Registered Valuer or Merchant Banker? The Valuation Report Mistake That Can Void Your Startup’s Share Allotment (2026)

Registered Valuer or Merchant Banker? The Valuation Report Mistake That Can Void Your Startup’s Share Allotment (2026)

By CS Sapna Malpani, Practising Company Secretary, Bangalore · Last updated 27 August 2026

A Bangalore SaaS startup closed a ₹12 crore Series A, allotted the shares, and celebrated. Six weeks later the RBI returned its FC-GPR because the pricing was backed by a registered valuer valuation report instead of a merchant banker certificate, and the founders were staring at a Late Submission Fee running into lakhs plus a compounding application. They had the right number. They had the wrong report. Under Section 247 of the Companies Act, 2013, a valuation done by the wrong professional is treated as no valuation at all, and the penalty on the valuer alone starts at ₹50,000 and climbs to a ₹5 lakh fine with imprisonment where fraud is involved. This is the single most common valuation error I see on a startup cap table, and it is entirely avoidable.

Why the registered valuer valuation report trips up founders

The confusion is structural, not careless. Indian law asks for a share valuation under at least three separate regimes, and each names a different professional. The Companies Act, 2013 wants an IBBI-registered valuer. The Foreign Exchange Management Act wants a SEBI-registered Category I merchant banker (or a chartered accountant, depending on the pricing method) for shares issued to a non-resident. The Income-tax Act has its own Rule 11UA machinery. A founder raising a round that has both a domestic and a foreign investor can trigger all three at once, on the same allotment, on the same day.

Because the numbers usually land close together, teams assume one report covers everything. It does not. A registered valuer report is the correct instrument for a Section 62(1)(c) preferential allotment and a Section 42 private placement to resident investors. The moment a non-resident subscribes, the RBI pricing guideline steps in and asks for a merchant banker valuation on a discounted-cash-flow or internationally accepted basis, with a floor at fair market value. Submit the wrong one at the FC-GPR stage and the filing is defective, which means the allotment is out of compliance until you fix it, and the fix carries a Late Submission Fee that grows with every month of delay.

What Section 247 actually requires

Section 247 says that where a valuation is required under the Companies Act in respect of any property, stocks, shares, debentures, securities, goodwill, net worth or assets of a company, it must be done by a person registered as a valuer and a member of a recognised valuer organisation. The Central Government notified the section on 18 October 2017 and delegated the role of the regulating “Authority” to the Insolvency and Bankruptcy Board of India (IBBI). The detailed rules sit in the Companies (Registered Valuers and Valuation) Rules, 2017.

Rule 8(3) of those Rules prescribes exactly what a valuation report must contain: the identity and registration number of the valuer, a declaration of independence and any conflict of interest, the valuation date, the sources of information, the methods and approaches used, the major factors influencing the value, and the caveats and limitations. A report missing these elements is challengeable even if the valuer is properly registered. The Companies Act does not set a statutory shelf life for the report, but the Registrar, and every diligent investor’s counsel, expects it to be no older than about 90 days at the date of the corporate action.

Registered valuer vs merchant banker: the report you actually need

This is the table I keep pinned for every fundraise. Match the trigger to the professional before you draft a single resolution.

Read the last two columns together and the rule becomes simple. If the authority asking the question is the Ministry of Corporate Affairs or a tribunal, the answer is a registered valuer. If the authority is the RBI, the answer is a merchant banker. A round with both resident and non-resident money needs both reports, prepared to be consistent with each other so the pricing does not contradict itself across filings.

What changed in 2026

Three developments over the past few months matter for anyone commissioning a valuation this year, and each one nudges the profession toward tighter standards.

First, the IBBI notified a circular on 1 April 2026 adopting International Valuation Standards (IVS), issued by the International Valuation Standards Council, as the applicable standards for valuations conducted under the Insolvency and Bankruptcy Code. While that mandate is written for insolvency work, it signals the direction of travel for the whole registered-valuer community, and investors increasingly ask that Companies Act reports follow the same discipline.

Second, the Companies (Registered Valuers and Valuation) Amendment Rules, 2026 shifted the reference point for valuation standards from a fixed schedule to standards the Board notifies by circular. In plain terms, the standard your valuer must apply can now be updated centrally without a fresh rule amendment, so a report that was acceptable last year may need a different methodology this year.

Third, Clause 73 of the Corporate Laws (Amendment) Bill, 2026 proposes to formalise the valuation authority’s status rather than leave it as the transitional IBBI arrangement introduced in 2017. The debate about whether an insolvency regulator should permanently govern all corporate valuations is live, but the practical takeaway for founders is that oversight of registered valuers is getting stronger, not lighter. A report from a properly registered valuer, on current standards, protects you as the rules tighten.

The penalty and validity picture

What you must do now: the seven-step drill

Run this sequence before every allotment. It takes an afternoon and it removes the most expensive mistake on the cap table.

1. Confirm the trigger. Identify the section that authorises the issue: Section 62(1)(c) for preferential allotment, Section 42 for private placement, Section 54 for sweat equity. Each requires a valuation before approval.
2. Check the investor’s residency. A single non-resident subscriber pulls FEMA into play and adds the merchant banker report. Do this check at term-sheet stage, not at allotment.
3. Verify the valuer’s registration. Ask for the IBBI registration number and confirm it on the IBBI registered-valuer list. An expired or suspended registration voids the report.
4. Fix the valuation date. The report must pre-date the board resolution and the explanatory statement to the notice, and stay within roughly 90 days of the allotment.
5. Check the report against Rule 8(3). Independence declaration, methodology, sources, major factors and caveats must all appear. A tidy number without this scaffolding will not survive diligence.
6. Reconcile the two reports. If both a registered valuer and a merchant banker report exist, ensure the price for residents is not below the FEMA floor for non-residents, so no filing contradicts another.
7. File in order. Pass the board and shareholder resolutions, allot within the private-placement window, file PAS-3 with the Registrar, and file FC-GPR with the RBI within 30 days where a non-resident has subscribed.

The deeper implication

According to CS Sapna Malpani, the valuation report is not a formality that closes a round; it is the document a future acquirer, an income-tax officer, or an investor’s counsel will read most carefully three years later. A report from the correct professional, dated correctly and built to Rule 8(3), quietly protects every downstream event: the next round’s diligence, the eventual exit, the tax position on ESOP exercise. A report from the wrong professional does the opposite, because it converts a clean allotment into a defect that any counterparty can price against you.

Looking ahead, the standards will keep converging. With the IBBI moving valuations toward International Valuation Standards and the Corporate Laws (Amendment) Bill, 2026 proposing a firmer statutory home for the valuation authority, the discretion a valuer once had is narrowing. Founders who build the habit now of matching the report to the regime, and insisting on a registered valuer for Companies Act actions, will find their cap tables far easier to defend when the money and the scrutiny both get bigger.

Registered valuer vs the provisions founders confuse it with

Three neighbours cause most of the mix-ups. A merchant banker valuation is a FEMA and SEBI instrument, correct for pricing shares to non-residents and for capital-market work, but not a substitute for a Section 247 report on a domestic preferential allotment. The FEMA pricing certificate under the foreign-investment pricing guideline sets a floor of fair market value for non-residents and is separate from the Companies Act valuation even when the same DCF model feeds both. The income-tax valuation under Rule 11UA supports the tax position on the issue price and, historically, the angel-tax analysis; it answers to the tax officer, not to the Registrar. One allotment can need all three, and each answers to a different regulator, so a founder should never assume that satisfying one satisfies the others.

Sources and references

• Section 247, Companies Act, 2013, Valuation by Registered Valuers (bare text)
• Section 247, Companies Act, 2013, IBC Laws integrated text and rules
• IBBI, Registered Valuers: rules, list and forms
• Companies (Registered Valuers and Valuation) Rules, 2017 and 2026 amendment, Ministry of Corporate Affairs
• Corporate Laws (Amendment) Bill, 2026, Clause 73, Cyril Amarchand Mangaldas analysis
• RBI foreign-investment pricing guidelines, RBI Master Directions

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