Model Code of Conduct for Registered Valuers: A Comprehensive Guide to MCA Rules 2017

The valuation of securities and financial assets is a critical component of modern capital markets, aiding strategic decision-making and enhancing corporate governance. Recognising the need for standardization and ethical integrity in this "inexact science," the Ministry of Corporate Affairs (MCA), Government of India, notified the Companies (Registered Valuers and Valuation) Rules, 2017. These rules, which came into effect on 18 October 2017, operationalize Section 247 of the Companies Act, 2013, and establish a formal regulatory framework for the valuation profession in India.

The Regulatory Framework and IBBI Authority

Under the 2017 Rules, the Insolvency and Bankruptcy Board of India (IBBI) is designated as the responsible authority for the registration and recognition of valuers and Registered Valuer Organisations (RVOs). The primary objective of this framework is to ensure greater transparency, accountability, and fairness by laying down clear eligibility guidelines and professional legal requirements.

Eligibility and Asset Classes

Valuation is divided into three primary asset classes to leverage domain-specific expertise:

1. Land and Building.
2. Plant and Machinery.
3. Securities or Financial Assets.

For the Securities or Financial Assets class, eligibility generally requires a graduate degree in any stream followed by a professional qualification (CA/CS/CMA) or an MBA/PGDBM with a finance specialisation, accompanied by at least three years of relevant experience. Alternatively, other graduate or postgraduate qualifications specified by the Authority may require five or three years of experience, respectively. All candidates must pass a mandatory Valuation Examination conducted by the IBBI.

Core Pillars of the Model Code of Conduct (Annexure I)

Annexure I of the Rules delineates the professional and ethical standards expected of a valuer. Because a valuer’s work impacts the hiring party, affected stakeholders, the government, and society at large, strict adherence to these principles is mandatory.

1. Integrity and Fairness

Valuers must possess strong moral principles and act in a highly reliable manner.

• They are responsible for presenting correct and adequate information without misrepresenting facts, figures, or scenarios.
• Investigations must be conducted with objectivity, and facts must be reported evaluations with integrity.
• Valuers must maintain the dignity of their profession and avoid any action that could bring disrepute to the industry.

2. Professional Competence and Due Care

Clients deserve competent professional service based on up-to-date knowledge.

• Valuers must keep abreast of the latest rules, guidelines, laws, and regulations relevant to their field.
• They cannot deny responsibility for the expertise required in a valuation report, though they may state that certain factual assumptions were provided by the company rather than generated by the valuer.
• Assignments must be declined if the valuer lacks the necessary competence or experience.

3. Independence and Disclosure of Interest

Independence is the hallmark of a credible valuation.

• Valuers must exercise independent judgment free of bias, coercion, or influence.
• A valuer must not accept an assignment if they or their relatives have an interest in the subject company or its assets.
• Prohibition of Conflict: As per the Companies (Amendment) Act, 2017, a registered valuer is prohibited from valuing assets where they have a direct or indirect interest at any point during the three years prior to their appointment or three years after the valuation is conducted.
• Valuers must avoid "mandate snatching," "convenience valuations," or charging "success fees".

4. Confidentiality

Confidentiality is considered the cornerstone of the client-valuer relationship.

• Valuers must keep information, opinions, and decisions private unless a legal or professional requirement necessitates disclosure.
• This obligation extends even after the contract has ended and applies to prospective clients.
• Information obtained during a valuation must not be used for personal gain or to benefit third parties.

5. Information Management and Record Keeping

Rigorous documentation serves as "insurance" for the valuer.

• Valuers must maintain proper written records of their decisions, including the evidence and information used to reach a conclusion.
• Retention Period: Working papers and reports must be maintained for three years for production before regulatory authorities or for peer review.
• In the event of pending cases before a Tribunal or Appellate Tribunal, records must be kept until the final disposal of the case.

6. Gifts, Hospitality, and Remuneration

To protect independence, strict rules govern financial interactions.

• Valuers and their relatives must not accept gifts, hospitality, or financial advantages that might impact their independence.
• They must not offer such inducements to public officials to secure or retain an advantage.
• Remuneration: Fees must be charged in a transparent manner and be proportionate to the quantum of services provided.

7. Occupation and Restrictions

A valuer's primary focus must remain on their professional duties.

• Valuers must give adequate time and attention to their assignments.
• Engaging in other employment is only permitted upon the temporary surrender of their membership with their Registered Valuer Organisation.
• Valuers must not conduct any business that aligns poorly with the reputation of the profession in the eyes of the Authority.

Ethical Considerations in Valuation Reporting

A valuation report is the final deliverable and must be crafted with precision and transparency to meet the highest standards of probity.

Dealing with Potential Breaches of Law

If a valuer suspects unlawful acts or financial abuse, they must exercise professional judgment:

• Potential contraventions must be brought to the client's notice in writing.
• If a clear breach is confirmed and the client is the perpetrator, the valuer must express an inability to continue the work until the breach is rectified.
• Terms of engagement should specifically exclude confidentiality promises where there is evidence of an infringement of law.

Key Terms for Registered Valuers

• Registered Valuer: A person registered with the Authority under Rule 7(6) for specific asset classes.
• Certificate of Registration: The official grant of authority to practice as a valuer.
• Fit and Proper Person: A criterion for registration considering integrity, reputation, character, and absence of convictions.

Summary of Professional Conduct

The Model Code of Conduct, as notified by the MCA, ensures that the Indian valuation industry aligns with international standards such as those from the International Valuation Standards Council (IVSC). By mandating integrity, objectivity, and professional competence, the government aims to enhance the efficiency of the valuation process and raise stakeholder confidence across the global market.