Valuation of secured assets, the procedure and practice under SARFAESI Act 2002

The procedures for valuation of movable secured assets and immovable secured assets are different and they are dealt by separate rules under Security Interest (Enforcement) Rules 2002. Rule 5 of S.I.(E)Rules deals with valuation of movable secured assets.  After taking possession under sub-rule (1) of rule 4 and in any case before sale, the authorised officer shall obtain the “estimated value” of the movable secured assets and thereafter, if considered necessary, fix in consultation with the secured creditor, the reserve price of the assets to be sold in realization of the dues of the secured creditor. Oxford Dictionary meaning of ‘estimate’ is ‘a judgment that one makes without having exact details or figures about size, amount, cost etc’. The rule is silent about involvement of approved valuer for valuation of movable secured assets. Value means intrinsic worth or cost or price for sale of a thing or property (Union of India and Ors. Vs. Bombay Tyre International Ltd. & Ors. AIR 1984 SC 420= (1984)1 SCC 467).

Wealth Tax Act 1957 (and Wealth Tax Rules 1957) is the only law which deals with valuation of properties (both movables and immovable). The valuation report by a registered valuer in respect of any asset specified in column (1) of the table below shall be in the form specified in the corresponding entry in column (2) thereof and shall be verified in the manner indicated in such Form.


Stocks, shares, debentures, securities, shares in partnership firms and business assets including goodwill but excluding those referred to in any other item in this table ………….Form No. 6

Machinery and plant…………….Form No 7

Jewellery Form No.8

Works of art………. Form No.9

Life interest, reversions and interest in expectancy…Form No.10

Certificate of quoted shares/debentures of a company…Form No11


The estimate of the value of property is a material fact to enable the purchaser to know its value.

Rule 2(1) (d) of Security Interest (Enforcement) Rules defines "approved valuer."  "Approved valuer" means a person registered as a valuer under section 34AB of the Wealth-tax Act, 1957, and approved by the board of directors or board of trustees of the secured creditor, as the case may be;

Sec.34AB Registration of Valuers

(1) The Chief Commissioner or Director General shall maintain ‘Register of Valuers’ in which the names and addresses of the valuers shall be entered.

(2).Valuers have to apply to the Chief Commissioner or the Director General for registration along with a declaration (see sub-sec.3 of sec 34AB of Wealth Tax Act)

(3)Valuation Report to be in the prescribed format prescribed under Rule 8D of Wealth Tax Rules 1957).

“The report of valuation by a registered valuer in respect of any asset specified in column (1) of the table below shall be in the form specified in the corresponding entry in column (2) thereof and shall be verified in the manner indicated in such Form




Immovable property (other than agricultural lands, plantations, forests, mines and quarries

Form O-1

Agricultural lands (other than coffee, tea, rubber and cardamom plantations)

Form O-2

Coffee, tea, rubber and cardamom plantations

Form O-3


Form O-4

Mines and Quarries

Form O-5


(4)Sec.34AC deals with restriction on practice as registered valuers.


(5)Sec.34AD deals with removal & restoration of registered valuers.


According to Sec.37 of SARFAESI Act, the Act is in addition to any other law for the time being in force. The provisions of Wealth Tax Act 1957 and the Wealth Tax Rules 1957 which are not inconsistent to the provisions of SARFAESI Act can be followed. The valuer should not only be registered under Sec. 34-AB of Wealth Tax Act 1957 but also be approved by bank’s Board. Otherwise his report cannot be considered as valid document in the scrutiny of the action of the secured creditor by the tribunal under Sec. 17(3) of the Act. The estimate of the value of property is a material fact to enable the purchaser to know its value. Therefore it must be verified accurately and reasonably. The valuation is question of fact.   It should be fixed on relevant material. The concept of Reserve Price is not synonymous with valuation of the property. These two terms operate in different fields. An invitation to offer is not an offer. It is an attempt to ascertain whether an offer can be obtained with a margin. Valuation Report of the borrower also can be invited. Improper valuation may mislead big businessmen from participating in the bid. (Swastic Agency and Ors. Vs. State Bank of India & Ors.:AIR 2009 Orissa 147).The difference between the ‘valuation’ and ‘reserve price’ is that the fixation of upset price may be an indication of the probable price which the property may fetch whereas the valuation is dependent on relevant material (Duncan Industries Ltd. Vs. State of U.P. & Ors. AIR 2000 SC 355). Reserve Price is the price with which the public auction starts and below which the bids are not permitted (State of U.P. Vs. Shiv Charan Sharma & Ors. : AIR 1981 SC 1722). Accuracy and reasonableness are two essential things in valuation of secured asset, If the valuation is not accurate and reasonable, the same cannot be accepted. (Bhupender Singh Vs.State Bank of Patiala: AIR 2008 Punjab & Haryana 148). In the cited case it was noted that, the house at the time of sanctioning the loan was higher than the valuation recorded at the time of sale. In one case valuation is recorded but the valuer has not taken into consideration the new additions to the property as well as the tenants occupying it. Property occupied by tenant will be higher in value than the self occupation for the purpose of levy of property tax by municipal authorities. In another case valuation report is stated to be caused on a particular date. But the house was over crowded by marriage party and relatives of the borrower on that particular day. Hence taking measurements is practically impossible. This kind of valuation is known as symbolic valuation. Symbolic valuation is not known to law. In case of movable machinery or hypothecated goods there is scope to contend that the value is depreciated and hence approved valuer is not involved under the rule Rule 5. But this may lead to preparation of wrong estimate(value). Hence it would be appropriate to amend the Rule 5 involving approved valuer who can prepare estimate (value) keeping in mind the prevailing market value for the movables. 


c.p.s. ramachary 
on 11 December 2012
Published in Corporate Law
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