Valuation of Land & Building Assets in Insolvency and Bankruptcy Cases: A Practitioner’s Insight
Mr. Lakshman S.
Mr. Lakshman S. is a Civil Engineering professional with 35+ years of experience, including 14 years overseas in construction, contracts, and project management. Since 2016, he has been working in property valuation and is a Registered Valuer with both IBBI and the Income Tax Department. He is currently based in Namma Bengaluru and brings deep expertise in Land & Building valuations.
Introduction
In the context of India’s Insolvency and Bankruptcy Code (IBC), the valuation of Land & Building (L&B) assets is not just a procedural formality—it is a pivotal factor that influences creditor recoveries, resolution feasibility, and the overall direction of corporate restructuring. Among the asset classes defined under the IBBI framework, L&B is often the most tangible, yet the most complex when considered in isolation during insolvency processes.
This article explores the nuanced challenges, regulatory mandates, and on-ground realities of valuing L&B assets during corporate insolvency proceedings, based on practical insights from over 15 CIRP cases handled by the author across industrial, commercial, and hybrid real estate contexts.
L&B Valuation in the IBC Ecosystem: Regulatory Context
The IBC mandates the appointment of two registered valuers to estimate the Fair Value (FV) and Liquidation Value (LV) of the corporate debtor’s assets. These values are essential inputs for:
- Constitution of the Committee of Creditors (CoC),
- Evaluation of resolution plans under Section 30(2),
- Realisation projections in liquidation scenarios.
L&B valuations must adhere to standards notified by the respective Registered Valuer Foundations (RVFs), aligning with internationally accepted valuation norms (e.g., IVS/ IVSC) and domestic guidance issued by ICAI-RVF, IOV-RVF, IIV-RVF, etc.
Core Considerations in L&B Valuation under CIRP
1. Title Verification and Encumbrances
a. Nearly half of the cases handled by the author, the chain of title documents was incomplete or hypothecated to financial creditors or owned by the Directors of the Company (CD)
b. Assets often carried mortgages or leasehold rights, significantly impacting marketability and liquidation value.
2. Land Classification and Zoning
a. Though no discrepancies between actual land use and zoning master plans were observed in the valuations carried out, many industrial units were established in predominantly residential zones or mixed zones, thereby reducing the land value. However, where required, Valuers must reconcile existing use, permissible FAR/FSI, and developmental controls under local planning authorities.
3. Statutory Dues and Municipal Liabilities
a. Outstanding property tax, development charges, and EDC (External Development Charges) often added a hidden liability to land parcels—especially in suburban industrial belts.
4. Access, Utility, and Location Analysis
a. Several distressed companies held land parcels in isolated or landlocked areas with limited road access, thereby significantly depressing the realizable value.
5. Encumbrances and Restrictions on Asset Use
a. Cancellation of Assignments: Two assignments were cancelled by RP more than one year after the appointment as RV. In one case, even site visits to several of the real estate projects were carried out.
b. Delay in Site Inspections: Site visits were significantly delayed post-appointment of the RV due to issues such as the Resolution Professional (RP) not obtaining possession of the assets or the unavailability of critical documents.
c. Non-Operational Status of Plants: In most assignments handled, the industrial plants were found to be non-functional at the time of inspection.
d. Unavailability of Building Drawings: A major challenge encountered was the lack of approved building plans. In many cases, information regarding the date of establishment and sanctioned layouts was not provided, necessitating approximate on-site measurements and estimation of building age using basic engineering assumptions for depreciation assessment.
e. Restricted Access to Premises: Access to the plant buildings was often restricted, and in some instances, the premises were completely sealed, hindering effective physical inspection.
f. Encroachment Issues: In certain cases, portions of the Corporate Debtor’s land were encroached upon by adjoining landowners.
g. Requirement to Factor ‘Cost to Cure’: Due to prolonged neglect and inadequate maintenance of buildings before initiation of CIRP, it became essential to include ‘cost to cure’ provisions while assessing value.
h. Flats on unauthorized floor: As one of the assets belonging to CD, there were 3 residential flats situated on an unauthorized floor of the building. This was considered for valuation by including it under ‘significant assumptions’.
Valuation Methodology: The Land & Building Lens
For L&B assets, the most appropriate methods depend on the asset type and its current state. Below is a recap of applied approaches from actual assignments:
Asset Type | Common Method | Adjustments |
Vacant Land | Comparable Sales Method under Market Approach and Belting Method for large areas | Location indexation, tenure adjustment, legal encumbrances |
Industrial Land with Built-up Area | Land & Building Method
1. Land by Comparable Sales Method under Market Approach and 2. Building by Depreciated Replacement Cost (DRC) Method under Cost Approach
| Adjustments for various attributes of market instances vis-à-vis subject property land |
Partly Built Real Estate Projects | Work-in-progress valuation + Market Land Value Residual Land Value Method | Cost-to-complete analysis, legal completion hurdles |
Leased Commercial Spaces | Capitalization of Lease Rentals | Tenure left, lock-in clauses, default risk |
Each method was contextually tailored depending on asset liquidity, usage potential, and legal position.
Case Insights (Anonymized)
1. Industrial Land with Multiple Survey Numbers, while a part belonged to another entity
In one resolution case, the company owned ~44 acres of land spread across multiple survey numbers. Local survey records revealed that ~6 acres were recorded as ‘belonging to another entity’ not related to the Corporate Debtor (CD). The latest Encumbrance Certificate (EC) for CD included that the survey number meant for ~6 acres. Due to this improper documentation, the valuer omitted this area and valued it for ~38 acres only, and a disclosure was included under ‘significant assumptions’. Despite physical possession and fencing, legal title uncertainty required this portion to be excluded from FV and LV.
Learning:
Proper verification of legal title is crucial in valuation, especially when properties span multiple survey numbers. Even if the Corporate Debtor has physical possession and visible control (e.g., fencing), any inconsistency between revenue records, encumbrance certificates, and actual ownership documents must be addressed. Valuers should rely on legally valid title evidence rather than possession alone, and where discrepancies exist, such portions should be excluded from the valuation with clear disclosure under assumptions and limitations to avoid legal disputes later.
2. Industrial Plot on Leasehold Land, whereas the Building belonged to CD
A corporate debtor leased the land from the Industrial Development Authority (Lessor) and constructed a factory thereon for operations. However, a year before the CIRP commencement date, the lease agreement expired. The Least agreement could have been easily converted to a sale deed had they acted promptly. As on the valuation date, CD was neither a lessee nor the owner, but the land belonged to the Lessor. In the opinion of the valuer, since the land does not belong to CD, even the building constructed by CD will be treated as legally null & void. Therefore, Valuer brought this matter to the CoC during the scheduled meeting, and the CoC suggested providing valuation under a special condition. Accordingly, Valuer provided two cases – Primary case (As per existing legal status) and Special Assumption case (With CD as the Owner).
Learning:
Timely, formal lease extensions are crucial for the lessee.
When valuing assets in insolvency matters, the legal title and enforceable rights of the corporate debtor (CD) over the property must be established before assigning value. A building constructed on leased land—where the lease has expired—may have no legally enforceable ownership or possessory rights, rendering its value nil under the existing legal status. However, where potential legal or commercial scenarios (such as renewal of lease or conversion to a sale deed) could alter the rights, these may be presented only as special assumptions with explicit disclosure to stakeholders. This protects the valuer from misrepresenting the asset’s marketability and ensures the Committee of Creditors (CoC) understands both the realistic and hypothetical valuation perspectives.
3. CD has multiple L&B Assets at multiple locations, Assets belonging to both CD and its former Directors
RP did not get possession of the assets for more than a year. Immovable assets involved were – Industrial Land and Factory buildings/ facilities, as well as other assets, viz., Residential land and building, landlocked Agriculture plot, and an undeveloped Residential plot. They were owned by CD and its former Directors. RP wanted ownership-wise segregation of these assets. While some land parcels belonged to former Directors, the building/ facilities were created by CD both on its land as well as other land parcels without having a distinct boundary. Therefore, ownership-wise segregation was not possible for RV.
Therefore, all those immovable properties hypothecated to Financial Creditor (FC) were considered for Valuation based on formal confirmation received from RP.
No drawings were made available to the valuer, and hence he had to take physical measurements. Further, since no exact data was provided regarding the age of construction, the same was deciphered from data available from the ‘Property Tax Register’.
Learning:
It’s always better to bring up variances observed w.r.t ownership with RP and seek clarification before finally declaring values. The valuer must transparently disclose such variances by clearly stating them in the valuation report.
The building was sealed by the Excise Department, and the promoter agreed to sale
As per the latest EC given to the Valuer, issued by the relevant Sub-Registrar Office, the land was not in the name of CD. However, RP responded that the land belonged to the CD and it was mortgaged to the Bank. Also, the Promoter illegally agreed to sale, and RP intimated the concerned Sub-Registrar not to register the sale deed as the Company was under moratorium. Therefore, only after getting written confirmation from RP that the land belongs to the CD, the property was valued accordingly.
The main building was sealed by the Excise Department, and other buildings and structures were practically inaccessible due to heavy growth of vegetation and hence they could only be inspected from their outside. Suitable assumptions were made by the valuer based on his experience.
Learning:
In insolvency valuation assignments, discrepancies between official records (such as Encumbrance Certificates) and the RP’s claims regarding ownership must be resolved through documented confirmation before proceeding. The valuer should rely only on written confirmation from the RP regarding asset ownership when records are inconsistent. Additionally, when site access is restricted due to legal sealing, departmental action, or physical inaccessibility, the valuer must transparently disclose these constraints and make reasonable, experience-based assumptions—clearly stating them in the valuation report to safeguard professional accountability.
4. The New Owner’s property was inspected in disguise!
The property to be valued was given by RP, which had already been sold by the Promoter. However, RP wanted to have a valuation done for ‘possible use in CIRP’. RP wanted a valuation carried out with two dates of valuation viz., as on the sale date by the Promoter and as the CIRP commencement date.
This property was operational, but the valuer had to inspect the property without informing the owner. Hence, the valuer went to the premises to inquire with a business intention. Through this, the valuer could only get a glimpse of the building as a visitor, no measurements, no photos!
The built-up area of the building was assessed based on Google Earth, and the age of construction was based on the original transfer date of land and building by the Industrial Development Authority. The report was submitted, capturing the above-said points.
Learning:
When direct access to a property is denied, valuers may need to adopt discreet observation methods and rely on secondary data sources such as Google Earth imagery, public records, and historic transfer documents. However, such limitations must be documented in the report to maintain transparency and manage the risk of challenge.
Practical Strategies for L&B Valuers in CIRP
1. Legal Co-ordination Is Non-Negotiable
a. Engage with RP/legal counsel for clarity on ownership disputes, encumbrances, and sub-judice matters.
2. Valuation as on the Valuation Date, Not Market Peak
a. Avoid optimistic pricing; align with market mood and IBC time-bound liquidation bias; ex, Covid-19 period valuations hurt valuations.
3. Document Site Conditions with Geo-tagged Evidence
a. Use Drone or Aerial Imagery, Site Maps, Google Earth, Dishaank App by the Government of Karnataka, and measurement sheets – especially where survey boundaries are unclear.
4. Maintain an information log
a. Seek documents required from RP immediately after getting appointed as RV
b. Raise queries upon studying the documents
c. Follow up for the details and keep a record of the information log between the Valuer and RP, and make it a part of the report
5. Discount Rate in Liquidation Value Should Reflect Distress
When determining the liquidation value, the applied discount rate must account for the heightened risk and urgency inherent in distress scenarios. This includes adjustments for:
- Market perception for Liquidation properties: aSheer negative market perception attached to liquidation cases brings down it’s selling price significantly.
- Time-to-sell: Accelerated sales often require significant concessions on price.
- Limited buyer pool: Fewer potential buyers can depress achievable prices.
- Asset-specific impairment: Physical deterioration, obsolete technology, or legal encumbrances that erode marketability.
This ensures that the liquidation value represents a realistic figure under forced-sale conditions.
Conclusion
Valuation of L&B assets in insolvency contexts is not merely about identifying what the land is worth—it is about realistically estimating what the stakeholders can recover and what a potential resolution applicant might be willing to pay under distressed conditions. Having handled over 15 CIRP assignments, I have seen how regulatory oversights, title risks, or even unnoticed litigation can erode asset value in the blink of an eye.
It is therefore imperative for valuers to balance legal insight, market realism, and valuation standards into one cohesive narrative—one that helps both creditors and courts see the true worth and limitations of the asset.
As India’s insolvency framework continues to mature, the role of valuation professionals, especially those in the L&B asset class, will only grow more central to achieving timely and just resolutions.
Over time, my valuation reports have significantly evolved, driven by continuous learning and professional feedback. The peer review analysis conducted by the concerned RV Entity has been instrumental in identifying areas for improvement in my earlier valuations. By acknowledging and addressing these shortcomings, I have been able to consistently enhance the quality, accuracy, and relevance of my valuation deliverables.
For any clarifications or queries, please feel free to reach out to us at admin@fintracadvisors.com
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