The Disciplinary Committee of the Insolvency and Bankruptcy Board of India (IBBI) has recently warned a registered valuer to be diligent as he had left out some important indices in preparation of valuation report.
Inter alia, the Disciplinary Committee (DC) observed “The valuation report must be transparent and complete in itself such that there is no iota of doubt in the minds of stakeholders while referring a valuation report.”
Based on the findings of an inspection, a prima facie opinion was formed that sufficient cause exists to consider actions under sub-rule (5) of rule 17 of the Valuation Rules and accordingly SCN dated 27th January 2023 was issued to RV for contravention of the rules 8(3)(g),(h) and (j) of the Valuation Rules, 2017.
The written reply was sought from the RV and an opportunity of personal hearing was accorded to him. The RV, Motappa Thimmarayaswamy responded to the SCN on 10th February 2023, where he denied any deviation from established practices and standards and the contravention alleged in the SCN. The matter was referred to this Authority for disposal of the SCN. The registered valuer availed the opportunity of personal hearing on 15th May 2023.
The SCN alleged that there appears to be no convergence between methodology indicated by the RV in his valuation report and the final valuation figures estimated by him. The report claims to have taken into account, various factors such as ‘price from market/manufacturer’, ‘price indices’, ‘age’, ‘balance life’, ‘salvage’, ‘depreciation’, ‘obsolescence’ ‘cost to cure’ etc. However, the SCN notes that it appears that points that are conceptually important in the entire exercise such as ‘base value’ ‘use of indices’ ‘rate of depreciation due to wear & tear’, ‘rate at which obsolescence factor is accounted for’ etc. are missing in the calculation/estimation part.
This gave the impression that the figures estimated by the RV were arbitrary in nature instead of being based on the factors indicated by the valuer.
The RV, in his response had submitted that, the convergence as stated in the SCN can be seen in the computation sheet. The information stated in the valuation report is applicable for both the calculations under the reproduction and market method.
He further submitted that, in the reproduction method it is required to depreciate the value of new item to make to current condition of the equipment. Cost approach value is not the value reported in the final report even though it was worked out, he added.
The Disciplinary Committee of Whole Time Member Sudhaker Shukla observed that, “The RV has placed on record the computation sheet utilised by him in preparing the valuation report. On perusal of the computation sheet, it can be presumed that the RV has considered certain factors such as year of purchase, source of the market price considered, adjustment value for year of make, etc. to arrive at the fair value of the assets.”
It was noted that, “However, even the computation sheet does not clarify the basis of taking discounting factor of 40 per cent for the liquidation value of these assets. It is well understood that the valuer has the liberty to exercise his professional judgment while estimating the value, however, the assumptions with respect to the discounting factors must rest on some logical basis which should be recorded in the valuation report for consideration of its stakeholders.”
The DC went on to dispose of the Show Cause Notice, with a word of caution to the RV for being careful and diligent, in future, in preparation of the valuation report in such a manner that all the material information be provided in the valuation report itself to make the document complete in itself, leaving nothing at the discretion or judgement or interpretation of the stakeholders who intend to use it during the process.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
