provided by
the company or its auditors or consultants or information
available in public domain and not generated by the valuer.
8. In the preparation of a valuation report, the
valuer shall not disclaim liability for his/its
expertise or deny his/its duty of care, except to the
extent that the assumptions are based on
statements of fact provided by the ………. and not
generated by the valuer.
a) Company

b) Consultants

c) Information available in public domain

d) AOTA
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Independence & Disclosure
of Interest

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 12
A valuer shall act with objectivity in his/its professional
dealings by ensuring that his/its decisions are made
without the presence of any bias, conflict of interest,
coercion, or undue influence of any party, whether
directly connected to the valuation assignment or not.

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9. A valuer shall act with objectivity in his/its professional
dealings by ensuring that his/its decisions are made
without the presence of any bias, conflict of interest,
coercion, or undue influence of any party, whether directly
connected to the valuation assignment or not.
Identify which SECTION of Model Code of Conduct

a) Integrity & Fairness

b) Professional Competence & Due Care

c) Independence & Disclosure of Interest

d) Confidentiality
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 14

A valuer shall maintain complete independence in his/its

professional relationships and shall conduct the valuation

independent of external influences.

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10. A valuer shall maintain complete independence
in his/its professional relationships and shall
conduct the valuation independent of ……
influences

a) Internal

b) External

c) Authorities

d) Client

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Information Management

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 21

ü A valuer shall ensure that he/ it maintains written

contemporaneous records for any decision taken, the
reasons for taking the decision, and the information and
evidence in support of such decision.

ü This shall be maintained so as to sufficiently enable a

reasonable person to take a view on the appropriateness
of his/its decisions and actions.

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11. A valuer shall ensure that he/ it maintains written
contemporaneous ……… for any decision taken, the reasons for
taking the decision, and the information and evidence in
support of such decision. This shall be maintained so as to
sufficiently enable a reasonable person to take a view on the
appropriateness of his/its decisions and actions.

a) Records

b) Documents

c) Reports

d) Proofs
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 24
ü A valuer while respecting the confidentiality of
information acquired during the course of performing
professional services, shall maintain proper working
papers for a period of three years or such longer
period as required in its contract for a specific valuation,
for production before a regulatory authority or for a peer
review.

ü In the event of a pending case before the Tribunal or Appellate

Tribunal, the record shall be maintained
gkr@icai.org till the disposal of the case.
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12. A valuer while respecting the confidentiality of
information acquired during the course of performing
professional services, shall maintain proper working
papers for a period of ……. years or such longer period
as required in its contract for a specific valuation, for
production before a regulatory authority or for a peer
review.
a) FIVE

b) THREE

c) EIGHT

d) TEN gkr@icai.org | www.3spro.blogspot.com

 Rule 7(f)
The Companies (Registered Valuers & Valuation) Rules

• (f) maintain records of each assignment undertaken by

him for at least three years from the completion of such
assignment;

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 ICAIRVO_VS 202
Valuation Report & Documentation

• A valuer shall retain the information obtained, as well as his

analyses, assumptions, and workings to arrive at the
valuation for a period of time sufficient to meet the needs of
applicable legal, regulatory or other professional requirements
for records retention.
• This retention period for valuation documentation is
ordinarily not shorter than eight years from the date of
the valuation report.
• The valuer may maintain documentation in either physical or
electronic format.

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13. A valuer shall retain the information obtained, as well
as his analyses, assumptions, and workings to arrive at
the valuation for a period of time sufficient to meet the
needs of applicable legal, regulatory or other professional
requirements for records retention. This retention period
for valuation documentation is ordinarily not shorter than
……. years from the date of the valuation report.

a) FIVE
b) THREE
c) EIGHT
d) TEN gkr@icai.org | www.3spro.blogspot.com
IVS : 102 : Para 30 Valuation Record

Para 30.1 – Reasonable Period

• A record must be kept of the work performed during the
valuation process and the basis for the work on which the
conclusions were reached for a reasonable period after
completion of the assignment, having regard to any relevant
statutory, legal or regulatory requirements.

• Subject to any such requirements, this record should include

the key inputs, all calculations, investigations and analyses relevant to the
final conclusion, and a copy of any draft or final report(s) provided to the
client. gkr@icai.org | www.3spro.blogspot.com
Gifts & Hospitality

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 25
• A valuer or his/its relative shall not accept gifts or
hospitality which undermines or affects his
independence as a valuer.

Explanation.─ For the purposes of this code the term ‘relative’ shall
have the same meaning as defined in clause (77) of Section 2 of the
Companies Act, 2013 (18 of 2013).

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14. A valuer or his/its relative shall not accept gifts
or …….. which undermines or affects his
independence as a valuer.

a) Money

b) Perquisites

c) Hospitality

d) AOTA

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 28
• A valuer shall not accept any fees or charges other
than those which are disclosed in a written
contract with the person to whom he would be
rendering service.
15. A valuer shall not accept any fees or charges
other than those which are …….. in a written
contract with the person to whom he would be
rendering service.

a) Approved

b) Agreed

c) Confirmed

d) Disclosed

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Occupation, Employability &
Restrictions

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 29

• A valuer shall refrain from accepting too many

assignments, if he/it is unlikely to be able to devote

adequate time to each of his/ its assignments.

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 30

• A valuer shall not conduct business which in the opinion

of the authority or the registered valuer organisation

discredits the profession.

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16. A valuer shall not conduct business which in the
opinion of the authority or the registered valuer
organisation ………. the profession.

a) Damages

b) Enhances

c) Discredits

d) Dilutes

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Guidance on use of work of
experts

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 2(38) – Expert includes Valuer

q According to Section 2(38) of Companies Act, 2013, a Valuer is

an expert and his civil and criminal liability is the liability of an
expert.

q “Expert includes an Engineer, a Valuer, a Chartered

Accountant, a Company Secretary, a Cost and Works
Accountant and any other person who has the power or
authority to issue a certificate in pursuance of any law for
the time being in force.”

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 IVS Framework : Para 50 - Competence
Para 50.1

• Valuations must be prepared by an individual or firm having the appropriate technical skills,

experience and knowledge of the subject of the valuation, the market(s) in which it trades
and the purpose of the valuation.

Para 50.2

• If a valuer does not possess all of the necessary technical skills, experience and knowledge

to perform all aspects of a valuation, it is acceptable for the valuer to seek assistance from
specialists in certain aspects of the overall assignment, providing this is disclosed in the

scope of work (see IVS 101 Scope of Work) and the report (see IVS 103 Reporting).

Para 50.3

• The valuer must have the technical skills, experience and knowledge to understand,

interpret and utilise the work of any specialists.

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17. If a valuer does not possess all of the necessary
technical skills, experience and knowledge to perform
all aspects of a valuation, it is acceptable for the
valuer to seek assistance from …… in certain aspects
of the overall assignment

a) Professionals

b) Valuers

c) Specialists

d) Experts

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Rule 8. Conduct of Valuation
(1) The registered valuer shall, while conducting a valuation, comply with the
valuation standards as notified or modified under rule 18:
Provided that until the valuation standards are notified or modified by the
Central Government, a valuer shall make valuations as per-
(a) internationally accepted valuation standards;
(b) valuation standards adopted by any registered valuers organisation.
(2) The registered valuer may obtain inputs for his valuation report or get a
separate valuation for an asset class conducted from another registered
valuer, in which case he shall fully disclose the details of the inputs and the
particulars etc. of the other registered valuer in his report and the liabilities
against the resultant valuation, irrespective of the nature of inputs or
valuation by the other registered valuer, shall remain of the first mentioned
registered valuer. gkr@icai.org | www.3spro.blogspot.com
Terms of Engagement

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IVS 101: Section 10 : Introduction

Para 10.1 – Scope aka Terms of Engagement

• A scope of work (sometimes referred to as terms of

engagement) describes the fundamental terms of a
valuation engagement, such as the asset(s) being
valued, the purpose of the valuation and the
responsibilities of parties involved in the valuation

Where? Valuations are widely used and relied upon in financial and other markets, whether for
inclusion in financial statements, for regulatory compliance
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transactional activity [Introduction to IVS – Page 1 – Para 2]
18. A/An ….. describes the fundamental terms of a
valuation engagement, such as the asset(s) being
valued, the purpose of the valuation and the
responsibilities of parties involved in the valuation

a) Appointment Letter

b) Scope of Work

c) Engagement Letter

d) Expression of Interest

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Companies (Registered Valuers and
Valuation) Rules, 2017
18th October, 2017

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 CHAPTER XVII
REGISTERED VALUERS
Section 247 : Valuation by registered valuers

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 • (1) Where a valuation is required to be made in respect of
any property, stocks, shares, debentures, securities or
goodwill or any other assets (herein referred to as the
assets) or net worth of a company or its liabilities under
the provision of this Act, it shall be valued by a person
having such qualifications and experience and
registered as a valuer in such manner, on such terms and
conditions as may be prescribed and appointed by the audit
committee or in its absence by the Board of Directors of that
company.
Rule 1(3) These rules shall apply for valuation in respect of any property, stocks, shares,
debentures, securities or goodwill or any other assets or net worth of a company or its liabilities
under the provision of the Act or these rules.
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(2) The valuer appointed under sub-section (1) shall,—
ü (a) make an impartial, true and fair valuation of any assets
which may be required to be valued;
ü (b) exercise due diligence while performing the functions as
valuer;
ü (c) make the valuation in accordance with such rules as may be
prescribed; and
× (d) not undertake valuation of any assets in which he has a
direct or indirect interest or becomes so interested at any
time during a period of three years prior to his appointment as valuer
or three years after the valuation of assets was conducted by him
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(3) If a valuer contravenes the provisions of this section or the
rules made thereunder, the valuer shall be punishable with fine
which shall not be less than twenty-five thousand rupees
but which may extend to one lakh rupees:
Provided that if the valuer has contravened such provisions with the
intention to defraud the company or its members, he shall be
punishable with imprisonment for a term which may extend to one year
and with fine which shall not be less than one lakh rupees but which
may extend to five lakh rupees.

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(4) Where a valuer has been convicted under sub-section (3),
he shall be liable to—
(i) refund the remuneration received by him to the
company; and
(ii) pay for damages to the company or to any other person
for loss arising out of incorrect or misleading statements of
particulars made in his report.

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19. In the Composition of the Governing Board for
registered valuers organisation; not more than ….. of
the directors shall be registered valuers.

a) One half

b) One third

c) One fourth

d) One fifth

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 20. Who is the authority responsible for the registration
and supervision of registered valuers

a) Ministry of Corporate Affairs

b) The Insolvency and Bankruptcy Board of India

c) Central Government

d) Any other authority

Rule 2(b) “authority” means an authority specified by the Central Government under section
458 of the Companies Act, 2013 to perform the functions under these rules;
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21. The registered valuer shall not undertake valuation of
any assets in which he has a direct or indirect interest or
becomes so interested at any time during the period of …..
years prior to his appointment as valuer

a) 2

b) 3

c) 4

d) 5

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22. Under Rule 19, the Committee to advice on
Valuation matters shall comprise of 17 (14 + 3)
members out of which up to ……. members who are
representatives of Registered Valuers Organisations,
nominated by Central Government.

a) 2

b) 3

c) 4

d) 5

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23.Who amongst the following is not eligible to be
registered as the registered valuer as per companies
rules,2017

a) Is a valuer member of a registered valuers association

b) Is recommended by the registered valuers organization

of which he is a valuer member for registration as a
valuer

c) Has been convicted by any competent court for an

offence punishable with imprisonment for a term
exceeding six months

d) Is a fit and proper person

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24.The partnership firm shall be eligible to be a registered
valuer if,

a) It has been set up for objects other than for rendering

professional and financial services, including valuation
services

b) It has been set up for objects for rendering professional

and financial services including valuation service

c) It is undergoing an insolvency resolution or is an

undischarged insolvent

d) None of the partners is a registered valuer for the asset

class for the valuation of which it seeks to be a registered
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valuer
25. A company shall make an application for registration
as a registered valuer in

A. Form A

B. Form B

C. Form C

D. Form D

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26.The authority grants certificate of registration as a
registered valuer in

a) Form A

b) Form B

c) Form C

d) Form D

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27. The ……… shall notify and may modify
(from time to time) the valuation standards on
the recommendations of the Committee set up
under rule 19 of Valuation Rules.

a) Registered Valuer Organization

b) IBBI

c) Ministry of Corporate Affairs

d) Central Government

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IVS: 103 : Section 30 : Valuation Reports
Para 30.1 Where the report is the result of an assignment involving the

valuation of an asset or assets, the report must convey the following, at a minimum:
a) The scope of the work performed, including the elements noted in para 20.3 of IVS
101 scope of work, to the extent that each is applicable to the assignment,

b) The intended use,

c) The approach or approaches adopted,

d) The method or methods applied,

e) The key input used,

f) The assumption made,

g) The conclusion(s) of value and principal reasons for any conclusions reached, and

h) The date of the report (which may differ from the valuation date).

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ICAIRVO_202 : Valuation Report & Documentation : Para 11
A valuer shall at a minimum include the following in the valuation report:
ü (a) background information of the asset being valued;
ü (b) purpose of the valuation and appointing authority;
ü (c) the identity of the valuer and any other experts involved in the valuation;
ü (d) disclosure of the valuer’s interest or conflict, if any;
ü (e) date of appointment, valuation date and date of the valuation report;
ü (f) inspections and/or investigations undertaken;
ü (g) nature and sources of the information used or relied upon;
ü (h) procedures adopted in carrying out valuation and valuation standards
followed;
q (i) valuation methodology used;
v (j) restrictions on use of the valuation report, if any;
v (k) major factors that were taken into account during the valuation;
v (l) conclusion; and
v (m) caveats, limitation and disclaimers to the extent they explain or elucidate
the limitations faced by valuer, which shall not be for the purpose of limiting his
responsibility for the valuation report.
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Rule 8(3) : The Companies (Registered Valuers and Valuation) Rules, 2017
8(3) The valuer shall, in his report, state the following:-
ü (a) background information of the asset being valued;
ü (b) purpose of valuation and appointing authority;
ü (c) identity of the valuer and any other experts involved in the valuation;
ü (d) disclosure of valuer interest or conflict, if any;
ü (e) date of appointment, valuation date and date of report;
ü (f) inspections and/or investigations undertaken;
ü (g) nature and sources of the information used or relied upon;
ü (h) procedures adopted in carrying out the valuation and valuation standards
followed;
v (i) restrictions on use of the report, if any;
v (j) major factors that were taken into account during the valuation;
v (k) conclusion; and
v (l) caveats, limitations and disclaimers to the extent they explain or elucidate
the limitations faced by valuer, which shall not be for the purpose of limiting
his responsibility for the valuation report.
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28. The Valuer’s report shall contain,

a) Information of the assets being valued

b) Disclosure of valuer interest or conflict, if any

c) Major factors that were taken into account during

the valuation
d) AOTA

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29. When a potential conflict of interest may
exist, a Valuer should make the ……… in the
Report

a) Disclaimer

b) Notes

c) Disclosures

d) Comments

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 Rule 12
Eligibility for registered valuers organisations.
Provided that, subject to sub-rule (3), the following organisations may also
be recognised as a registered valuers organisation for valuation of a specific
asset class or asset classes, namely:-
• (a) an organisation registered as a society under the Societies
Registration Act, 1860 (21 of 1860) or any relevant state law, or;
• (b) an organisation set up as a trust governed by the Indian Trust Act,
1882 (2 of 1882).
• (3) A registered valuers organisation, being an entity under proviso to
sub-rule (1), shall convert into or register itself as a company under
section 8 of the Companies Act, 2013 (18 of 2013), and include in its bye
laws the requirements specified in Annexure- III, within one year from
the date of commencement of these rules.

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30. For an organization to be registered as a registered-
valuers organisation

a) it has been registered under section 25 of the Companies Act, 1956

or section 8 of the Companies Act, 2013 with the sole object of
dealing with matters relating to regulation of valuers of an asset
class or asset classes and has in its bye laws the requirements
specified in Annexure-III

b) It is a professional institute established by an Act of Parliament

enacted for the purpose of regulation of a profession;

c) Both a) and b)

d) Either a) or b) gkr@icai.org | www.3spro.blogspot.com

 31. Can an organization set up as a trust governed by
Indian Trust Act,1882 be registered as a registered
valuer organization
a) Yes, after it converts itself to a company registered u/s 8 of
the Companies Act, 2013 and makes necessary changes
in its by laws within specified time period.
b) No, an organization set up as a trust cannot be registered
as a registered valuer
c) Yes, after it converts itself to a company registered u/s 8 of
Companies Act 2103
d) NOTA
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#. RVO Recognition # Name of RVO Asset Class

1 IBBI/RVO/2017/001 Institution of Estate Managers and Appraisers L&B, P&M, S/FA

2 IBBI/RVO/2017/002 IOV Registered Valuers Foundation L&B, P&M, S/FA

3 IBBI/RVO/2018/003 ICSI Registered Valuers Organisation L&B, P&M, S/FA

4 IBBI/RVO/2018/004 The Indian Institution of Valuers L&B, P&M, S/FA

5 IBBI/RVO/2018/005 ICMAI Registered Valuers Organisation L&B, P&M, S/FA

6 IBBI/RVO/2018/006 ICAI Registered Valuers Organisation S/FA

7 IBBI/RVO/2018/007 PVAI Valuation Professional Organisation L&B, P&M, S/FA

8 IBBI/RVO/2018/008 CVSRTA Registered Valuers Association L&B, P&M

9 IBBI/RVO/2018/009 Association of Certified Valuators and Analysts S/FA

10 IBBI/RVO/2018/010 CEV Integral Appraisers Foundation L&B

11 IBBI/RVO/2018/011 Divya Jyoti Foundation L&B, P&M, S/FA

12 IBBI/RVO/2020/012 Nandadeep VALUERS Foundation L&B, P&M, S/FA

13 IBBI/RVO/2020/013 All India Institute of Valuers Foundation L&B, P&M, S/FA

14 IBBI/RVO/2020/014 International Business Valuers Association L&B, P&M, S/FA

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32. The IBBI has granted recognition to HOW
MANY Registered Valuers Organizations (as on
1st June 2020)

a) 11

b) 12

c) 13

d) 14

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 Forms

Application for registration as a valuer by an individual A

Application for registration as a valuer by a partnership entity/Company B
CERTIFICATE OF REGISTRATION C
APPLICATION FOR RECOGNITION D
CERTIFICATE OF RECOGNITION REGISTERED VALUERS ORGANISATION E
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33. The authority grants the certificate of
recognition as a registered valuers
organization

a) Form A

b) Form C

c) Form E

d) Form F

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34. The authority may cancel the registration of
a registered valuer, if

a) He violates any condition of registration

b) He violates the provision of any other law for the time

being in force

c) He violates the provision of the companies act, 2013

or any rules made thereunder

d) AOTA

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35. The order passed for cancellation or
suspension of a registered valuer shall not
become effective until ….. days have elapsed
from the date of issue of the order
a) 15

b) 30

c) 45

d) 60

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Mini Case

36. The following are the earnings per share of Thermo

Electron, a company that designs cogeneration and
resource recovery plants, from 1997 to 2002

Year EPS a) Estimate the arithmetic average

1997 0.67 growth rate in earnings per share

1998 0.77 from 1997 to 2002.

b) Estimate the geometric average
1999 0.90
growth rate in earnings per share
2000 1.10
from 1997 to 2002.
2001 1.31
2002 1.51
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36A. Estimate the Arithmetic Average Growth Rate in
earnings per share from 1997 to 2002.

a) 15.68%

b) 16.68%

c) 17.68%

d) 11.68%

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36B. Estimate the Geometric Average growth rate in
earnings per share from 1997 to 2002.

a) 15.65%

b) 16.65%

c) 17.48%

d) 11.65%

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Mini Case

37. Find the Effective Annual Interest Rate at different

frequencies of Compounding
Frequency of Compounding
Nominal Annual Rate Semi-Annual Quarterly Monthly Daily Continuous
1% ? ? ? ? ?

5% ? ? ? ? ?

10% ? ? ? ? ?

15% ? ? ? ? ?

20% ? ? ? ? ?

25% ? ? ? ? ?

30% ? ? ? ? ?

35% ? ? ? ? ?

(see Appendix A and paragraphs B5.4.1–B5.4.7) – Ind AS 109 – Financial Instruments gkr@icai.org | www.3spro.blogspot.com
What is the Effective Annual Interest Rate?
• The Effective Annual Rate (EAR) is the interest rate that is adjusted for
compounding over a given period.
• In simple terms, the effective annual interest rate is the rate of interest
that an investor can earn (or pay) in a year after taking into
consideration compounding.
• The Effective Annual Interest Rate is also known as the effective
interest rate, effective rate, or the annual equivalent rate.
• Compare it to the Annual Percentage Rate (APR) which is based on
simple interest.
• The EAR formula is given below:

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 Continuous Compounding

• When the frequency of compounding is increased up to

infinity we get "continuous compounding".

• By definition, as n approaches infinity in the term (1 + (r / m))m

the value of this term approaches a limit equal to er.

• Where e is the constant [2.7182818284....] and r is the

interest rate in decimal form equal to R/100. Therefore

• EAR = er - 1

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 17
A valuer shall not indulge in “mandate snatching” or
offering “convenience valuations” in order to cater to a
company or client’s needs.

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 38. A valuer shall not indulge in “mandate snatching”
or offering ……….. in order to cater to a company or
client’s needs.

a) Appropriate Valuations

b) Opportunity Valuations

c) Convenience Valuations

d) Ease Valuations

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 19
In any fairness opinion or independent expert opinion
submitted by a valuer, if there has been a prior
engagement in an unconnected transaction, the valuer
shall declare the association with the company
during the last five years.

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39. In any fairness opinion or independent expert
opinion submitted by a valuer, if there has been a
prior engagement in an unconnected transaction, the
valuer shall declare the association with the company
during the last ……years.
a) THREE

b) FIVE

c) EIGHT

d) TEN

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Judicial Pronouncements on Valuation – (2 Marks)

1. Miheer H. Mafatlal Vs. Mafatlal Industries Ltd. (1997) 1 SCC 579

2. Hindustan Lever Employees' Union Vs. Hindustan Lever Limited

and Ors

3. Brooke Bond Lipton India Ltd. (1999) 98 Comp Cas 496 (Cal)

4. Dinesh Vrajlal Lakhani Vs. Parke Davis (India Ltd.) (2005) 124
Comp Case 728 (Bom HC)
5. Dr. Mrs. Renuka Datla Vs. Solvay Pharmaceutical B.V. and Ors.

6. G.L. Sultania and Another Vs. The Securities and Exchange

Board of India

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 DINESH VRAJLAL LAKHANI VS. PARKE DAVIS (INDIA
LTD.) (2005) 124 COMP CASE 728 (BOM HC)

• The Learned Judge held that while considering a Scheme of Amalgamation, the

Court does not exercise an appellate jurisdiction, but a jurisdiction founded on

fairness.

• The Court would not interfere with the swap ratio adopted on the advice of

an expert unless it was contrary to law.

• The Court will not, for instance, interfere only because the valuation adopted by
the valuer may have been improved upon had another method been adopted.

The Court is neither a valuer nor an appellate forum to re-appreciate the merits

of the valuation. What the Court has to ensure is that the determination should

not be contrary to law or unfair to the shareholders of the Company which has

been merged. gkr@icai.org | www.3spro.blogspot.com

40. The Court would not interfere with the swap ratio
adopted on the advice of an expert unless it was
contrary to law. This decision by Bombay High Court in:

a) Brooke Bond Lipton India Ltd.

b) Dinesh Vrajlal Lakhani Vs. Parke Davis (India Ltd.)

c) Dr. Mrs. Renuka Datla Vs. Solvay Pharmaceutical

B.V. and Ors.
d) G.L. Sultania and Another Vs. The Securities and
Exchange Board of India

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 MIHEER H. MAFATLAL VS. MAFATLAL
INDUSTRIES LTD. (1997) 1 SCC579

• In Miheer H. Mafatlal Vs. Mafatlal Industries Ltd,

contentions raised by the appellant were put down as the

scope of court is limited and can only intervene, when

it is not just and fair.

• Also Individual personal interest of minority shareholder

is of no concern unless it is affecting class interest of

such shareholders.

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41. The contentions raised by the appellant were put
down as the scope of court is limited and can only
intervene, when it is not just and fair. This decision of
Supreme Court in:
a) Miheer H. Mafatlal Vs. Mafatlal Industries Ltd.

b) Hindustan Lever Employees' Union Vs. Hindustan Lever

Limited and Ors

c) Brooke Bond Lipton India Ltd.

d) Dinesh Vrajlal Lakhani Vs. Parke Davis (India Ltd)

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 HINDUSTAN LEVER EMPLOYEES’ UNION
VS. HINDUSTAN LEVERLIMITED AND ORS.
• The jurisdiction of the Court in sanctioning a claim of merger is not to ascertain with
mathematical accuracy if the determination satisfied the arithmetical test. A company
court does not exercise an appellate jurisdiction.
• It exercises a jurisdiction founded on fairness.
• It is not required to interfere only because the figure arrived at by the valuer was not as
better as it would have been if another method would have been adopted.
• Hindustan Lever Employees’ Union Vs. Hindustan Lever Limited and Ors, contentions
raised by the appellant were put down as the scope of court is limited and can only
intervene, when it is not just and fair.
• On valuation of share for exchange ratio the Court found that a well reputed valuer of a
renowned firm of chartered accountants and a director of TOMCO determined the rate
by combining three well known methods, namely, the net worth method, the market value
method and the earning method, which was widely accepted by majority of shareholders.
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 42. The jurisdiction of the Court in sanctioning a claim
of merger is not to ascertain with mathematical
accuracy if the determination satisfied the
arithmetical test. This decision by Supreme Court in:

a) Brooke Bond Lipton India Ltd.

b) Dinesh Vrajlal Lakhani Vs. Parke Davis (India Ltd.)

c) Dr. Mrs. Renuka Datla Vs. Solvay Pharmaceutical B.V.

and Ors.

d) Hindustan Lever Employees' Union Vs. Hindustan Lever

Limited and Ors
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 BROOKE BOND LIPTON INDIA LTD.TD.
[1999] 98 COMP CAS 496 (CAL)
• Once the exchange ratio of the shares of the transferee-company to be allotted
to the shareholders of the transferor-company has been worked out by a
recognised firm of chartered accountants who are experts in the field of valuation
and if no mistake can be pointed out in the said valuation, it is not for the court to
substitute its exchange ratio, especially when the same has been accepted
without demur by the overwhelming majority of the shareholders of the two
companies or to say that the shareholders in their collective wisdom should not
have accepted the said exchange ratio on the ground that it will be detrimental to
their interest.

• If the ratio of exchange has been fixed by an experienced and reputed firm of
chartered accountants, then in the absence of any charge of fraud against them,
the court will accept such valuation and ratio of exchange
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 43. In Which case contentions relating to valuation were put
down as the exchange ratio worked out was accepted by
majority of shareholders and value of brands, recognized as
part of goodwill does not require separate
mention:
a) Brooke Bond Lipton India Ltd.

b) Dinesh Vrajlal Lakhani Vs. Parke Davis (India Ltd.)

c) Dr. Mrs. Renuka Datla Vs. Solvay Pharmaceutical B.V.

and Ors.

d) Hindustan Lever Employees' Union Vs. Hindustan Lever

Limited and Ors
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 SULTANIA AND ANOTHER VS THE SECURITIES AND
EXCHANGE BOARD OF INDIA
JUDGEMENT PASSED BY SUPREME COURT

• Unless it is shown that some well-accepted principle of valuation has been

departed from without any reason, or that the approach adopted is patently
erroneous or that relevant factors have not been considered by the valuer or that
the valuation was done on a fundamentally erroneous basis or that the valuer
adopted a demonstrably wrong approach or a fundamental error going to the root
of the matter, this court would not interfere with the valuation of an expert.

• As noticed in Miheer H. Mafatlal (supra), valuation of shares is a technical and

complex problem which can be appropriately left to the consideration of experts in
the field of accountancy. So many imponderables enter the exercise of valuation
of shares.
• Having considered all aspects of the matter, the court is satisfied that the valuer
have not committed any such error which may justify court interference. They have
considered all the factors relevant under Regulation 20(5)) of the Takeover Code
and have adopted a reasonable approach gkr@icai.org | www.3spro.blogspot.com
44. In WHICH case, no merit was found in the appeal and
was dismissed as no principle of valuation has been
departed from and court will not interfere with the
valuation of an expert.
a) Brooke Bond Lipton India Ltd. (1999) 98 Comp Cas 496
(Cal)
b) Dinesh Vrajlal Lakhani Vs. Parke Davis (India Ltd.) (2005)
124 Comp Case 728 (Bom HC)
c) Dr. Mrs. Renuka Datla Vs. Solvay Pharmaceutical B.V.
and Ors.
d) G.L. Sultania and Another Vs. The Securities and
Exchange Board of India
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gkr@icai.org | www.3spro.blogspot.com
1. Which of the following is not a condition for registration?

a) The valuer shall take adequate steps for redressal of

grivences

b) The valuer shall maintain records of each assignment

undertaken by him for the last 5 years from completion of
such assignment

c) The valuer shall in his capacity as registered valuer not

conduct valuation of assets other than for which it has been
granted by the authority

d) NOTA
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2.Which amongst the following condition/s is/are eligible
to be registered as the registered valuer as per the
companies rules, 2017

a) Has passed the valuation examination under rule 5

within TWO years preceding the date of making an
application for registration under rule 6

b) Possesses qualification and experience as

specified in rule 4

c) He is a minor

d) Both a) and b)

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3. Section ____ of Companies , deals with the concept of
registered Valuer

a) 234

b) 237

c) 247

d) 242

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4. A valuer shall in the conduct of his/its business
follow ……………. Standards of integrity and
fairness in all his/its dealings with his/its clients
and other valuers:

a) Reasonable

b) High

c) International

d) Top

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5. A valuer shall in the conduct of his/its business
follow high Standards of integrity and fairness in all
his/its dealings with his/its clients and other ………

a) Professionals

b) Valuers

c) Authorities

d) Regulators

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6. A valuer shall ……. maintain professional
knowledge and skill to provide competent
professional service based on up-to-date
developments in practice, prevailing
regulations/guidelines and techniques

a) Periodically

b) Continuously

c) Sporadically

d) Intermittently

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7. A valuer shall refrain from accepting ……….
assignments, if he/it is unlikely to be able to devote
adequate time to each of his/ its assignments.

a) AS many

b) TOO many

c) More than TWO

d) More than THREE

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 Dr GOPAL KRISHNA RAJU
Chartered Accountant, Insolvency Professional & Registered Valuer
Partner : K GOPAL RAO & CO | Chartered Accountants | Mumbai, Chennai, Bengaluru, Hyderabad, Trichy, Madurai & Tiruvallur

Email: gkr@icai.org Blog: www.3spro.blogspot.com

Mobile: 98400 63269 | 98401 63269
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