When Non-Resident Indian (NRI)-owned companies operate in India, one of the most crucial aspects of regulatory compliance lies in how their cross-border financial transactions are valued. Whether it involves issuing new shares to foreign investors, transferring ownership between resident and non-resident shareholders, or making outbound investments, the Reserve Bank of India (RBI) requires that such transactions adhere to strict valuation norms.
Valuation in this context is not merely a financial exercise—it is a regulatory safeguard. It ensures transparency, prevents the underreporting or overvaluation of assets, and maintains the integrity of India’s foreign exchange framework.
This brings us to a common question faced by NRI-owned businesses: Can IBBI-registered valuers issue valuation reports for FEMA compliance? The answer is nuanced and depends on the nature of the transaction and the regulatory framework it falls under. This blog explores the role of valuation in FEMA, the professionals authorised to issue such reports, and when IBBI-registered valuers may or may not be engaged.
2. Understanding FEMA and Valuation Requirements
The Foreign Exchange Management Act, 1999 (FEMA), is the cornerstone legislation governing foreign exchange transactions in India. Its primary purpose is to regulate inflows and outflows of foreign capital in a manner that safeguards India’s economic stability while promoting legitimate investment activity.
A central requirement under FEMA is the valuation of transactions involving equity instruments and assets exchanged between residents and non-residents. This rule applies to a wide range of situations, such as:
- Issuing shares to non-residents under Foreign Direct Investment (FDI) routes.
- Transfer of shares between a resident and a non-resident.
- Outbound investments by Indian companies into foreign entities.
The guiding principle is to ensure that the transaction price reflects Fair Market Value (FMV). Under FEMA, the FMV acts as a protective mechanism against capital flight, underpricing, or overvaluation of assets that could distort India’s foreign exchange ecosystem.
In practical terms, this means:
- When shares are issued to non-residents, the issue price cannot be lower than FMV.
- When shares are transferred from a non-resident to a resident, the transfer price cannot exceed FMV.
Thus, FEMA makes valuation not just a compliance formality but a cornerstone of regulatory integrity in cross-border transactions involving NRI-owned companies.
3. Why Valuation Matters for NRI-owned Companies
For NRI-owned companies, valuation is more than a technical compliance step—it is a safeguard that protects both the company and its investors. Cross-border transactions, by their very nature, involve the flow of capital across jurisdictions. Without proper valuation, such transactions could be susceptible to manipulation, leading to issues like capital flight or tax evasion.
By mandating valuation, regulators aim to prevent mispricing of shares or assets. Undervaluation could result in an unrecorded outflow of wealth from India, while overvaluation might distort the company’s true financial standing. Both scenarios invite unnecessary regulatory scrutiny and potential penalties.
Moreover, valuation ensures that every transaction aligns with the Fair Market Value (FMV) framework prescribed by the Reserve Bank of India (RBI). This creates a level playing field, instills confidence among foreign investors, and demonstrates that NRI-owned companies are committed to transparency and good governance.
In short, robust valuation is not only about ticking a compliance box—it is about ensuring credibility, protecting shareholder interests, and building long-term trust with regulators and stakeholders.
4. Who is Authorized to Issue Valuation Reports under FEMA
The authority to issue valuation reports for FEMA compliance is clearly defined under the FEMA (Non-Debt Instruments) Rules, 2019. These rules distinguish between different types of professionals based on the nature of the transaction and the asset being valued.
For unlisted companies, FEMA requires that a valuation certificate be obtained from:
- A SEBI-registered Category I Merchant Banker – These professionals are licensed to undertake valuations for regulatory purposes, ensuring that transactions involving non-residents meet the stringent FMV criteria.
- A Chartered Accountant (CA) with valuation experience – Experienced CAs are also recognised for issuing valuation reports, particularly for smaller or straightforward transactions that do not involve complex financial structures.
This framework reflects the RBI’s preference for professionals who not only understand the technical aspects of valuation but also bring regulatory oversight and credibility to the process.
It is important to note that while IBBI-registered valuers are recognised under the Companies Act and other legal frameworks, they are not explicitly listed under FEMA’s prescribed authorities unless the transaction simultaneously invokes Companies Act provisions. This distinction forms the crux of the debate for NRI-owned companies and will be explored in subsequent sections.
5. Role and Recognition of IBBI-Registered Valuers
IBBI-registered valuers occupy a critical position in India’s regulatory framework. They are formally recognised under the Companies Act, 2013 and the Insolvency and Bankruptcy Code (IBC), 2016, which mandate their involvement in a variety of transactions where valuation plays a pivotal role.
The scope of work for IBBI-registered valuers includes:
- Securities and financial assets – valuation of shares, debentures, options, and hybrid instruments.
- Corporate actions under the Companies Act – including mergers, demergers, buy-backs, preferential allotments, and ESOPs.
- Insolvency and liquidation proceedings – where at least two IBBI-registered valuers are required to independently assess asset values.
Their recognition stems from the need for specialised, technically trained professionals who bring both rigour and independence to valuation exercises. Unlike Chartered Accountants or Merchant Bankers, IBBI-registered valuers are certified through a structured process by the Insolvency and Bankruptcy Board of India (IBBI), with strict adherence to prescribed valuation standards.
In essence, their role is more closely aligned with Companies Act-driven or insolvency-related transactions, rather than the purely foreign exchange-related mandates under FEMA.
6. When FEMA Requires Merchant Bankers or CAs (Not IBBI Valuers)
When the transaction is governed solely by FEMA and does not simultaneously invoke provisions of the Companies Act, the Reserve Bank of India’s rules are very clear—valuations must be carried out by SEBI-registered Category I Merchant Bankers or Chartered Accountants with valuation experience.
This requirement applies to scenarios such as:
- Foreign Direct Investment (FDI) by NRIs or other non-residents.
- Transfer of shares between a resident and a non-resident.
- Outbound investments by Indian companies into overseas subsidiaries or joint ventures.
The rationale behind RBI’s preference is straightforward: Merchant Bankers and experienced CAs are explicitly mentioned under the FEMA (Non-Debt Instruments) Rules, 2019, ensuring uniformity and compliance in cross-border valuations.
Therefore, while IBBI-registered valuers play a crucial role under the Companies Act and IBC, they are not the default professionals recognised under FEMA. For NRI-owned companies engaging in cross-border financial transactions, this distinction is vital—appointing the wrong valuer can result in regulatory non-compliance and delays in execution.
7. When IBBI Valuers Become Mandatory
While FEMA rules primarily recognise Merchant Bankers and experienced Chartered Accountants for valuation purposes, there are specific circumstances where the appointment of an IBBI-registered valuer is not just advisable but legally mandatory. These are transactions that fall under the purview of the Companies Act, 2013 or the Insolvency and Bankruptcy Code (IBC), 2016, even if they also involve FEMA compliance.
Key examples include:
- Mergers, demergers, and corporate restructuring – Any cross-border or domestic restructuring involving NRI-owned companies will trigger Companies Act provisions, making an IBBI valuer essential.
- Preferential allotments and share issuances – When NRI investors are allotted shares under preferential terms, the valuation must be certified by an IBBI valuer for compliance with the Companies Act.
- Employee Stock Option Plans (ESOPs) – If ESOPs are issued to employees in NRI-owned entities, valuation by an IBBI-registered valuer is generally required.
- Insolvency or liquidation proceedings – The IBC mandates that at least two IBBI-registered valuers independently assess the value of securities, financial assets, and other assets involved.
Thus, whenever a transaction invokes dual compliance—FEMA plus Companies Act or IBC—IBBI-registered valuers become indispensable for ensuring full regulatory coverage.
8. Practical Scenarios for NRI-owned Companies
For NRI-owned businesses, it is essential to distinguish between transactions that require Merchant Bankers/Chartered Accountants under FEMA and those that call for IBBI-registered valuers under the Companies Act or IBC. Some common scenarios include:
- Share transfers between resident and non-resident shareholders – For FEMA purposes, valuation must be certified by a Merchant Banker or experienced CA.
- Preferential allotments and ESOPs involving NRIs – These trigger Companies Act provisions, making IBBI valuers mandatory in addition to FEMA compliance.
- Mergers, buy-backs, or restructuring with NRI participation – Such transactions typically require valuations under both FEMA and Companies Act, meaning both sets of professionals may need to be engaged.
- Dual compliance cases – Whenever a transaction has a foreign exchange element (FEMA) and simultaneously falls under the Companies Act, NRI-owned companies must engage IBBI-registered valuers alongside Merchant Bankers or CAs to ensure complete compliance.
In practice, the choice of valuer is not about preference but about the statutory framework governing the transaction. Appointing the right professional from the outset helps avoid regulatory delays, penalties, or rejection of filings with the RBI and other authorities.
9. Common Misunderstandings
When it comes to valuations for NRI-owned companies, several misconceptions often create compliance gaps:
- Assuming IBBI valuers can always certify FEMA valuations – This is not the case. Under FEMA, only a SEBI-registered Merchant Banker or a Chartered Accountant with valuation experience can certify. An IBBI valuer’s report alone is not acceptable for FEMA purposes.
- Overlooking dual compliance requirements – Many companies mistakenly rely on just one valuation report, ignoring that both FEMA and Companies Act provisions may apply simultaneously. For example, a preferential allotment to an NRI requires FEMA certification plus an IBBI valuer under the Companies Act.
- Confusing FEMA valuation with Companies Act valuation – FEMA focuses on ensuring fair pricing for cross-border transactions to protect foreign exchange integrity, while Companies Act valuations are about protecting shareholders and corporate governance. Both frameworks have different objectives and cannot be substituted for each other.
By recognising these pitfalls, NRI-owned companies can avoid regulatory setbacks and ensure transactions hold up under scrutiny.
10. Best Practices for NRI-owned Companies
To navigate the complex compliance landscape, NRI-owned businesses should follow these practical steps:
- Assess the applicable law early – Identify whether your transaction is governed by FEMA alone, or by both FEMA and the Companies Act/IBC. This assessment determines the type of valuer required.
- Appoint the right professional – Engage a Merchant Banker or CA for FEMA-related valuations, and an IBBI-registered valuer for Companies Act or insolvency matters. In cases of dual compliance, both may be needed.
- Maintain complete documentation – Keep valuation reports, board approvals, RBI filings, and supporting documents well-organised. This not only satisfies regulatory requirements but also strengthens the audit trail.
- Plan ahead for timelines – FEMA filings (e.g., FC-GPR, FC-TRS) and Companies Act filings often have strict deadlines. Early engagement with valuers helps avoid last-minute compliance issues.
- Seek expert advisory when in doubt – Complex transactions involving NRIs—like mergers, buy-backs, or ESOPs—benefit from consulting professionals who understand both FEMA and corporate law nuances.
Adopting these best practices helps NRI-owned companies manage compliance seamlessly while building credibility with regulators and investors alike.
11. Key Resources and References
For businesses and professionals navigating valuation requirements under FEMA and the Companies Act, the following resources are essential:
- RBI Guidelines: Master Direction on Foreign Investment in India – outlines valuation requirements for inbound and outbound investments.
- FEMA (Non-Debt Instruments) Rules, 2019 – prescribes the framework for valuation of equity instruments involving NRIs.
- Companies Act, 2013: Sections 247 and 230–236 deal with valuation for corporate law purposes.
- IBBI Notifications: Recognition of registered valuers and their role in insolvency and corporate restructuring.
- SEBI Regulations: Relevant where listed securities are involved in cross-border transactions.
- Professional Insights: Advisory firms such as Marcken Consulting provide tailored support for dual compliance (FEMA + Companies Act) transactions.
These references form the backbone of compliance and should be consulted before finalising any valuation exercise.
12. Conclusion
The central question—are IBBI-registered valuers recognised under FEMA?—has a nuanced answer.
- No, IBBI valuers are not default FEMA valuers. For FEMA purposes, valuation must be carried out by a SEBI-registered Category I Merchant Banker or an experienced Chartered Accountant.
- Yes, IBBI valuers become mandatory when transactions trigger the Companies Act or Insolvency Code, such as mergers, restructuring, preferential allotments, or insolvency proceedings.
In practice, NRI-owned companies must often comply with both FEMA and Companies Act requirements simultaneously. The safest approach is to engage the right professionals for each framework and maintain thorough documentation.
Key takeaway: Before executing any cross-border transaction, NRI-owned businesses should seek professional guidance to avoid compliance lapses and ensure smooth regulatory approvals.
Key Takeaway
FEMA’s regulatory framework transforms valuation from a financial analysis exercise into a compliance-driven responsibility. Every figure, assumption, and certification carries legal weight — making it crucial that companies engage qualified and independent professionals for such valuations.
Frequently Asked Questions (FAQs)
No. FEMA recognises only SEBI-registered Merchant Bankers and Chartered Accountants for valuation certification. IBBI valuers cannot substitute for FEMA compliance.
Yes, for many transactions involving unlisted equity shares, RBI mandates valuation by a Merchant Banker. A CA’s valuation is sometimes accepted, but Merchant Banker certification is often preferred.
In such cases, dual compliance is required. You may need both a Merchant Banker/CA (for FEMA) and an IBBI valuer (for Companies Act).
Not in terms of compliance. FEMA valuation rules apply uniformly to all companies, whether startups or established businesses. However, startups raising funds from NRIs should be especially mindful of aligning with RBI’s pricing guidelines.
Non-compliance can result in RBI penalties, compounding proceedings, and delays in fund remittance or share allotment approvals. It may also create issues during future fundraising or exit events.
