Locus Standi in Flux? A Critical Perspective Post INSCO Judgement

CCL NLUO
2 hours ago
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Authors: Ananyashree Jaiswal & Rashi Kumari

Fourth year law students at Gujarat National Law University, Gandhinagar and National University of Study and Research in Law, Ranchi

I. Introduction

In Independent Sugar Corporation v. Girish Sriram Juneja (“INSCO”), the Supreme Court (“SC”) deviated from the settled precedent under the Insolvency and Bankruptcy Code, 2016 (“IBC”) by holding that an Unsuccessful Resolution Applicant (“URA”) qualifies as a “person aggrieved” under Section 61 of IBC. While the Court intended to foster access to justice, the implications of this ruling are far-reaching. By drawing a parallel with the broader, public-interest interpretation of the same phrase under Section 53B of the Competition Act, 2002, the judgment raises concerns for the commercial integrity of the Corporate Insolvency Resolution Process (“CIRP”).

Expansion of the class of challengers could impact bidding incentives, reduce participation in resolution processes, and elevate the cost and uncertainty of distressed asset transactions. This goes against IBC’s objective: timely, efficient, and creditor-driven resolution.

This article reflects on the consequences of transplanting a competition law standard into the IBC without fully accounting for the distinct purposes and structures of the two statutes. The authors argue that the INSCO judgment blurs necessary boundaries and invites interpretive uncertainty. The article aims to advance the discussion about maintaining procedural discipline within the IBC and makes recommendations for reorienting future interpretations.

II. Rethinking Locus Standi: The ‘Person Aggrieved’ Question

The term “person aggrieved” is at the core of appellate access in insolvency cases. Although undefined in IBC, it has vital legal significance because it determines who may challenge decisions of the Adjudicating Authority under Section 61 and thus influences who participates in shaping or contesting the outcome of a CIRP. Other laws, like the Competition Act, interpret it differently based on their respective statutory objectives. Section 53B of the Competition Act allows any “person aggrieved” to file an appeal against an order of the Competition Commission of India (“CCI”). However, the said term does not find a definition in the statute itself. Thus, this section analyses the judicial interpretation of the term through landmark cases and its evolution over time.

The phrase “person aggrieved” under Section 53B of the Competition Act has historically been approached through evolving judicial interpretation, given the absence of a statutory definition. Initially, in Jitender Bhargava v. CCI and Ors, the Competition Appellate Tribunal (“COMPAT”) adopted a narrow view, limiting standing to those directly impacted. However, this approach was significantly broadened in Samir Aggarwal v. Union of India[RK1] , where the SC held that the term “person aggrieved” must be interpreted expansively in light of the Competition Act’s objective to prevent practices that cause an Appreciable Adverse Effect on Competition (“AAEC”). The Court reasoned that since the CCI functions in an inquisitorial and preventive capacity, standing need not be limited to direct participants. This line of reasoning was reaffirmed in UP Glass Manufacturers Syndicate v. CCI, where the NCLAT upheld a liberal interpretation of the term in alignment with the Act’s intent.

It is this broad interpretative approach to “person aggrieved” that the SC drew upon in INSCO, applying it to the IBC framework without substantively engaging with the Code’s distinct objectives or the narrower interpretation previously adopted by insolvency tribunals.

III. The IBC Perspective: Restricted Grounds

The IBC was enacted to ensure the time-bound resolution of corporate distress, maximisation of asset value, and balancing of stakeholder interests. To achieve this, the Code prescribes a structured and creditor-driven resolution process that culminates in the approval of a resolution plan by the Committee of Creditors (“CoC”). Once approved, Section 61(3)[RK1] of the IBC restricts the grounds on which such plans may be challenged before NCLAT.

While the Code limits the scope of challenges, it does not entirely prohibit appeals; rather, it allows them within certain legal bounds. Nonetheless, there has been continuous legal debate over who has the right to exercise this privilege, in particular, the locus standi of URAs. The NCLTs and NCLAT have held that applicants who don’t belong to the group of individuals directly affected by the approval of a resolution plan under Section 61 are not entitled to a hearing following the denial of their proposal.

In Lal Behari Singh v. Carnation Industries Limited, NCLT Kolkata ruled that a URA has no vested right to challenge the Resolution Plan. The tribunal reasoned that once a Resolution Applicant fails to succeed in the bid, it does not have the locus to question the acts of the CoC. NCLT Kolkata in SREI Equipment Finance Limited v. Varutha Developers Private Limited 2024 ruled that the applicant whose bid fails to succeed in the bidding process cannot challenge the Resolution Plan that has been approved by CoC by 100% voting shares. NCLAT Delhi in IMR Metallurgical Resources AG v. Ferro Alloys Corporation Ltd[RK2] ruled that the Resolution Applicant has no vested right that his resolution plan must be accepted. The commercial wisdom of CoC overrides these claims, and it has the absolute right to decide on the viability of the Resolution Plan. Similarly, NCLAT Chennai took a similar view in M K Rajagopalan v. S. Rajendran Resolution Professional, [RK3] where the tribunal categorically noted that a URA is not an ‘Aggrieved Person’ within the ambit of Section 61(1) of IBC [RK4] .

IV. An Interpretational Deadlock: Insco Judgment

Under the Competition Act, redressal is available to a broad spectrum of stakeholders, given the inclusive interpretation of the term “person aggrieved.” Whereas, by adopting a more restrictive approach, allowing only those who are directly affected to challenge the resolution plan that the CoC has approved, the IBC purposefully excludes URAs from its jurisdiction.

NCLTs and NCLAT have held that URAs lack locus standi, but SC diverged from this precedent by interpreting ‘person aggrieved’ in parallel with the Competition Act. The Court subsequently concluded in para 26 that “the term ‘any person aggrieved’ appearing in Section 53T of the Competition Act and Section 62 of the IBC must be understood widely and not in a restricted fashion.”

This case presented a golden opportunity before the SC to articulate a settled position on the scope of “persons aggrieved” under the IBC. Instead, by relying heavily on the Competition Act alone and not delving into precedential and provisional aspects of IBC, the judgment may have inadvertently muddied the waters. While the intention may have been to promote access to justice, the judgment falls short of reconciling the fundamentally different objectives of the two statutes. (emphasis supplied). In the pre-IBC era, excessive delays in insolvency processes often led to poor recoveries for creditors, which the IBC was intended to prevent. Particularly warning against a process where delay leads to destruction of value, the Bankruptcy Law Reforms Committee (“BLRC”) recommended a regulated resolution process with little judicial interference following business decisions made by the CoC.

By recognising a URA as a “person aggrieved” under Section 61, the SC has enhanced the possibility of repetitive challenges to the resolution plan that could significantly derail CIRP timelines. Such delays, in practice, can lead to eroding asset values, investor attrition, and overall uncertainty for financial creditors. Operational creditors, in particular, stand to lose the most, as delayed resolutions prolong payment cycles, often pushing them into financial distress themselves. Delay in CIRP is calamitous to the very idea of revival.

The INSCO precedent, if relied upon, could reintroduce inefficiencies and reopen settled processes, contrary to the IBC's design to eliminate them. This concern has already begun to materialise, as seen in Subh Laxmi Advisory Pvt. Ltd. v. CoC of Sintex Plastics Technology Ltd., where a URA relied on INSCO to claim standing under Section 61.

V. Conclusion And Way Forward: Towards Defining “Person Aggrieved” Within The IBC

In the INSCO decision, the Court arguably went beyond the intended boundaries of the IBC when defining locus. While both the IBC and the Competition Act serve a vital purpose, they must co-exist in a coherent regulatory framework. The brief discussion on the term persons aggrieved under the Competition Act and the resultant widening of the term in the IBC has perpetuated uncertainty.

There needs to be greater clarity on the term “Persons Aggrieved” under IBC. This clarity can only be best brought out by the legislature itself. This can be done in three ways: first, by introducing a statutory definition of “persons aggrieved” under Section 61; second, by releasing a schedule that incorporates categories of persons who presumably qualify as aggrieved persons, such as operational creditors, financial creditors and successful resolution applicants and third, by enabling the SC to formulate guidelines on cases wherein public interest is deemed to justify a wider interpretation of “persons aggrieved”, thereby limiting the gigantic scope and preventing frivolous litigation and balancing the credibility and functionality of the IBC’s insolvency framework.

Judicial and legislative clarity of “person aggrieved” is essential for a robust economy. The legislature and judicial forums must step forward to provide a better and well-defined interpretation of the term. Until then, the term “person aggrieved” will remain a conundrum stretched between two distinct statutes without a definitive home, caught between two divergent statutory philosophies, thereby threatening the certainty that the IBC was designed to deliver.