IBBI (Liquidation Process) (Third Amendment) Regulations, 2026: Focused Valuation Regime for MSMEs

The Insolvency and Bankruptcy Board of India has introduced a targeted change to the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 through the Insolvency and Bankruptcy Board of India (Liquidation Process) (Third Amendment) Regulations, 2026, notified on 19 May 2026.

This amendment primarily revises Regulation 35 relating to valuation during liquidation and carves out a special mechanism for Micro, Small and Medium Enterprises (MSMEs) recognised under the Micro, Small and Medium Enterprises Development Act, 2006. The change is aimed at reducing costs and procedural burden for MSME corporate debtors while preserving sufficient flexibility where complexity or asset profile demands it.

Statutory Basis and Notification Details

Enabling powers under the Insolvency and Bankruptcy Code, 2016

The amendment has been notified by the Insolvency and Bankruptcy Board of India in exercise of its regulatory powers under:

  • section 196 read with
  • section 240

of the Insolvency and Bankruptcy Code, 2016 (31 of 2016).

These provisions enable the Board to frame and modify regulations governing the liquidation process of corporate persons.

Citation, commencement and notification particulars

  1. The new regulations are formally titled as:

    • Insolvency and Bankruptcy Board of India (Liquidation Process) (Third Amendment) Regulations, 2026.

  2. As per the notification:

    • The regulations take effect from the date of their publication in the Official Gazette.
    • The notification is issued under file number F. No. IBBI/2026-27/GN/REG142 and dated 19th May, 2026, New Delhi.

Note: Once published in the Gazette of India, these amendments become immediately operative without any further transitional period being prescribed.

Background: Regulation 35 and the Need for Change

Existing framework under Regulation 35

Regulation 35 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 prescribes the manner of determining the liquidation value of the assets of the corporate debtor. In general:

  • Registered valuers are appointed to determine the value of different asset classes.
  • Ordinarily, two registered valuers may be engaged for each asset class to arrive at a more reliable and objective value, particularly in non-MSME cases.

However, this conventional approach can be costly and time-consuming, especially when the corporate debtor falls within the MSME category and has a relatively smaller scale of operations and limited asset base.

Rationale for a special MSME valuation regime

MSMEs often possess:

  • Fewer asset classes
  • Lower-value assets
  • Resource constraints to bear extensive professional fees during liquidation

The necessity to balance procedural rigor with cost efficiency has prompted the regulator to adopt a simplified valuation model for MSMEs, while still maintaining discretion for enhanced valuation where circumstances so require.

The 2026 amendment to Regulation 35 is intended to realise the following objectives:

  • Reduce valuation costs in MSME liquidation
  • Simplify compliance while maintaining a minimum standard of valuation
  • Allow the liquidator and consultation committee to opt for a more detailed valuation if justified

Core Amendment: Special Valuation Rule for MSME Corporate Debtors

Insertion of proviso after Regulation 35(2)

The key change introduced by the Third Amendment Regulations, 2026 is the insertion of a new proviso after sub-regulation (2) of Regulation 35 of the principal regulations.

The newly inserted proviso states that:

“Provided that, in respect of a corporate debtor classified as a micro, small or medium enterprise under sub-section (1) of section 7 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006), the liquidator shall appoint one registered valuer for each asset class of the corporate debtor, unless the liquidator after consultation with the consultation committee decides, for reasons to be recorded in writing, to appoint two registered valuers.”

Breakdown of the new MSME valuation requirement

This proviso brings in a differentiated valuation process for corporate debtors that qualify as MSMEs under: