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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

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(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

Table

1

2

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

Forests

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. 


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Comments

12 years ago AMIT SINGH

1. On 03-Dec-2012, I appeared with EMD of INR 5,25,000/- vide AXIS Bank DD 006430 Dated 03-Dec-2012 in good faith for the purchase of residential flat in auction as per information given in advertisement dated 31-Oct-2012 and won the bid. Subsequently I requested IDBI Bank to provide full set of property documents to inspect the property from Legal and technical side of property as per bid. My request was turned down and I was asked to deposit 25% as per bid before 07-Dec-2012 to avail a copy of the documents. 2. After rigorous follow up and coordination, I got the Sale Deed, Registry Valuation report, Municipal Tax receipt of 2009, Inventory, Panchnama from IDBI Bank in instalments between 10-Dec-12 to 14-Dec-12. They asked me to sign declaration of earliest payment at every time they provided me any copy of property documents. I requested for remaining property papers viz. Sanction municipal Plan, Completion certificate, mutation certificate etc from IDBI Bank but my request went unnoticed. 3. I was somehow able to arrange sanctioned layout plan through personal effort from promoter after showing bid win confirmation letter. 4. On 17-Dec-2012 IDBI allowed technical inspection. But Sanctioned plan, Completion certificate were still not handed over to me and they did not disclose any material information on the same. 5. On 18-Dec-2012, I received technical opinion that the construction did not match with the sanctioned municipal plan i.e flat map approved in sanction plan differs with flat image filed with sale deed, broacher of property and physical flat structure. In no time I understood that why bank had not given sanctioned layout plan to me after several follow up also and did not share any information on the same. It is an irregularised property and as per Kolkata Municipal Corporation Rules no person should occupy a building erected or re-erected or altered under KMC Building Rules, 2009 in respect of which a completion certificate under rule 29 has not been issued by Municipal Corporation. So property is not legally inhabitable as per KMC Building Rules, 2009. (Highlighted in the map filed with sale deed, sale broacher and approved plan to identify the difference. Physical construction is as per MAP in sale and property broacher which is still not approved by Kolkata Municipal Corporation) 6. For the purchase of the said flat I had applied for home loan with IDBI Bank. They issued home loan sanction also of INR 51.80 without informing me on defects. As informed to me loan documents were notarized and ready for disbursement. I denied accepting disbursement after I noticed the defect in Municipal Corporation Plan with physical structure. Had I taken loan disbursement against this property it would have been violation of DBOD. No.DIR.BC.07/08.12.001/2012-13 - July 2, 2012 Master Circular – Housing Finance paragrah 9.3 which is based on High Court decision in Kalyan Sanstha Welfare Organisation against Union of India and Others (DBOD.Dir.BC.No.43/ 08.12.01/2006-07 dated November 17, 2006) (SET 4 – Home loan sanction copy 7. On 19-Dec-2012, I immediately went to recovery department and showed them encumbrance on the property. Their attitude turned negative towards me and they started ignoring the points raised by me. They must hold these information on property as valuation report by empanelled valuer captures these facts in physical inspection before creation of security/ revaluation/ valuation prior to auction of residential flat. Public Advertisement for sale of this property did not contain any information on irregularity of construction and non-availability of important property documents. Above material encumbrances were never informed to me during inspection before commencement of auction. Rule 8(6) (a) and sub rule (5) paragraph (f) of Security Interest (Enforcement) Rule, 2002 mandates the secured creditors to disclose in the terms of sale notice, any information/documents which the authorized officers consider to be material for a purchaser to know in order to judge the nature and value of the property. It should also include the encumbrance relating to the property and the intending purchaser to be intimated of the nature of encumbrance, if any, as otherwise he/she will be purchasing the property and simultaneously shouldering litigation as well. Moreover an intending purchaser might not have entered in the bid, in the event, he/she came was appraised of any such encumbrance over the property in advance. 8. They refused to accept the above information. Then I dispatched the letter dated 19-Dec-2012 through Speed post. I requested almost every linked department to interfere but no one showed interest as bank was holding my EMD and they intended to forfeit the same for which they had given letter to that effect dated 13-Feb-2013. I want to know, what protection available to me since bank did not have minimum set of property documents and property was not constructed as per law of state.


12 years ago c.p.s. ramachary

Thank you Mr.Raju. Yes.I agree with you.


12 years ago RAJU O.F.,

Thank you Sir, for providing the useful article. I amy add that separate registration is required for each catagory of valuers as per Wealth Tax Rules, depending on their qualifications and experience; eg, different registration for valuation of plant and machineries and for immovable properties.


4 years ago  GPSA
YES, There is seperate category of Valuers, Valuation of Movable ie Plant & Machinery, valuation of Immovable assets ie Land and Buildings other Tea, Coffee estates, agricultural land, mines
  

12 years ago H.M.Patnaik

Thanks a lot for preparing such an useful article on the subject.




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