By Akash C Jauhari
Development of organised professions is a necessary pre-condition for smooth functioning of market economies. India has seen the institutionalisation of several market-linked professions in the past, such as chartered accountants, insolvency professionals, etc. They are all subject to separate regulatory frameworks. Just like these professionals, valuers also perform a very useful function in market-based economies. Their services are crucial for ascertaining the value of different classes of assets, as may be required under different contexts. For instance, valuation is required for several transactions under company law, insolvency law, and tax law, among others. However, unlike other professions, the valuation profession is not institutionalised or regulated properly. This creates several arbitrage opportunities for malpractices, affects quality-control and also inhibits the development of the profession.
An unsuccessful attempt to provide a holistic framework for the regulation of the valuation profession was made through the Valuation Professionals Bill, 2008, which never saw the light of the day. Today, valuers are only required to meet basic legal requirements for services rendered for specific enactments.
Nevertheless, there is no comprehensive institutional and regulatory framework. In recent times, the Companies (Registered Valuers & Valuation) Rules, 2017 attempted to provide a more robust regulatory framework for a category of valuers. However, this new regime is primarily limited to the valuation services required under the Companies Act, 2013 and insolvency laws, and does not provide a comprehensive institutional framework to address the market failures.
With this background, the government recently constituted a committee of experts to examine the need for a comprehensive framework for regulation and development of valuation professionals in India. The Committee submitted its recommendations last month and proposed the Draft Valuers Bill, 2020(‘Bill’). The primary objectives of the proposed framework are the development and regulation of the valuation profession and a market for valuation services, and protection of interest of users of valuation services.
Regulatory Architecture: The Committee recommended a two-tier model for governance of the profession, similar to the model used for insolvency professionals. At the primary level, it recommended the establishment of National Institute of Valuers, as the principal regulatory body with a governing council, comprising a chairperson, whole-time members, part-time members and ex-officio members. At the secondary level, Valuer Professional Organisations shall act as frontline regulators, responsibile for the development of the profession.
Development: For the long-term development of the profession, the Committee recommended specialised educational courses along with a mandatory internship for entry into the profession. These courses will be delivered by Valuers Institutes, registered with the NIV. NIV will conduct the examinations for these courses. As an interim measure, transitory training programs and an entrance examination are recommended for persons with prior experience in providing valuation services or those with stipulated qualifications and experience.
Regulation: Regulating a profession appropriately is necessary for ensuring minimum professional standards. This is typically achieved by (a) robust entry requirements and (b) prescribing standards of conduct and monitoring its compliance. A person, to render valuation services under the Bill, is required to obtain specialised certificates for registration and practise depending on the nature of assets to be valued. Once registered, a valuer will also be required to abide by multiple codes of conduct, non-compliance with which will attract penalties.
Regulating the market for valuation services: The Committee envisioned a unified regime for the rendition of valuation services, so that only valuers registered under the proposed framework are permitted to render valuation services (albeit, this is proposed to be implemented in phases, prioritising transactions under some statutes over others).
Once implemented, the proposed Bill will go a long way in standardising valuation practices for transactions across different enactments and help in developing the market for valuation services. Such standardisation will also generate many spillover benefits for the Indian economy in the long run.
The author advised the committee talked about in the article on designing the proposed framework.
The author is Research Fellow, Vidhi Centre for Legal Policy. Views are personal