Section 66 of IBC cannot be used to recover dues from 3rd parties: Supreme Court
The Supreme Court in a recent order has said that the remedy against third parties for recovery of dues payable to the corporate debtor is not available under Section 66 of the Insolvency and Bankruptcy Code, 2016 (IBC).
The remedy is available in law, but it is independent of Section 66 of the IBC.
Dismissing the application for clarification filed by Gluckrich Capital Pvt. Ltd, an unsecured financial creditor of Leading Hotels limited, the Court held that the applicant cannot use Section 66 of the IBC to recover dues from third parties. The applicant will need to pursue other legal remedies to recover the dues.
The Court held that the applicant does not have locus standi to file the application, and that the judgment of the Tripura High Court in the case of Smt. Sudipa Nath Vs. Union of India is correct.
Here are some of the key points from the order:
- The applicant does not have locus standi to file the application.
- The judgment of the Tripura High Court is correct.
- The remedy against third parties for recovery of dues payable to the corporate debtor is not available under Section 66 of the IBC.
- The remedy is available in law, but it is independent of Section 66 of the IBC.
Brief of the case
Gluckrich Capital Pvt. Ltd, an unsecured financial creditor of Leading Hotels limited (LHL), which is facing insolvency proceedings under the Insolvency and Bankruptcy Code, 2016, approached the Supreme Court by filing the captioned Special Leave Petition (Criminal) Diary No. 6732 of 2023, challenging an interim order dated 30 November 2022 passed by Delhi High Court in Criminal M.C. No. 6408 of 2022 extending the transit anticipatory bail granted to suspended directors of LHL.
The Supreme Court had in an order dated 24 February 2023 had dismissed the applicant’s (petitioner in the Special Leave Petition (Criminal) Diary No. 6732 of 2023) had no locus in the matter, as he was neither the informant nor a party to the proceedings, pending before the High Court and is totally unconnected with the first Information Report lodged by the financial creditors who were also the members of the committee of creditors.
The applicant again approached the Supreme Court by means of the instant application seeking clarification of the SC’s 24 February order.
Gluckrich Capital submitted that the 24 February judgment dismissing the Special Leave Petition (Criminal) Diary No. 6732 of 2023 may be clarified to the effect that it should not come in the way of the applicant herein, persuading the resolution professional to consider initiation of proceedings for recovery under Section 66 of IBC against the persons who, prima facie, appear to be primarily responsible for the fraudulent affairs of the corporate debtors, and also other persons and organizations with whom any business was carried out by the corporate debtor, fraudulently and illegally with mala fide intention.
The court, however, in harshly words made the observation that in the name of seeking a clarification, the endeavor of the applicant is to indirectly get over with the judgment and order dated 18 January 2023 in Sudipa Nath Vs. Union of India & Ors passed by Tripura High Court. Such an endeavor, in the guise of a clarification, cannot be permitted.
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