Transparency and Accountability in Valuation: IBBI's Stance on Regulatory Compliance

Transparency and Accountability in Valuation: IBBI's Stance on Regulatory Compliance

Introduction

The Insolvency and Bankruptcy Board of India (IBBI) has upheld the suspension of a Registered Valuer (RV), Mr. Vipan Kumar, for failing to adhere to disclosure norms under the Companies (Registered Valuers and Valuation) Rules, 2017. This decision emphasizes the importance of transparency and accountability in the insolvency ecosystem.

Factual Background

Mr. Vipan Kumar, registered to value Land and Building assets, was engaged during the Corporate Insolvency Resolution Process (CIRP) of M/s Base Corporation Limited. His valuation reports for properties in Hosur and Solan were found lacking essential disclosures, such as circle rates, market comparables, and clear substantiation for applying a 40% discount to fair value and an additional 30% for liquidation value.

Procedural Background

The IBBI issued a Show Cause Notice to Mr. Kumar, which culminated in a three-month suspension of his registration on March 26, 2025. Mr. Kumar appealed against the decision, but it was ultimately dismissed by the IBBI on May 8, 2025.

Issues

The primary issue was whether Mr. Kumar's valuation reports complied with the disclosure norms under the Companies (Registered Valuers and Valuation) Rules, 2017. The IBBI emphasized that transparent and well-documented valuation reports are crucial for the integrity of the CIRP.

Contentions of the Parties

Mr. Kumar argued that his valuations reflected industry practice and were shaped by data unavailability during the COVID-19 pandemic. However, the IBBI rejected this defense, clarifying that professional judgment does not override legal obligations and that lack of objection from the Resolution Professional or Committee of Creditors does not imply compliance.

Reasoning & Analysis

The IBBI emphasized that valuation professionals must adhere to the regulatory framework, including Rule 8(3)(g) of the Valuation Rules, which mandates clear disclosure of data sources and rationale for adjustments. The Board held that omissions rendered Mr. Kumar’s reports non-transparent and therefore non-compliant.

Implications

This decision has significant implications for valuation professionals, emphasizing that valuation is a fiduciary responsibility with legal consequences. It highlights the need for valuation reports to be transparent, substantiated, and compliant with legal requirements.

Key Takeaways for Valuers:

• Always disclose the nature and source of data used, including circle rates and comparable sales.
• Clearly substantiate any discounting or adjustments with market benchmarks or economic logic.
• Maintain comprehensive working papers, site reports, assumptions, and disclaimers.
• Strictly comply with Rule 8 as it sets the minimum content for valuation reports.

Outcome

The IBBI upheld the suspension of Mr. Kumar's registration, emphasizing that compliance and ethics are paramount in valuation practice. This decision serves as a benchmark for enhancing professionalism in valuation practice.