What is the Validity of the Valuation Report under SEBI Regulations?

What is the Validity of the Valuation Report under SEBI Regulations?. Valuation reports play a pivotal role in India’s capital market transactions, including preferential allotments, mergers, delistings, and corporate restructurings. To ensure fairness and transparency, the Securities and Exchange Board of India (SEBI) has laid down specific guidelines around when and how these reports should be prepared. While much attention is given to the qualifications of valuers and the methodologies used, an equally important aspect is the validity of these reports. How recent must a valuation be to remain compliant with SEBI norms? This question becomes important, as outdated reports can lead to regulatory setbacks or rejections. This article examines the regulatory position and best practices regarding the validity period of valuation reports under SEBI regulations, offering practical insights for businesses, legal professionals, and market participants.
Learn more about AIF Registration in India.
Importance of SEBI valuation
Valuation requirements under SEBI serve several important objectives, such as ensuring investor protection by preventing mispricing during important transactions, promoting market transparency by providing all stakeholders with fair and up-to-date asset valuations, and supporting regulatory compliance to help companies avoid penalties related to pricing discrepancies or non-disclosures. Additionally, they ensure fair pricing in scenarios like share allotments or asset transfers, thereby promoting equity among shareholders. To uphold these goals, SEBI mandates the submission of valuation reports in a variety of cases, including preferential allotment of shares, debt-to-equity restructuring, delisting of securities, schemes of arrangement, and related party transactions. Moreover, valuation is also required for assessing mutual fund assets as well as for the valuation of entities like Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs), and Alternative Investment Funds (AIFs).
Legal Framework Behind Valuations
Valuation under SEBI is governed through multiple regulations:

SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR): These regulations govern valuation for preferential allotments, rights issues, and ESOPs.  A valuation report by a SEBI-registered merchant banker is mandatory in specific cases.

SEBI (Delisting of Equity Shares) Regulations, 2021: Requires a valuation to determine the fair exit price for shareholders during delisting.  The report must reflect recent market conditions and be prepared by an independent valuer.

SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR): Mandates valuation in related party transactions and schemes involving significant asset shifts. Ensures that listed entities maintain transparency and fairness in corporate dealings.

SEBI (Real Estate Investment Trusts) Regulations, 2014: Requires semi-annual valuation of REIT assets by a registered valuer to determine NAV. Aims to protect unit holders by reflecting the accurate market value of real estate holdings.

SEBI (Infrastructure Investment Trusts) Regulations, 2014: Similar to REITs, mandates regular valuation of InvIT assets by independent valuers. Enhances investor confidence and supports fair pricing of listed infrastructure trusts.

Companies Act, 2013 (Section 247 – Registered Valuers): Lays down the legal framework for appointing registered valuers and defines their role. Ensures valuations are conducted professionally, independently, and in line with standards.

Who Can Prepare a Valuation Report under SEBI?
Under SEBI regulations, valuation reports can only be prepared by specific qualified professionals to ensure credibility and compliance. These include Registered Valuers as defined under Section 247 of the Companies Act, 2013, who are governed by the Companies (Registered Valuers and Valuation) Rules, 2017 and regulated by the Insolvency and Bankruptcy Board of India (IBBI). In certain contexts, such as preferential allotments, foreign exchange compliance under FEMA, or Income Tax Act requirements, a SEBI-registered Merchant Banker is authorized to issue valuation reports. Additionally, as a transitional provision, Chartered Accountants with over 10 years of experience may also issue valuation reports, though this is gradually being phased out as the registered valuer regime becomes fully operational. This framework ensures that only competent and regulated professionals are responsible for critical valuations impacting investor decisions.
Learn more about Need of Valuation Report Under FEMA Law.
Validity of a Valuation Report under SEBI
While SEBI does not issue a universal timeframe for the validity of all valuation reports, several regulations and circulars, along with judicial interpretations, imply practical timelines for their acceptability. The key principle: a valuation report must be recent, relevant, and based on updated financial data.
Preferential Allotment – ICDR Regulations, 2018
Under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, specifically Regulation 164(3), the validity of a valuation report in the context of preferential allotment is strictly defined. It mandates that if the allotment of shares is not completed within 60 days from the date of the valuation report, a fresh valuation must be undertaken. This requirement applies to both cash and non-cash consideration transactions. Accordingly, any valuation report that exceeds this 60-day window is deemed invalid for the purpose of determining the issue price, ensuring that the pricing reflects current market conditions and financial data. Thus, the statutory validity period for such reports is clearly fixed at 60 days.
Debt-to-Equity Restructuring – Regulation 158
In the case of debt-to-equity restructuring, SEBI regulations particularly Regulation 158 of the ICDR Regulations require the conversion price to be certified by two independent registered valuers. Although the regulation does not prescribe a specific validity period for such valuation reports, industry practice and legal prudence demand that the valuation be based on the most recent audited financial statements. As a result, valuation reports used for this purpose are generally expected to be no older than 90 days to ensure accuracy, relevance, and compliance with evolving market and financial conditions.
Delisting – SEBI Delisting Regulations, 2021
In the context of delisting under the SEBI (Delisting of Equity Shares) Regulations, 2021, valuation reports play a pivotal role in determining the floor price to be offered to public shareholders. Although the regulation does not stipulate a specific validity period, SEBI emphasizes that such valuations must accurately reflect prevailing market conditions at the time of the delisting proposal. In practice, stock exchanges typically accept valuation reports that are not older than 90 days. Moreover, if there is a significant change in the company’s financial position or overall market dynamics during this period, the exchanges or SEBI may require a fresh valuation to ensure fairness and protect the interests of investors.
Related Party Transactions (RPTs) – LODR Regulations
For material related party transactions (RPTs), the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 mandate the use of valuation reports prepared by independent registered valuers to ensure arm’s length pricing and fairness to shareholders. While the regulations do not specify an exact validity period, it is expected that these reports be based on up-to-date financial data and prevailing market conditions. In practice, valuation reports older than 90 days are often scrutinized or rejected by stock exchanges, especially where there is a material change in the financials or economic environment. Therefore, to maintain regulatory compliance and avoid procedural delays, companies typically rely on valuation reports that are not more than three months old.
Mutual Fund Valuation – SEBI Mutual Fund Regulations
Under the SEBI (Mutual Fund) Regulations, the valuation of securities held by mutual fund schemes is governed by strict timelines to ensure fair pricing and investor protection. For actively traded securities, the valuation must be based on market prices that are not older than 30 days from the valuation date, thereby ensuring high accuracy and market relevance. In the case of thinly traded or non-traded securities, SEBI prescribes more conservative valuation approaches, often involving discounts to reflect liquidity risk and market uncertainty. Additionally, mutual funds are required to carry out periodic valuations daily for liquid and actively traded assets, and at least quarterly for others to maintain consistency, transparency, and adherence to fair value principles across different asset classes.
Valuation of REITs, InvITs & AIFs
The valuation of assets held by Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs), and Alternative Investment Funds (AIFs) is subject to specific periodic requirements under SEBI regulations to ensure transparency and protect investor interests. REITs and InvITs are mandated to undertake valuations of their assets by registered valuers at least twice a year semi-annually and annually so that the net asset value (NAV) reflects current market conditions and asset performance. In the case of AIFs, the frequency of valuation is determined by the specific fund category and its governing mandate; however, it is generally conducted on a quarterly or bi-annual basis. These periodic valuation requirements are critical for accurate investor reporting, fair fund performance assessment, and regulatory compliance.
Learn more about Types of AIF Registration Regulatory Compliance.
Why is the Validity Period Important?
The relevance of a valuation report significantly diminishes over time due to dynamic factors such as market volatility, regulatory amendments, financial disclosures, and corporate events like quarterly results or tax rulings. These developments can materially alter a company’s financial standing or asset value, thereby rendering an older valuation report unreliable. Regulatory authorities, including SEBI and the National Company Law Tribunal (NCLT), often scrutinize and even reject outdated reports during compliance reviews or legal proceedings. The use of an obsolete valuation report can lead to serious consequences such as rejection of filings by SEBI or stock exchanges, potential shareholder litigation over unfair pricing, regulatory penalties for non-compliance, and mandatory revaluation, which in turn may delay critical transactions and undermine stakeholder confidence.
Frequently Asked Questions
Q1. What is a valuation report and why is it required under SEBI regulations?
Ans. A valuation report determines the fair value of securities, assets, or businesses and is often mandated under SEBI regulations for transactions like preferential allotment, delisting, mergers, or related party transactions. It ensures transparency, protects investor interests, and aids in fair pricing.
Q2. Who is authorized to issue a valuation report under SEBI regulations?
Ans. Only certain professionals can issue valid valuation reports:

Registered Valuers under Section 247 of the Companies Act, 2013

SEBI-registered Merchant Bankers (for specific transactions like preferential allotment)

Chartered Accountants with 10+ years of experience (transitional phase)

Q3. What is the typical validity period of a valuation report under SEBI? 
Ans. The validity varies by context, but common timelines include:

Preferential Allotment: 60 days (as per SEBI ICDR Regulations)

Delisting & RPTs: Practically accepted up to 90 days

Mutual Funds: Market price not older than 30 days for actively traded securities

REITs/InvITs: Every 6 months

AIFs: As per fund mandate (generally quarterly or bi-annually)

Q4. Is there a universal time limit for all valuation reports under SEBI? 
Ans. No. SEBI does not prescribe a single validity period across all transactions. The required recency depends on the type of transaction and the applicable regulation. However, most valuation reports are expected to be updated within 60–90 days to ensure accuracy.
Q5. What happens if a company uses an outdated valuation report?
Ans. Using a stale valuation report can lead to:

Rejection of filings by SEBI or stock exchanges

Legal challenges from shareholders

Penalties for non-compliance

Mandatory revaluation, causing transaction delays

Q6. Is a fresh valuation report needed if financials or market conditions change after valuation? 
Ans. Yes. If there are significant changes in financial performance or market dynamics after a valuation, a fresh report is often required even if the previous report is still within the general validity period.
Q7. Does SEBI require two valuers for all transactions?
Ans. No. Dual valuation (by two independent valuers) is specifically required in cases like debt-to-equity restructuring under Regulation 158 of the ICDR Regulations. In other cases, one qualified valuer is sufficient unless otherwise specified.
Q8. Can a Chartered Accountant issue valuation reports under SEBI?
Ans. Only Chartered Accountants with 10+ years of experience can issue valuation reports, and even then, only in specific cases as a transitional provision. The long-term regulatory intent is to phase this out in favor of registered valuers or merchant bankers.
Q9. Are the valuation rules different for mutual funds, REITs, InvITs, and AIFs?
Ans. Yes. These are governed by specific SEBI regulations.

Mutual Funds: Daily or periodic valuation based on asset type

REITs/InvITs: Semi-annual and annual valuations by registered valuers

AIFs: Periodic valuations as per fund mandate, typically quarterly

Q10. Who regulates registered valuers in India? 
Ans. Registered valuers are governed by the Companies (Registered Valuers and Valuation) Rules, 2017 and regulated by the Insolvency and Bankruptcy Board of India (IBBI).

Valuation reports play a pivotal role in India’s capital market transactions, including preferential allotments, mergers, delistings, and corporate restructurings. To ensure fairness and transparency, the Securities and Exchange Board of India (SEBI) has laid down specific guidelines around when and how these reports should be prepared. While much attention is given to the qualifications of valuers and the methodologies used, an equally important aspect is the validity of these reports. How recent must a valuation be to remain compliant with SEBI norms? This question becomes important, as outdated reports can lead to regulatory setbacks or rejections. This article examines the regulatory position and best practices regarding the validity period of valuation reports under SEBI regulations, offering practical insights for businesses, legal professionals, and market participants.

Learn more about AIF Registration in India.

Importance of SEBI valuation

Valuation requirements under SEBI serve several important objectives, such as ensuring investor protection by preventing mispricing during important transactions, promoting market transparency by providing all stakeholders with fair and up-to-date asset valuations, and supporting regulatory compliance to help companies avoid penalties related to pricing discrepancies or non-disclosures. Additionally, they ensure fair pricing in scenarios like share allotments or asset transfers, thereby promoting equity among shareholders. To uphold these goals, SEBI mandates the submission of valuation reports in a variety of cases, including preferential allotment of shares, debt-to-equity restructuring, delisting of securities, schemes of arrangement, and related party transactions. Moreover, valuation is also required for assessing mutual fund assets as well as for the valuation of entities like Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs), and Alternative Investment Funds (AIFs).

Legal Framework Behind Valuations

Valuation under SEBI is governed through multiple regulations:

SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR): These regulations govern valuation for preferential allotments, rights issues, and ESOPs. A valuation report by a SEBI-registered merchant banker is mandatory in specific cases.
SEBI (Delisting of Equity Shares) Regulations, 2021: Requires a valuation to determine the fair exit price for shareholders during delisting. The report must reflect recent market conditions and be prepared by an independent valuer.
SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR): Mandates valuation in related party transactions and schemes involving significant asset shifts. Ensures that listed entities maintain transparency and fairness in corporate dealings.
SEBI (Real Estate Investment Trusts) Regulations, 2014: Requires semi-annual valuation of REIT assets by a registered valuer to determine NAV. Aims to protect unit holders by reflecting the accurate market value of real estate holdings.
SEBI (Infrastructure Investment Trusts) Regulations, 2014: Similar to REITs, mandates regular valuation of InvIT assets by independent valuers. Enhances investor confidence and supports fair pricing of listed infrastructure trusts.
Companies Act, 2013 (Section 247 – Registered Valuers): Lays down the legal framework for appointing registered valuers and defines their role. Ensures valuations are conducted professionally, independently, and in line with standards.

Who Can Prepare a Valuation Report under SEBI?

Under SEBI regulations, valuation reports can only be prepared by specific qualified professionals to ensure credibility and compliance. These include Registered Valuers as defined under Section 247 of the Companies Act, 2013, who are governed by the Companies (Registered Valuers and Valuation) Rules, 2017 and regulated by the Insolvency and Bankruptcy Board of India (IBBI). In certain contexts, such as preferential allotments, foreign exchange compliance under FEMA, or Income Tax Act requirements, a SEBI-registered Merchant Banker is authorized to issue valuation reports. Additionally, as a transitional provision, Chartered Accountants with over 10 years of experience may also issue valuation reports, though this is gradually being phased out as the registered valuer regime becomes fully operational. This framework ensures that only competent and regulated professionals are responsible for critical valuations impacting investor decisions.

Learn more about Need of Valuation Report Under FEMA Law.

Validity of a Valuation Report under SEBI

While SEBI does not issue a universal timeframe for the validity of all valuation reports, several regulations and circulars, along with judicial interpretations, imply practical timelines for their acceptability. The key principle: a valuation report must be recent, relevant, and based on updated financial data.

Preferential Allotment – ICDR Regulations, 2018

Under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, specifically Regulation 164(3), the validity of a valuation report in the context of preferential allotment is strictly defined. It mandates that if the allotment of shares is not completed within 60 days from the date of the valuation report, a fresh valuation must be undertaken. This requirement applies to both cash and non-cash consideration transactions. Accordingly, any valuation report that exceeds this 60-day window is deemed invalid for the purpose of determining the issue price, ensuring that the pricing reflects current market conditions and financial data. Thus, the statutory validity period for such reports is clearly fixed at 60 days.

Debt-to-Equity Restructuring – Regulation 158

In the case of debt-to-equity restructuring, SEBI regulations particularly Regulation 158 of the ICDR Regulations require the conversion price to be certified by two independent registered valuers. Although the regulation does not prescribe a specific validity period for such valuation reports, industry practice and legal prudence demand that the valuation be based on the most recent audited financial statements. As a result, valuation reports used for this purpose are generally expected to be no older than 90 days to ensure accuracy, relevance, and compliance with evolving market and financial conditions.

Delisting – SEBI Delisting Regulations, 2021

In the context of delisting under the SEBI (Delisting of Equity Shares) Regulations, 2021, valuation reports play a pivotal role in determining the floor price to be offered to public shareholders. Although the regulation does not stipulate a specific validity period, SEBI emphasizes that such valuations must accurately reflect prevailing market conditions at the time of the delisting proposal. In practice, stock exchanges typically accept valuation reports that are not older than 90 days. Moreover, if there is a significant change in the company’s financial position or overall market dynamics during this period, the exchanges or SEBI may require a fresh valuation to ensure fairness and protect the interests of investors.

Related Party Transactions (RPTs) – LODR Regulations

For material related party transactions (RPTs), the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 mandate the use of valuation reports prepared by independent registered valuers to ensure arm’s length pricing and fairness to shareholders. While the regulations do not specify an exact validity period, it is expected that these reports be based on up-to-date financial data and prevailing market conditions. In practice, valuation reports older than 90 days are often scrutinized or rejected by stock exchanges, especially where there is a material change in the financials or economic environment. Therefore, to maintain regulatory compliance and avoid procedural delays, companies typically rely on valuation reports that are not more than three months old.

Mutual Fund Valuation – SEBI Mutual Fund Regulations

Under the SEBI (Mutual Fund) Regulations, the valuation of securities held by mutual fund schemes is governed by strict timelines to ensure fair pricing and investor protection. For actively traded securities, the valuation must be based on market prices that are not older than 30 days from the valuation date, thereby ensuring high accuracy and market relevance. In the case of thinly traded or non-traded securities, SEBI prescribes more conservative valuation approaches, often involving discounts to reflect liquidity risk and market uncertainty. Additionally, mutual funds are required to carry out periodic valuations daily for liquid and actively traded assets, and at least quarterly for others to maintain consistency, transparency, and adherence to fair value principles across different asset classes.

Valuation of REITs, InvITs & AIFs

The valuation of assets held by Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs), and Alternative Investment Funds (AIFs) is subject to specific periodic requirements under SEBI regulations to ensure transparency and protect investor interests. REITs and InvITs are mandated to undertake valuations of their assets by registered valuers at least twice a year semi-annually and annually so that the net asset value (NAV) reflects current market conditions and asset performance. In the case of AIFs, the frequency of valuation is determined by the specific fund category and its governing mandate; however, it is generally conducted on a quarterly or bi-annual basis. These periodic valuation requirements are critical for accurate investor reporting, fair fund performance assessment, and regulatory compliance.

Learn more about Types of AIF Registration Regulatory Compliance.

Why is the Validity Period Important?

The relevance of a valuation report significantly diminishes over time due to dynamic factors such as market volatility, regulatory amendments, financial disclosures, and corporate events like quarterly results or tax rulings. These developments can materially alter a company’s financial standing or asset value, thereby rendering an older valuation report unreliable. Regulatory authorities, including SEBI and the National Company Law Tribunal (NCLT), often scrutinize and even reject outdated reports during compliance reviews or legal proceedings. The use of an obsolete valuation report can lead to serious consequences such as rejection of filings by SEBI or stock exchanges, potential shareholder litigation over unfair pricing, regulatory penalties for non-compliance, and mandatory revaluation, which in turn may delay critical transactions and undermine stakeholder confidence.

Frequently Asked Questions

Q1. What is a valuation report and why is it required under SEBI regulations?

Ans. A valuation report determines the fair value of securities, assets, or businesses and is often mandated under SEBI regulations for transactions like preferential allotment, delisting, mergers, or related party transactions. It ensures transparency, protects investor interests, and aids in fair pricing.

Q2. Who is authorized to issue a valuation report under SEBI regulations?

Ans. Only certain professionals can issue valid valuation reports:

Registered Valuers under Section 247 of the Companies Act, 2013
SEBI-registered Merchant Bankers (for specific transactions like preferential allotment)
Chartered Accountants with 10+ years of experience (transitional phase)

Q3. What is the typical validity period of a valuation report under SEBI?

Ans. The validity varies by context, but common timelines include:

Preferential Allotment: 60 days (as per SEBI ICDR Regulations)
Delisting & RPTs: Practically accepted up to 90 days
Mutual Funds: Market price not older than 30 days for actively traded securities
REITs/InvITs: Every 6 months
AIFs: As per fund mandate (generally quarterly or bi-annually)

Q4. Is there a universal time limit for all valuation reports under SEBI?

Ans. No. SEBI does not prescribe a single validity period across all transactions. The required recency depends on the type of transaction and the applicable regulation. However, most valuation reports are expected to be updated within 60–90 days to ensure accuracy.

Q5. What happens if a company uses an outdated valuation report?

Ans. Using a stale valuation report can lead to:

Rejection of filings by SEBI or stock exchanges
Legal challenges from shareholders
Penalties for non-compliance
Mandatory revaluation, causing transaction delays

Q6. Is a fresh valuation report needed if financials or market conditions change after valuation?

Ans. Yes. If there are significant changes in financial performance or market dynamics after a valuation, a fresh report is often required even if the previous report is still within the general validity period.

Q7. Does SEBI require two valuers for all transactions?

Ans. No. Dual valuation (by two independent valuers) is specifically required in cases like debt-to-equity restructuring under Regulation 158 of the ICDR Regulations. In other cases, one qualified valuer is sufficient unless otherwise specified.

Q8. Can a Chartered Accountant issue valuation reports under SEBI?

Ans. Only Chartered Accountants with 10+ years of experience can issue valuation reports, and even then, only in specific cases as a transitional provision. The long-term regulatory intent is to phase this out in favor of registered valuers or merchant bankers.

Q9. Are the valuation rules different for mutual funds, REITs, InvITs, and AIFs?

Ans. Yes. These are governed by specific SEBI regulations.

Mutual Funds: Daily or periodic valuation based on asset type
REITs/InvITs: Semi-annual and annual valuations by registered valuers
AIFs: Periodic valuations as per fund mandate, typically quarterly

Q10. Who regulates registered valuers in India?

Ans. Registered valuers are governed by the Companies (Registered Valuers and Valuation) Rules, 2017 and regulated by the Insolvency and Bankruptcy Board of India (IBBI).