In a key ruling on the jurisdictional limits between the Insolvency and Bankruptcy Code, 2016 (IBC) and the Prohibition of Benami Property Transactions Act, 1988, the Supreme Court held that the National Company Law Tribunal (NCLT) does not have the power to examine or set aside provisional attachment orders passed by authorities under the Benami Act.
A Bench comprising Justice P.S. Narasimha and Justice Atul S. Chandurkar dismissed a batch of appeals filed by liquidators who had approached the NCLT to challenge Benami attachment proceedings. The Court described the move as a “complete abuse of the process” and imposed costs of ₹5 lakh per appeal, totalling ₹20 lakh.
Core Issue
The central question before the Court was whether the legality of attachment orders under the Benami Act could be challenged before insolvency forums (NCLT/NCLAT) by invoking the jurisdiction under the IBC.
Supreme Court’s Findings
- No Jurisdiction of NCLT/NCLAT
The Court held that insolvency tribunals cannot act as judicial review bodies over orders passed under another statute, particularly a penal law like the Benami Act. - Benami Act Is a Complete Code
The Benami law provides its own adjudication and appellate mechanism, and any challenge to attachment must be pursued within that statutory framework, not through IBC proceedings. - IBC Cannot Override Sovereign Confiscation
Proceedings under the IBC are meant for resolution and liquidation of lawfully owned assets. They cannot be used to nullify confiscatory actions taken by the State against tainted property. - Benami Property Not Part of Liquidation Estate
Property held benami does not belong beneficially to the corporate debtor and therefore does not form part of the liquidation estate under Section 36 of the IBC. - Moratorium Not a Shield Against Penal Action
The IBC moratorium protects the debtor from creditor recovery actions, not from sovereign proceedings aimed at confiscation of illegal assets. - Reliance on Embassy Property Principle
The Court reiterated that NCLT cannot exercise judicial review over administrative or quasi-judicial actions taken under other statutes.
Background of the Case
The matter arose from Benami investigations into corporate entities where authorities provisionally attached immovable properties. During liquidation, liquidators sought to treat those assets as part of the liquidation estate and challenged the attachment before the NCLT. Both the NCLT and NCLAT declined jurisdiction, after which the liquidators approached the Supreme Court.
Abuse of Process and Costs
The Supreme Court found that the liquidators’ attempt to invoke IBC forums was not bona fide and was intended to bypass the procedure under the Benami Act. Consequently, all appeals were dismissed with exemplary costs of ₹5 lakh each, payable to the Supreme Court Advocates-on-Record Association within four weeks.
Key Takeaways
- Benami attachment orders cannot be challenged before NCLT/NCLAT
- The Benami Act operates through an exclusive statutory mechanism
- IBC proceedings do not override sovereign confiscation
- Benami assets are excluded from the liquidation estate
- Misuse of IBC forums can attract exemplary costs
Case Title: S. Rajendran v. The Deputy Commissioner of Income Tax (Benami Prohibition) & Ors.
Case Number: Civil Appeal No. 7140 of 2022 (with connected appeals)
