Attachment Order Under Benami Act Cannot Be Challenged Before NCLT Under IBC: Supreme Court

The Court emphasised that the IBC does not provide an indirect route to challenge sovereign acts validly undertaken under a penal statute, and the National Company Law Tribunal cannot sit in judicial review over sovereign administrative or quasi-judicial actions initiated under public law statutes for the confiscation of tainted property.

Finding the invocation of IBC jurisdiction to be an abuse of process, the Court imposed exemplary costs of Rs. 5 lakhs per appeal, to be deposited with the Supreme Court Advocates on Record Association (SCAORA) within four weeks.

Justice P. S. Narasimha and Justice Atul S. Chandurkar while affirming Embassy Property Developments (P) Ltd. v. State of Karnataka (2020) 13 SCC 308 observed, “…The NCLT cannot, in exercise of insolvency jurisdiction, disregard or nullify a statutory vesting effected under another enactment. The IBC does not provide an indirect route to challenge sovereign acts validly undertaken under a penal statute”.

“…permitting the NCLT to examine the correctness of attachment or adjudication under the Benami Act by invoking Section 60(5) of the IBC would amount to elevating it to the status of a judicial review forum over sovereign action, a course expressly disapproved in the line of authority commencing from Embassy Property (supra) and consistently reiterated thereafter. The IBC, concerned as it is with insolvency resolution and value maximisation of lawfully owned assets, cannot be employed as a mechanism to dilute or override statutory proceedings undertaken in the public law sphere for confiscation of tainted property”.

Senior Advocates Krishnan Venugopal, Sajan Poovayya, and Rajiv Shakdher appeared for the appellants, S. Dwarakanath, ASG, Senior Advocates P B Suresh, Krishnan Venugopal appeared for the respondents.

The pertinent matter originated from investigations into M/s Padmaadevi Sugars Ltd. and M/s Senthil Papers and Board Pvt. Ltd. regarding alleged benami transactions. Authorities under the Benami Act discovered that the promoters (the "Patel Group") had transferred 100% shareholding to beneficial owner V.K. Sasikala through an intermediary for approximately Rs. 450 Crores in demonetised currency.

Consequently, the Initiating Officer issued provisional attachment orders against the immovable properties of the corporate debtors. Simultaneously, the companies entered liquidation under the IBC, prompting the liquidators to challenge the Benami attachments before the NCLT, arguing that the assets formed part of the liquidation estate and were protected by the Section 14 moratorium.

Procedurally, the NCLT and later the NCLAT declined to interfere, holding that they lacked the jurisdiction to adjudicate Benami Law matters. The liquidators appealed to the Supreme Court, contending that the IBC’s non-obstante clause under Section 238 should give it primacy over the Benami Act to ensure the maximization of asset value for creditors.

However, the Division Bench held that the Benami Act is a self-contained code with its own adjudicatory and appellate machinery. The Court noted that Section 36 of the IBC excludes assets held in a fiduciary capacity from the liquidation estate; since a benamidar lacks beneficial interest, such property cannot be distributed to creditors.

“…the Benami Act and the IBC, are special legislations operating within distinct yet potentially intersecting fields. The Benami Act is concerned with identifying and extinguishing benami holdings through a confiscatory mechanism, while the IBC is directed at resolution and liquidation of assets belonging to a corporate debtor within a time-bound framework”, the Bench noted in the judgment.

Furthermore, the Court clarified that the Section 14 moratorium is designed to shield debtors from "creditor actions" for debt recovery, not from "sovereign actions" against crime or the attachment of tainted assets. The Court found that the NCLT cannot be elevated to a forum for judicial review over sovereign acts validly undertaken under penal statutes.

Accordingly, the Court dismissed all appeals, characterising the litigation as an attempt to circumvent the procedures of the Benami Act.

“…we are of the opinion that the appellants could not have challenged the attachment order passed under the Benami Act before the statutory authorities under the IBC. We have no doubt in our mind that such invocation is not bonafide and is actually intended to circumvent and interdict the procedures contemplated under the Benami Act. Further, filing of appeal before NCLAT, despite the finding that the appropriate forum is not NCLT, but the statutory authorities under the Benami Act, leaves no doubt that it is a complete abuse of the process. The appellants have taken the precious time of the NCLT, NCLAT and also of this Court when the position of law is amply clear and there was no doubt whatsoever about the availability of the statutory remedies under the Benami Act”, the Bench observed.

Cause Title: S. Rajendran v. The Deputy Commissioner of Income Tax (Benami Prohibition) & Ors [Neutral Citation: 2026 INSC 187]

Appearances:

Appellant: Krishnan Venugopal, Sajan Poovayya, and Rajiv Shakdher, Senior Advocates, Bharadwajaramasubramaniam R., Diwaagar R.s., Priyadarshi Banerjee, Rishabh Singhle, Leelavathi P., Shrinithi S.r., Gokulnath S., Vibha Shyam, Raksha Agrawal, Harshvardhan Sharma, Sujoy Chatterjee, AOR, B.dhanaraj, G.ananda Selvam, Habib Muzaffar, Karan Khetani, Jonathan Ivan Rajan, Sangamithra Loganathan, Anand Dilip Landge, AOR, Krishnan Agarwal, Elamathi M.s., Harnoor Singh, Shivendra Singh, AOR, Labeeb Faaeq, Nandini Kaushik, Siddharth Venugopal, Umang Motiyani, Prakriti Rastogi, Aryama Singh Rajput, Advocates.

Respondent: S. Dwarakanath, ASG, Rajat Nair, Zoheb Hussain, Gargi Khanna, Sachin Sharma, Madhulika Upadhyay, Shashank Bajpai, Raj Bahadur Yadav, AOR, Rajat Vaishnaw, Prabhakar Yadav, H. Siddharth Bhandari, Mudit Bansal, S. Vijay Adithya, Abhyudey Kabra, Madhulika Upadhyay, AOR, P B Suresh, Sr. Adv., Balaji Srinivasan, AOR, 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 Venugopal, Sr. Adv., Krishnan Agarwal, Elamathi M.S., Harnoor Singh, Shivendra Singh, AOR, Labeeb Faaeq, Nandini Kaushik, Siddharth Venugopal, Umang Motiyani, Prakriti Rastogi, Aryama Singh Rajput, P. S. Sudheer, AOR, Aanchal Tikmani, AOR, Advocates.

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