Valuation Premise 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 premise is not settled by the fact that a CIRP is running. It is settled by evidence about the business — and the report has to show that evidence, not just the conclusion drawn from it.
What the valuation premise assessment is
While the determination of Fair Value and Liquidation Value is mandated, the valuer must nevertheless assess whether the business exhibits the characteristics of a viable going concern, or whether circumstances indicate severe operational and financial distress that may materially affect realisation value.
It is described as one of the most important judgements in a CIRP valuation assignment, and it influences:
- the selection and application of valuation methodologies;
- the assumptions adopted; and
- the interpretation of valuation outcomes.
The assessment should be based on objective evidence and documented professional judgement rather than assumptions regarding the likely outcome of the CIRP process.
That exclusion is doing real work. The tempting reasoning runs the other way: a CIRP that appears headed for resolution suggests a going concern; one that appears headed for liquidation suggests severe distress. But the outcome of the process is precisely what nobody knows at the valuation date — and the valuation is one of the inputs the CoC will use to reach it.
Reasoning from the anticipated outcome to the premise, and then producing values that inform the outcome, is circular. The assessment has to run from the business's own characteristics.
The valuation premise indicators
| Supporting a going concern | Suggesting severe distress |
|---|---|
| Continued business operations | Prolonged operational shutdown |
| Stable customer relationships | Significant customer attrition |
| Availability of key management and employees | Loss of key personnel |
| Sustainable industry demand | Structural decline in demand |
| Expressions of interest from resolution applicants | Absence of credible investor interest |
| Operational viability despite financial stress | Business model no longer economically viable |
Two further severe-distress indicators sit alongside these: significant deterioration of assets and inability to maintain essential operations.
The last pair is the decisive one
Five of the six pairs describe conditions that financial restructuring could plausibly reverse — operations can restart, customers can return, staff can be rehired. The final pair cannot: a business model that is no longer economically viable irrespective of financial restructuring is the definition of structural distress, and it is the finding that collapses the gap between the two statutory values.
It is also the hardest to evidence, because it is a judgement about the industry and the model rather than an observation about the company's current state.
Where the evidence comes from
- Continued operations — site inspection, production records, utility consumption.
- Customer retention — order book, contracts, revenue concentration analysis.
- Key personnel — the RP's records of retained management under section 20.
- Industry demand — sector reports and market evidence.
- Resolution applicant interest — expressions of interest against the Form G invitation.
- Operational viability — as reflected in the Information Memorandum or other available information.
What has to reach the report
The report should clearly disclose the premise adopted, the factors considered and the rationale supporting the assessment.
Proceeding directly to a valuation methodology without explaining the basis on which the business has been assessed may create uncertainty regarding the appropriateness of the assumptions and conclusions reached.
The objective is not merely to state that a business is a going concern or otherwise, but to demonstrate the evidence and reasoning supporting that conclusion — the same distinction between disclosure and justification that governs assumptions generally.
Common mistakes
- Inferring the valuation premise from the expected outcome of the CIRP.
- Stating the valuation premise adopted without the factors considered.
- Treating continued operations alone as establishing viability.
- Moving to methodology before the premise assessment is documented.