BEYOND TANGIBLE ASSETS: RETHINKING THE VALUATION OF DIGITAL ASSETS UNDER THE INSOLVENCY AND BANKRUPTCY CODE, 2016

The balance sheets of Indian companies have undergone a shift from traditional assets to the inclusion of digital assets. Indian companies now hold more digital assets such as cryptocurrency, NFTs, and data as assets. Yet the Insolvency and Bankruptcy Code, 2016 provides little guidance on how a resolution professional or liquidator should conduct the identification, valuation and distribution of these assets. The paper examines this very gap. Section 3(27) of the Code already defines property broadly enough to cover most digital assets. The real difficulty lies in the administrative framework created by Sections 18, 35, 36, and 53. The provisions run on an assumption that every asset, forming a part of the insolvency estate, can be identified, brought under the liquidator’s control, and be valued at a stable and ascertainable price. Digital assets do not fit under that model. A corporate debtor may appear to own a digital asset worth a crore, but if the private key is lost, then that asset is rendered worthless. This gap between market value and realisable value is something that conventional valuation standards were never built to register. Based on recent Indian cases on the Section 53 “Waterfall Mechanism”, along with English and American insolvency litigation involving cryptoassets, this paper examines three basic assumptions of insolvency law: that property can be identified, controlled, and that it is realisable. Then it suggests some amendments to the Code and to IBBI regulations to address these issues for digital assets. It concludes by examining the challenges of treating data as an insolvency asset under the Digital Personal Data Protection Act, 2023.