Basis of Value explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Of everything settled in a valuation engagement, this is the choice with the largest effect on the answer — and the one most often left to be inferred from the report rather than stated in it.
What it is
The basis of value is the conceptual foundation of a valuation. It defines the economic assumptions underlying the exercise:
- the nature of the assumed transaction;
- the characteristics of market participants; and
- the circumstances under which the asset or business is assumed to be exchanged.
It therefore influences the assumptions adopted, the methodology selected and the interpretation of the conclusion. The same asset may produce materially different values under different bases, even where the underlying information and techniques are unchanged.
The common bases
| Basis | Assumed transaction conditions |
|---|---|
| Fair Value | Willing, informed and uncompelled parties; since 2025-2026 expressly incorporating intangibles and synergies |
| Liquidation Value | Compelled disposal under the liquidation timeline, in a distressed market with a restricted buyer pool |
| Market Value | Exchange between market participants at arm's length |
| Going Concern Value | Continuing operations |
| Distress Sale Value | Compulsion to transact |
| Investment Value | Value to a particular owner or investor |
Each reflects a distinct set of assumptions about transaction conditions, market participants and the degree of compulsion to transact.
A recurring error in CIRP reports is applying Fair Value assumptions in what is required to be a Liquidation Value analysis. The most common manifestation is the use of going-concern-level asset values, derived from DCF or market multiples, in the liquidation value schedule, with only nominal haircuts applied.
The result is a Liquidation Value only marginally below the going-concern Fair Value — suggesting that liquidation would yield nearly the same recovery as a successful resolution.
That is analytically untenable and invites challenge, and the reason is easy to state: if liquidation recovered nearly as much as resolution, the entire premise of the CIRP would collapse. Liquidation Value should reflect the compelled-sale, distressed-market reality of an actual liquidation process.
Enterprise Valuation is not a basis of value
The introduction of Enterprise Valuation within the insolvency framework makes this distinction necessary. Enterprise Valuation is not a separate basis of value; it is a framework for determining value at the enterprise level and operates in conjunction with the applicable basis prescribed by the regulations.
A report that treats it as a basis in its own right has confused the construct with the economic assumption underlying it.
What the basis of value determines
- the assumptions that may appropriately be adopted;
- the methodologies likely to be relevant;
- the information requiring consideration; and
- the disclosures necessary to explain the conclusion.
Consistency is the vulnerability
A common reporting vulnerability arises when the selected basis is not applied consistently. Two directions of error are identified:
- a valuation described as Fair Value incorporating assumptions more consistent with a distressed sale; and
- a Liquidation Value analysis relying on assumptions that implicitly assume a willing buyer environment.
Such inconsistencies materially affect the credibility and reliability of the conclusion — and, unlike an arithmetical error, they are visible to any reader who compares the two figures.
The rule
The basis of value should never be implied or assumed. It should be explicitly stated, clearly explained and consistently reflected throughout the report. An incorrectly selected or inadequately explained basis can undermine the defensibility of an otherwise technically sound valuation.
Practically, that means fixing it in the scope of work at the outset, under IVS 101, and testing the finished report for assumptions that belong to a different basis.
Common mistakes
- Deriving Liquidation Value by applying a percentage haircut to Fair Value.
- Leaving the basis of value to be inferred from the methodology used.
- Treating Enterprise Valuation as a basis rather than a construct.
- Producing a Liquidation Value that implies liquidation recovers nearly as much as resolution.