The Supreme Court has ruled that orders passed under the Prohibition of Benami Property Transactions Act, 1988 (Benami Act) cannot be questioned before authorities under the Insolvency and Bankruptcy Code, 2016 (IBC). The Court clarified that the National Company Law Tribunal (NCLT) lacks jurisdiction to entertain challenges to provisional attachment orders passed by authorities under the Benami Act, and the remedy for such challenges lies exclusively before the competent forum constituted under the Benami Act itself.
The Apex Court emphasised that the adjudicatory fora under the IBC must yield to the specialised mechanism created by the Benami Act for disputes pertaining to the exercise of sovereign statutory power, particularly in relation to the determination of legality of title, attachment, or confiscation of property.
A Two-Judge Bench comprising Justice Pamidighantam Sri Narasimha and Justice Atul S. Chandurkar observed that both the Benami Act and the IBC are special legislations operating in distinct fields. The Benami Act is a complete and self-contained code for the identification, attachment, adjudication, and confiscation of benami property, with a distinct adjudicatory and appellate hierarchy. On the other hand, the IBC is an exhaustive code governing insolvency resolution and liquidation of corporate persons.
The Bench explained that the jurisdiction of authorities under the IBC cannot be expansively construed to trench upon fields founded in the public law domain, as proceedings under the Benami Act are a sovereign exercise aimed at identifying and extinguishing benami transactions and fall squarely within the public law domain. Hence, permitting the NCLT to examine the correctness of an attachment under the Benami Act via Section 60(5) of the IBC would elevate it to a forum for judicial review over sovereign action, which is impermissible.
Section 36 of the IBC specifies that the liquidation estate comprises only assets beneficially owned by the corporate debtor, whereas, the property held benami is, by definition, held in a fiduciary capacity for the real owner and is excluded from the liquidation estate under Section 36(4)(a)(i), added the Bench, while pointing out that once the Adjudicating Authority under the Benami Act concludes that the corporate debtor is a benamidar, the beneficial ownership is negated, and such property cannot be administered in liquidation.
The Bench went on to observe that the moratorium under Section 14 of the IBC is intended to preserve the debtor’s estate from creditor actions aimed at debt recovery. It does not interdict sovereign proceedings in rem for attachment or confiscation under penal statutes like the Benami Act, which are distinct from creditor enforcement actions.
The Bench also explained that the immunity provided under Section 32A of the IBC is event-based and is triggered only upon the approval of a resolution plan or the completion of a liquidation sale. This provision does not retrospectively validate a defective title or convert benami property into the assets of the corporate debtor.
Lastly, the Bench concluded that in the event of a conflict between two special acts, the dominant purpose of both statutes must be analysed to ascertain which should prevail, and the primary effort must be to harmonise the statutes. The IBC, which deals with insolvency, cannot be used to dilute or override statutory proceedings undertaken in the public law sphere for the confiscation of tainted property under the Benami Act.
Briefly, the case pertains to an investigation by authorities under the Prohibition of Benami Property Transactions Act, 1988, which revealed that the promoters of the corporate debtor, M/s Padmaadevi Sugars Ltd., had transferred their 100% shareholding to a beneficial owner, V.K. Sasikala, through an intermediary for a consideration of approximately Rs. 450 Crores, paid in demonetised currency. Incriminating documents were found during a search and seizure operation, and the intermediary admitted under oath to have authored notes at the dictation of V.K. Sasikala for purchasing the properties with demonetised currency. A representative of the corporate debtor’s management also provided a sworn statement admitting to the sale and the receipt of the entire consideration in demonetised currency.
Based on this evidence, the authorities under the Benami Act issued a show cause notice characterizing the corporate debtor as the ‘benamidar’ and the transaction as a ‘benami transaction’. This was followed by a provisional attachment order on the same date under Section 24(3) of the Benami Act, attaching the immovable properties of the corporate debtor. In the interim, the corporate debtor was subjected to Corporate Insolvency Resolution Proceedings (CIRP) under the Insolvency and Bankruptcy Code, 2016. After the failure of the resolution process, a liquidation order was passed.
Thereafter, the liquidator filed an application before the National Company Law Tribunal (NCLT) seeking a stay on the attachment order, arguing that the attached properties were part of the liquidation estate. The NCLT dismissed this application, holding that it lacked jurisdiction and that the challenge to the attachment order must be made before the statutory authorities under the Benami Act. The National Company Law Appellate Tribunal (NCLAT) also upheld this decision, leading to the appeals before the Supreme Court.
Appearances:
Senior Advocates Sajan Poovayya, Rajiv Shakdher, Shrinithi, and Krishnan Venugopal, AORs Sujoy Chatterjee, Shivendra Singh, and Anand Dilip Landge, along with Advocates Bharadwajaramasubramaniam R., Diwaagar R.S. Priyadarshi Banerjee, Rishabh Singhle, Leelavathi P., Gokulnath S., Vibha Shyam, Raksha Agrawal, Harshvardhan Sharma, B. Dhanaraj, G.ananda Selvam, Habib Muzaffar, Karan Khetani, Jonathan Ivan Rajan, Sangamithra Loganathan, Krishnan Agarwal, Elamathi M.S, Harnoor Singh, Labeeb Faaeq, Nandini Kaushik, Siddharth Venugopal, Umang Motiyani, Prakriti Rastogi, and Aryama Singh Rajput, for the Appellants
ASG S. Dwarakanath, Senior Advocates P B Suresh and Krishnan Venugopal, AORs Madhulika Upadhyay, Raj Bahadur Yadav, Balaji Srinivasan, Shivendra Singh, P. S. Sudheer, and Aanchal Tikmani, along with Advocates Rajat Nair, Zoheb Hussain, Gargi Khanna, Sachin Sharma, Shashank Bajpai, Rajat Vaishnaw, Prabhakar Yadav, H. Siddharth Bhandari, Mudit Bansal, S. Vijay Adithya, Abhyudey Kabra, K Gowtham Kumar, Vishwaditya Sharma, Deeksha Gupta, Harsha Tripathi, Kanishka Singh, Subornadeep Bhattacharjee, K Shiva, Rohan Dewan, Aakriti Priya, Udayaditya Banerjee, Suganya T.S, Parikshit Pitale, Krishnan Agarwal, Elamathi M.S, Harnoor Singh, Labeeb Faaeq, Nandini Kaushik, Siddharth Venugopal, Umang Motiyani, Prakriti Rastogi, and Aryama Singh Rajput, for the Respondents
