Merger Valuations: Conditional Under Company Law, Mandatory Under SEBI

A merger or amalgamation proceeds as a Scheme of Arrangement under Sections 230 to 232 of the Companies Act, 2013: an NCLT-sanctioned process that, once approved and filed, binds the company and all its members and creditors.

The exact statutory text is that the notice convening the Tribunal-ordered meeting must be accompanied by "the report of the expert with regard to valuation, if any."

That is conditional language, not a command. Compare Section 62(1)(c), where Rule 13(2)(g) requires a registered valuer's report before a preferential allotment's price can be fixed at all. Section 232 has no equivalent unconditional instruction. Nothing in the bare Section says a scheme must have a valuation report to proceed.

Rule 6 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 is often cited as making the valuation mandatory. Checked directly against the rule text, it does not.

Rule 6 specifies who is qualified to prepare a valuation report if one is obtained: a registered valuer, addressed to the board with justification. A transitional clause, from before the Section 247 regime became operative, allowed an independent SEBI-registered merchant banker or a chartered accountant in practice with at least ten years' experience to do the same work.

Neither the Section nor the Rule obligates every scheme to commission a valuation. Rule 6 is quality control over the signature, not a trigger.

This is the same shape of finding as Share Buy-backs: The One Mechanism With No Valuer Mandate At All, reached for a different reason. A buy-back has no valuer mandate because there is no non-participating shareholder to protect. A merger's mandate is conditional for a mechanical reason instead: the scheme has to state how many shares of the transferee each shareholder of the transferor receives, and that number cannot be produced without valuing both companies.

The "if any" in Section 232(2)(d) is rarely tested, because the transaction structurally requires the report regardless of what the statute compels.

SEBI Master Circular SEBI/HO/CFD/POD-2/P/CIR/2023/93, dated 20 June 2023, makes three things unconditionally mandatory for a listed entity proposing a scheme, before the stock exchanges will even give a no-objection to file the draft scheme with the Tribunal:

• A valuation report from a registered valuer
• An Audit Committee report addressing the rationale for the scheme, expected synergies, impact on shareholders, and a cost-benefit analysis
• A separate fairness opinion from a SEBI-registered merchant banker specifically on the valuation report, not merely a second signature on the same document

Two different professionals, two different documents, both mandatory, before NCLT is approached. Company law's conditional language does not survive contact with a listed company.

Merger valuations conventionally combine the yield or income method, the asset or net-asset-value method, and the market value method, weighted into a single exchange ratio. This is often described as an SEBI or ICAI requirement. It is neither, and the mapping onto ICAI's own named methods is looser than it appears, examined in Valuation Approach vs. Valuation Method: What the Words Actually Mean. Independent valuation for exactly this transaction is also the specific recommendation a 2005 government committee made eight years before Section 247 existed, covered in Why India Carved Out a Separate Profession Just for Valuation.

The convention itself comes from the Supreme Court's 1996 ruling in Miheer H. Mafatlal v. Mafatlal Industries Ltd., where a reputed firm of Chartered Accountants had combined exactly these three methods, and the Court held that combining them was sound valuation practice.

The more consequential half of that ruling was about the limits of judicial review. Once a scheme has been approved by the requisite majority, a court will not substitute its own judgment for the exchange ratio, or reopen the methodology chosen by a competent professional, unless fraud or mala fide dealing is shown. That deference is nearly thirty years old, predates the registered-valuer regime by two decades, and is the real reason the convention has held.

Do not rely on "if any" as a reason to skip the report, and do not cite Section 232 as the reason to obtain one. Obtain it because the exchange ratio cannot be stated without it, and because for a listed company SEBI requires it before the exchanges will let the scheme move at all.

Then build it on the three-method convention deliberately rather than by habit. Its authority is a judicial one, and the deference it attracts on review is the reason it is worth following. A scheme is also definitionally a change of control for at least one of the companies involved, so the control-premium judgement has to be made and defended, covered in Control Premium: Explicit Duty Under IBC, Implicit Duty Everywhere Else.