The Supreme Court Benami Act ruling has clarified that insolvency tribunals such as NCLT and NCLAT cannot review or interfere with attachment orders issued under the Prohibition of Benami Property Transactions Act. The Court held that the IBC moratorium does not shield properties suspected to be benami assets. It stated that insolvency forums cannot act as appellate authorities over sovereign enforcement actions. The judgment reinforces jurisdictional boundaries between the IBC and anti benami law, and imposes costs on liquidators who challenged the attachment proceedings.
Supreme Court Benami Act Ruling: NCLT, NCLAT Cannot Review Attachment Orders, Clarifies Insolvency Law Boundaries
The Supreme Court ruled that NCLT and NCLAT cannot review attachment orders under the Benami Act, even during insolvency proceedings. It held that the IBC moratorium does not protect tainted assets and imposed ₹5 lakh costs on liquidators.
Supreme Court Benami Act ruling has drawn a decisive boundary between insolvency proceedings and sovereign anti benami enforcement, holding that NCLT and NCLAT lack jurisdiction to examine attachment orders under the Prohibition of Benami Property Transactions Act, 1988.
In a significant judgment, the Supreme Court clarified that insolvency forums created under the Insolvency and Bankruptcy Code, 2016 cannot function as appellate authorities over statutory actions taken under the Benami Act.
The ruling came in S Rajendran v. Deputy Commissioner of Income Tax (Benami Prohibition) and others, where liquidators challenged provisional attachment of properties allegedly held as benami during ongoing insolvency proceedings.
A Bench led by Justice Pamidighantam Sri Narasimha and Justice Atul S Chandurkar dismissed a batch of appeals, reinforcing that the Benami Act operates within the public law domain.
The Court categorically ruled that Section 60(5) of the IBC cannot be invoked to scrutinise the legality of attachment or confiscation proceedings initiated under the Benami Act framework.
According to the judgment, allowing NCLT to examine such attachments would elevate it into a judicial review forum over sovereign actions, a position consistently disapproved in earlier precedents.
IBC vs Benami Act: Jurisdictional Conflict and Legal Implications for Insolvency Cases
The dispute arose after authorities provisionally attached properties of two corporate debtors undergoing insolvency resolution and subsequent liquidation under the IBC regime.
Resolution professionals and later liquidators argued before NCLT that the attachments violated the moratorium under Section 14 of the Insolvency and Bankruptcy Code.
They contended that the attached assets formed part of the liquidation estate and should be available for distribution among creditors in accordance with insolvency priorities.
However, NCLT declined to entertain the plea, observing that remedies against attachment orders lay exclusively under the appellate structure provided in the Benami Act.
The National Company Law Appellate Tribunal upheld this view, stating that it cannot sit in appeal over determinations made by authorities exercising powers under a penal statute.
The matter eventually reached the Supreme Court, raising a core legal question concerning overlap between insolvency resolution and anti benami enforcement mechanisms.
The Court acknowledged that the IBC and Benami Act operate in distinct yet intersecting fields, particularly where questions of asset ownership arise during corporate insolvency.
However, it emphasised that determination of title, attachment, confiscation, and vesting of property fall squarely within the specialised statutory scheme of the Benami Act.
Proceedings under the Benami Act, the Court noted, involve sovereign statutory power aimed at extinguishing benami transactions and cannot be reduced to inter se private disputes.
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Moratorium Under IBC Not a Shield Against Sovereign Action on Tainted Assets
Rejecting reliance on the moratorium provision, the Bench clarified that Section 14 protects corporate debtors from creditor driven recovery actions, not from sovereign measures targeting unlawful property holdings.
The Court observed that insolvency proceedings cannot be used to convert property held on behalf of another into distributable assets for creditors seeking recovery.
IBC, the judgment stated, contemplates distribution of the debtor’s lawful estate and not assets impressed with trust or beneficial ownership belonging to third parties.
Once the Adjudicating Authority under the Benami Act concludes that a corporate debtor is merely a benamidar, beneficial ownership stands negated under statutory mandate.
The legality and validity of such findings, the Court stressed, must be challenged only through appellate remedies specifically provided under the Benami Act.
In strong remarks, the Bench held that the appellants attempted to circumvent the Benami statutory framework by invoking insolvency jurisdiction as an indirect challenge route.
Calling it a clear abuse of process, the Court imposed exemplary costs of five lakh rupees payable to the Supreme Court Advocates on Record Association within four weeks.
The judgment carries wide implications for insolvency professionals, lenders, and enforcement agencies dealing with disputed assets during corporate resolution or liquidation.
Legal experts believe the ruling strengthens anti benami enforcement by preventing strategic forum shopping through insolvency tribunals in high value corporate cases.
For creditors, the decision signals that not all attached assets can automatically form part of the liquidation estate if statutory findings establish benami ownership.
The verdict also reinforces judicial discipline among specialised tribunals, ensuring that insolvency mechanisms do not override sovereign penal statutes in the public law sphere.
As enforcement actions under financial and anti corruption statutes intensify, this clarification is expected to shape future litigation strategy in complex insolvency and asset attachment disputes.
The Sprouts News Special Investigation Team notes that the ruling could influence ongoing insolvency matters where disputed property titles intersect with regulatory enforcement proceedings.
By clearly demarcating statutory boundaries, the Supreme Court has reaffirmed that value maximisation under insolvency law cannot dilute or override confiscation proceedings lawfully initiated under the Benami regime.
Readers with credible information on insolvency disputes, benami property cases or regulatory misuse may confidentially contact senior investigative journalist Unmesh Gujarathi on 9322755098. Your identity will be protected in public interest.
