Strategic Performance Management and Business Valuation · Laws and Compliance in Business Valuation

Legal Framework for Business Valuation in India

Updated 11 October 2026 · Fact-checked

The legal framework for business valuation in India is the set of laws that require a valuation, say who may do it and say what basis to use. The main laws are the Companies Act 2013, SEBI regulations, FEMA, income-tax law and the IBC. Solve questions by naming the law, the trigger, the valuer and the basis.

Understand Legal Framework for Business Valuation in India

Valuation is not only a finance exercise in India. Many laws say that a valuation must be done in certain situations. This protects shareholders, creditors, the tax authority and the foreign exchange system from transactions at unfair prices.

Think of each law as answering four questions: when is a valuation needed, who may do it, what basis of value applies, and why the law cares. Once you know these four answers for each law, you can handle most questions.

Companies Act 2013: valuation is needed in situations such as a preferential allotment of shares, non-cash transactions with directors, compromises and arrangements (mergers and demergers), and the sale of assets or a business in certain cases. The valuer must be a registered valuer under the Companies (Registered Valuers and Valuation) Rules, 2017, registered for the relevant asset class.

SEBI regulations: for listed companies, SEBI rules set pricing formulas for preferential issues and for open offers under the takeover code. These are largely formula-based on market prices, with an independent valuation in specified cases such as infrequently traded shares. SEBI also requires a valuation report and a fairness opinion from a SEBI-registered merchant banker in schemes of arrangement involving listed companies.

FEMA: it governs transactions with non-residents. Shares of an Indian company issued to, or transferred between, a resident and a non-resident must follow pricing guidelines. The price is generally linked to a fair value determined by an internationally accepted pricing methodology, certified by a chartered accountant, cost accountant or SEBI-registered merchant banker, as the rules specify. Issues to non-residents cannot be below fair value, and transfers from a non-resident to a resident cannot be above it, with the exact conditions laid down in the FEMA rules.

Income-tax law: the Income-tax Act, 2025 (tax year 2026-27 onwards) uses fair market value rules for situations such as share issues and transfers at less than fair value. The Act and its rules prescribe specific methods. IBC: in insolvency, registered valuers determine fair value and liquidation value of the corporate debtor's assets. These values guide the resolution plan and the liquidation decisions of the committee of creditors.

Key rules to remember

Four-question test: Law → Trigger → Valuer → Basis of value; Use this structure to answer any question on which law applies and what it requires.
Companies Act 2013 valuer rule: Valuer = registered valuer under the Registered Valuers Rules, 2017, for the relevant asset class; Applies where the Act requires a valuation by a registered valuer, for example in certain non-cash and arrangement matters.
FEMA pricing direction: Issue to non-resident: price ≥ fair value; Transfer from non-resident to resident: price ≤ fair value; Fair value follows an internationally accepted pricing methodology certified as the FEMA rules require.
IBC valuation values: Two registered valuers → fair value and liquidation value of the corporate debtor's assets; Used by the resolution professional and the committee of creditors to judge resolution plans.
SEBI pricing basis: Listed company preferential issue price = floor set by SEBI formula based on market prices; Formula is market-price based, not a free valuation. Check the current regulation for the exact floor.

How to solve Legal Framework for Business Valuation in India questions

Use this method for any question asking which law applies, who values, or what basis is used.

1Identify the transaction: share issue, transfer, merger, asset sale, insolvency or tax computation.
2Identify the parties: listed or unlisted company, resident or non-resident, company under insolvency.
3Name the law triggered: Companies Act, SEBI, FEMA, income-tax law or IBC. More than one can apply to the same deal.
4State the trigger condition for that law in plain words.
5State who must value: registered valuer, merchant banker, chartered accountant or cost accountant as the law specifies.
6State the basis of value: fair value, liquidation value, market-price formula or prescribed method.
7Close with the purpose: protect shareholders, creditors, tax revenue or foreign exchange, and give a clear conclusion.

Quickest way: Law-by-trigger table in your head

When to use it: Use it for MCQs and short case questions where you must pick the law or the valuer quickly.

Non-resident involved → think FEMA first.
Listed company pricing or open offer → think SEBI.
Unlisted company issue, merger or non-cash deal → think Companies Act and registered valuer.
Company in insolvency → think IBC, fair value and liquidation value.
Share issue or transfer below fair value for tax → think income-tax fair market value rules.

Common mistakes in Legal Framework for Business Valuation in India

Saying one law governs all valuations.
Students memorise the Companies Act and stop there.
Fix: Treat each law as separate. A single deal can trigger several laws, so check each one.
Claiming SEBI requires a free valuation for every listed issue.
The word valuation is assumed to mean a full report.
Fix: Say SEBI pricing is mainly formula-based on market prices, with valuation reports in specified cases.
Reversing the FEMA price direction.
The two directions look alike.
Fix: Remember: non-resident buying pays at least fair value; non-resident selling receives at most fair value.
Using the Income-tax Act, 1961 in answers.
Old notes and habits.
Fix: For the June 2027 term, refer to the Income-tax Act, 2025 and its tax year terms.
Confusing fair value with liquidation value under IBC.
Both relate to asset worth.
Fix: Fair value assumes a going concern or orderly sale; liquidation value is the amount realisable if the debtor is liquidated.

Worked examples

Example 1

An unlisted Indian company plans a preferential allotment of shares to a foreign investor. Which laws require valuation, and who should value?

Show the solution

Transaction: preferential allotment of shares by an unlisted company.
The company is unlisted, so the Companies Act 2013 applies; a valuation by a registered valuer is needed for the preferential issue.
The investor is a non-resident, so FEMA pricing rules also apply.
Under FEMA, the issue price must not be below fair value, determined by an internationally accepted pricing methodology and certified as the rules require.
Conclude that both sets of rules apply and the stricter requirement should be met.

Answer: The Companies Act 2013 (registered valuer) and FEMA (price not below fair value, with the prescribed certification) both apply. SEBI pricing formulas do not, because the company is unlisted.

Example 2

A company is under corporate insolvency resolution. A resolution applicant offers ₹40 crore. Fair value of assets is ₹55 crore and liquidation value is ₹35 crore. How is the valuation used?

Show the solution

Under the IBC, registered valuers determine fair value and liquidation value of the corporate debtor's assets.
Fair value is ₹55 crore; liquidation value is ₹35 crore.
The offer of ₹40 crore is above liquidation value by ₹5 crore (40 − 35).
It is below fair value by ₹15 crore (55 − 40).
The committee of creditors uses these as benchmarks. The plan beats liquidation but is below fair value, so creditors may negotiate for more.

Answer: The offer exceeds liquidation value by ₹5 crore but is ₹15 crore below fair value. The creditors should weigh it against liquidation and may seek a better offer.

Exam tips

In MCQs, match the trigger to the law: non-resident means FEMA, listed company pricing means SEBI, insolvency means IBC.
In descriptive answers, use the four-part structure of law, trigger, valuer and basis to earn marks quickly.
Do not quote section numbers or percentages unless you are sure. Name the law and the principle instead.
Use the Income-tax Act, 2025 for tax questions in the June 2027 term.
In case questions, state which laws apply together before giving your recommendation.

Practice questions from Laws and Compliance in Business Valuation

Legal Framework for Business Valuation in India in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Legal Framework for Business Valuation in India: frequently asked questions

Which law requires business valuation in India?

No single law does. The Companies Act 2013, SEBI regulations, FEMA, income-tax law and the IBC each require valuation in specific situations. Your answer should name the law that fits the transaction.

Who can do a valuation under the Companies Act 2013?

Where the Act requires a valuation by a registered valuer, it must be a person registered under the Registered Valuers Rules, 2017 for the relevant asset class. Check the asset class in the question.

Does FEMA set a price for shares sold to foreigners?

Yes. FEMA rules set a pricing floor for issues to non-residents and a cap for transfers from non-residents to residents, based on fair value. The valuation must follow an internationally accepted methodology and be certified as the rules require.

What valuation does the IBC use?

The IBC process uses registered valuers to find fair value and liquidation value of the corporate debtor's assets. The committee of creditors uses these to assess resolution plans.