Supreme Court clarifies standing of unsecured creditors in insolvency proceedings under IBC

The Supreme Court dismissed an application seeking clarification of a judgment regarding insolvency proceedings under the Insolvency and Bankruptcy Code. The Court ruled that the applicant, an unsecured financial creditor, lacked standing in the matter and could not challenge the previous judgment indirectly. It clarified that Section 66 of the IBC does not hold other entities liable, and civil remedies against third parties are separate. The Court affirmed that recovery actions against third parties are available under the law but are distinct from Section 66 remedies.

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Issues involved: Application seeking clarification of judgment and order dated 24.02.2023 passed by the Supreme Court regarding the dismissal of a Special Leave Petition (Criminal) challenging an interim order in insolvency proceedings under the Insolvency and Bankruptcy Code, 2016.

Summary:
The applicant, an unsecured financial creditor of a company facing insolvency proceedings, filed a Special Leave Petition challenging an interim order. The Supreme Court dismissed the petition stating the applicant had no locus in the matter as he was not directly involved in the proceedings. The applicant sought clarification to pursue recovery proceedings against those responsible for fraudulent affairs. However, the Court found the attempt to indirectly challenge a previous judgment to be impermissible.

The Court noted that a High Court decision correctly relied on a Supreme Court precedent regarding personal liability under Section 66 of the IBC. It was clarified that Section 66 does not extend to holding other organizations or legal entities liable, and civil remedies against third parties are separate from Section 66. The Resolution Professional or successful resolution applicant can pursue civil remedies for recovery, but such actions are not covered under Section 66 of the IBC.

In conclusion, the Court found the application for clarification to be misconceived and dismissed it, affirming that civil remedies against third parties for recovery are available under the law but are independent of Section 66 of the IBC.

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