bankruptcy

Use of Caveats, Limitations & disclaimers by Registered Valuers-IBBI Guidelines

Use of Caveats, Limitations and Disclaimers by the Registered Valuers in Valuation Reports – IBBI Guidelines

The IBBI has issued Guidelines called the Insolvency and Bankruptcy Board of India (Use of Caveats, Limitations, and Disclaimers in Valuation Reports) Guidelines, 2020.

The Guidelines are issued in exercise of the powers under Rule 14(i) of the Companies (Registered Valuers and Valuation) Rules, 2017 which designates IBBI as the authority for development and regulation of the valuation profession.

The said Guidelines shall come into force in respect of valuation reports in respect of valuations completed by Registered Valuers (RVs) on or after 1st October, 2020.

The objective of the said Guidelines is to provide guidance to the RVs in the use of Caveats, Limitations, and Disclaimers in the interest of credibility of the valuation reports. These also provide an illustrative list of the Caveats, Limitations, and Disclaimers which shall not be used in a valuation report.

As per the Guidelines;

(i) An RV shall prepare valuations reports under rule 8 of the Rules in adherence to these Guidelines.

(ii) An RVO shall monitor adherence to these Guidelines through scrutiny of the valuation reports.

Need for Caveats, Limitations, and Disclaimers

The valuation of an asset is an estimate of the worth of that asset which is arrived at after factoring in multiple parameters and externalities. This may not be the actual price of that asset and the market may discover a different price for that asset. Sometimes different RVs arrive at different estimates of value for the same asset. While this may be possible when the purposes of valuation are different, such variance is often observed even when the purposes as also the circumstances in which the valuation is undertaken are the same. In such a situation, the market may question the ability of the RVs and the integrity of the valuation process. This is not in the interest of the stakeholders where crucial economic and commercial decisions are taken on the basis of the valuation reports.

A limitation arises if the RV is unable to obtain sufficient information and explanations considered necessary for the purpose of the valuation. Where such limitation results in the RV being unable to carry out the valuation in accordance with the normal approach to valuation, the valuation report shall be modified with a paragraph setting out the nature of circumstances, giving rise to the limitation.

A disclaimer is required in a valuation report to mitigate the potential risk of the RV.The reasons for providing disclaimers in a valuation report are as under:

(a) A disclaimer protects the rights of a RV by cautioning and dissuading others when using the contents of a valuation report.

(b) A disclaimer limits the liability of a RV since it serves both as a warning and a way to mitigate risk, a disclaimer protects a RV from liability. Anyone who reads the disclaimers should understand the risks involved in using the valuation report or acting upon the information that it contains.

(c) A disclaimer protects the RV from incurring liability or limits the liability of the RV from the actions of the company or management or insolvency professional at whose instructions the valuation has been carried out.

A valuation report should not carry a disclaimer, which has potential to dilute the responsibility of the RV or makes the valuation unsuitable for the purpose for which the valuation was conducted. The valuation reports should be capable of being tested through the crucible of legal evidence in judicial proceedings. The following points may be considered while providing disclaimers in a valuation report. An RV may:

(a) identify the rights he/she wants to protect;

(b) identify the areas where he/she might be subject to liability;

(d) caution the reader of the potential risks.

However, a disclaimer will not, by itself, be able to exclude an RV‟s liability in respect of negligence in performance of his duties.

These Guidelines are divided into three sections. The first section elaborates on the need for Caveats, Limitations, and Disclaimers in a valuation report. The second section provides a guidance note on the use of Caveats, Limitations, and Disclaimers, while the third section provides an illustrative list of Caveats, Limitations, and Disclaimers for each asset class provided in the Rules.

Download Guidelines Click Here >>

FCRA specifies list of 105 purposes to be selected for which registration is applied

FCRA specifies list of purposes to be selected for which registration is applied. The Ministry of Home Affairs has notified…

1 hour ago

Income Tax

Withholding tax u/s 40(a)(i) not required on cost-to-cost reimbursement made to parent company

Assessee was not liable to withhold tax at source u/s 40(a)(i) on cost-to-cost reimbursement made to parent company In a…

2 hours ago

Government

Temporarily blocking public access to Telegram App not disproportionate – Delhi High Court

Temporarily blocking public access to Telegram App under section 69A of IT Act 2000 is not disproportionate - Delhi HC…

3 days ago

Income Tax

High Court explains the meaning of term ‘enterprise’ appearing in section 80IA

High Court explains the meaning of term ‘enterprise’ appearing in section 80IA to means a project or an undertaking owned…

3 days ago

Income Tax

Addition deleted as assessee was only a carrier of cash not owner who came up to own it

Addition deleted as assessee was only a carrier of cash and the real owner had come forward owning the cash…

5 days ago

Lokayukta Police not exempt from disclosure of information under RTI Act 2005 – SC

Lokayukta Police not an ‘intelligence and security’ organisation and hence not exempt from disclosure of information under RTI Act 2005…

1 week ago