IBBI Rule 35 Valuation: Complete Guide for Registered Valuers in 2026
Rule 35 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 is the backbone of asset valuation in India's insolvency framework. This guide explains fair value, liquidation value, compliance requirements, and practical insights for registered valuers and stakeholders navigating the Corporate Insolvency Resolution Process.
What is Rule 35 Under the Insolvency and Bankruptcy Code?
Rule 35 mandates that during the Corporate Insolvency Resolution Process (CIRP), the Resolution Professional must appoint two registered valuers to determine both the fair value and liquidation value of the corporate debtor's assets. These valuations serve as the baseline for evaluating resolution plans submitted by prospective resolution applicants.
The importance of Rule 35 cannot be overstated — it ensures that the Committee of Creditors (CoC) has a reliable benchmark when deciding whether a resolution plan offers adequate value compared to what would be recovered in a liquidation scenario.
Key Regulatory References
- IBBI (CIRP) Regulations, 2016 — Regulation 35
- Companies (Registered Valuers and Valuation) Rules, 2017
- IBBI Valuation Standards under Section 247 of Companies Act, 2013
- International Valuation Standards (IVS) 2022
Fair Value vs Liquidation Value: The Two Pillars
Understanding the distinction between these two valuation concepts is fundamental to every Rule 35 engagement.
📊 Fair Value
The estimated realizable value of assets if sold as a going concern, allowing reasonable marketing time and assuming willing buyer-seller conditions.
- Going concern assumption
- Reasonable marketing period
- Arm's length transaction basis
- Reflects highest and best use
⚖️ Liquidation Value
The estimated realizable value if assets are sold on an as-is, where-is basis under forced sale conditions with limited marketing exposure.
- Distressed sale assumption
- Limited marketing period
- As-is, where-is condition
- Typically 20–40% below fair value
| Parameter | Fair Value | Liquidation Value |
|---|---|---|
| Premise | Going concern | Forced / orderly liquidation |
| Marketing Period | Reasonable (6–12 months) | Immediate to 3 months |
| Buyer Pool | Broad market participants | Limited, distressed buyers |
| Discount to Market | 0–10% | 20–60% |
| Use Case | Resolution plan evaluation | Minimum recovery benchmark |
Step-by-Step Rule 35 Valuation Process
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Appointment by Resolution Professional
The RP appoints two registered valuers for the relevant asset class (Securities & Financial Assets, Land & Building, or Plant & Machinery) within 7 days of CIRP commencement.
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Information Memorandum Review
Valuers review the Information Memorandum prepared by the RP, financial statements, asset registers, legal documents, and conduct site inspections of physical assets.
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Valuation Methodology Selection
Select appropriate approaches — Income approach (DCF), Market approach (comparable transactions), or Cost approach (replacement/reproduction cost) — based on asset type and data availability.
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Fair Value & Liquidation Value Determination
Apply chosen methodologies to determine both fair value and liquidation value. Use multiple methods and reconcile results with documented rationale for weight assigned to each approach.
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Report Submission (Within 45 Days)
Submit detailed valuation report to RP within 45 days of appointment. The RP shares valuation estimates with CoC members at least 15 days before voting on the resolution plan.
Valuation Approaches Used in Rule 35
1. Income Approach (DCF Analysis)
Projects future cash flows of the corporate debtor and discounts them to present value. Most relevant when the entity has ongoing operations with identifiable revenue streams. The discount rate reflects the risk profile of the distressed entity, typically 15–30% for CIRP cases.
Best suited for: Operating businesses, SaaS companies, service entities with contractual revenues.
2. Market Approach (Comparable Transactions)
Uses valuation multiples derived from comparable company transactions or publicly traded peers. EV/EBITDA, EV/Revenue, and P/E multiples are applied with appropriate discounts for distress, illiquidity, and size differentials.
Best suited for: Companies in sectors with active M&A activity and readily available market data.
3. Cost Approach (Net Asset Value)
Values individual assets at their replacement or reproduction cost, less accumulated depreciation and obsolescence. For liquidation value, additional forced-sale discounts are applied.
Best suited for: Asset-heavy businesses like manufacturing, real estate, and infrastructure companies.
Common Challenges in Rule 35 Valuations
Practitioners frequently encounter the following difficulties during CIRP valuations:
- Incomplete records: Corporate debtors in distress often have gaps in financial documentation, requiring forensic reconstruction of financial statements.
- Contested asset ownership: Land, IP, and receivables may be subject to litigation, requiring contingent valuation techniques.
- Rapid depreciation of going-concern value: As CIRP progresses, customer relationships, employee retention, and brand equity erode, making timing critical.
- Limited comparable data: Many Indian mid-market companies lack listed peers, requiring creative benchmarking against regional and sectoral proxies.
- Regulatory grey areas: Interpretation of "reasonable marketing period" and discount factors for illiquidity remain subjective across tribunals.
NCLT and NCLAT Precedents on Rule 35
Key Judicial Observations
Tribunals have consistently emphasised that the Rule 35 valuation serves as a benchmark but is not a rigid floor for resolution plans. The CoC retains commercial wisdom to accept plans below liquidation value in rare circumstances — however, the NCLAT has clarified that a resolution plan significantly below liquidation value requires extraordinary justification.
Several orders have also held that if the two valuers provide significantly divergent estimates, the RP may appoint a third valuer, and the average of the two closest estimates should be used.
Checklist for Registered Valuers
Rule 35 Compliance Checklist
- Valid IBBI registration certificate for the relevant asset class
- Independence declaration — no conflict of interest with corporate debtor or CoC members
- Engagement letter with RP specifying scope, timeline, and fees
- Site inspection and physical verification of assets completed
- Multiple valuation approaches applied with documented rationale
- Fair value and liquidation value separately determined and reported
- Report compliant with IBBI Valuation Standards format
- Submitted within 45-day statutory timeline
- Professional indemnity insurance in place
- Continuing Professional Education (CPE) hours current
Frequently Asked Questions
Rule 35 of the IBBI (CIRP) Regulations 2016 mandates that a registered valuer must determine both the fair value and liquidation value of the corporate debtor's assets during the Corporate Insolvency Resolution Process. This valuation is critical for resolution plan evaluation and sets the benchmark for minimum recovery expectations.
Only IBBI registered valuers holding a valid certificate of registration under the Companies (Registered Valuers and Valuation) Rules, 2017 can perform Rule 35 valuations. The Resolution Professional appoints two registered valuers for the asset class being valued. The valuers must be independent and free from conflicts of interest.
Fair value is the estimated realizable value if assets are sold as a going concern with reasonable marketing time and willing parties. Liquidation value assumes forced or immediate sale on an as-is, where-is basis. Liquidation value is typically 20–40% lower than fair value, depending on asset type and market conditions.
The registered valuer must submit the valuation report to the Resolution Professional within 45 days of appointment. The RP must then share the fair value and liquidation value estimates with CoC members at least 15 days before the date of voting on the resolution plan.
Rule 35 valuations must comply with ICAI Valuation Standards, International Valuation Standards (IVS), and IBBI Valuation Standards. The valuer must follow the Companies (Registered Valuers and Valuation) Rules, 2017 and maintain independence, objectivity, and professional competence throughout the engagement.
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