S. Rajendran Vs DCIT (Benami Prohibition) & Ors. (Supreme Court of India)
The Supreme Court dismissed a batch of appeals challenging orders of the National Company Law Appellate Tribunal (NCLAT), which had upheld the decisions of the National Company Law Tribunal (NCLT) declining jurisdiction to entertain challenges against provisional attachment orders passed under the Prohibition of Benami Property Transactions Act, 1988 (Benami Act). The core issue was whether attachment orders under the Benami Act could be questioned before authorities under the Insolvency and Bankruptcy Code, 2016 (IBC).
The case arose from investigations under the Benami Act following a search and seizure operation under the Income Tax Act, 1961. Authorities alleged that promoters of a corporate debtor had transferred 100% shareholding to a beneficial owner through an intermediary for approximately Rs. 450 crores, paid in demonetised currency. Evidence recovered during searches, including share certificates and documents, led to the issuance of a show cause notice and provisional attachment under Section 24 of the Benami Act. The attachment covered immovable properties, including factory land and plant machinery.
Meanwhile, the corporate debtor had entered corporate insolvency resolution proceedings (CIRP) under the IBC, which later culminated in liquidation. The resolution professional and subsequently the liquidator challenged the attachment before the NCLT, contending that it was void due to the moratorium under Section 14 of the IBC and that the attached properties formed part of the liquidation estate. The NCLT held that it lacked jurisdiction to examine the validity of attachment under the Benami Act and directed parties to approach authorities constituted under that Act. The NCLAT affirmed this view.
The Supreme Court upheld the concurrent findings. It held that the Benami Act is a special, self-contained code governing identification, attachment, adjudication, and confiscation of benami property. The Act provides a complete adjudicatory mechanism, including an Adjudicating Authority, Appellate Tribunal, and appeal to the High Court. The IBC does not displace this statutory mechanism nor empower the NCLT to reopen findings rendered under the Benami Act.
The Court examined the scheme of both statutes. The Benami Act, especially after its 2016 amendments, provides a structured process beginning with notice and provisional attachment, followed by adjudication and eventual confiscation. Upon confiscation under Section 27, property vests absolutely in the Central Government, free from encumbrances. The Act contains provisions barring civil court jurisdiction and confers overriding effect in case of inconsistency.
The IBC, on the other hand, is a comprehensive code for insolvency resolution and liquidation of corporate persons in a time-bound manner to maximise asset value. It establishes a three-tier adjudicatory mechanism comprising the NCLT, NCLAT, and the Supreme Court.
Addressing the conflict between the two special statutes, the Court reiterated principles of statutory interpretation applicable when two special enactments contain non-obstante clauses. The dominant purpose of each statute must be examined, and efforts should be made to harmonise them. The Court observed that the Benami Act operates in the public law domain to identify and extinguish benami transactions through sovereign action, whereas the IBC governs insolvency resolution of assets beneficially owned by the corporate debtor.
The Court held that proceedings under the Benami Act are sovereign in rem actions aimed at confiscation of tainted property and are not creditor recovery proceedings. Therefore, the moratorium under Section 14 of the IBC, intended to protect the corporate debtor from creditor actions, does not interdict attachment or confiscation under penal statutes. The moratorium shields the debtor from debt recovery, not from sovereign actions against illegal property.
The Court further held that Section 60(5) of the IBC does not confer all-pervasive jurisdiction on the NCLT. Questions relating to determination of benami property and legality of attachment arise dehors the insolvency process and fall exclusively within the jurisdiction of authorities under the Benami Act. Permitting the NCLT to examine such issues would effectively convert it into a forum of judicial review over sovereign statutory action, contrary to settled precedent.
With respect to the liquidation estate, the Court referred to Section 36 of the IBC, which includes only assets beneficially owned by the corporate debtor. Property held benami is held in a fiduciary capacity for the real owner and does not form part of the liquidation estate. Once the Adjudicating Authority under the Benami Act concludes that the corporate debtor is a benamidar, beneficial ownership stands negated, and insolvency proceedings cannot convert such property into distributable assets.
The Court also rejected reliance on Section 32A of the IBC, noting that it is triggered only upon approval of a resolution plan or completion of liquidation sale and does not validate defective title or retrospectively convert benami property into assets of the corporate debtor.
Concluding that the appellants sought to circumvent the statutory mechanism under the Benami Act by invoking IBC jurisdiction, the Court dismissed the appeals with exemplary costs of Rs. 5 lakhs each, directing deposit with the Supreme Court Advocates on Record Association within four weeks.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
