Benami Act Attachment During CIRP Can't Be Challenged Before NCLT/NCLAT : Supreme Court

The Supreme Court today upheld an NCLAT judgment that held that attachment under the Prohibition of Benami Property Transactions Act, 1988 (Benami Act) can be challenged only before authorities provided under that Act and not before the NCLT under the Insolvency and Bankruptcy Code, 2016.A bench of Justice PS Narasimha and Justice Atul Chandurkar dismissed an appeal against NCLAT judgment which had upheld provisional attachment of certain properties of a company during pendency of corporate insolvency resolution proceedings against it.“We have upheld the findings of NCLT and NCLAT”, Justice Narasimha said.Regarding applicability of the moratorium, the Court upheld the distinction drawn by NCLT and NCLAT between actions initiated by creditors for the recovery of dues and sovereign actions initiated by the State for the confiscation of tainted property. The Court observed that the Benami Act is a complete and self-contained code governing identification, provisional attachment, adjudication and confiscation of benami property, and the IBC does not empower the NCLT to reopen findings rendered under the Act."Benami Act is a complete and self-contained code governing identification, provisional attachment, adjudication and confiscation of benami property, supported by a distinct appellate hierarchy. Exclusive jurisdiction over such determinations is conferred upon authorities constituted under the Benami Act. The IBC neither displaces this statutory mechanism nor empowers the NCLT to reopen findings rendered thereunder."BackgroundThe case before the Supreme Court arose from insolvency proceedings against Padmaadevi Sugars Ltd and a parallel attachment of its properties under the Benami Act.The corporate debtor, known as the Patel Group, allegedly transferred 100% shareholding to V.K. Sasikala through an intermediary for about ₹450 crore paid in demonetised currency.On November 1, 2019, the Deputy Commissioner of Income Tax (Benami Prohibition) passed a provisional attachment order under Section 24(1) of the 1988 Act attaching certain immovable properties of the corporate debtor. The attachment was later affirmed on November 10, 2021 by the Competent Authority under Section 24(3) of the Act .At the time of the attachment, corporate insolvency resolution proceedings were pending against the company under the IBC. A moratorium under Section 14 of the IBC was in force. Section 14 of the IBC bars institution or continuation of suits and proceedings against the corporate debtor and prohibits action against its assets during the resolution process. The Resolution Professional, and later the Liquidator after the company was ordered into liquidation on April 20, 2021, moved the National Company Law Tribunal seeking lifting of the attachment.The NCLT refused to interfere with the provisional attachment. The liquidator challenged NCLT orders before the National Company Law Appellate Tribunal. The central issue was whether attachment of the corporate debtor's immovable properties under the Benami Act could continue when a moratorium under Section 14 of the IBC was in force, and whether the IBC, by virtue of Section 238, would override the Benami Act.The liquidator argued that the attachment was illegal as it violated Sections 14 and 33(5) of the IBC.The Deputy Commissioner of Income Tax submitted that Section 14 of the IBC did not bar proceedings under the Benami Act. It was argued that attachment under the Benami Act could be challenged only within the statutory framework of that Act, and not before the NCLT or NCLAT by invoking Section 60(5) or Section 32A of the IBC.The NCLAT dismissed the appeal. It held that the Benami Act is a self-contained code and that attachment under it can be challenged only before the authorities provided under that Act.It observed that the liquidator could not invoke Sections 32A or 60(5) of the IBC to bypass the statutory hierarchy under the Benami Act. The tribunal also noted that the provisional attachment had already been affirmed by the Competent Authority and that the aggrieved party was required to follow the procedural framework under the Benami Act.The tribunal concluded that the applications filed before the NCLT were not maintainable in law and upheld the orders of the Adjudicating Authority.Supreme Court VerdictThe Court noted that while IBC is a special legislation, so is the Benami Act. The Act is aimed at prohibiting and penalising benami transactions. Therefore, the dominant purpose and object of both the enactments had to be seen to determine the issue involved in the case. The Court held that proceedings under Banami Act fall under the public law domain, and therefore, IBC must yield to it. "the jurisdiction of authorities under IBC cannot be expansively construed so as to trench upon fields that are founded in public law domain. Where the subject matter of the dispute pertains to the exercise of sovereign statutory power, particularly in relation to determination of legality ...

Benami Act Attachment During CIRP Can't Be Challenged Before NCLT/NCLAT : Supreme Court

Amisha Shrivastava

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