5 Key Developments in Insolvency and Bankruptcy Law

The Insolvency and Bankruptcy Code 2016 is an important and key law related to the insolvency process in the country. In the following sections, we have elaborated the key developments related to the Codes with details of some recent case-laws related to them. We will explore these developments one by one in the following sections.

1. Increase in the threshold of minimum default amount under Section 4 of the Code

On 24 March 2020, the Central Government with its Notification No. S.O. 1205(E) exercised its powers conferred by the norms of  Section 4 of the IBC to increase the minimum amount of default (under Part-II) from INR 1,00,000 to INR 1 Crore. This means that a Financial or Operational creditor can now only initiate the Company Insolvency Resolution Process (CIRP) if the default from debtor had a minimum value of Rs. 1 Crore. The said amendment was made by the Government through an ordinance in June 2020 in wake of the crisis created by the COVID-19 pandemic. However, what remained unclear was how the plight of the pending cases of initiating insolvency lying before the Adjudicating Authority which haven’t reached the new default amount will be resolved. Looking at the trend of the prevailing practice under the IBC, it is quite possible that the already admitted cases will remain unaffected and people whose application has not been admitted could face rejection on account of the stated notification mentioned above.

2. Whether a bid by an applicant seeking resolution should match the liquidation value?

In the case of Maharashtra Seamless Limited vs. Padmanabhan Venkatesh & Ors., an appeal was filed by the Resolution Applicant contending that the Appellate Authority has crossed its rights by giving directions that the worth of the resolution plan must match with the liquidation value. The Supreme Court in the case observed that there is no such provision within the Code that requires that the bid of a Resolution Applicant shall be as per the liquidation value. The valuation process is completed as per the regulations of the IBC to merely assist the Committee of Creditors (CoC) to pick a correct resolution plan.

Interpretation of Sections 43 and 44

The Supreme Court in Anuj Jain, IRP for Jaypee Infratech Limited v. Axis Bank Limited case put aside the judgment of 1st August 2019 given by the Appellate Authority. The decision was referenced to avoiding transactions made under Sections 43, 45 and 66, by the debtor company (in this case JIL). It had mortgaged its properties to get financial assistance from its company (JAL). In this case, the Supreme Court laid down certain principles to avoid some transactions under the Code which are discussed in the following sections:

To seek out if a transaction involving transfer of property or any interest of the debtor company falls squarely within the ambit of Section 43 of the IBC, the subsequent questions must be answered:

1. Whether such transfer is made to favour the creditor or a guarantor?
2. Whether such transfer is done for or on account of an existing financial debt or operational debt or any other liabilities owed by the debtor?
3. Whether such transfer has the power to put a creditor or guarantor in a beneficial position. If so, then it must be within the  norms enacted for distribution of assets in Section 53.
4. If such transfer had been done to give advantage to a related party (other than an employee), then whether the same type of transfer was made in the previous two years of the insolvency commencement date. If such transfer was done for the advantage of any unrelated party, then whether a similar transaction was made in the previous one year from the insolvency commencement date?
5. Whether such transfers are excluded according to sub-section (3) of Section 43?

Concerning transactions in question, the Court observed that it is true that there was no creditor-debtor relationship between the lender bank and debtor JIL but this is not the decisive factor to determine the beneficiary of those transactions. The mortgage deeds given by the debtor to secure the debts of JAL, amount to creation of interest to the advantage of JAL. The debtor company owed previous financial debts as well as operational debts and other liabilities to JAL. Thus, the transactions in question were deemed transfers for the advantage of JAL and it was regarded as a related party of the debtor JIL. It was held that the corporate debtor JIL was given a preference and such transaction was not excluded as per sub-section (2) of the Section 43 of the Code.

• Look back period in terms of Section 43(4)

Under norms of the sub-section (3) of Section 1 of the IBC, different dates are often given for enforcement of various norms of the Codes. However, after coming into force, the provisions gave a look-back period for any particular enquiry. It can’t be said that the supply itself would remain in hibernation until such a look-back period from the commencement date of the supply comes to an end. Therefore, the transaction commencing on 10.08.2015 till the insolvency commencement date will fall under scanner. The contention raised by the respondents said that the majority of the mortgages do not fall under the latest encumbrance by JIL as the properties were mortgaged before and in the said period they were only re-mortgaged. However the contention was rejected by the Court as the so-called remortgage only happened as a fresh mortgage. Thus, the transaction in question is still deemed preferential to the related party JAL by the debtor JIL during the look back period of previous two years and was not covered under Section 43(4).

• Whether the transaction under scanner was made within the ordinary course of business

An activity is considered ‘business’ if there’s a course of dealings, which are continued or started with the motive of profit. Even furnishing security could be considered a normal business practice, if it resembles ‘ordinary course of business done by a specific corporate entity’ and falls in the category of ‘the undistinguished common flow of business’. The activity should not arise out of ‘any special or particular situation’ not covered under the law. The standard business or financial affairs of the debtor JIL do not comprise giving mortgages to secure the loans as part of its activity that too at the cost of financial health of the firm. As noticed, JIL was already reeling under financial stress due to immense debts with a number of the lenders already declaring it as NPA. It was also under tremendous pressure to honour its commitment to the buyer of properties. Considering these circumstances, it was held that the transfers in question were not done as part of the ordinary business activities or as common financial affairs of the debtor JIL.

• Interpretation of Section 43(3) (a)

Concerning interpretation of Section 43(3) (a), the Supreme Court held that “we don’t have any hesitation in accepting the submissions made by the appellants related to the contents of clause (a) of sub-section (3) of Section 43 involve interpretation with a purpose to ensure that the business operates as per the intention of the legislature and achieves its vowed objectives. Thus, the expression “or”, which looks like a disjunctive in the expressions “corporate debtor” or transferee”, must be read as “and” and so the conjunctive of the expressions would now be “corporate debtor” and “transferee”.

• Whether lenders of JAL might be categorised as financial creditors of JIL

A person who has only interest in taking over the assets of corporate debtor (like the third party securities), albeit falling within the category of ‘secured creditor’ due to collateral security extended by the debtor, would nevertheless stand outside the sect of ‘financial creditors’ as per the definitions given in sub-sections (7) and (8) of Section 5 of the IBC.

3. Applicability of the IBC on a Government Company 

In case of Hindustan Construction Company Limited & Anr. v. Union of India & Ors., a constitutional challenge was made to the IBC. It was contended that the provisions of the IBC were applied arbitrarily on the Petitioner. Thus, an automatic-stay on the arbitral awards in its favour should be granted under the Arbitration and Conciliation Act of 1996 as a result of which the monies can’t be paid off to the Petitioner’s creditors for the debt. On the other hand, any debt worth more than INR One Lakh owed to a financial or operational creditor which remains unpaid will attract the application of the IBC against the Petitioner. It was contended that application of these provisions were arbitrary, discriminatory, and violated Article 14 and 19(1)(g) of the Indian Constitution. It was thus contended that, for the Petitioner to recover their debts from Government Companies and NHAI, the definition given for ‘corporate person’ or business person in Section 3(7) of the IBC should be read without the words “with limited liability” written within the third part of the definition or use Section 3(23)(g) of the IBC to define ‘person’, fir the application of above provision.

The Supreme Court observed that as per definition in the Section 3(7) of IBC a ‘corporate person’, means a company as defined in Clause 20, Section 2 of the Companies Act 2013. The Supreme Court held that by observing the definition given in the Companies Act, it’s quite clear that the three entities who owed debt under the arbitral awards given to Petitioner No.1 (Government companies), would be subsumed within the primary entity as per the given definition. Now regarding the IBC’s applicability to NHAI, the Court held that NHAI is a statutory body which functions like an extended branch of the Central Government. It performs government duties which obviously can’t be appropriated by an RP (resolution professional) under the IBC, or by any other corporate body. Also, it mandated that such authority cannot be wound up under the Codes.

4. Reverse Corporate Insolvency Resolution Process

In the case of Flat Buyers Association Winter Hills – 77, Gurgaon v. Umang Realtech Pvt. Ltd through IRP & Ors, the original applicants (i.e. the flat allottees) wanted CIRP  resolution but wanted the approval of the resolution plan from a 3rd party (Resolution Applicant). In such a scenario, Uppal Housing Pvt. Ltd. (One of the project promoters) was directed to cooperate with the RP and disburse the amount (remaining after the quantity already disbursed) from outside as a Lender (the financial creditor) to ensure that the project is completed within the given time-frame. The amount released by the Uppal Housing Pvt. Ltd. and the amount going to be generated from dues of the Allottees (Financial Creditors) during the CIRP will be directed to be deposited within the account of the Corporate Debtor to rescue the corporate going through concern.

It was further held that during the CIRP of a Real estate corporate debtor, if allottees or Financial Institutions/Banks ( Financial Creditors) or Operational Creditors of any project initiated CIRP against the corporate Debtor, it must be confined to the actual project and cannot affect other project(s) of same real estate firm (Corporate Debtor). Thus, all the assets of the Corporate Debtor cannot be liquidated. The assets of the Corporate Debtor of that specific project must be liquidated or resolved to balance the creditors like allottees, financial institutions like banks, and operational creditors of that project. It had been held that CIRP should be on the project basis and as per the approved plan of the competent authority. Other allottees or financial institutions/banks or operational creditors of other projects will not be allowed to file a claim before the IRP concerning another project and such claim won’t be entertained.

5. Interpretation of Section 32A

In JSW Steel Ltd. v. Mahender Kumar Khandelwal case,  within the CIRP of Bhushan Power & Steel Limited (‘Corporate Debtor’), the resolution plan submitted by the JSW Steel Limited (‘Resolution Applicant’) was approved by the respective Adjudicating Authority (AA) through its order released on 5th September 2019 with some conditions. Post the approval of insolvency plan, the Directorate of Enforcement of Central Government on 10th October 2019, attached assets of the corporate debtor by application of Section 5 Prevention of Money Laundering Act, 2002. This was done while the monitoring committee was observing the change of management. One of the questions raised before the Appellate Authority in the case was whether after the approval of a thr resolution plan under Section 31 of the IBC, is it under the rights of the Directorate of Enforcement to attach the assets of the Debtor firm on the allegations of money laundering by the Promoters. In this scenario, it was held that under Section 32A, the Directorate of Enforcement does not have the right to attach the assets of the Debtor firm, once the resolution plan is approved. Further, it was also held that the Directorate of Enforcement is not empowered under the IBC to decide whether JSW Steel Limited is ineligible for the actions under Section 29A or Section 32A (1) (a) of the Codes or not. This can only be determined by the Committee of Creditors or the Adjudicating Authority.

Later the Enforcement Directorate pleaded in the case that Section 32A introduced w.e.f. 28th December 2019 was prospective and cannot be applied to a resolution plan which has been approved under Section 31 of the IBC. The Appellate Authority (AA) rejected the plea of ED and held that a thorough reading of Section 32A(1) and (2) suggests that the ED and any other investigating agencies don’t have the right attach assets of a corporate debtor, once the Resolution Plan is approved. Thus, the criminal investigations in progress against the corporate debtor will stand abated. Section 32A of the IBC does not suggest in any manner that the benefit provided is merely for resolution plans which are yet to be approved.

Another issue in the case was whether the resolution applicant (creditor) was a related party of the corporate debtor? It was contended by the Directorate of Enforcement that as per Section 32A (1), the liability of the debtor firm shall not cease due to the rationale that JSW Steel Limited is a related party of the debtor. This  was said due to the fact that M/s. Bhushan Power & Steel Limited (‘Corporate Debtor’) and JSW Steel Limited were associated as stakeholders with 24.09% and 49% equity holding in a venture company named M/s. Rohne Coal Company Private Limited respectively. In this case, the Appellate Authority (AA) noted that such person (‘Resolution Applicant’) can’t be held ineligible as per terms of Section 32A (1) (a) on the basis of being a ‘related party’.

To Conclude….

So, through various case laws we have been able to get a clear understanding on various developments in IBC. IBC has evolved since its introduction through various amendments and the interpretations by different courts in cases like those mentioned above. Various Insolvency law firms have a deeper understanding of these codes. If you want to recover your debt through insolvency, then you must consult a legal firm to understand debt recovery through insolvency in a deeper way. These insolvency firms generally have a lot of specialists that help both the creditors and Debtors who want to use the IBC as a tool for debt resolution or company liquidation.

Insolvency Resolution Process: Relief Measures by the Government For COVID-19

The global pandemic of COVID-19 has brought upon us various new challenges and the current situation has really reduced the good momentum of the economic activities in our economy. The lockdown which was announced for the safety of people is indeed doing its task well but in return is causing great losses to everyone and hence the entire economy is facing the consequences and having a hard time because of this pandemic. Many people have lost their business and several new relief measures were introduced in the insolvency resolution process in the country because of this COVID- 19 outbreak by the Government and by the Regulators. The Honourable Supreme Court had already caught the wind about the whole situation prevailing right now and gave its orders for the extension of the limitation period.

Another thing to point out is that the Suo Moto Order of NCLAT provided to exclude the lockdown period in Corporate Insolvency Resolution Process under the Insolvency & Bankruptcy Code 2016. And thus, important measures have been initiated in judicial, legislative and economic fields due to the unprecedented condition & also due to the financial distress on several businesses on account of huge frequency of disruptions in their normal functioning.

All these measures put into action provide benefit to the professionals and the other stakeholders & a list of all such measures was taken and enumerated in the ensuing section.

Let’s take a look at the important relief measures which were introduced in the Insolvency Resolution Process in the country by the government because of the outbreak of the COVID- 19 pandemic:

1. On 20th March, 2020: IBBI (Insolvency and Bankruptcy Board of India) issued advisory stating that the pre-registration educational courses completed online will be accepted for registration.

The Insolvency and Bankruptcy Board of India (IBBI) issued an advisory stating that the pre-registration educational courses completed online will be accepted for registration. The issued advisory stated that to minimise the difficulties for the prospective IPs (Insolvency Professionals), it has been decided that pre-registration educational courses completed online will be accepted for registration and so, the IPAs (Insolvency Professional Agencies) are encouraged to deliver pre-registration educational courses online for their professional members.

2. On 23rd March, 2020: Suo Moto writ petition at the Supreme Court of India in cognizance for the extension of existing limitation.

The Supreme Court ordered that irrespective of the limitation period which was prescribed under the general law or the special law, whether it was condonable or not, it will be extended from the date of March 15, 2020 and will stay extended till further orders. The objective for doing this was to ensure that lawyers or litigants do not have to come in physically for carrying out their responsibilities such as filing petitions, applications, suits & etc within the period of limitation prescribed under the general law of limitation or under Special Laws.

3. On 24th March, 2020: The Honourable Finance Minister made an announcement for the minimum default threshold to trigger insolvency to be Rs. 1 crore instead of 1 lakh.

The minimum insolvency threshold was increased to 1crore because it will prevent the MSME (Ministry of Micro, Small & Medium Enterprises) sector from being brought under the insolvency proceedings as per the IBC (Insolvency & Bankruptcy Code of 2016). Since many existing & emerging countries were facing financial & economic problems, this will help them by preventing insolvency.

4. On 27th March, 2020: RBI brought in Statements for the Developmental & Regulatory Policies.

These statements of policies brought up by the RBI were to directly address the stress of financial conditions of people caused by the outbreak of COVID-19. In para number 5, it said that all the banks, financial institutions, and NBFCs are allowed to extend the repayment period of loans by 3 months and all the subsequent due date & other things in the repayment schedule can also be shifted 3 months ahead.

5. On 30th March, 2020: Suo Moto Order of NCLAT to exclude the lockdown period from the CIRP (Corporate Insolvency Resolution Process).

The period of lockdown which was ordered by the Central & the State Governments including the period which might be extended in the future either in whole or part of the country shall be excluded from the purpose of counting of the period for the resolution process which was stated under the Section 12 of the IBC or Insolvency & Bankruptcy Code, 2016 in all cases where this whole ‘Corporate Insolvency Resolution Process’ has already been initiated or is pending.

6. 17th April, 2020: The IBBI’s Liquidation Process & Second Amendment Regulations, 2020 notified to exclude the period of lockdown from the computation of timeline in the liquidation procedure.

This regulation provides that the period of lockdown will not be counted for the purposes of computing the time-line for any of the tasks that were not completed because of the lockdown, in relation to any part of the liquidation procedure. The IBBI Liquidation Process Second Amendment Regulations 2020 states that the period of the lockdown caused because of the COVID-19 pandemic shall not be counted for computation of any & all tasks which were delayed to be completed because of the lockdown.

7. On 10th July, 2020: Insolvency and Bankruptcy Board of India (Online Delivery of Educational Course & Continuing Professional Education by Insolvency Professional Agencies & Registered Valuers Organisations) Guidelines, 2020 were issued by IBBI.

It is mentioned in the guidelines that it would be difficult for the RVOs (Registered Valuers Organisations) and the IPAs (Insolvency Professional Agencies) of the country to deliver educational courses & continuing professional education through offline classroom mode due to social distancing norms made compulsory by the Central Government and so, to minimize the difficulties for the registered valuers, IPs, valuer members and prospective IPs, the Board, vide its advisories Number IBBI/IPA/031/2020 dated 20th March, 2020 and Number IBBI/RVO/032/2020 dated 20th March, 2020, both allowed the online delivery of education courses by RVOs and IPAs and continuing the education facility by RVOs till the 30th of September, 2020. One thing required was that the quality of education should be the same as the offline classroom mode.

These Guidelines will stay effective till 31st March 2021, unless they are rescinded or extended otherwise.

No Fresh Insolvency for Last Quarter under IBC

The Government of India in its go after economic reforms introduced the new Insolvency and Bankruptcy Code 2016 (IBC) to assist the manufacturers and other service providers with the recovery of bad debts. The Central Government issued a fresh Notification No. S.O. 3265(E) on 24th September 2020 stating that it is extending suspension of Sections 7, 9, and 10 of the IBC 2016. The suspension ensured that there won’t be fresh insolvency fillings for another three months by corporate creditors. The suspension was previously slated to expire on September 25, 2020.

Earlier, to provide relief from the economic crisis induced by the COVID-19 pandemic, the government had suspended filing of fresh insolvency against corporate debtors for six  months. This was to provide relief to debtors whose businesses were hit hard by the lockdown introduced by the government. The suspension was brought by a special ordinance brought by the Central Government in wake of the COVID crisis.

The ordinance also gave the govt. authority to increase the fresh insolvency suspension up to at least one year. It must be noted that later in a parliament session Second amendment to the IBC 2016 was approved through the Insolvency and Bankruptcy Code (Second Amendment) Bill, 2020 to replace the said ordinance.. The IBC Second Amendment Bill, 2020 was introduced on September 15, 2020 in Rajya Sabha which passed the bill on September 19, 2020. The Lok Sabha or lower house of the Indian parliament passed the bill on September 21, 2020 through a voice vote.

It amends the Insolvency and Bankruptcy Code, 2016. The Code ensures a time-bound resolution of insolvency for companies and their owners. Insolvency is defined as a situation where company owners or companies who are unable to pay their outstanding debt let the insolvency resolution professional liquidate their assets for debt payments. The said procedure is called company insolvency resolution process (CIRP) under the IBC Code. The amendment bill ensured that those companies who have become debt ridden due to corona won’t have to worry about insolvency procedures started against them for at least a year.

The norms of the IBC (Second Amendment) Bill, 2020 are listed as follows:—

a) It will insert a replacement section 10A within the Code to ensure temporary suspension of sections 7, 9 and 10 concerning any default arising on or after 25th March 2020 for 6 months or other such period. This period as of now will not exceed one year from the said date. However any further date of extension could be announced. 

b) It has inserted a replacement sub-section (3), in section 66 of the Code to ensure that no application shall be filed by a resolution professional (IRP) under sub-section (2) of the Code. Any default related to initiation of the corporate insolvency resolution process against a debtor will remain suspended as per the second amendment 2020.

The Government recently decided to extend the suspension of Codes for additional three months till the last week of December through the newly inserted Section 10A. Concerning this, the Notification No. S.O. 3265(E) released on 24th September 2020 says-

“By exercising its powers conferred by section 10A of the IBC, 2016 (31 of 2016) [as inserted by section 2 of the Insolvency and Bankruptcy Code (Second Amendment) Act, 2020 (17 of 2020)], the Central Government hereby notifies a further period of three months from the 25th September 2020 for the needs of the said section,”

Benefits of the Code

The Insolvency & Bankruptcy Code was revamped in 2016 with new provisions to give immediate relief to small manufacturers, creditors, and micro-business entities that have given loans or provided services. These new codes bought extraordinary reforms in exchange for the previous provisions of the law where only the Debtor could initiate insolvency. The new codes allow a Creditor whose debt exceeds 1 Lakh to apply for initiation of the insolvency process. Here are the primary features of IBC 2016:

• With this code, even the creditor has the power to initiate the insolvency process (CIRP) on the debtor to recover his/her amount.
• The rights given to the creditors within the new code save them from the difficulty of approaching the general Court for recovery of debt.
• Because of this, the entire process of resolving debt issues has become efficient and therefore the cases are now disposed of in a specific period.
• The Limitation Period for filing the claim in NCLT is about 3 Years.

How this Code Works?

• A deadline of 10 days is allowed for the Debtors to settle the disputed amount with their corporate creditors.
• When the debtors are unable to repay the debt amount to the Creditors (Traders, Employees, or Manufacturers), an Insolvency Petition can be filed against them within the NCLT under Section 9 of the new codes.
• The new codes remove the necessity to file demand notice to the debtor before filing the petition for initiating insolvency procedure against them. If the default amount is over Rs. 1 Lakh, then the Creditors are entitled to initiate CIRP on the debtor by getting the order from NCLT.

The IBC Code specifies two stages for this-

1. Insolvency Resolution– The financial/operational creditors assess if there are chances of rescue & resurrection of the debtor’s business using its resources.

2. Liquidation- If the insolvency resolution to recover the debt isn’t working, then the creditors can plan to liquidate the business & distribute the corporate assets among themselves to recover the lost amount.

Here Are the Latest IBBI Guidelines on Creation of Valuation Reports

IBBI is responsible for regulating Insolvency process under the IBC 2016 in India. It continuously comes up with regulatory guidelines to simplify the insolvency process. Recently, IBBI has notified guidelines regarding the utilization of Caveats, Limitations, and Disclaimers in Valuation Reports issued by Registered Valuers (RV). These guidelines shall inherit force on or after October 01 2020, and are added to Rule 8 of the businesses (Registered Valuers and Valuation) Rules, 2017 (Rules). RVs shall be required to organize their reports in accordance with the rules also because of Rule 8.

These guidelines are formulated to ensure credibility in the creation of the valuation reports and to give sufficient guidance to RVs within the use of Caveats, Limitations, and Disclaimers. The rules also come up with an exhaustive list of the Caveats, Limitations, and Disclaimers which shall not be utilized in any valuation report.

The latest guidelines are as follows:

Definition of Limitations, Caveats, and Disclaimers

The guidelines have delineated the terms Caveats, Limitations and Disclaimers within the following manner:

• Warnings or cautions are given in form of Caveats to the client/user of services.
• The limitation may be a restriction on the scope of the RV’s work including inspection or investigation of the info available for analysis. Any such info must be known to the RV while valuation engagement or during the analysis of valuation.
• The disclaimer is defined in the guidelines as a statement intended to specify/ delimit the scope of rights/obligations which will be exercised or enforced by parties during a legally recognized business partnership. These are often the press releases that deny responsibility intended to stop civil liability arising for any particular act or omission. Subsequent points could also be considered while providing disclaimers during a valuation report. Any RV may:

• Identify the rights he/she wants to protect;
• Identify the areas where he/she could be subject to liability;
• Clarify that the information contained in the valuation report pertain to some specific use by the company; and
• Caution the reader of the potential risks.

However, a disclaimer won’t, by itself, be ready to exclude an RV’s liability in respect of negligence in the performance of his duties.

Usage of Limitations, Caveats, and Disclaimers

The guidelines dictate the subsequent principles be followed regarding the usage of Caveats, Limitations and Disclaimers:

• Clarity/specificity related to the use of Limitations, Caveats, and Disclaimers in Reports: Any limitation, caveats, and disclaimers to the report must be absolutely clear.
• Duty of “due care” of the RV: Within the preparation of a valuation report, the RV shall not disclaim liability for his expertise or deny his duty of “due care”.
• Management’s responsibility: It is recognized that an RV, shall prepare the valuation report of the corporate supported information and records concerned as provided by the management. The management remains responsible for the correctness and veracity thereof. However, any significant inputs given to the RV by the owners or management should be considered, investigated and /or corroborated based on the findings of the investigation. In cases where the credibility of data supplied can’t be supported, consideration should tend on whether or how such information is employed.
• RV to assess reliability and credibility of projections: RV factors his response and therefore the valuation assessment on the reliability and credibility of the knowledge. the varied projections of business growth, profitability, and cash flows etc., which are utilized in the valuation report are the company’s estimates. Any RV should consider the reliability of projections after testing the assumptions made by the company’s management/owners as per the given market conditions through sufficient inspection, and analysis. The RV may afflict the projections if they’re conjectural or bordering on the unreal and accordingly make necessary modifications.
• Right to demand relevant information and basis of projections: RV has the proper to demand relevant information and basis of the projections before commenting. It is the duty of the entity being valued to be fair and to supply correct and true information about the topic asset.
• Duty of RV to hold out sufficient inspection, enquiry, computations and analysis: In preparation of the valuation report, the RV can state that the assumptions are statements of fact provided by the corporate and not generated by the RV. This warning statement is important as data provided by the corporate is usually construed be a neighborhood of the valuation report. However, RV remains responsible to hold out sufficient inspection, enquiry, computations and analysis.
• Additional Information within the Valuation report: All valuations are to be administered in sufficient details to suit the want of “due care”. However, it’s often reasonably expected that circumstances may place certain limitations regarding access to information or the time available. The knowledge or the time available to finish the valuation should be stated within the valuation report, alongside appropriate explanation and implications. The trouble, level of experience. and diligence applied by the relevant Registered Valuer (RV), got to be stated within the valuation report.

Since valuation reports provided by an RV form the idea of several transactions as per law, by contorting the language of the valuation report, the rules are likely to make sure that RVs don’t evade their responsibilities and duties. It is expected that these guidelines would effectively bring uniformity and reliability to valuation reports.

Guidelines for Contents of a Valuation Report

The following matters should be covered within the valuation reports through clear, unambiguous and non-misleading statements, according to the necessary measures to maintain confidentiality:

• Background Information on the asset being valued;
• Purpose of valuation and appointing authority;
• Bases of Value;
• The premise of Value;
• Identity of the RV and the other experts involved within the valuation
• Intended Users of the Valuation;
• Disclosure of RV interest or conflict, if any;
• Valuation date, Date of appointment, and date of the report;
• Inspections and /or investigations undertaken;
• Business interest, ownership characteristics;
• Nature and sources of information;
• Significant Assumptions, if any;
• Procedures adopted in completing the valuation and valuation standards followed;
• Restrictions on use of the report, if any;
• Major factors that were taken under consideration during valuation;
• Conclusion; and
• Caveats, limitations and disclaimers.

Procedure Involved in Preparing a Valuation Report

In order to make sure transparency, pertinence and uniformity in valuation reports, guidelines have suggested that the RVs should mention the subsequent key elements:

• The principal procedures adopted by the RV in completing the valuation should begin briefly within the report. Such procedures may typically include:

1. Review of past financials;
2. Review and analysis of monetary projections;
3. Industry analysis;
4. SWOT analysis;
5. Comparison with similar transactions;
6. Comparison with other similar listed companies;
7. Discussions with the management;
8. Review of principal agreements/documents etc.;
9. Site visit (external, internal or both) or a desktop valuation;
10. Any assumption made for the internal condition must be stated like just in case of desktop valuation, an RV must state that the idea of the report is photographs and documents provided and secondary research only; and process of site identification, i.e., self-identified or with the assistance of clients representative or client itself.

• The RV should also include in his report: An affirmative statement that information provided and assumptions employed by management/others in developing projections are appropriately reviewed, enquiries made regarding the basis of key assumptions in the context of the business being valued and therefore the industry/economy; and an affirmative statement on the adequacy of data and time for completing the valuations.
• The RV should mention any key factors which have an enclosing impact on the valuation, including inter alia the dimensions or number of the assets or shares of the corporate, its/their materiality or significance, minority or majority holding and changes on account of the transaction, any impacts on interest, diminution or augmentation therein and marketability or lack thereof; prevailing market conditions and government policy within the specified industry as a disclaimer depending upon the factor.
• Just in the case of valuation of tangible assets, there could also be an impact on the worth thanks to faulty structural design or contamination. supported the individual circumstances, the RV may choose the way to use such information within the valuation report. 

IBBI regularly comes up with guidelines that consolidate the IBC law which is responsible for consolidating laws related to insolvency procedures. The regulatory oversight of IBBI ensures that the liquidation procedures of any company are done in a seamless manner. It also regulates and promotes the working practices of insolvency professionals in India. therefore, it is advisable for budding insolvency professionals that they keep checking with the IBBI website to keep up with the latest updates by IBBI.