In a significant ruling on the intersection of insolvency law and anti-benami legislation, the Supreme Court has held that orders passed under the Prohibition of Benami Property Transactions Act cannot be challenged before tribunals constituted under the Insolvency and Bankruptcy Code (IBC).
Dismissing a batch of appeals led by S. Rajendran v. Deputy Commissioner of Income Tax (Benami Prohibition), the Court made it clear that the National Company Law Tribunal (NCLT) has no jurisdiction to examine the validity of attachment orders passed under the Benami Act.
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The bench imposed costs of ₹5 lakh in each appeal, calling the move to approach insolvency forums an abuse of process.
Background of the Case
The dispute arose from proceedings against M/s Padmaadevi Sugars Ltd., formerly S.V. Sugar Mills Ltd., and connected entities.
Authorities under the Benami Act initiated action after investigations revealed that the company’s promoters allegedly transferred 100% shareholding to a beneficial owner through an intermediary, using demonetised currency worth approximately ₹450 crore during the 2016 demonetisation period.
A provisional attachment order was issued under Section 24 of the Benami Act in November 2019, attaching the company’s immovable properties, including factory land and plant machinery.
Meanwhile, insolvency proceedings had already commenced against the corporate debtor under the IBC. The company eventually went into liquidation. The liquidator then approached the NCLT seeking a stay of the attachment order, arguing that the attached properties formed part of the liquidation estate.
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The NCLT refused to entertain the challenge, holding that the appropriate remedy lay under the Benami Act itself. The National Company Law Appellate Tribunal (NCLAT) affirmed this view. The matter then reached the Supreme Court.
Court’s Observations
The Court examined whether attachment orders passed under the Benami Act could be questioned before insolvency tribunals.
It observed that the Benami Act is a complete and self-contained code providing a structured mechanism for identification, attachment, adjudication and confiscation of benami property. The Act also creates its own appellate hierarchy.
“The IBC cannot be converted into a parallel appellate forum to review the validity of attachment orders passed by a competent authority under a specialised enactment,” the bench observed.
The Court drew a clear distinction between creditor actions and sovereign actions. It held that the moratorium under Section 14 of the IBC is meant to protect the corporate debtor from debt recovery proceedings by creditors. It does not shield “tainted assets” from sovereign action under penal statutes.
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Proceedings under the Benami Act, the Court clarified, are sovereign actions in the public interest, not debt recovery measures.
On Conflict Between IBC and Benami Act
The appellants argued that the IBC, being a later and special law with an overriding clause under Section 238, should prevail over the Benami Act.
The Court rejected this contention.
It noted that both statutes are special laws operating in different fields. The Benami Act deals with confiscation of property held in violation of law, while the IBC deals with insolvency resolution and liquidation of assets beneficially owned by the corporate debtor.
The bench stressed that insolvency tribunals cannot exercise judicial review over actions taken under public law statutes.
“Permitting the NCLT to examine the correctness of attachment under the Benami Act would amount to elevating it to the status of a judicial review forum over sovereign action,” the Court said.
On Liquidation Estate and Beneficial Ownership
The Court also relied on Section 36 of the IBC, which defines the liquidation estate.
It held that only assets beneficially owned by the corporate debtor can form part of the liquidation estate. Property held benami, by definition, is held for the benefit of another person.
Once the Adjudicating Authority under the Benami Act determines that the corporate debtor is merely a benamidar, beneficial ownership stands negated. Such property cannot be treated as part of the liquidation estate.
The Court further clarified that Section 32A of the IBC, which grants immunity in certain cases after approval of a resolution plan or sale, does not automatically validate defective title or convert benami property into lawful assets of the debtor.
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Decision
Concluding that the liquidators had bypassed the statutory remedy available under the Benami Act, the Supreme Court dismissed all appeals.
The Court termed the filing of appeals before insolvency tribunals as an attempt to circumvent the statutory mechanism under the Benami Act.
All appeals were dismissed with exemplary costs of ₹5 lakh each, to be deposited with the Supreme Court Advocates on Record Association within four weeks.
The ruling firmly establishes that attachment and confiscation proceedings under the Benami Act cannot be stalled or reviewed through insolvency forums under the IBC.
Case Title: S. Rajendran v. Deputy Commissioner of Income Tax (Benami Prohibition) & Ors.
Case No.: Civil Appeal No. 7140 of 2022 (with connected appeals)
Decision Date: February 24, 2026
