In order to gather feedback, the government has engaged in detailed discussions with stakeholders following the amendment. Based on these interactions, proposed modifications to Rule 11UA, which deals with share valuation for section 56(2)(viib) purposes, are being considered. Additionally, a separate notification will be issued to identify entities exempted from this provision.
The proposed changes in Rule 11UA include the addition of five new valuation methods specifically applicable to non-resident investors, in addition to the existing Discounted Cash Flow (DCF) and Net Asset Value (NAV) methods. Furthermore, if a company receives consideration for share issuance from a non-resident entity notified by the Central Government, the price of the equity shares corresponding to such consideration may be considered the FMV for both resident and non-resident investors, subject to certain conditions. These conditions include not exceeding the aggregate consideration received from the notified entity and receiving the consideration within ninety days of the share issuance.
Similar provisions for price matching between resident and non-resident investors will be available for investments made by Venture Capital Funds or Specified Funds. The valuation report prepared by the Merchant Banker will be considered acceptable if it is not more than ninety days old from the date of share issuance.
To address potential valuation changes that may arise during multiple rounds of investment for unquoted equity shares, the proposed amendment introduces a safe harbor provision. Under this provision, a 10% variation in value is allowed to account for fluctuations in foreign exchange rates, bidding processes, and variations in economic indicators. This safe harbor aims to provide a mechanism that accommodates the inherent uncertainties and fluctuations in valuations associated with unquoted equity shares during investment rounds.