There should not be any stigma attached to genuine business failure and companies should be provided honourable exit, Ravi Mittal, chairperson of the Insolvency and Bankruptcy Board of India (IBBI), said on Friday. He further said that insolvency is still in its nascent stage in India and steps need to be taken to make the bankruptcy framework more effective.

Speaking at an event organised by the Insolvency and Bankruptcy Board of India (IBBI) as part of the Azadi ka Amrit Mahotsav, Mittal said in case a company fails for any reason, including extraneous factors, then it should be allowed to exit. There should not be any stigma attached to failure and in fact, it should be allowed to start again.

"If a company fails for any reason then it should be allowed to exit. This is when the IBC or IBC like resolution comes into force. In any developing economy, we want the private sector to invest and if the private sector will invest, the private sector will have to take the risk and if it takes a risk then some failures are bound to happen.

"This failure could be due to mismanagement, internal factors or could be external because of environmental factors. In such cases, there should not be any stigma attached to failure," he noted. He also highlighted the difficulties faced by Insolvency Resolution Professionals like not getting timely and adequate remuneration.

IBBI is a key institution in implementing the Insolvency and Bankruptcy Code (IBC), which came into force in 2016. The IBC code offers a market-directed and time-bound mechanism for resolution of insolvency, wherever possible, or exit, wherever required, and thereby ensures the ultimate freedom, the freedom to exit, facilitating ease of doing business.

Genuine reasons to fail

Corporate Affairs Secretary Rajesh Verma said that businesses failed due to genuine reasons, so there is a need to provide an honourable exit and this ultimate freedom was provided by the enactment of IBC in 2016. He further said that an effective bankruptcy framework is an important pillar for an entrepreneurial economy like India.

According to him, markets need freedom broadly at three stages of a business — to start a business (free entry), to continue the business (free competition) and to discontinue the business (free exit).

Competition Commission of India (CCI) chief Ashok Kumar Gupta also stressed the importance of entrepreneurship liberty. Apart from this, Gupta spoke about the challenges for lawmakers due to shifts in markets on the emergence of digital or e-commerce players.

The tectonic shift in markets is posing challenges for lawmakers and enforcers as to how to address the consequent bargaining power imbalance and information asymmetry between platforms and their business users, he said.

‘Need for clean and dignified exits’

Ashok Bhushan, National Company Law Appellate Tribunal (NCLAT) chief, also emphasised the need for clean and dignified exits for honest business failures. He also said that the average time taken for the resolution of cases under the insolvency law has been drastically reduced compared to the previous regime when the process took around four years.

Among others, a publication titled, "Anusandhaan: Exploring New Perspectives on Insolvency", containing 26 research papers that emerged from an international research conference organised by the IBBI and IIM Ahmedabad recently was also released during the session.