The Supreme Court on Monday upheld an NCLAT ruling that a provisional attachment under the Prohibition of Benami Property Transactions Act, 1988 can be challenged only before the authorities constituted under that law. Parties cannot assail such attachment before the NCLT under the Insolvency and Bankruptcy Code, 2016 (IBC).
A Bench of Justice P.S. Narasimha and Justice Atul Chandurkar dismissed the appeal against the NCLAT judgment, which had upheld the provisional attachment of certain properties of a corporate debtor while corporate insolvency resolution proceedings (CIRP) were underway.
“We have upheld the findings of NCLT and NCLAT,” Justice Narasimha said.
Background: Insolvency Proceedings and Benami Attachment
The dispute arose from insolvency proceedings against Padmaadevi Sugars Ltd and parallel attachment proceedings under the Benami Act.
On November 1, 2019, the Deputy Commissioner of Income Tax (Benami Prohibition) issued a provisional attachment order under Section 24(1) of the Benami Act, attaching certain immovable properties of the corporate debtor. The Competent Authority later confirmed the attachment on November 10, 2021 under Section 24(3) of the Act.
At the time, CIRP was pending under the IBC and a moratorium under Section 14 was in force. Section 14 bars the institution or continuation of suits and proceedings against the corporate debtor and restricts actions against its assets during the resolution process.
Proceedings Before NCLT and NCLAT
The Resolution Professional, and later the Liquidator after the company entered liquidation on April 20, 2021, approached the NCLT and sought removal of the attachment.
The NCLT declined to interfere with the provisional attachment. The Liquidator then challenged the NCLT orders before the NCLAT.
The core questions included:
- whether the Benami Act attachment could continue despite the Section 14 moratorium; and
- whether Section 238 of the IBC would override the Benami Act.
What the Parties Argued
Liquidator’s submissions
The Liquidator argued that the attachment violated Sections 14 and 33(5) of the IBC. The Liquidator also contended that the attachment was illegal during the insolvency process.
Tax authority’s submissions
The Deputy Commissioner of Income Tax submitted that Section 14 does not bar proceedings under the Benami Act. The authority also argued that parties must challenge Benami attachments only within the statutory framework provided under the Benami Act. According to the department, the Liquidator could not invoke Section 60(5) or Section 32A of the IBC to bring the dispute before the NCLT/NCLAT.
NCLAT’s View: Benami Act Is a Self-Contained Code
The NCLAT dismissed the appeal. It held that the Benami Act operates as a self-contained code and provides its own hierarchy of forums and remedies. Therefore, a party must challenge a provisional attachment only before the authorities set up under the Benami Act.
The tribunal also held that the Liquidator could not use Sections 32A or 60(5) of the IBC to bypass the statutory mechanism under the Benami law. It noted that the Competent Authority had already confirmed the provisional attachment. As a result, the aggrieved party had to follow the procedure prescribed under the Benami Act.
The NCLAT concluded that the applications filed before the NCLT were not maintainable and upheld the orders of the Adjudicating Authority.
Case Details
Case Title: S. Rajendran v. Deputy Commissioner of Income Tax (Benami Prohibition)
