A valuation of unlisted shares in an Indian private company can arise under three separate legal regimes — FEMA/RBI for foreign investment pricing, the Companies Act 2013 for corporate events, and income-tax law for fair market value. Each regime has its own rules on who may sign. One certificate does not serve all three purposes.

Legal basis: FEMA (Non-Debt Instruments) Rules, 2019, Rule 21 (pricing guidelines); Companies Act, 2013, Section 247 (valuation by registered valuers).

What FEMA requires for pricing an issuance to a non-resident

Where an unlisted Indian company issues equity instruments to a person resident outside India, the price "shall not be less than" the valuation of the instruments done as per any internationally accepted pricing methodology for valuation on an arm's length basis, duly certified by a Chartered Accountant, a SEBI-registered Merchant Banker, or a practising Cost Accountant (FEMA NDI Rules, Rule 21(2)(a)(ii)).

Three points follow from the verified text:

Any of the three professional categories — Chartered Accountant, SEBI-registered Merchant Banker, or practising Cost Accountant — may certify. The common belief that SEBI or IBBI registration is always required for FDI pricing is wrong for this issuance case.
For convertible equity instruments, the price or conversion formula must be fixed upfront at issuance, and the conversion price must not be lower than the fair value worked out at issuance under these rules.
These pricing guidelines do not apply to investment in equity instruments by a person resident outside India on a non-repatriation basis (proviso to Rule 21(2)).

Secondary transfers: the floor and the ceiling

The same Rule governs transfers between residents and non-residents. Equity instruments of an unlisted Indian company transferred from a person resident in India to a person resident outside India "shall not be less than" the valuation done on the same internationally accepted, arm's length basis, duly certified by a Chartered Accountant, a SEBI-registered Merchant Banker, or a practising Cost Accountant (Rule 21(2)(b)(iii)). Transferred the other way — from a person resident outside India to a person resident in India — the price "shall not exceed" the valuation certified by the same three categories (Rule 21(2)(c)(iii)).

One special case has a narrower certifier panel: in a swap of equity instruments, "irrespective of the amount, valuation involved in the swap arrangement shall have to be made by a Merchant Banker registered with the Securities and Exchange Board of India or an investment banker outside India registered with the appropriate regulatory authority in the host country" (Rule 21(2)(c)(iv)).

What the Companies Act 2013 requires: a registered valuer

Section 247(1) is a blanket mandate: where a valuation of any property, stocks, shares, debentures, securities, goodwill, other assets, net worth or liabilities is required under any provision of the Act, it must be valued by a person with the prescribed qualifications and experience, registered as a valuer and a member of a recognised organisation, "appointed by the audit committee or in its absence by the Board of Directors of that company" (Companies Act, 2013, s.247(1)). The valuer must "make an impartial, true and fair valuation of any assets which may be required to be valued" (s.247(2)).

Consequences of getting the signatory wrong are statutory: a valuer who contravenes the section or the rules is "liable to a penalty of fifty thousand rupees," rising where the contravention was intended to defraud the company or its members to "imprisonment for a term which may extend to one year and with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees" (s.247(3)). On conviction the valuer must also refund the remuneration received and pay damages for loss arising from incorrect or misleading statements in the report (s.247(4)).

A Chartered Accountant who is also registered as a valuer may sign — but signs as a Registered Valuer, not merely as a CA. Registration, not the underlying professional qualification, is the operative authority for Companies Act purposes.

What income-tax law requires: separate FMV rules

Income-tax law determines fair market value for unlisted equity under its own provisions and valuation rules, with its own methodology and certifier requirements. Do not assume a FEMA pricing certificate automatically satisfies income-tax FMV requirements, or vice versa. From Tax Year 2026-27 the Income-tax Act, 2025 governs; confirm the applicable provision, methodology and certifier from the Income-tax Rules in force for the relevant year before citing them.

The practical takeaway

A transaction touching more than one regime needs a separate compliance check for each: FEMA pricing with an eligible certifier for the foreign-investment leg, a Registered Valuer where the Companies Act mandates a valuation, and a tax FMV analysis under the Income-tax Rules. Complete the valuation before the Board resolution approving the allotment.

For advice on your specific transaction, contact a Chartered Accountant.

Topics:valuation reportunlisted sharesfema rulescompanies actregistered valuer

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