Distressed Company Valuation: IBC, Liquidation & Going Concern

The IBC Valuation Framework: Sections 33–35 and CIRP Regulations

The Insolvency and Bankruptcy Code, 2016 created India’s first comprehensive framework for resolving corporate distress. Valuation sits at the heart of this framework — it determines the benchmark against which resolution plans are evaluated, the floor for creditor recoveries, and the basis for liquidation proceeds. Understanding the statutory architecture is essential for any valuer engaged in IBC matters.

Section 25(2)(e): The Resolution Professional’s Valuation Obligation

Section 25(2)(e) of the IBC mandates that the resolution professional shall obtain a registered valuer‘s report on the fair value and liquidation value of the corporate debtor in accordance with Regulation 27 of the CIRP Regulations. This is not discretionary — the RP must obtain valuations from two independent Registered Valuers appointed from the panel maintained by IBBI. The valuers must be registered under the IBBI (Registered Valuers) Regulations, 2018, in the asset class of Securities or Financial Assets (SFA) for enterprise-level valuations.

Regulation 27: Appointment and Process

Regulation 27 of the IBBI CIRP Regulations, 2016 sets out the valuation process:

• Regulation 27(1): The resolution professional shall, within seven days of his appointment but not later than forty-seven days from the insolvency commencement date, appoint two registered valuers to determine the fair value and the liquidation value of the corporate debtor.
• Regulation 27(2): The registered valuers shall submit estimates of the fair value and liquidation value to the resolution professional within the timeline specified.
• Regulation 27(3): The resolution professional shall calculate the average of the two estimates of fair value and the average of the two estimates of liquidation value, which shall be considered as the fair value and the liquidation value respectively.
• Regulation 27(4): The fair value and liquidation value shall be submitted to the committee of creditors (CoC) confidentially and are not to be disclosed to resolution applicants.

The confidentiality requirement under Regulation 27(4) is critical — the CoC knows both values but resolution applicants do not. This prevents resolution applicants from anchoring their bids at the liquidation value floor.

Section 30(2)(b): The Liquidation Value Floor

Section 30(2)(b) of the IBC, as amended by the Insolvency and Bankruptcy Code (Amendment) Act, 2019, requires that the resolution plan must provide for payment to each dissenting financial creditor an amount not less than what such creditor would receive under Section 53 (the liquidation waterfall) if the corporate debtor were liquidated. This makes the liquidation value the statutory minimum benchmark for resolution plan evaluation.

The Supreme Court of India, in the landmark Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta (2019), affirmed that the CoC has commercial wisdom to evaluate resolution plans but must ensure that the Section 30(2)(b) minimum is met. This judgment underscored the centrality of accurate liquidation valuation.

Section 33: Order for Liquidation

Section 33 of the IBC sets out the circumstances under which the NCLT may order liquidation:

• Section 33(1)(a): When the CoC does not approve a resolution plan within the CIRP timeline (currently 330 days including extensions under Section 12).
• Section 33(1)(b): When the CoC decides to liquidate the corporate debtor by a vote of not less than sixty-six per cent of voting share.
• Section 33(2): When the resolution plan approved by the CoC is rejected by the Adjudicating Authority (NCLT) for contravening any provision of the IBC.
• Section 33(3): Where a resolution plan is contravened by the corporate debtor whose resolution plan has been approved.

Once liquidation is ordered, fresh valuations may be required if the CIRP valuations are considered stale.

Sections 34–35: Liquidation Estate and Powers of Liquidator

Section 35(1)(f) empowers the liquidator to sell the assets of the corporate debtor by public auction or private contract, with power to transfer such assets to any person. Critically, Regulation 32 of the IBBI (Liquidation Process) Regulations, 2016 provides for multiple modes of sale, including:

• Regulation 32(a)-(d): Sale of assets in parcels, as a set of assets in slump sale, in aggregate, or individually.
• Regulation 32(e): Sale of the corporate debtor as a going concern.
• Regulation 32(f): Sale of the business of the corporate debtor as a going concern.

The distinction between Regulation 32(e) and 32(f) is significant — 32(e) involves selling the entire corporate entity, while 32(f) involves selling the business operations (which may exclude certain liabilities or non-core assets). Each mode requires different valuation approaches.

Fair Value Determination for Distressed Companies

Fair value under the IBC assumes a going-concern sale — the company continues operations under new ownership. This is fundamentally different from a healthy-company valuation because the corporate debtor is, by definition, unable to service its debts. The valuer must navigate between the theoretical going-concern value (assuming successful turnaround) and the present distressed reality.

Adjusted DCF Approach for Distressed Companies

The standard DCF methodology — projecting free cash flows and discounting at WACC — requires significant modification for distressed companies. At Virtual Auditor, we apply the following adjustments:

1. Revenue normalisation and projection: Distressed companies typically experience revenue decline in the 12–24 months preceding CIRP admission. Revenue projections must distinguish between cyclical decline (recoverable) and structural decline (permanent). We analyse pre-distress revenue trajectories, industry growth rates from RBI sectoral reports, and comparable recovery patterns from prior IBC cases in the same sector.

2. Cost structure adjustment: The CIRP process itself changes the cost structure. Key adjustments include:

• Elimination of pre-CIRP management compensation and related-party transactions that may have been at non-arm’s-length terms.
• Normalisation of working capital to industry-standard levels — distressed companies often have severely stretched payables and depleted receivables.
• Assessment of employee cost restructuring — many resolution plans involve workforce reduction, and the fair value should reflect a normalised cost base.
• Treatment of the CIRP moratorium period — Section 14 provides a moratorium on debt servicing, which means the company operates without interest costs during CIRP, but this must not be assumed to continue post-resolution.

3. Capital expenditure requirements: Distressed companies typically have deferred maintenance and capital expenditure. The valuer must estimate the catch-up capex required to restore operational capacity, in addition to ongoing maintenance capex. This is often a significant value-eroding factor that naive DCF models underestimate.

4. Discount rate for distressed entities: The WACC for a distressed company reflects higher risk. We use a build-up approach incorporating:

• India 10-year G-sec yield as the risk-free rate (currently approximately 7%).
• Equity Risk Premium of approximately 8% for India (per Damodaran’s country-risk-adjusted ERP).
• Sector beta adjusted for distress — typically using the unlevered beta of healthy comparables, relevered at the target capital structure post-resolution.
• Specific risk premium of 3–8% for distress-related uncertainties, including execution risk on turnaround, customer attrition risk, key-employee departure risk, and regulatory/litigation risk.
• The resulting cost of equity for distressed Indian companies typically ranges from 22–35%, compared to 16–22% for healthy private companies. See our DCF methodology guide.

5. Terminal value considerations: For distressed companies, the terminal value assumption requires particular care. The standard perpetuity growth model assumes stable, indefinite operations — an assumption that may not hold for a company that has already demonstrated inability to sustain itself. We typically:

• Use a lower terminal growth rate (2–4% nominal, reflecting long-term Indian GDP growth minus a distress haircut).
• Cross-check terminal value using exit multiple methodology based on healthy-company comparables, applying appropriate distress discounts.
• Cap terminal value at no more than 60–70% of total enterprise value — a higher percentage would suggest the projection period is too short or the near-term assumptions are too conservative.

Distressed-Comparable Transaction Multiples

An alternative or supplementary approach to adjusted DCF is to use transaction multiples from prior IBC resolution plans. Since 2017, over 750 CIRPs have resulted in resolution plans approved by the NCLT, providing a growing dataset of distressed-transaction multiples. Key considerations:

• Recovery rates by sector: Recovery rates (resolution plan value as a percentage of admitted claims) vary significantly by sector. Manufacturing and infrastructure have shown recoveries of 15–40%, while services and trading companies have shown lower recoveries of 5–20%. Real estate recoveries are highly variable, ranging from 10–60%, depending on project viability and land values.
• EV/Revenue and EV/EBITDA multiples from resolution plans: These can be benchmarked against healthy-company multiples from the same sector to derive an implied distress discount. However, resolution plan values include negotiated elements (e.g., creditor haircuts, deferred payments) that complicate direct comparability.
• Time-to-resolution adjustment: Longer CIRP processes (approaching the 330-day maximum) tend to erode value. The valuer must adjust comparables for time-in-CIRP effects.

Sum-of-the-Parts (SOTP) Approach

For diversified distressed companies or those with distinct business segments, an SOTP approach may be more appropriate. Each business unit or asset category is valued independently:

• Operating businesses: Valued on a going-concern basis using adjusted DCF or comparable multiples.
• Real estate and land: Valued using market-comparable approach (circle rates, ready-reckoner values, recent transaction data) with adjustments for encumbrances, litigation, and regulatory approvals.
• Plant and machinery: Valued using depreciated replacement cost (DRC) methodology, adjusted for functional and economic obsolescence.
• Intangible assets: Brands, patents, licences, and customer relationships valued using relief-from-royalty, multi-period excess earnings, or with-and-without methods. See our intangible asset valuation guide.
• Investments and subsidiaries: Valued based on their own enterprise value, with appropriate DLOM and minority discounts where the corporate debtor holds less than 100%.

Liquidation Value Determination

Liquidation value represents the worst-case scenario for creditors — the amount realisable if the company ceases operations and assets are sold piecemeal. This value serves as the statutory floor under Section 30(2)(b) of the IBC and is therefore one of the most consequential numbers in the entire CIRP.

Types of Liquidation Value

Valuation theory distinguishes between three types of liquidation value, each relevant in different IBC scenarios:

Liquidation Type	Assumption	Discount from Fair Value	IBC Application
Orderly Liquidation	6–12 months marketing period; assets sold individually	30–50%	Most common basis under IBBI CIRP Regulations
Forced Liquidation	Immediate sale; no marketing; fire-sale conditions	50–80%	Applicable when NCLT orders immediate liquidation
Going Concern Liquidation	Business sold as operational unit under Reg 32(e)/(f)	15–40%	Preferred mode under IBBI Liquidation Regulations

The IBBI CIRP Regulations do not specify which type of liquidation value the Registered Valuer must estimate. In practice, we at Virtual Auditor estimate orderly liquidation value as the primary basis, with forced-liquidation and going-concern-liquidation values presented as sensitivity scenarios.

Asset-by-Asset Liquidation Methodology

The liquidation value computation requires individual assessment of each asset category in the corporate debtor’s balance sheet:

1. Land and buildings:

• Base value: Government circle rate or ready-reckoner value, cross-checked against recent comparable transactions within a 2–5 km radius.
• Adjustments: Encumbrances (mortgages, charges registered with MCA), pending litigation, encroachments, environmental contamination, zoning restrictions, and occupancy status (vacant vs. tenant-occupied).
• Distress discount: 20–40% below market value for orderly liquidation, reflecting the compulsion to sell and the stigma associated with IBC proceedings.
• Costs: Brokerage (1–2%), legal and conveyancing costs, stamp duty and registration charges (which vary by state — e.g., Tamil Nadu at 7% vs. Maharashtra at 5–6%), and any pending property tax arrears.

2. Plant and machinery:

• Depreciated Replacement Cost (DRC): Replacement cost new, less physical depreciation (age-based), functional obsolescence (technological change), and economic obsolescence (industry decline).
• Market approach: Comparable sales of used machinery from auction platforms, dealer quotations, and industry-specific secondary markets.
• Realisation rates in Indian IBC liquidations have ranged from 10–50% of book value for plant and machinery, with heavy industry assets at the lower end and modern CNC/automated equipment at the higher end.
• Dismantling and removal costs must be deducted — these can be substantial for heavy industrial equipment.

3. Inventory:

• Raw materials: Valued at current commodity/market prices less handling and transportation costs. Perishable or obsolete raw materials are valued at scrap or salvage value.
• Work-in-progress (WIP): Generally valued at raw material content only, unless the WIP can be completed and sold. Completion costs must be assessed against the expected selling price.
• Finished goods: Valued at estimated net realisable value (NRV) — selling price less costs of completion, marketing, and distribution. Branded finished goods retain more value than commodity or unbranded products.
• Slow-moving and obsolete inventory: Valued at scrap or salvage value, which may be as low as 5–15% of book value.

4. Trade receivables:

• Ageing analysis is critical. Receivables less than 90 days old may realise 70–90% through factoring or direct collection. Receivables aged 90–180 days may realise 40–60%. Beyond 180 days, realisation rates drop to 10–30%.
• Related-party receivables require special scrutiny — they may have lower realisability, and the RP must assess whether they constitute preferential or fraudulent transactions under Sections 43–45 of the IBC.
• Government receivables (pending refunds, subsidies) have higher certainty but uncertain timing. These are valued at face value with a time-value discount.

5. Intangible assets and goodwill:

• In a piecemeal liquidation, goodwill has zero value — it only exists in a going-concern context.
• Identifiable intangibles (trademarks, patents, licences, software) may have standalone value if transferable. Brand names in FMCG, pharma, and consumer sectors can retain significant value even in liquidation.
• Regulatory licences and approvals (RBI licences, SEBI registrations, telecom spectrum, mining rights) may have substantial standalone value. However, transferability restrictions and regulatory approval requirements for transfer reduce realisable value.

6. Cash, bank balances, and investments:

• Cash and bank balances are valued at face value, subject to any lien or charge.
• Listed investments are valued at current market price less transaction costs.
• Unlisted investments in subsidiaries, associates, and joint ventures are valued independently — each entity must be assessed for its own going-concern or liquidation value.

Liquidation Costs and the Section 53 Waterfall

The gross liquidation value must be reduced by the costs of the liquidation process itself. These include:

• Insolvency resolution process costs (CIRP costs): Under Section 53(1)(a) of the IBC, CIRP costs have the highest priority in the waterfall. These include the RP’s fees, legal costs, valuation fees, and operational costs incurred during CIRP.
• Liquidation costs: The liquidator’s fees, auction costs, legal and compliance costs, and asset preservation costs during the liquidation period.
• Workmen’s dues: Under Section 53(1)(b), workmen’s dues for 24 months preceding liquidation and unpaid dues owed to secured creditors (to the extent of their security interest) rank second in priority.
• Employee wages: Under Section 53(1)(c), wages and unpaid dues owed to employees other than workmen for 12 months preceding liquidation rank third.
• Tax and government dues: Under Section 53(1)(e), government dues rank below financial creditors. This is a significant departure from pre-IBC law, where government dues often had priority.

The Section 53 waterfall determines the order of distribution:

Priority	Category	Description
1	Section 53(1)(a)	Insolvency resolution process costs and liquidation costs
2	Section 53(1)(b)	Workmen’s dues (24 months) and secured creditors (to extent of security)
3	Section 53(1)(c)	Employee wages (12 months preceding)
4	Section 53(1)(d)	Financial debts owed to unsecured creditors
5	Section 53(1)(e)	Government dues and remaining secured creditor claims
6	Section 53(1)(f)	Any remaining debts and dues
7	Section 53(1)(g)	Preference shareholders
8	Section 53(1)(h)	Equity shareholders

Going Concern Sale Under Liquidation: Regulation 32(e) and (f)

One of the most important developments in Indian insolvency law is the increasing preference for going-concern sales during liquidation. The IBBI has actively encouraged this through amendments to the Liquidation Process Regulations, recognising that going-concern sales preserve economic value, protect employment, and generate higher realisations for creditors.

When Going Concern Sale is Appropriate

The liquidator must evaluate whether the corporate debtor’s business can be sold as a going concern. Factors favouring a going-concern sale include:

• Operational continuity: The business continues to operate during liquidation, employees remain, and customer relationships are intact. If operations have ceased, a going-concern sale is unlikely unless the business can be restarted with minimal capital.
• Asset interdependence: Assets have significantly more value in combination than individually. Manufacturing facilities with integrated supply chains, software companies with interconnected products, and service businesses with trained teams all exhibit high asset interdependence.
• Licence and regulatory value: The corporate debtor holds licences, permits, or regulatory approvals that cannot easily be replicated. RBI licences (NBFC, banking), SEBI registrations, telecom spectrum, and mining leases are examples.
• Brand value: The business has established brand recognition and customer loyalty that would be lost in piecemeal liquidation.
• Workforce value: The business has a skilled, trained workforce that represents significant recruitment and training investment.

Valuing the Going Concern in Liquidation

Going-concern value in a liquidation context differs from fair value in CIRP because the buyer knows that the alternative is piecemeal liquidation. This creates negotiating dynamics that typically result in a price between the liquidation value floor and the fair value ceiling. Our approach at Virtual Auditor includes:

1. Adjusted DCF with turnaround assumptions: Similar to fair-value DCF but with more conservative assumptions reflecting the liquidation context — shorter projection period (3–5 years), higher discount rate, and lower terminal value.
2. Replacement cost analysis: Estimate the cost a buyer would incur to replicate the business from scratch — including land acquisition, construction, equipment procurement, hiring, training, and obtaining regulatory approvals. The going-concern value should be lower than replacement cost (otherwise the buyer would build rather than buy).
3. Residual value above liquidation: Quantify the incremental value of the business as a going concern over and above the piecemeal liquidation value. This residual represents the going-concern premium and includes intangible elements such as workforce in place, customer contracts, and operational systems.

Avoidance Transactions and Their Impact on Valuation

Sections 43–46 of the IBC empower the RP and liquidator to identify and reverse certain pre-CIRP transactions that eroded the corporate debtor’s value. These avoidance provisions directly affect valuation because recoverable amounts from avoided transactions increase the estate value available to creditors.

Section 43: Preferential Transactions

Preferential transactions are those where the corporate debtor gave undue preference to a creditor within the look-back period (two years for related parties, one year for others). Examples include repaying a particular unsecured creditor while leaving others unpaid, or granting security over assets for previously unsecured debts. The valuer must assess the quantum of potentially recoverable preferential transactions and the probability of successful recovery.

Section 45: Undervalued Transactions

Undervalued transactions — where the corporate debtor transferred assets for significantly less than their value — within the two-year look-back period (related parties) or one-year period (others) are avoidable. The valuer plays a dual role: (a) determining whether a transaction was at undervalue by comparing the transaction price to contemporaneous fair value, and (b) estimating the recovery from reversing the transaction.

Section 66: Fraudulent and Wrongful Trading

Section 66 enables the NCLT to hold directors personally liable for fraudulent or wrongful trading. While this is primarily a legal remedy, the valuer may be asked to quantify the quantum of loss attributable to fraudulent or wrongful trading — for example, by estimating how much value was destroyed by continuing to trade while insolvent, or by entering into transactions intended to defraud creditors.

Sector-Specific Distressed Valuation Considerations

Real Estate Developers

Real estate CIRP cases constitute a significant proportion of IBC matters. Unique considerations include:

• Section 7 and homebuyer claims: Following the IBC Amendment Act, 2018, allottees of real estate projects are treated as financial creditors. Their claims must be factored into the valuation — specifically, the outstanding obligations to deliver completed units or refund amounts.
• Project-level valuation: Each project must be valued independently. Completed-and-sold inventory generates no additional value. Under-construction projects are valued using the residual method: Gross Development Value (GDV) of saleable area, less construction-to-completion costs, marketing costs, statutory approvals costs, and developer’s margin.
• Land bank valuation: Undeveloped land parcels are valued using market-comparable approach, adjusted for zoning, Floor Space Index (FSI) applicable under local development control regulations, environmental clearances, and litigation risk.
• RERA compliance: Projects registered under the Real Estate (Regulation and Development) Act, 2016 have regulatory obligations that affect the going-concern value. Non-compliance creates additional liability risk.

Manufacturing Companies

Manufacturing distress valuations involve:

• Capacity utilisation analysis: Distressed manufacturers typically operate at 20–50% capacity utilisation. The valuer must assess whether full utilisation can be restored under new ownership and the capex required for restoration.
• Technology obsolescence: Equipment age and technological relevance directly affect both going-concern value (production efficiency) and liquidation value (resale market).
• Environmental liabilities: Manufacturing sites may have environmental contamination requiring remediation. These costs — potentially running into crores — must be deducted from asset values. Environmental clearances from State Pollution Control Boards affect transferability.
• Supply chain dependencies: If the distressed company is a critical supplier to large OEMs, the customer relationships may have significant strategic value to potential acquirers.

Infrastructure and EPC Companies

Infrastructure companies present unique challenges:

• Concession and licence valuation: BOT/BOOT concessions, toll collection rights, and government contracts have finite lives and specific terms. The value depends on remaining concession period, traffic/revenue projections, and regulatory risk.
• Partially completed projects: The cost-to-complete and expected revenue from partially completed projects must be independently assessed. Abandonmant of projects mid-way typically destroys the majority of invested value.
• Government receivables and claims: Infrastructure companies often have substantial receivables from government entities — pending bills, variation claims, escalation claims, and arbitration awards. These are valued based on contractual merit, historical recovery patterns, and time-value discounting.

NBFC and Financial Services Companies

Financial services companies under IBC (through the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations as extended to financial service providers under Section 227 read with the notification dated 15 November 2019) have distinct valuation considerations:

• Loan portfolio valuation: The primary asset is the loan book, valued using expected recovery rates, Non-Performing Asset (NPA) classification, provisioning norms under RBI guidelines, and portfolio-level probability-of-default analysis.
• Regulatory capital requirements: The acquirer must meet RBI capital adequacy requirements, which constrains the leverage structure and affects the value a buyer can pay.
• Licence value: RBI licences for NBFCs, housing finance companies, and micro-finance institutions have standalone value because obtaining new licences involves regulatory scrutiny and waiting periods.

Valuation Challenges Unique to Indian IBC Proceedings

Information Asymmetry and Data Quality

Distressed companies frequently have incomplete, unreliable, or manipulated financial records. Common issues include:

• Unaudited or qualified financial statements: The statutory auditor may have issued qualified opinions or disclaimers in the years preceding insolvency. The valuer cannot rely on such financial statements without independent verification.
• Related-party transactions: Funds siphoned through related entities, inflated asset values through circular transactions, and fictitious receivables or inventory are common in Indian distressed companies. The valuer must work with the RP’s forensic analysis to identify and exclude such items.
• Missing physical verification: The valuer may not have access to all plant locations, and physical verification of assets may be impractical within the CIRP timeline. Reliance on the RP’s asset inventory and the statutory auditor’s fixed-asset register requires professional scepticism.
• Multiple stakeholder claims on assets: The same asset may be subject to competing claims from multiple secured creditors, revenue authorities, and third parties. The valuer must understand the charge structure from MCA records and assess the net realisable value after accounting for all encumbrances.

Timeline Pressure Under CIRP

The maximum CIRP period of 330 days (Section 12 of the IBC, as interpreted by the Supreme Court in Committee of Creditors of Essar Steel) creates significant timeline pressure. The valuer must complete both fair value and liquidation value assessments within the window specified by the RP — typically 30–45 days from appointment. This compressed timeline requires:

• Rapid mobilisation of the valuation team, including sector experts, plant and machinery valuers, and real estate valuers.
• Parallel work streams for different asset categories rather than sequential analysis.
• Efficient information requests to the RP and the corporate debtor’s management (who may be uncooperative under IBC Section 19).
• Pragmatic use of available data rather than waiting for complete information that may never materialise.

Disagreement Between Two Valuers

Since the CIRP Regulations require two independent valuers, divergence in their estimates is common. Regulation 27(3) addresses this by averaging the two estimates. However, when the divergence is very large (e.g., one valuer estimates fair value at INR 500 crore while the other estimates INR 200 crore), the RP faces a practical challenge. IBBI’s discussion papers have acknowledged this issue, and some NCLT benches have directed the appointment of a third valuer in cases of significant divergence. As a matter of professional practice, we recommend that the two valuers coordinate on assumptions (while maintaining independence on conclusions) to minimise unexplained divergence.

Resolution Plan Evaluation: How Valuation Drives CoC Decisions

The CoC uses the fair value and liquidation value estimates to evaluate resolution plans received under Section 30 of the IBC. The key decision framework is:

1. Liquidation value as the floor: Any resolution plan offering less than the liquidation value distributable to the relevant creditor class under Section 53 is non-compliant and must be rejected.
2. Fair value as the benchmark: Resolution plans offering significantly less than fair value indicate value destruction relative to going-concern potential. The CoC assesses whether the haircut from fair value is justified by turnaround risk, execution risk, and time-value considerations.
3. Competitive bidding dynamics: When multiple resolution applicants submit plans, the valuations help the CoC evaluate whether bids are reasonable. A bid significantly below liquidation value suggests opportunistic bidding; a bid approaching or exceeding fair value suggests competitive tension.
4. Creditor recovery analysis: The CoC analyses expected recoveries for each creditor class under each resolution plan versus the waterfall recovery under liquidation. This comparative analysis drives the voting decision.

Judicial Scrutiny of Valuations

NCLT and NCLAT have increasingly scrutinised valuation reports in IBC cases. Key judicial observations include:

• The NCLT has emphasised that valuations must be based on reasonable assumptions, documented methodology, and adequate information. Cursory or boilerplate valuation reports have been criticised.
• The NCLAT, in multiple orders, has noted that the CoC’s decision to accept a resolution plan offering less than the fair value but above the liquidation value floor is within the CoC’s commercial wisdom, as affirmed by the Supreme Court.
• Challenges to valuations by dissenting creditors or shareholders are generally not entertained on merits by the NCLT — the tribunal defers to the professional judgment of the Registered Valuer unless the valuation is shown to be manifestly unreasonable or based on incorrect facts.

Pre-CIRP Distressed Valuations: Restructuring and One-Time Settlements

Not all distressed valuations occur within the IBC framework. Companies may undergo pre-insolvency restructuring, and banks may consider one-time settlements (OTS) or inter-creditor agreements (ICA) under the RBI Framework for Resolution of Stressed Assets (June 2019 circular). In these scenarios:

• RBI’s June 2019 circular: Requires lenders to enter into an ICA within 30 days of default and implement a resolution plan within 180 days. Valuations support the resolution plan and help lenders assess the sustainable debt level.
• Sustainable debt analysis: The valuer estimates the maximum debt the company can service based on projected cash flows. Debt above this level must be converted to equity, written off, or restructured.
• Security cover assessment: Lenders assess the ratio of realisable security value to outstanding debt. The valuer provides the realisable value of secured assets under both going-concern and liquidation scenarios.
• Techno-Economic Viability (TEV) study: For manufacturing and infrastructure companies, lenders may require a TEV study assessing the company’s operational viability, market conditions, and capital expenditure requirements for revival.

Cross-Border Distressed Valuations

Increasingly, Indian IBC cases involve cross-border elements — foreign subsidiaries, overseas assets, inter-company claims, and foreign creditors. Relevant considerations include:

• Section 234-235 of the IBC: These provisions (not yet notified) deal with cross-border insolvency and are modelled on the UNCITRAL Model Law. Until notified, cross-border asset recovery depends on bilateral arrangements and common-law principles.
• Foreign subsidiary valuations: The valuer must assess whether foreign subsidiaries should be valued on a going-concern or liquidation basis independently, considering the local insolvency framework applicable to those entities.
• Currency risk: For corporate debtors with foreign-currency assets, the valuation must address exchange rate assumptions. The FEMA framework governs the repatriation of sale proceeds, and RBI approval may be required for certain transactions.
• Transfer pricing implications: Inter-company transactions and balances must be assessed for arm’s-length compliance under the Income Tax Act transfer pricing provisions (Sections 92–92F). Non-arm’s-length inter-company balances may not be recoverable at face value.

IBBI’s Evolving Standards for Valuation Quality

The IBBI has progressively tightened valuation standards through regulations, circulars, and disciplinary actions. Key developments include:

• IBBI Circular dated 16 January 2020: Clarified that the registered valuer must physically verify assets or disclose the limitation if physical verification is not possible.
• Disciplinary actions: IBBI’s Disciplinary Committee has taken action against registered valuers for inadequate documentation, lack of independence (undisclosed conflicts of interest), and submission of valuations without adequate basis. These orders, available on ibbi.gov.in, provide guidance on expected standards.
• Valuation standards alignment: IBBI has encouraged alignment with International Valuation Standards (IVS) 2022 published by the IVSC. While not mandatory, IVS compliance strengthens the defensibility of valuation reports.
• Continuing education: Registered Valuers must complete mandatory continuing education hours, including training on distressed-asset valuation methodologies.

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