Insolvency & Bankruptcy Code-2016 (IBC) And The Companies (Registered Valuers and Valuation) Rules, 2017 for Valuers in Practice

The Insolvency & Bankruptcy Code -2016

For last four  years the Reserve Bank of India has been coming down heavily on NPA situation accumulated in the banking system over a long period  through quarterly Asset Quality Review (AQR) process, bringing to light the seriousness of the problem. This was supplemented by some  very progressive and constructive initiatives such as the Joint Lenders Forum (JLF), Strategic Debt Restructuring (SDR) — with and without change in control — and S4A( Scheme for Sustainable Structuring of Stressed Assets). These frameworks, though unable to address all situations, were only a  step forward toward a resolution culture. Default resolution has always been and shall  remain unique to each situation. The IBC Code, from that perspective , is ‘just in time” initiative  as it focuses on a turnaround plan of sick unit  with a deadline, which, if not attained , results in liquidation. IBC puts creditors under pressure to come to  a single platform and act in unison to resolve the situation or face the consequences . The multiple regulations in the past have only helped the defaulting borrowers to take shelter under some legal clause or other. IBC  avoids such arbitrages available to borrower due to multiple regulations.

The IBC  can be termed as  one of the most important and suitable legislations for the times and circumstances. Yet  the devil lies in the detail as various interpretations of this code are being rolled out  by Hon’ble Courts through judgments in case matters.   The law is charting  a course for  IBC as it gains  maturity with  experience of  unique situations which  are subsequently being generalized. However, a  good beginning  with the right intent and a good infrastructure is half the battle won.The results have started to show.

How does  IBC alters the  Valuation Landscape in India

One of the distinguishing features of the IBC is that it relies heavily on processes and administrative setup to ensure flow of information and resolution of process in time bound manner. The Code has provided for  the establishment of a new institutional framework including

(a) Insolvency & Bankruptcy Board of India(IBBI) ,

(b) Information Utilities,

(c ) Insolvency Professional Agency(IPA)  and Insolvency Professionals(IP),

(d) Registered Valuer  Organisations (RVO).

The IBBI administers the entire institutional framework including registration and regulation of  each of these entities.

The Central Government has delegated its powers and functions under Section 247 of the Companies Act, 2013 to the Insolvency and Bankruptcy Board of India (IBBI) and specified the IBBI as the Authority under the Companies (Registered Valuers and Valuation) Rules, 2017 under which the Valuer is required to be registered.

The Ministry of Corporate Affairs (MCA) has notified the provisions governing valuation by Registered Valuers [section 247 of the Companies Act, 2013 (the Act)] and the Companies (Registered Valuers and Valuation) Rules, 2017 (the Rules), both have  come into effect from 18 October, 2017.

In addition, to administer and perform functions under the said rules, the MCA by way of notification on 23 October, 2017, has specified the Insolvency and Bankruptcy Board of India (IBBI) as the responsible authority.

Some Acts and Statutes  that are of prime relevance  to practice as valuation professional

  • Registered Valuer  under  Section 34 AB of Wealth Tax Act-1957
  • SARFAESI Act 2002 ‘s definition of Registered Valuer
  • Section 247 of Companies Act 2013
  • SEBI’s definition of Registered Valuer 2014
  • The Companies (Registered Valuers and Valuation) Rules, 2017

The above Acts and statutes have been implemented by  Government during different time periods. The definition of Registered Valuer and its role were defined to  address the specific needs of respective Acts considering the purpose for which they were formulated.  A need for comprehensive policy on  valuation profession always existed and  is yet to be fully addressed. However the next best thing by way of Companies (Registered Valuers and Valuation) Rules, 2017  has been brought and made applicable.

Accordingly, Section 247 of the Companies Act requires that where a valuation is to be made of any property, machinery  & equipment ,stocks, shares, debentures, securities or goodwill or any assets or net worth of a company or its liabilities under the provisions of the Act, the same shall be valued by a person having the requisite qualifications, experience, Member of a Registered Valuers Organisation, and Registered as a Valuer in the manner prescribed in the Rules.

The notified Rules lays down the criteria for (a) individuals, (b) partnership entities and (c) companies to be eligible to be registered as Valuers under the Act.

Apart from this, the Rules contain other aspects pertaining to Registered Valuers and Valuation as follows: –

(1) Process for Registration as Valuers

(2) Recognition of Registered Valuer Organisations

(3) Valuation Standards

(4) Transitional Arrangement

Regulatory Insights

Key provisions from the Rules regarding  Eligibility, Qualifications and Registration of Valuers

  • Any person, partnership entities (includes limited liability partnerships) are eligible to be registered Valuers, provided they meet the eligibility conditions prescribed in the rules. ( Annexure A)
  • In case of partnership entities or companies, in order to be eligible as Registered Valuers (apart from other conditions), it is necessary that the entity is formed for rendering professional or financial services including valuation and at least three or all the partners or directors (whichever is lower), are Registered Valuers.
  • Qualifications and experience requirements have been prescribed for individuals, to be eligible for registration as Valuers. Further, an indicative matrix on requisite qualifications/ experience in specified discipline for asset classes has been provided in the rules.
  • To test professional knowledge, skills, values and ethics in valuation, IBBI to either on its own, or through a designated agency, conduct examinations for one or more asset classes, for individuals (who possess the qualifications and experience as specified) and have completed their educational  courses/ Training Hours  as member of a Registered Valuers Organisation.

Transitional Arrangement

  • Notifications issued in this respect require that with effect from 1st April, 2018, for conducting valuations required under the Companies Act, 2013 and the Insolvency and Bankruptcy Code, 2016, a person is to be registered with the IBBI as a registered Valuer. For registering with IBBI, a person must have necessary qualification and experience, has to be enrolled as a Valuer member with a Registered Valuer Organisation (RVO), has to complete a recognised educational course conducted by the RVO, and pass valuation examination conducted by IBBI. A person, who is rendering valuation services under the Companies Act, 2013, may continue to do so without a certificate of registration up to 31st March, 2018.
  • However, if a company has appointed a person for valuation, and the valuation or any part has not been completed before 31 March, 2018, the Valuer shall then be given an additional time period of three months to complete the valuation.

Recognition of Registered Valuers Organisations

  • A company registered under Section 8 of the Companies Act, 2013 (or section 25 of the erstwhile Companies Act, 1956), with the sole object of dealing with matters relating to regulation of Valuers of an asset class or classes AND Professional Institutes established by an Act of Parliament enacted for the regulation of a profession are eligible to be registered as Registered Valuers Organisations, provided they meet the following key requirements: –

(a) It conducts educational courses in valuation, in accordance with the syllabus determined by the IBBI. (b) Grants memberships or certificate of practice to individuals who possess qualifications and experience as required under the Rules. – Conducts training for individual members before a certificate of practice is issued.

(c ) Monitors and reviews the functioning, including quality, of services, or Valuers who are its members.

RVO Structure, Governance, Code of Conduct, Monitoring , Recognition  etc have been elaborated in the the rules.

The IBC  for Valuers, on the Ground Situation

While lenders, borrowers, the legal system are adapting to IBC, the community of currently practicing valuers is trying to fathom the implication of  IBC on its profession. While most of the current lot of practicing Valuers are registered under Wealth Tax Act and have been practicing as Registered Valuer  for many years, the entire idea of  re -registering themselves again as Valuer under provisions of  Companies Act has not got down well. Added to this , the Process for Registration with IBBI  seems cumbersome to many practicing Valuers who have been doing their work diligently for years together. The training programme for 50 Hours with RVO and conduct of exams is deemed by fraternity as  suitable for new aspiring Valuers  and it is widely felt that IBBI should do away with this conduct of training and exams for mature and experienced Valuers. However,to  this day, the rule remains  otherwise.

As a part of clarifications given by IBBI in public domain, the Process of Registration of Valuers,  is applicable only for Companies Act purpose and Insolvency proceedings only.Valuers practicing under any other Acts, statutes and for any other purpose may continue to practice. This is also explained more clearly in the  Rules.

Oppurtunities and Challenges for   Valuers already Registered  under W.T.Act.

Like any other disruptive change, the Companies (Registered Valuers and Valuation) Rules, 2017 (the Rules) have  its own set of opportunities and challenges  for Valuers practicing under W.T.Act.


  • The Companies Act identifies the need for a comprehensive policy on Valuation  Profession and provides for legislative framework.
  • It lays ample emphasis on continuous education and training programs for up gradation of profession.
  • It provides for regulation of valuation profession through an institutional mechanism.
  • It opens new professional opportunities for individual valuers for valuations under   Companies Act like mandatory valuations for  various Accounting Standards, Valuations for Insolvency Proceedings etc.
  • With high entry barriers to profession  of Valuers, the payout as professional fee package  is likey to improve.


  • Most of practicing valuers under W.T Act have based their income on Valuation practice. The idea of disruption in professional practice due to Companies Act Rules might jeopardize the livelihood of many practicing valuers, specially in small towns.
  • A new entry barrier has been created by Companies Act’s process of Registration of Valuer  The idea of not being able to undertake computer based test by elder valuers  OR faiure to match up to high  standards of IBBI exam might lead to loss of work to currently practicing Valuers.
  • The concern that Valuation practice of W.T. Act Registered Valuer will shrink down to Taxation matters.
  • The possibility of convergence of  Process of Registration of Valuer for various  Acts in future cannot be ruled out.
  • T. Act Registered Valuers are predominantly Engineers and Architects who have very  little or no formal education of Finance and Law. The current Company  Act provisions for Valuation  lay emphasis on substantial understanding  of Finance and Legal subjects to pursue the valuation practice, which it deems  as critical for Valuation.

Registration Process of Valuers with IBBI

Before registering with the IBBI that the valuer must fulfil four pre-requisite conditions :

  1. Must have necessary qualification and experience
  1. Enrolled as a valuer member with a Registered Valuer Organisation (RVO)
  1. Complete a recognised educational course conducted by the RVO
  1. Pass valuation examination conducted by IBBI

In pursuance to the Companies (Registered Valuers and Valuation) Rules, 2017, IBBI, being the Authority, recognised on 27th December, 2017 two RVOs, namely:

(a) The IOV Registered Valuers Foundation in the Asset Classes of:

  • Land and Building

(ii)        Plant and Machinery, and

(iii)       Securities or Financial Assets.

(b) The Institution of Estate Managers and Appraisers in the Asset Class of Land and Building, and

Later IBBI also recognized the third RVO

(c ) The ICSI Registered Valuers Organisation in the Asset Classes of:

  • Land and Building

(ii)        Plant and Machinery, and

(iii)       Securities or Financial Assets.

IBBI, has specified the details of educational course on 30th December, 2017. It has published such details for all three Asset Classes

These courses shall be delivered by the RVOs in not less than 50 hours.

IBBI has also being the Authority, published the syllabus, format and frequency of the valuation examination for all the Asset Classs on 30th December, 2017. It has published  such details for the Asset Classes of (a) Land and Building, and (b) Plant and Machinery (c ) ‘Securities or Financial Assets’ followed by Model Code of Conduct for Valuers. A person wishing to be a valuer needs to pass this valuation examination.

The sample questionnaire shall be uploaded on the websites of IBBI , IOV- RVF and other RVOs in due course of time.

The Valuation Standards

The notified Rules attempt to bring in standardization in the valuation practices in India and ensure that valuation reports disclose a true and fair view and result in greater objectivity in valuation procedures. The increased transparency and fairness in the valuation system would also boost stakeholder confidence by bringing uniformity.

The emphasis has been laid on adoption of Valuation Standards for practitioners to bring out uniformity in valuation reports and adherence to ethical and professional conduct by Valuers.

  • Until the Central Government notifies the Indian Valuation Standards, the Registered Valuer shall make valuation as per – (1) internationally accepted valuation methods; (2) valuation standards adopted by a Registered Valuers Organisation.
  • The Central Government may constitute a committee to be known as “Committee to advise on valuation matters” to make recommendations on formulation and laying down of Indian valuation standards and policies for compliance by companies and registered valuers.
  • Presently the standards recommended by International Valuation Standards Council for 2017  may be  be adopted for valuation practice .


Change comes with bagful of opportunities and challenges. More and more value drivers of  companies  like fixed assets, human capital, technology, management etc are now getting intricately integrated. It is in best interest of a practicing valuer, who envisages a long term in valuation practice, to expand its knowledge base including subjects of law and finance. The process of Registration of Valuers involving training and examination  is merely a test of primary skills. Given  the scale of challenges for Valuers in ever evolving economic scenario , the real test   lies  in the life situations where Valuers shall  be exposed.



Insolvency and Bankruptcy Code 2016 (I & B Code 2016) was published in the Gazette of India on 28th May 2016. The object and reasons for the enforcement of the said Code the objective of this Code is to preserve by providing linear, time-bound and collective process; improve the time taken to return; failure to provide clear exit option to investor, increase recovery value, bring all insolvency, bankruptcy related issues under one umbrella, and to develop other avenues for  financial business oppurtunities.

The I&B Code 2016 read  with Insolvency and Bankruptcy Rules 2016 (also referred  I&B Adjudicating Rules, 2016) provides the manner and procedure to initiate the Corporate Insolvency Resolution Process. Under I & B Code 2016, the IRP proceedings can be initiated by a Financial Creditor or by an Operational Creditor or by the Corporate Debtor itself. Section 7, 9 and 10 of I&B Code 2016 respectively deals with the manner and procedure for initiating the Corporate Insolvency Resolution Process.

I&B Code 2016 are still in the stage of the evolution and the Adjudicating Authorities including Hon’ble National Company Law Appellant Tribunal [NCLAT] are trying to interpret its various provisions. In the present essay we discuss whether requisites, timelines, documentation as provided under I&B are mandatory to follow or are simply procedural in nature and can be differed.

Prior to discussing the judicial precedents as on date it would be important to refer to Section 238 of the I&B Code 2016 which to some extent clarifies the intention of the law making agencies that they since inception wanted to keep I&B Code 2016 separate and have overriding effect over other statutes. In other words, the requisites, timelines, documentation as provided under I&B 2016 become mandatory in nature.


As per Section 9 whenever the Adjudicating Authority receives an application for initiating an Insolvency Resolution Process against a Corporate Debtor, it has to satisfy itself that all the conditions provided under Section 9(3) have been satisfied.

The conditions provided under the said section 9(3) are that the operational creditor shall, along with the application furnish:

  1. A copy of the invoice demanding payment or demand notice delivered by the operational creditor to the operational debtor;
  2. An affidavit to the effect that there is no notice given by the corporate debtor relating to a dispute of the unpaid operational debt;
  3. A copy of the certificate from the financial institution maintaining accounts of the operational creditor confirming that there is no payment of an unpaid operational debt by the corporate debt and
  4. Such other information as may be specified.

In Era Infra Engineering Limited V/s Prideco Commercial Services Private Limited, the issue before Hon’ble National Company Law Appellate Tribunal was whether the Corporate Insolvency Process Order passed by Hon’ble Adjudicating Authority and subsequent appointment of Insolvency Resolution Professional and declaration of moratorium period on the basis of an application filed by Operational Creditor under Section 9 of I&B Code 2016 was correct as the Operational Creditor had failed to issue demand notice as required under Section 8 of the I&B Code 2016. The creditor had in past served demand notice under Section 271 of Companies Act, 2013 and was relying on the said demand notice.

The Adjudicating Authority (National Company Law Tribunal, Principal Bench, New Delhi), have on receipt of the application under Section 9 of I&B Code 2016, from operational creditor i.e. Prideco Commercial Services Private Limited had triggered the Corporate Insolvency Process against the Corporate Debtor Era Infra Engineering Limited and accordingly appointed an Insolvency Resolution Professional and declared the moratorium under Section 14 of I&B Code 2016.

The Hon’ble NCLAT in the appeal set aside the order passed by Hon’ble Adjudicating Authority i.e NCLT,New Delhi and quashed all orders, interim arrangement including declaration of moratorium and appointment of Insolvency Resolution Professional. It further held that all actions taken by Interim Resolution Professional after passing of the order as illegal. The Appellant Tribunal observed that serving of notice under Section 271 of Companies Act, 2013 cannot be considered as sufficient notice as required to be served under Section 8(1) of I&B Code 2016 in the prescribed format.

The Hon’ble NCLAT, while deciding observed that “Admittedly no notice was issued by Operational Creditor stipulated under Rule 5 in Form 3 has not been served. Therefore, in absence of any expiry period of tenure of 10 days there was no question of preferring an application under Section 9 of I&B Code 2016“.The Hon’ble NCLAT further held that “the Adjudicating Authority has failed to notice the afore said facts and the mandatory provisions of law as discussed above. Though the application was not complete and there was no other way to cure the defect, the impugned order cannot be upheld“.


In Smart Timing Steel Limited V/s National Steel and Agro Industries Limited, the issue before the Hon’ble NCLAT was whether filing of a “copy of certificate from the “financial institution” maintaining accounts of the operational creditor confirming that there is no payment of unpaid operational debt by the “Corporate Debtor” as prescribed under clause (c) of sub-section (3) of Section 9 of the I&B Code 2016 is mandatory or directory.

The said Appeal was filed by the Appellant, who was an operational creditor who has filed a petition against the Respondent for initiating the Corporate Insolvency Process which was rejected by the Adjudicating Authority (NCLT), Mumbai, who had held that “On perusal of Section 9 of Insolvency and Bankruptcy Code, it is evident, that it is mandatory to file copy of Certificate from the Financial Institutions reflecting non-payment of the operational debt impugned, for the operational Creditor has failed to annex copy of the said Certificate as required u/s 9(3) of the Code, this petition is liable to be rejected.

The Hon’ble NCLAT, while rejecting the appeal filed by Operational Creditor held that it is clear that the word “shall” used in sub-section (3) of the Section 9’I&B Code’ is mandatory, including clause 3 therein. The Hon’ble Tribunal while deciding observed that one of the cardinal principles of interpretation of statute is that, the words of statute must prima facie be given their ordinary meaning, unless of course, such construction leads to absurdity or unless there is something in the context or in the object of the statute to the contrary. When the words of statute are clear, plain and unambiguous, then, the courts are bound to give effect to that meaning, irrespective of the consequences involved. Normally, the words used by the legislature themselves declare the legislative intent particularly where the words of the statute are clear, plain and unambiguous. In such a case, effort must be to give a meaning to each and every word used by the legislature and it is not sound principle of construction to brush aside the words in statute as being redundant or surplus, and particularly when such words can have proper application in circumstances conceivable within the contemplation of the statute.


In J K Jute Mills Company Limited V/s Surendra Trading Company4, the issue before the Hon’ble NCLAT was “Whether the time limit prescribed in Insolvency & Bankruptcy Code, 2016 (hereinafter referred to as Code 2016) for admitting or rejecting a petition or initiation of insolvency resolution process is mandatory

The Hon’ble NCLAT after discussing each of the Section of the I&B Code 2016 wherein the time is prescribed held that “the object behind the time period prescribed under sub-section (5) of the Section 7, sub-section (5) of Section 9 and sub-section (4) of Section 10, like Order VIII Rule 1 of CPC is to prevent the delay in hearing the disposal of the cases. The Adjudicating Authority cannot ignore the provisions. But in appropriate cases, for the reasons to be recorded in writing, it can admit or reject the petition after the period prescribed under Section 7 or Section 9 or Section 10.

The Hon’ble Appellate Tribunal referred to various decisions of Hon’ble Supreme Court wherein the Hon’ble Apex Court has held that the mandatory provisions are to be complied within the time frame prescribed.

The Hon’ble NCLAT while deciding the case held that “the time is the essence of the code and all the stakeholders, including the Adjudicating Authority are required to perform its job within time prescribed under the Code except in exceptional circumstances if the adjudicating authority for one or other good reason fails to do so. In the case in hand we find that the Adjudicating Authority has unnecessarily adjourned the case from time to time which is against the essence of the code.”


In Innoventive Industries Limited V/s ICICI Bank Limited, the issues before the Hon’ble NCLAT were as follows:

  1. Whether a notice is required to be given to the Corporate Debtor for initiation of Corporate Insolvency Resolution Process under I & B Code, 2016 and if so, at what stage and for what purpose?
  1. Whether ‘Maharashtra Relief Undertaking (Special Provisions) Act (Bombay Act XCVI of 1958)'(herein- after referred to as MRU Act 1958) shall prevail over I & B Code 2016. In other words, whether a Corporate Debtor who is enjoying the benefit of MRV Act, can be subjected to I & B Code 2016? And
  2. Whether in a case where Joint Lender Forum (JLF) have reached agreement and granted permission to the Corporate Debtor prior consent of JLF is required by financial creditor before filing of an application under Section 7 of the I & B Code 2016?

The Appellant in the present case has approached Hon’ble NCLAT against the order of Hon’ble Adjudicating Authority who after checking the application filed by the financial Creditor under Section 7 has triggered the Corporate Insolvency Process against the Corporate Debtor after getting itself satisfied that there is a default.

The Hon’ble NCLAT after hearing both the parties have held as in some of the cases initiation of Insolvency Resolution Process may have adverse consequences on the welfare of the Company. Therefore, it will be imperative for the “adjudicating authority” to adopt a cautious approach in admitting Insolvency Application by ensuring adherence to the principle of natural justice. Though in the present case in hand, it was observed by the Hon’ble NCLAT that opportunity was given to the Corporate Debtor to defend himself before admitting the application.

Furthermore, with respect to the protection of any other enactment like in the present case the Appellant were taking the benefit of Maharashtra Relief Undertaking (Special Provisions) Act. The Hon’ble Appellant Authority held that Section 238 of the I & B Code, 2016 is non-obstante clause which overrides the operation of the MRU Act. As per Section 238 of the I & B Code, 2016 the provisions of the Code are to are to be given effect to notwithstanding anything contrary contained any other law or any instrument having effect under such law.


“238 – The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in anti other law for the time being in force or anti instrument having effect by virtue of any such law.”

With respect to the last question, the Hon’ble Appellant Tribunal held that for initiation of corporate resolution process by financial creditor under sub-section (4) of Section 7 of the Code, 2016, the ‘adjudicating authority’ on receipt of application under sub-section (2) is required to ascertain existence of default from the records of Information Utility or on the basis of other evidence furnished by the financial creditor under sub- section (3). Under Section 5 of Section 7, the ‘adjudicating authority’ is required to satisfy-

  1. Whether a default has occurred;
  2. Whether an application is complete; and
  3. Whether any disciplinary proceeding is against the proposed Insolvency Resolution Professional.

Once it is satisfied, it is required to admit the case but in case the application is incomplete application, the financial creditor is to be granted seven days’ time to complete the application. However, in a case where there is no default or defects cannot be rectified, or the record enclosed is misleading, the application has to be rejected. Beyond the aforesaid practice, the ‘adjudicating authority’ is not required to look into any other factor, including the question whether permission or consent has been obtained from one or other authority, including the JLF(Joint Lender’s Forum of Consortium of banks).Therefore, the contention of the petition that the Respondent has not obtained permission or consent of JLF to the present proceeding which will be adversely affect loan of other members cannot be accepted and fit to be rejected.


It is no doubt that I&B Code 2016 can be considered as law which is strict in nature as the Adjudicating Authority has to decide whether to initiate the Corporate Insolvency Resolution Process within a time span of 14 days. However, at the same time if we step in the shoes of the Creditors (Operational as well as Financial Creditor) for them they have got a ray of hope that there outstanding will be repaid soon as other forums like filing of recovery suits, winding up petition as well as filing of application before Debt Recovery Tribunal are lengthy process.

As mentioned in the object and reason of the I&B Code 2016 also, the objective of the Act is to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders.

The content of this article is intended to enhance readers interest in  the subject. Expert’s advice should be sought about your specific circumstances.



The dramatic event of conversion of currency by Government has left a trail, that will be remembered for long time. This novel idea of curbing black money, fighting terrorism and removing counterfeit currency has engrossed people from all spheres of life in India. For50 days all & sundry have participated in this event either willingly or by compulsion.

While the industrial sectors are engaged in assessing the pros and cons of this event and trying to fathom a future course of action for them, some of the major repercussions are being felt by people engaged in Real Estate development and allied sectors that include lending sector as well. Real estate is an overall contributor of about 9 percent to India’s GDP, and one of the most capital-intensive sectors in India. Property values have been the biggest point of apprehension for investors, builders, lenders and other constituents. On the surface there seems no cheer at all, rather the doubts, fear, anxiety and uncertainty is lingering in the minds of real estate participants.

Valuers, being the advisors to both real estate and money lending sectors, have compulsorily become a participant in this amphitheatre. And not just participants, but have also been assigned a very crucial role to play. The word of mouth remains as treacherous as ever in influencing the opinions although a lot has been analysed and even more has been said about the impact of demonetization on real estate. These are the times when analysis and judgment of Valuer becomes very important.

How does all this affect the Fair Market Value Opinion!!

Some parameters that may be useful to comprehend the situation, a bit more clearly.


(i) Reserve Bank of India

The Reserve Bank of India has cut its GDP growth forecast for current financial year from 7.6 % to 7.1%, citing the demonetization exercise that sucked 86% of currency in circulation for some time.

(ii) International Rating Agencies

International Rating agencies have kept the rating of India as investment destination to “Baa3” Rating by Moody’s and “Stable” by S&P, indicating no change in perception of investors.

On November 16, 2016 — Moody’s affirmed the Government of India’s “Baa3” issue and senior unsecured ratings and maintained the positive outlook on the rating. It bases the decision to maintain a positive outlook on the rating rather than assigning a stable outlook to the rating reflecting two drivers:

(a) Economic and institutional reforms introduced since the positive outlook was assigned, and potentially forthcoming, continue to offer a reasonable expectation that India’s growth will outperform that of its peers over the medium term and that further improvements in its macro-economic and institutional profile will be achieved.

(b) However, the reform effort to date has not yet achieved the conditions that would support an upgrade to Baa2, in particular in accelerating private investment to support high, stable growth, without which the government’s debt burden — a key constraint on the rating — is likely to remain high for a sustained period.

Rating agency Fitch also lowered India’s GDP growth forecast for this fiscal to 6.9% from 7.4%. Fitch said, adding the medium-term effect of the currency withdrawal on GDP growth is uncertain, but is unlikely to be large. Morgan Stanley the growth forecast for 2017 has been slashed to 7.6% from the earlier 7.8%. For 2018, the growth is pegged at 7.8%.

(iii) Other Rating Agencies

Leading Credit Rating Agency of India, ICRA has opined that India (rated Baa3 positive by Moody’s) will remain one of the fastest growing major economies globally in 2017, although GDP growth will moderate in the first half of the year, as the economy adjusts after demonetization. ICRA expects the country’s growth of gross value added at basic prices to remain healthy in 2017, although such growth will ease somewhat to about 6.6% from around 7.0% in 2016, with a likely pick-up in Second Half of Year 2017

(iv) National Stock Exchange

(a)The CNX Reality Index that fell from 198 level on 8th November to 152 level on 22nd December recovered to 179 by 6thJanuary 2017, indicating a cause of concern for organized real estate sector but not to an extent of big turmoil. The fact remains that real estate sector has already been under pressure for last 4 years and has limited scope for a further downslide.

(b) The CNX Infrastructure Index for same period indeed improved to 2810 post demonetization from 2779 of 8th November after touching a low of 2623 during 22nd December 2016.This clearly points to optimism in the Infrastructure sector

(v) The Index of Industrial Production (IIP)

The Index of Industrial Production (IIP) indicated a recovery in November -December after slipping for a while in October2016.

(vi) Government of India has assured to support low cost housing by way of low cost housing loans, tax benefits, infrastructure funding.

All the above economic parameters cumulate to give a picture that ranges from stability to cautious optimism but, certainly not of pessimism on economic front.


(i)The Primary Sales of Housing Units, as indicated by market reports, fell by about 35-40% during Nov-December 2016 indicating the adverse sentiment among home buyers although no steep fall in prices of dwelling units has been reported.

(ii) While almost all the newspapers have indicated steep fall the property prices during November-December period. In fact, the secondary market for property transactions has been hit by illiquidity. Since there is a need for more transparency in property transactions now, the willing buyer at Arm’s length distance is seeking an appropriate discount to the earlier prevailing prices, just to make up for changed costs of transactions.

Similarly the Willing Seller is seeking to rethink about the additional tax liability that it will have to incur in case of total transparent transaction. Thus willing participants in market transactions are holding back for the time being, leading to ill-liquidity in market.

(iii) As reported by various National & International Real Estate Consultants the demand for rentals in Tier I & tier II cities remained firm & lease rentals remained strong despite demonetization.
(iv)Bank’s interest rates have started to come down.


(i) Land

The Value of land is the subject that has generated the maximum anxiousness among investors, sellers and stakeholders. The anxiety pertains to the component of unaccounted cash in open market land transactions. The gray natures of land transactions has invoked highest decibels, and are of highest cause of concern for valuers especially when property being valued is for mortgage lending purpose. In the event of willingness of market participants to transact in transparent manner, the effect of demonetization on property can be worked up based upon:

(a)The prevalent percentage of cash component in earlier transactions (pre demonetization period transactions)

(b)The costs/ taxes rate payable by holder of unaccounted cash money for conversion of such cash into accountable money.

(c) Additional Stamp Duty payable by buyer due to increased documented transaction value

(d)The buyer’s borrowing capacity, as buyer may need to borrow additional accounted funds for making a purchase.

(e) The additional tax liability on Seller by way of Capital Gains on increased transaction value.

The Sale Value of land continues to be affected by other factors like:

(a)The inherent demand –supply matrix for land for development

(b)The dominant sentiment among land buyers,

(c)Prevailing Returns in alternative investments.


The labor costs, the steel, cement and construction material prices have remained stable or increased marginally. The Cost of Construction has not gone down due to demonetization. It suggests that downside in property prices, if any, for readily built apartments, flats, offices etc can only be attributed to its land share component and not to the building component.


One of the most obvious effects of demonetization is the fall interest rates, as indicated by major banks. This when coupled with strong demand for rental properties leading to increased rental income, the capital value of investment properties can only go upward, despite demonetization.
While most of the factors that affect the real estate can be mathematically analyzed, what cannot be easily analyzed is the quantum of sentiment. A professional can resist the temptation of giving excessive weightage to transient sentiments over more fundamental factors.