Obsolete Plant 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.
The asset approach values a plant at ₹80 crore. The income approach values the same plant at ₹5 crore.
Neither valuer has made a mistake. The plant is physically sound and commercially finished, and the two approaches are measuring different things.
What happens next decides whether the CoC understands the case.
Physical condition and earning capacity can diverge completely. Report both figures and explain the cause — the gap is the most useful information in the report. Suppressing one number, or splitting the difference, misleads the CoC in one direction or the other.
The three kinds of obsolescence
Physical deterioration — wear, corrosion, age. The kind everyone expects, and usually the least important in a CIRP.
Functional obsolescence — the asset works but is inefficient by contemporary standards. Higher energy consumption, more labour, lower yield, tighter quality tolerances it cannot meet.
Economic obsolescence — nothing is wrong with the asset at all. The market has changed. Cheaper substitutes, a regulatory shift, a collapse in demand for the output, or an input the plant depends on becoming unavailable.
The last two are what produce the divergence, and neither is visible on a site visit. A valuer can inspect a machine in excellent condition and be looking at a stranded asset. Plant and machinery valuation →
Why the two approaches disagree
The asset approach asks: what would it cost to replace this, less depreciation for age and condition? It answers a question about the object.
The income approach asks: what cash can this generate, discounted? It answers a question about the business.
Where a plant is technically fine but commercially displaced, those questions have genuinely different answers — and the difference is not a reconciliation problem to be averaged away. It is the finding.
How to present it
Not by choosing. By showing the CoC what it is actually facing:
- both figures, clearly labelled with the approach used;
- the reason for the gap, in a paragraph — cheaper competing technology, lost fuel linkage, demand collapse, regulatory displacement;
- what would have to change for the income value to improve: a buyer with an existing linkage, a captive offtake, a repurposing use;
- the realistic buyer universe for each scenario;
- a floor — scrap or realisable value, which is sometimes also the ceiling.
That presentation lets the CoC do the only thing it can usefully do here: judge whether a strategic acquirer exists who can close the gap.
Averaging the two is the worst option. It produces a number that describes nothing, and it hides the fact that the case has a binary character — either a buyer with the missing ingredient appears, or the assets are metal.
What it means for the two statutory numbers
Fair value should reflect a properly marketed sale to buyers who could actually use the asset, including a strategic acquirer with the complementary capability. That can legitimately be well above the standalone income value.
Liquidation value in a displaced-technology case is often close to realisable equipment value, because a distressed piecemeal sale reaches only buyers wanting components.
Where fair value and liquidation value converge — which happens exactly here — that convergence deserves its own paragraph. It tells the CoC there is no going-concern premium left, which is a conclusion with consequences. Fair value vs liquidation value →
The reporting discipline
- state both approaches and their results;
- explain why they diverge, specifically;
- identify the conditions under which the income value would rise;
- do not average;
- run sensitivity on the assumptions driving the income figure;
- record the scrap or realisable floor explicitly. Assumptions and sensitivity →
Key takeaways
- Economic obsolescence is invisible on site. A perfect machine can be worthless.
- The two approaches answer different questions. Divergence is information.
- Report both and explain the gap.
- Never average them.
- Say what would have to change for the income value to improve.
- Convergence of fair value and liquidation value is itself a finding.
- State the scrap floor — sometimes it is also the ceiling.
Read next
- Plant and Machinery Valuation Under IBC
- Going Concern or Realisable Basis: Valuing a Shut-Down Debtor
- Power Sector Valuation Under IBC
- Fair Value vs Liquidation Value Under IBC
Disclaimer: Positions stated as on 5 September 2026. General guidance only — obsolescence assessment is fact-specific.