Securities or Financial Assets: One Half Defined, One Half Isn't

The Companies Act, 2013 never wrote its own definition. Section 2(81) borrows one: "'securities' means the securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956."

Confirmed directly against Section 2(h) of the SCRA, "securities" includes "shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate," derivatives, units issued by a collective investment scheme, security receipts, mutual fund units, certain special-purpose-entity certificates, Government securities, any other instrument the Central Government declares to be a security, and rights or interests in securities. Whatever a "security" is for a Companies Act purpose, the definition was never company law's own to write.

Checked against every place it could plausibly sit:

• Section 2 of the Companies Act, 2013 does not define it.
• Rule 2(1) of the Companies (Registered Valuers and Valuation) Rules, 2017 defines "asset class" only in the abstract, as "a distinct group of assets, such as land and building, machinery and equipment, displaying similar characteristics, that can be classified and requires separate set of valuers for valuation." It does not enumerate what falls inside Securities or Financial Assets.
• Annexure IV does the opposite of what its name suggests: it lists who can register as a valuer for the class, not what the class covers.
• ICAI Valuation Standard 303 uses the term constantly without defining it. Paragraph 5's definition of "financial instrument" runs through it in passing: "any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity." The term does the defining work for something else and is never itself pinned down.

Section 2(1)(l) of the SARFAESI Act, 2002 defines "financial asset" precisely: it "means debt or receivables and includes a claim to any debt or receivables... any debt or receivables secured by mortgage of, or charge on, immovable property... any right or interest in the security... any beneficial interest in property." A real, quotable definition, built entirely around the securitisation of bank debt and the machinery for asset reconstruction companies buying distressed loans. Nothing in company law or the Valuation Rules cross-refers to it. Citing it would be quoting the right two words from the wrong statute.

The closer analogue sits in accounting. Ind AS 32, paragraph 11, defines a financial asset as "any asset that is: (a) cash; (b) an equity instrument of another entity; (c) a contractual right... to receive cash or another financial asset from another entity; or... to exchange financial assets or financial liabilities with another entity under conditions that are potentially favourable," with a further limb covering certain contracts settled in an entity's own equity instruments. This is genuinely the concept ICAI VS 303 draws on. It is also, formally, an accounting standard that neither Section 247 nor the Valuation Rules import.

The 1897 Act supplies default definitions for terms used across central legislation when the specific Act is silent. Checked against the full list in Section 3, it defines neither "securities," nor "financial asset," nor "shares."

Its closest relevant term is the residual category in Section 3(36): "'movable property' shall mean property of every description, except immovable property." A share would technically fall inside that catch-all, the way any non-land asset would, but it is a generic property-law fallback from a statute predating modern securities-market vocabulary. Neither the Companies Act nor the Valuation Rules invokes it for this purpose.

No Ministry of Corporate Affairs document stating the rationale turned up in this research, so this is a reading of the structure rather than a quoted explanation.

"Equity Shares" was never a serious option; it would have excluded debentures, preference shares, and everything else already inside SCRA's list. "Securities" alone runs into its own limit: SCRA's definition, built around incorporated companies and collective schemes, does not obviously reach a going-concern business valuation, an LLP or partnership interest, or other financial rights outside that framing — exactly the work an SFA valuer is routinely asked to do, covered across this series in What Valuation Standard Actually Governs an SFA Registered Valuer? and Preference Shares Are an SFA Valuer's Job. Redemption Isn't.

"Financial Assets" reads as the deliberately open residual half, doing for this class what "Land and Building" and "Plant and Machinery" do for the other two: naming a domain by what a valuer needs expertise in, rather than drafting a closed legal definition and hoping nothing falls outside it.

Cite SCRA Section 2(h) when scope is questioned on the securities half; there is exact statutory text to point to. On the financial assets half, do not go looking for a definition to quote, and do not reach for SARFAESI because the words match. Justify scope from the engagement and the standard applied instead.

The two halves have different kinds of edges, and that is most likely the point. The second was built to be broader than the first, precisely so the asset class would not be trapped inside a 1956 statute's boundaries.