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Private placement of shares

Krishna Agarwal (8 Points)

20 October 2017

Does a private company needs to have a valuation report for private placement of shares ?

If yes, who will perform the valuation, and prepare the same.

what are the circumstances where the report is reqd. ?

thanks.

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10 Replies

Madhwesh K (272 Points)
Replied 21 October 2017

all companies need valuation report for private placement of any security. now the provisions on registered valuers are notified and rules enabled. hence the valuation report to be issued by them henceforth. before these provisions were effective, a CA with minimum 10years experience could issue valuation report. during the transition period he may still be allowed to do do (circular awaited). in all private placements whether issue is at par or premium, valuation report is required.

Law Aspire (CS) (755 Points)
Replied 22 October 2017

Originally posted by : Madhwesh K
	all companies need valuation report for private placement of any security. now the provisions on registered valuers are notified and rules enabled. hence the valuation report to be issued by them henceforth. before these provisions were effective, a CA with minimum 10years experience could issue valuation report. during the transition period he may still be allowed to do do (circular awaited). in all private placements whether issue is at par or premium, valuation report is required.

Who can be a registered valuer?
What is the eligibility

Madhwesh K (272 Points)
Replied 22 October 2017

check section 247 notified few days ago and new valuers rules too

Madhwesh K (272 Points)
Replied 22 October 2017

I have shared these files n updates; you can check on my feeds

Krishna Agarwal (8 Points)
Replied 24 October 2017

Thanks all 🙂

Anjali lakra (473 Points)
Replied 24 October 2017

As per Section 42 and rule 14.. explanatory statement needs to disclose the basis on which the price of offer is arrived only.. it is nowhere mentioned in act that the price should be valued by the regustered valuer.. then why we need valuation report.. where it is written?

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Madhwesh K (272 Points)
Replied 25 October 2017

your observation is pertinent to private placement of securities which doesn't "increase subscribed capital" ie., non convertible securities like NCDs.. the original question under this thread is pertaining to private placement of shares, which obviously "increases subscribed capital". in this case section 62 is primarily attracted. under section 62, if u choose option to issue these shares in private placement basis, then both section 62 and 42 get attracted. hence rule 13 of share cap & Deb rules requires valuatio n report (except in case of listed comp). so, to conclude, private placement of shares & convertible instrument needs valuation report and private placement of non-teaching convertible instrument doesn't need valuation report

Madhwesh K (272 Points)
Replied 25 October 2017

in continuation of my first reply in this thread, pls note that MCA has now allowed "members of recognised organizations" also to act as valuers. modus operandi for recognizing these organizations is yet to be released though..

https://www.mca.gov.in/Ministry/pdf/companiesROD_2ndOrder_2410207.pdf

Anjali lakra (473 Points)
Replied 25 October 2017

section 62(1)(c) says that in case of preferential allotment u need valuation report and rule 13 says that for preferential allotment u need to comply section 62 as well as section 42. But for private placement u need to comply section 62 it is nowhere mentioned.. why we need to comply section 62 for private placement when the whole procedure us already specified in section 42. where it is written

Madhwesh K (272 Points)
Replied 25 October 2017

Your observation is right that “for private placement u need to comply section 62 it is nowhere mentioned”.

What we need to understand here is that section 42 & 62 are not exclusive of each other Ie., They don't exclude each other. Hence they have to be read together.

Where a security is issued which increases subscribed capital, then section 62 shall be followed ie., in case of equity, preference or any other convertible instrument. If preferential issue is opted, then section 42 also gets attracted. In this case valuation report is needed, whether you call it a preferential issue or private placement. So this answers the original question under this thread.
Now, where a security is issued which doesn't increase subscribed capital, then section 62 need not be followed ie., in case of NCD or any other convertible instrument. Only section 42 to be comolied. In this case valuation report is not needed. This case is not preferential issue but it is only private placement.

Now your question “why we need to comply section 62 for private placement when the whole procedure us already specified in section 42”. The answer is simple. If the issue increases subscribed capital then u have to follow section 62 (rights or preferential or esop). If u opt preferential, then you have to follow b both 62 & 42. So in this case valuation becomes necessary not because of section 42, but because of joint effect of section 62.

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