Who Can Value Unlisted Shares in India? A Complete Guide Under Companies Act, Income Tax Act and FEMA
- CA Kartikeyan Khator
- Jul 5
- 4 min read
Updated: Sep 13
Valuation of shares is a critical requirement in multiple business scenarios — from issuing new shares to transfer of ownership, fundraising, mergers, and regulatory compliance. However, who can perform share valuation in India depends on the governing law applicable to the transaction, sometimes necessitating more than one valuation certificate.
This article outlines when share valuation is required under different Indian laws and who is authorized to conduct it.
1. Under the Companies Act, 2013
Is Valuation Required?
Yes, in multiple scenarios, which majorly includes:
Scenario | Section/Rule | Is Valuation Mandatory |
Preferential Allotment of Shares | Sec 62(1)(c), Rule 13 | Mandatory |
Issue of Shares for Non-Cash Consideration | Sec 62(1)(c), Rule 13 | Mandatory |
Issue of Shares on Private Placement Basis | Sec 42 | Mandatory |
Exercise of ESOPs | Rule 12 | Mandatory |
Issue of Sweat Equity Shares | Sec 54 | Mandatory |
Rights Issue at Premium/Discount (for fairness) | Sec 62(1)(a) | Recommended if not at par |
Issue or Conversion of Convertible Securities | Rule 13 of Companies (Share Capital and Debentures) Rules, 2014 | Mandatory at the time of issue if price is fixed, or at the time of conversion if price is not fixed |
Buy-back of Shares (Unlisted) | Sec 68, Rule 17 | Recommended |
Merger, Amalgamation and Restructuring | Sec 230–232 | Mandatory |
Purchase of Minority Shareholding | Sec 236 | Mandatory |
Related Party Transactions (Exceeding Thresholds) | Sec 188 | Recommended (esp. for sale of assets/shares) |
Liquidation/Voluntary Winding Up | Sec 59 (IBC reference) | Needed for liquidation of assets |
Who Can Do the Valuation?
Only a Registered Valuer registered with the Insolvency and Bankruptcy Board of India (IBBI) under Section 247 of the Companies Act, 2013, can issue a valuation certificate for all the above-mentioned requirements.
Key Notes:
Section 247 governs all valuation requirements and mandates that only a Registered Valuer (IBBI-certified) can carry out valuations under the Companies Act.
The valuation must be conducted independently and the valuer must not have any direct or indirect interest in the company.
Valuation is often triggered indirectly through ROC filings, NCLT processes, or auditor queries, even if not explicitly stated in the Act.
Some events (e.g., rights issues, related party transactions) do not mandate a valuation but still require it in practice to demonstrate fairness, protect minority shareholder interest, and to address auditor’s queries.
2. Under the Income Tax Act, 1961
Is Valuation Required?
Yes, in multiple cases, which majorly includes:
Scenario | Section / Rule | Is Valuation Mandatory? |
Issue of Shares to Resident or Non-Resident Investors (e.g. Angels, Friends & Family) | Sec 56(2)(viib) + Rule 11UA(2) | Mandatory |
Transfer of Shares from one person to another (Seller's Perspective) | Sec 50CA + Rule 11UAA | Recommended |
Transfer of Shares from one person to another (Buyer's Perspective) | Sec 56(2)(x) + Rule 11UA(1)(c) | Recommended |
ESOP/Equity Compensation (on Exercise) | Rule 3(8) r/w Sec 17(2)(vi) | Mandatory |
Indirect Transfer of Indian Assets (via foreign share sale) | Sec 9(1)(i) + Rule 11UB | Mandatory |
Who Can Do the Valuation?
Following professionals can issue valuation certificates subject to a few restrictions:
Practicing Chartered Accountant (CA) – Generally CAs can issue valuation certificates for the above-mentioned requirements under Rule 11UA and Rule 11UB, however, for valuation under Rule 11UA(2) for the purpose of Section 56(2)(viib), a CA can issue a certificate only if the valuation is determined using the NAV method. Moreover, a CA cannot issue a certificate for the purpose of ESOPs under Rule 3(8).
Category I Merchant Banker registered with SEBI – Generally, a Merchant Banker can issue a valuation certificate for all the above-mentioned requirements.
Key Notes:
As per various legal precedents, option of valuation method is with the assessee and therefore the choice of the valuation method for any transaction cannot be questioned by the authorities.
3. Under FEMA (Foreign Exchange Management Act)
Is Valuation Required?
Yes, in multiple cases, which majorly includes:
Scenario | Section / Rule | Is Valuation Mandatory? |
Issue of Shares to Non-Resident (FDI Inflow) | FEMA (NDI Rules, 2019) – Rule 21(2) | Mandatory |
Transfer of Shares by Resident to Non-Resident (Outward) | FEMA (NDI Rules, 2019), Rule 21(2)(b) | Mandatory |
Transfer of Shares by Non-Resident to Resident (Inward) | FEMA (NDI Rules, 2019), Rule 21(2)(c) | Mandatory |
Convertible Instruments (CCPS/CCD) issued to Non-Residents | FEMA (NDI Rules, 2019), Rule 9 and Rule 21(2) | Mandatory |
Exercise of ESOPs/Sweat Equity Shares by Non-Residents and issue of equity shares thereof | FEMA NDI Rules – Rule 8 and Rule 21(2) | Mandatory |
ODI – Investment in JV/WOS Abroad | ODI Rules, 2022 | Mandatory |
ODI – Transfer or Sale of Overseas JV/WOS by Indian Entity | ODI Rules, 2022 | Mandatory |
Buy-back / Redemption of Shares held by Non-Residents | FEMA (NDI Rules, 2019) | Mandatory |
Capital Contribution into an LLP by Non-Residents | FEMA (NDI Rules, 2019) – Rule 6(b) | Mandatory |
Who Can Do the Valuation?
Following professionals can issue valuation certificates for the above-mentioned requirements:
Practicing Chartered Accountant (CA)
Practicing Cost Accountant (CMA)
Category I Merchant Banker registered with SEBI
Key Notes:
The valuation must conform to the pricing guidelines prescribed by RBI under FEMA regulations.
For issue of shares to a foreign investor, the pricing must not be less than FMV.
Choice of valuer among the above-mentioned professionals is up to the person who is seeking the valuation.
Conclusion
Share valuation in India is governed by different laws depending on the context, and there’s no one-size-fits-all when it comes to who can do it. A single transaction may trigger requirement of valuation by two different professionals like a Chartered Accountant for Income Tax purpose and a Registered Valuer for Companies Act purpose. Engaging the right professional – whether a Registered Valuer, Chartered Accountant, or Merchant Banker – is critical to stay compliant and avoid tax and regulatory pitfalls.
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Disclaimer: The material herein is provided for informational purposes only. The information should not be viewed as professional, legal or other advice. Professional advice should be sought prior to actions on any of the information contained herein. CKA is not responsible for any matter concluded by any person based on the contents of this article.
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