New KYC norms for directors make a cell-phone, email & DSC mandatory for directors

Vinod Kothari


If you ever thought your life will be much better and tranquil without a cellphone on you, and without an email to stay connected, well, you may be right, but you cannot function as a director in companies. This is the fallout of the new DIR-3-KYC norms brought by the MCA[1]. The Rules require every director to file the KYC form by 31st August, 2018, post which the Directors’ Identification number (DIN) granted to the director shall be “de activated”. The Rules also lay that such de-activated DIN shall be re-activated only after the person has filed the KYC form.

One of the mandatory requisites of the new KYC form is that the director shall provide his cellphone number, his email id and file the eForm with his/her own digital signature (DSC). If you thought you may provide the cellphone number and email id of your children, or your assistants, you are mistaken, because the form goes on to say that the cellphone number and the email id shall be of the director himself.

Section 153 of the Companies Act makes it mandatory for any prospective director to apply for DIN. While there is nothing in the statute to say that on de-activation of the DIN, the director will lose his office as such, technically called vacation of office, it will not be surprised, if the Government, in its recent impetus to weed out shell companies and dummy directors, barges ahead and challenge the very directorship of such directors whose DINs stood deactivated.

Result – you cannot be a director, unless you have a cellphone number and email id. Legal experts may argue that being director in companies is basic freedom to carry business, as the right to carry business includes the right to carry it in corporate form as well, and there is nothing in the law of the land to make a cellphone or an email an existential necessity. Therefore, if there is a law that forces a corporate professional to have a personal cellphone number/ email- id, the law needs to be questioned.

Not having a personal cellphone is neither an evidence of laity nor anachronism. Several people use a limited insulation from communications technology as a way of life. There is no basis to contend that such persons are not fit to be corporate directors.

It may be argued that the qualifications of a director and the circumstances in which a director automatically vacates his office are all well defined in the law. De-activation of the DIN is not one of such circumstances. It may also be argued that there is an assurance in the MCA DIN rules that the DIN once granted has lifetime validity, and the question of its de-activation does not arise at all.

In order to file this eForm, all directors (Indian and foreign national) will have to obtain/ have their own email id, mobile number, specify the OTP in the eForm and sign with their own DSC. The consequence of false declaration is that the Director shall be liable under section 448 of the Act and under relevant provisions of the Indian Penal Code, 1860 and any other law as applicable, if any statement in the application is found to be false or any material fact is found to be have been omitted.

The MCA rules come in the wake of the Government’s resolve to weed out shell companies and dummy directors. It is apprehended that the 10-lakh odd companies have lots of directors who are men of straw, even though the requirement for DIN was introduced sometime in 2006.

[1] Insertion of new rule 12A in Companies (Appointment and Qualification of Directors) Rules, 2014 vide MCA notification dated 5th July, 2018

Corporatisation Prospects for Unregistered Entities – Amendment in Section 366 of the Companies Act, 2013

By Pammy Jaiswal (

Partner, Vinod Kothari and Company


By virtue of the enforcement notification of MCA dated 5th July, 2018[1], the proposed change under section 75 of the Companies (Amendment) Act, 2017 (‘Amendment Act’) relating to section 366 of the Companies Act, 2013 (‘Act, 2013’) has been notified with effect from 15th August, 2018. Further, MCA vide its notification dated 5th July, 2018[2] has also brought the Companies (Authorised to Register) Second Amendment Rules, 2018 (‘Amendment Rules’). The said Amendment Rules shall also come into force from 15th August, 2018.

The section deals with registration of unregistered entities like partnership firms, LLPs, cooperative societies and such other entities, as a company under the Act, 2013. The amendment paves way for such entities having two or more members to get themselves registered under the Act, 2013 either as a company limited by guarantee, company limited by shares or unlimited companies. Read more

Indian Valuation Standards: Standardizing the rules of valuation in India

Fair Market Value – as per Company Law perspective

By Nikita Snehil |

The term ‘Fair market value’ has been used hundreds of times in the Income Tax Act, 1961, however, the same has also been given due weightage under the Companies Act, 2013. The present Article intends to explain the meaning of the term ‘Fair Market Value’, its significance and its relevance as per Companies Act, 2013.

Meaning of Fair Market Value

In general parlance, Fair market value is the price agreed between a buyer and a seller for a specific asset. Both parties should be aware of the asset’s condition and willing to participate in the transaction with no force or conditions.

However, the term has been defined in para 9 the Ind AS 113[1], which states the following:

“Ind AS defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.”

Therefore, the definition can be illustrated in the following way:

The concept of Fair Market Value has become all pervasive particularly after the introduction of International Financial Reporting Standards because there is greater stress on fair value today than in the past.

Provisions of the Companies Act, 2013 referring to fair valuation

The provisions of the Companies Act, 2013 (‘Act’) talks about the requirement of valuation in many cases, the following table shows the sections of the Act requiring valuations:


Section no. Valuation purpose  

Requirements in brief


54 Issuance of Sweat Equity Shares The sweat equity shares to be issued shall be valued at a price determined by a registered valuer as the fair price giving justification for such valuation.


62(1) (c) Preferential Offer When a company proposes to issue new shares, the price of such shares should be determined by the valuation report of a Registered Valuer.


192(2) Non-cash transaction involving directors Where there is a sale or purchase of any asset involving a company and its directors (or its

holding, subsidiary or associate company) or a person connected with the director for consideration other than cash, the value of the assets has to be calculated by a Registered Valuer.


230 & 232 Compromises, Arrangements and Amalgamations In case of compromise or arrangement between members or with creditors or any class of them, a valuation report in respect of shares, property or assets, tangible and intangible, movable and immovable of the company is required by a Registered Valuer.


236 Purchase of minority share holding Where an acquirer or person acting in concert with the acquirer acquires 90% or more of the equity capital in a company, then they can offer to the minority shareholder or the minority shareholder can offer to the acquirer, to acquire the minority shareholding at a valuation determined by the Registered Valuer.


281 & 305 Winding up of a company In case of winding up, the valuation of assets of the company prepared by the Registered Valuer is required.


Who can be valuer?

Though the Act does not specify anything regarding the eligibility of the registered valuers, the Companies (Share Capital and Debenture) Rules, 2014 provides the following:

For the purposes of these rules, it is hereby clarified that, till a registered valuer is appointed in accordance with the provisions of the Act, the valuation report shall be made by an independent merchant banker who is registered with the Securities and Exchange Board of India or an independent Chartered Accountant in practice having a minimum experience of ten years.

Thereafter, MCA had notified the provisions governing valuation by registered valuers [section 247 of the Act and the Companies (Registered Valuers and Valuation) Rules, 2017 (‘Rules’), both to come into effect from 18 October, 2017.

Valuation by Registered Valuers

As per the notified section 247(1), where a valuation is required to be made in respect of any property, stocks, shares, debentures, securities or goodwill or any other assets or net worth of a company or its liabilities under the provision of this Act, it shall be valued by a person having such qualifications and experience and registered as a valuer in such manner, on such terms and conditions as may be prescribed and appointed by the audit committee or in its absence by the Board of Directors of that company.

Proposal of MCA to have registered valuers

The definition of ‘Valuer’ in the said Rules, provides the following:

“valuer” means a person registered with the authority in accordance with these rules and the term “registered valuer” shall be construed accordingly.

Therefore, the valuer will have to obtain the Certificate of Registration after complying the qualification and eligibility criteria as specified in the Rules, in order to do the valuation.

Eligibility of Registered Valuers

As per Rule 3 of the said Rules, the following person shall be eligible to be a registered valuer if he-

  • Is a valuer member of a registered valuers organisation;

Explanation.- For the purposes of this clause, “a valuer member” is a member of a registered valuers organisation who possesses the requisite educational qualifications and experience for being registered as a valuer;

  • Is recommended by the registered valuers organisation of which he is a valuer member for registration as a valuer;
  • Has passed the valuation examination under rule 5 within three years preceding the date of making an application for registration under rule 6
  • Possesses the qualifications and experience as specified in rule 4;
  • Is not a minor;
  • Has not been declared to be of unsound mind;
  • Is not an undischarged bankrupt, or has not applied to be adjudicated as a bankrupt;
  • Is a person resident in India; .

Explanation.- For the purposes of these rules ‘person resident in India’ shall have the same meaning as defined in clause (v) of section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999) as far as it is applicable to an individual;

  • Has not been convicted by any competent court for an offence punishable with imprisonment for a term exceeding six months or for an offence involving moral turpitude, and a period of five years has not elapsed from the date of expiry of the sentence:

Provided that if a person has been convicted of any offence and sentenced in respect thereof to imprisonment for a period of seven years or more, he shall not be eligible to be registered;

  • Has not been levied a penalty under section 271J of Income-tax Act, 1961 (43 of 1961) and time limit for filing appeal before Commissioner of Income-tax (Appeals) or Income-tax Appellate Tribunal, as the case may be has expired, or such penalty has been confirmed by Income-tax Appellate Tribunal, and five years have not elapsed after levy of such penalty; and
  • Is a fit and proper person:

Further, with respect to a partnership entity or company, the following shall not be eligible to be a registered valuer if-

  • It has been set up for objects other than for rendering professional or financial services, including valuation services and that in the case of a company, it is not a subsidiary, joint venture or associate of another company or body corporate;
  • It is undergoing an insolvency resolution or is an undischarged bankrupt;
  • All the partners or directors, as the case may be, are not ineligible under clauses (c), (d), (e), (g), (h), (i), (j) and (k) as mentioned above;
  • Three or all the partners or directors, whichever is lower, of the partnership entity or company, as the case may be, are not registered valuers; or
  • None of its partners or directors, as the case may be, is a registered valuer for the asset class, for the valuation of which it seeks to be a registered valuer.

Applicability of the Rules

As per the transitional provisions specified in the Rules read with the MCA’s Notification[1] on extending the transitional period:

“Any person who may be rendering valuation services under the Act, on the date of commencement of these rules, may continue to render valuation services without a certificate of registration under these rules upto 30th September, 2018:

Provided that if a company has appointed any valuer before such date and the valuation or any part of it has not been completed before 30th September, 2018, the valuer shall complete such valuation or such part within three months thereafter.”

Therefore, the persons intending to act as the registered valuers must obtain the Certificate of Registration within September 30, 2018, as per the requirements of the Rules.

Issuance of Valuation Standards by ICAI

Recognising the need to have the consistent, uniform and transparent valuation policies and harmonise the diverse practices in use in India, the Council of the Institute of Chartered Accountants of India at its 375th meeting has issued the Valuation Standards vide the Press Release[2] dated May 25, 2018, mandating the compliance with the Standards for the Chartered Accountants providing valuation reports under various provisions of the Companies Act.

The Standards include the framework for the preparation of valuation report, valuation bases, approaches and methods, scope of work, analyses and evaluations, documentation and reporting, intangible assets and financial instruments, among several other aspects.

Therefore, recognizing the importance of valuation, the Rules introduced by MCA and the standards introduced by ICAI will provide a benchmark to the professionals to ensure uniformity in approach and quality of valuation output.