Excerpts of the order;
# 2. The present petition has been filed with the following prayers:
“In view of the facts and grounds stated herein above the petitioners herein prays that this Hon’ble Court may be pleased to:
a. Issue appropriate writ, order or direction declaring Rule 3(2) of the Companies (Registered Valuers and Valuation) Rules, 2017 as unconstitutional for violating Article 14, Article 19(1)(g) and Article 301 of the Constitution of India.
b. Pass any other order and / or direction, as this Hon’ble Court may deem fit proper under the facts and circumstances of the present case and in the interest of justice.”
# 3. In substance, the challenge in these petitions is to declare Rule 3(2) of the Companies (Registered Valuers and Valuation) Rules, 2017 as unconstitutional for violating Article 14, Article 19(1)(g) and Article 301 of the Constitution of India. The Rule 3(2) is reproduced as under:
(2) No partnership entity or company shall be eligible to be a registered valuer if-
(a) 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 a subsidiary, joint venture or associate or another company or body corporate.”
# 7. In other words, according to him, it imposes unreasonable restriction on the petitioner’s right to carry on trade and business. He also submits that the petitioner is not only discriminated against individuals and partnership entities but also such companies which are not subsidiaries, joint ventures or associates of other companies / body corporates. There is no intelligible differentia to support such classification. It is his endeavor to state that to pass the test of permissible classification two conditions must be fulfilled, namely, (i) that the classification must be founded on an intelligible differentia which distinguishes persons or things that are grouped together from others left out of the group, and (ii) that differentia must have a rational relation to the object sought to be achieved by the statute in question. Regrettably, according to him, the impugned Rule fails on both the counts.
# 13. It is the stand of the respondents and also contended by Ms. Madhavi Divan that in the light of the myriad uses of valuation under the Act and the IBC, the integrity, impartiality and truthfulness of the valuation process is absolutely essential to the proper working of these laws and to incoming FDI in India which is based on such valuation. The Rules have been made with the objective to instill independence and professionalism in the field of valuation of assets.
# 14. She submits that given the importance of valuation in fairness of business transactions, every effort has been made by the respondents to avoid situation of conflict of interest with an entity conducting the valuation. It is the respondents’ endeavor to develop valuation as a ‘profession’ and not as a ‘business’ formed with the sole purpose of profit maximization. The endeavor of the Rules is to introduce a class of professionals where the focus is on the professional skills of the individuals rather than a business venture. Professionalism is introduced into the profession of valuation, which involves sophisticated skills and a high degree of integrity, impartiality and ethics for the purposes of the Companies Act and IBC, through Valuation Rules which can regulate this area and make valuers more accountable and professionally trained.
# 17. Insofar as the embargo on subsidiaries of joint ventures or associations of other companies or body corporations is concerned, it is her submission that there is a rational nexus to the object of disqualifying all entities with interest in other professions or business / enterprises so that the integrity of the profession be maintained and there is no conflict of interest. Hence, the Rules do not suffer from the vires of excessive delegation as contended by Mr. Singh.
# 18. …….. a Registered Valuer company is a subsidiary, joint venture or associate of another company, the said entity may not be able to stand out as an independent professional body. Hence, if valuation is allowed to be undertaken as a business by such entities, independence and credibility cannot be ensured. Professionalism as a registered valuer can be achieved only if the body is professionally independent and is set up exclusively for professional valuation services. She submits that valuation is a professional service and unless adequate standards are prescribed, it cannot sustain as a competent profession that is globally competitive.
# 20. ……… In other words, whether exclusion of a subsidiary company, joint venture or associate of other company, for purpose of eligibility for registration as valuer is reasonable. The answer to the same has to be in the affirmative, more so in view of the justification given by the respondents and as contended by Ms. Madhavi Divan.
# 21. She is justified in relying upon the judgment of the Supreme Court in the case of Dr. Haniraj L. Chulani (supra) wherein the issue which fell for consideration before the Supreme Court was whether the State Bar Council of Maharashtra and Goa was justified in refusing enrolment of the appellant before the Supreme Court as an Advocate under the Advocates Act, 1961 as he was also a medical practitioner, who did not want to give up his medical practice but wanted to simultaneously practice law.
# 22. The objective and intention behind laying down the impugned Rule is clearly to introduce higher standards of professionalism in valuation industry, specifically in relation to valuations undertaken for the purpose of Companies Act and IBC, 2016. The impugned Rule obviates the possibility of conflict of interest on account of diverging interests of constituent / associate entities which resultantly shall undermine the very process of valuation, being one of the most essential elements of the proceedings before NCLT.
# 23. Insofar as the judgment relied upon by Mr. Vikas Singh in the case of Cellular Operators Association of India and Others (supra) is concerned, in view of our conclusion above and in the facts of this case, the same has no applicability. In any case, there is no dispute as regards the proposition of law propounded therein. Moreover, from our conclusion above, it is clear that the criteria laid down therein, as regards the test of permissible classification, is fully satisfied in the impugned Rules.
# 24. Keeping in view the position of law and the reasoning given by the respondents and making eligible only companies other than subsidiary companies, associate companies and joint ventures for the purpose of registration as valuer, a separate class has been carved out based on classification which is founded on intelligible differentia and as such the Rule cannot be faulted.
# 25. We do not see any merit in the only ground urged by the petitioners. The petitions are dismissed. No costs.
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