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Asset Valuation — Legal Aspects
by G. Subba Rao

Cite as : (2004) PL WebJour 6

T..he act of valuation is to appraise, to estimate or setting the value of valuables i.e. to create an awareness or acknowledgement of quality, nature, excellence or the like of assets, the work of something in terms of the amount or other things for which it can be exchanged or in terms of some medium of exchange, an estimate usually subjective. Therefore a valuer is an appraiser.

A valuer cannot but be a specialist in his own field. Wisdom of the valuer or appraiser becomes the foundation for future binding contracts for others. The working of future contracts of third parties solely depends on the expert report of the valuer. He will also become author of future disputes if only he is not knowledgeable or acts unscrupulously.

A valuer is a beacon light for all the commercial ventures, be it in any field of economic activity and he becomes an indispensable tool in the wheels of commercial ventures. This pivotal position of valuer puts on him the burden of being proficient in his own field of knowledge and at the same time with the liability to face the consequences of his own wrong actions.

In the yesteryears, the role of a valuer was limited to the valuation of immovable properties, such as land and buildings, gold/silver/jewellery/articles/gems and precious stones and rarely sometimes certain machinery and tools. Due to economic development that is taking place in the globe, the role of valuers is becoming increasingly important and newer fields are opening up newer lines of specialists and calling for adoption of modern methods and tools in the process of valuation. Therefore, the present valuers are required to extend their horizon and try to equip themselves to face the challenge of economic development.

To trace some of the economic activities in which the valuers are required to take part in the present-day world:


Sale/purchase/mortgage of land and buildings, leasehold rights etc.


Tourists/visa purposes/creating of trust for charitable purposes etc.


For obtaining succession certificates/will/probate/ partition/gifts etc.


(a) Constitution/dissolution of partnership firms/dissolution/amalgamation of companies.


(b) auction-sales — to fix up reserve price of assets — for banking institutions/Customs and Central and State Excise Departments about their goods and vehicles etc.


(c) Brands/good will/technical know-how.


For purposes of furnishing security to the court of law by delinquent/charged persons.


Under the Income Tax Act for the purposes of filing of IT returns by the assessees specifically in respect of newly constructed buildings etc.

For Insurance

Loss assessing of fixed assets, goods, vechicles, fire loss etc.

In recent days, due to advent of IT industries and coming into force in India of the Information Technology Act of 2000, newer fields have opened up to the fraternity of valuers. New assets are created. They are assessment/appraisal of intellectual property rights, patent rights, copyrights etc. The development of internet sites/web sites, ATM servers, company online servers, problems created by the virus and worms and disputes arising out of hacking of these sites by competitors/criminals and resultant loss to its owners has opened up new vistas for a group of specialists in the electronic industry.

Whatever may be the field in which an appraiser/valuer works for whatever purposes, one thing common to all the assessors is that the valuer has to vouchsafe to his valuation and the method he has adopted and it must commend utmost reliability. The valuation so made should depict its true value in the market on a given date. The beneficiary must be able to derive its true value at the same time serving the social purpose.

The words “true value on a given date” are significant because, the price of every asset/merchandise/services/intellectual property rights are all place- and time-related. They are never static. They are sometimes volatile. Hence, the burden on the valuers/appraisers is more and it is onerous. It is therefore necessary for them to adopt foolproof methods or under certain circumstances to adopt alternative methods. At the same time attention must be given to proper documentation which should be made part of their assessment reports. In the place of an abstract opinion with authority, it will be advisable to give a narrative assessment disclosing therein the source of information with documents if any and whenever necessary appraisers furnish valuations in alternative methods.

For example.—While appraising a property, say a commercial or residential building in a city/town/village, the value of the site is to be determined. The value indicated in the registered document should be updated commensurate with the current market value. Getting correct and true current market value is not easy. Even the latest registered document of a nearby property in the Sub-Registrar’s Office may not depict true value, because due to high rates of stamp duty, no one will get registered the document for actual price paid. Normally it is less than 50% of the ruling market rate.

Now the question will be, as to which rate the valuer will have to consider, while valuing the property. The market rates fluctuate so vibrantly, at a later date the valuer if confronted may not be in a position to prove the local market rate assumed by him in his valuation report. If the valuer only relies on the rates documented in the Sub-Registrar’s Office he will be doing injustice to the parties as the valuer is expected to furnish the true value of the property on the date when he is asked to appraise. Therefore, in such a situation in the absence of any documentary evidence to show the prevailing current market rate of the land, it is advisable that the valuer gives two sets of valuation i.e. one according to the recorded to the recorded facts and another based on ascertained facts. The valuer is well advised to take some documents or rate list from some reliable sources to support his advice and make it a part of the report.

The same principle must be adopted in respect of all types of properties so as to avoid any ambiguities. Similarly, if more than one method can be adopted for the purposes of arriving at the true value of the property, the valuers are well advised to furnish alternative methods of valuation and reports based on them so that the liberty rests with the beneficiary to choose one of them so that the responsibility of the valuer will be less.

The process of valuation, as already mentioned earlier, is the job of a specialist and the job is undertaken by a specialist in the relevant field with sufficient background and the valuer adopts foolproof methods in furnishing the true valuation reports which are not cryptic but elaborate, narrative with supporting documents and wherever possible alternative methods adopted are furnished, one based on documents and another based on local enquiry and best judgment. The choice of placing reliance on any one of them would rest with the beneficiary with least responsibility on the valuer. A well-documented, narrative valuation report will never pose any problem to the valuer at any future date.

It is also necessary for the appraiser to ensure that the client requiring appraisal furnishes clear-cut identity of the property and boundaries therefor to avoid any ambiguity to the valuer. Along with the valuation report a rough sketch of the property evaluated and also a few photographs taken from all the four corners of the property, considered by the valuer should also be taken either in conventional method or in the digital form which should also be made part of the report.

The facilities of archiving now are more convenient than ever before. The valuers can even think of furnishing the report in the electronic media by also storing them on their own computer for posterity taking advantage of the advancement in the IT industry.

The report by the valuer being an expert’s opinion, in my opinion it cannot be subjected to any scrutiny of his conduct at a future date if only the report is self-explanatory and reported in good faith and it is well-documented and alternative methods are furnished for selection by the beneficiary.

The profession of valuers is assuming greater importance in the recent days and newer areas, hitherto unknown to the valuers have cropped up. It is important for the Governments and educationalists to think about opening of new branch of valuation as a subject of study either as a part of curriculum or a specialized study, either at the graduate level or postgraduate level to produce well-informed valuers in different fields of economic activities. The universities should think of opening new branch of study in valuation of different kinds of assets on the lines of study of actuary to produce vibrant, specialist and young valuers. Valuation can be a full-time profession as valuation or appraisal is an art as well as science requiring high level of skill and expertise.

Advocate, Karnataka High Court. Return to Text

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