A registered valuer's report is a mandatory document in an NCLT merger scheme. The report determines the share exchange ratio, and it is placed before the shareholders, the creditors, and the Tribunal. The report is not a formality; it is the evidentiary foundation for the fairness of the scheme, and it is the document that the objecting shareholders and the statutory authorities will scrutinise.
The Scope of the Report
The valuer must determine the fair value of the shares of the transferor and transferee companies, and the share exchange ratio that reflects the relative values. The valuation must apply a recognised methodology—the income approach, the market approach, or the asset-based approach—and the valuer must explain why the chosen methodology is appropriate to the companies' businesses. The report must address the companies' financial position, their future prospects, and any material contingencies.
The report is not limited to the share exchange ratio. It must also address the valuation of the assets and liabilities that are being transferred, the effect of the scheme on the creditors, and the fairness of the scheme to the minority shareholders. The NCLT will examine the report for the adequacy of the methodology and the reasonableness of the assumptions.
The Timeline
The valuation should be commissioned at the structuring stage, before the scheme is finalised. The valuer needs access to the audited financial statements, the projections, the business plan, and the management representations. The report is typically prepared within four to six weeks, but the timeline depends on the complexity of the businesses and the availability of the information.
The report must be placed before the board before the scheme is approved, and it must be filed with the first motion application. A report that is obtained after the first motion has been filed, or that is revised during the second motion, invites the Tribunal's scrutiny and may delay the sanction.
The Challenge
The report can be challenged on three grounds: the valuer's independence, the methodology, and the assumptions. A valuer who is related to the promoter or who has a financial interest in the scheme lacks independence. A methodology that is not suited to the business—for example, an asset-based valuation for a technology company whose value lies in its future earnings—is vulnerable to challenge. An assumption that is not supported by the company's financial data is a defect that the NCLT will examine.
A technically sound valuation report anticipates the challenge. It discloses the methodology, the assumptions, and the limitations, and it explains why the chosen approach is the most appropriate.
Call to Action
Anuj Desai & Associates coordinates the registered valuer's report for NCLT mergers—from the appointment of the valuer and the scope of the report to the review of the methodology and the defence of the report before the Tribunal. If your scheme requires a valuation, we can help you ensure that the report withstands scrutiny.
📧 office@anujdesaiassociates.com
📞 9619456656
🌐 https://anujdesaiassociates.com
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