A resolution professional who already knows the answer: conflict, retrospective date and unauthorised construction
A registered valuer in land and building receives an engagement letter from the resolution professional (RP) of a steel fabrication company under CIRP. The covering email reads: 'Our earlier valuer reported ₹47 crore; we need at least ₹60 crore to make the resolution plan workable, so please re-examine.' The asset is a 12,000 sq m industrial plot at Vatva, Ahmedabad, with 4,100 sq m of sheds built between 1996 and 2001, a 620 sq m mezzanine floor added in 2019 without municipal sanction, and a portion let out since 2022 under a registered five-year leave and licence at ₹4.2 lakh per month against a market rent of ₹6.8 lakh per month. A mortgage in favour of a public sector bank is registered against the title. The RP wants the valuation date to be the CIRP commencement date, eleven months before the site visit, and the report in five working days. The valuer's spouse holds 300 shares in the corporate debtor.
1. Identify the professional and standards issues raised by this engagement and state how you would respond before accepting it.
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The instruction is a request for a predetermined value. 'We need at least ₹60 crore' converts a valuation into advocacy. A value is an evidence-based opinion, not a target. Accepting the brief would breach the integrity, objectivity and independence requirements of the Model Code of Conduct under the Companies (Registered Valuers and Valuation) Rules, 2017, and the requirement in IVS 101 and IVS 102 that the valuer reach an independent conclusion. The response is to record the request in writing, state that the conclusion will be the valuer's own, and decline if the client persists.
Conflict of interest. The spouse's 300 shares are a direct pecuniary interest in the corporate debtor and therefore in the resolution outcome. Assess materiality, disclose in writing to the RP and the committee of creditors, and in practice decline. The valuation will be relied on by creditors and by the adjudicating authority; an undisclosed interest destroys its usability regardless of the number of shares, and consent does not cure an interest in the very value being determined.
Timeline and scope. Five working days is not enough to examine title, encumbrance certificate, sanctioned plans, the leave and licence deed, municipal records and the site, which IVS 102 requires. Either extend the date or set a restricted scope in the engagement letter, with the limitations and their effect on reliability stated.
Fee. Confirm in writing that the fee is not contingent on the value, the plan's approval or the loan amount.
2. The RP insists on the CIRP commencement date as the valuation date and asks for one number. How do you handle the valuation date and the basis of value?
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Retrospective valuation date. A valuation date earlier than the inspection date is permissible, but three dates must appear separately in the report: the valuation date, the inspection date, and the report date. State that physical condition, occupancy and approvals are as observed and are assumed not to have changed materially since the valuation date, and corroborate with municipal assessment records, property tax receipts, sanction files, tenant correspondence, photographs and a management representation letter. Market evidence should be as at the valuation date; later transactions may be used only with disclosure of why they are relevant.
Basis of value. The RP does not need a single 'market value'. Under the CIRP Regulations the resolution professional must obtain a fair value and a liquidation value from registered valuers. Fair value approximates the worth of the asset on a going-concern basis; liquidation value is the estimated realisable value if the corporate debtor were liquidated on the insolvency commencement date, which implies a forced or limited market, a short exposure period and, for plant, piecemeal disposal. Both differ from market value as defined in IVS 104 and must not be mislabelled.
Produce two clearly separated computations with their own assumptions and a reconciliation. For this asset, fair value can reflect the tenanted sheds and continuing industrial use; liquidation value should reflect industrial land value plus scrap or depreciated value of the sheds and a forced-sale discount. Do not average them into one figure.
3. How should the unsanctioned mezzanine and the leave and licence arrangement be treated in the valuation and in the report?
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The 620 sq m mezzanine. First check the sanctioned plan, occupancy certificate and whether the structure consumes balance FAR. If it is unauthorised and outside sanctioned FAR, a purchaser cannot assume it survives; it may attract demolition or compounding. Options: (a) exclude it from built-up area entirely; (b) value it at depreciated cost less the cost to regularise (compounding fee, penalty, structural rectification, professional fees and time); (c) value 'subject to regularisation' with the deduction and an explicit assumption. Never include it silently. It also needs separate treatment for property tax and insurance, and the report must flag that the valuer has not verified structural safety.
The leave and licence. A licence under the Indian Easements Act creates no interest in the property and is ordinarily terminable; a lease does. A registered five-year instrument at a rent well below market, with exclusive possession, may be a lease in substance. Test exclusive possession, fixed term, rent reserved and the parties' intention, and check stamp duty and registration.
If it binds a purchaser as a lease, capitalise the contract rent (₹4.2 lakh × 12 = ₹50.4 lakh a year) over the unexpired term to 2027, then revert to market rent of ₹6.8 lakh a month. Quantify the loss against vacant possession: the gross differential is about ₹31.2 lakh a year, and its present value at a 9% capitalisation rate over roughly 2.7 years is around ₹74 lakh. If it is a licence in substance, value with vacant possession but deduct legal cost, time and risk of obtaining possession, and disclose the occupation prominently.