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Regulating the profession of Valuation

A Registered Valuer is expected to maintain highest standards of professional integrity while carrying out his duties, writes C.H. GOPINATHA RAO

We come across several cases where valuers get entangled with criminal cases as the accused or as a witness. Some of the cases are due to inflated values furnished by the valuer or wrong identification of the property or forged documents.

A few months ago the Reserve Bank of India issued a directive on property valuation. It said a system of procedure must be put in place for realistic valuation of fixed assets, including collaterals, accepted for their exposures and for empanelment of valuers. The banks should obtain minimum two independent valuation reports for properties valued at Rs. 50 crores or above.

To achieve this, banks should have a procedure for empanelment of professional valuers taking into consideration the qualifications prescribed for registered valuers. Different qualifications may be prescribed for different classes of assets such as land, building, plant and machinery. In this regard, banks should also be guided by the relevant accounting standards issued by the Institution of Chartered Accountants of India

The profession of valuation gained statutory recognition with the amendment of the Wealth Tax Act 1972. Earlier, approved valuers were appointed under the Estate Duty Act which was abolished in 1985.

To qualify as a registered valuer, under the category of immovable property valuer, one should be a graduate in civil engineering or architecture or in town planning from a recognised university, should have been employed as a gazetted officer in the Government for a period of not less than ten years or should have been in employment drawing a salary of not less than a specific sum or self-employed earning not less than a specific sum and with 10 year experience. The Central Board of Direct Taxes, Ministry of Finance, Government of India, issued a gazette notification in 1997 and made further modifications to these requirements.

Code of ethics

The Institution of Valuers was founded in 1968 to bring under a common banner the qualified valuers registered under Societies Registration Act. The institute is headquartered at Delhi with more than 40 branches all over India. It has a code of ethics in place.

A registered valuer is expected to maintain the highest standards of professional integrity while carrying out his duties. He should be conscious of the purpose for which the valuation is made. He must make diligent enquiries, ascertain full facts and give his report. The tax authorities give a lot of importance to the valuer's report. Hence, the valuer should be careful in forming his opinion. He must state all the relevant facts and assumptions in the report and furnish documents wherever necessary.

Another issue regarding valuation is reflected in the recent SEBI observation. The SEBI observes that disclosures made by real estate companies' show that there are no standards of valuation. At times some of these valuations include certain futuristic assumptions.

Valuation is a specialised process, which needs considerable experience and proper judgment, especially when valuation of intangible and corporate assets become a multi-disciplinary subject. Wrong reports furnished by some of the valuers are one of the main reasons for the non-performance assets of the banks.

The sub-committee appointed the by AMFI (Association of Mutual Funds of India) to formulate a working plan for launching real estate investment schemes recommends that the SEBI approve registered valuers for the purpose of valuing properties held by real estate investment schemes. In this context, the proposal by the Ministry of Company Affairs to structure an independent professional body such as the Chartered Accountants of India to oversee and regulate the valuation process is a welcome step.

The author is former National President, Institution of Valuers, Chennai.


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