Orders passed under Benami Act cannot be challenged under Insolvency and Bankruptcy Code, 2016 – SC
In a recent judgment, Hon’ble Supreme Court has held that orders passed under Benami Act cannot be questioned before authorities under the Insolvency and Bankruptcy Code, 2016
ABCAUS Case Law Citation:
5054 (2026) (02) abcaus.in SC
In the instant case, the appellant liquidators had challenged the order of the NCLAT refusing to adjudicate the applications challenging the provisional attachment orders passed by the authorities under the Prohibition of Benami Property Transactions Act, 1988, (“Benami Act”), holding that the NCLAT lacks jurisdiction to entertain such challenges and that the remedy lies exclusively before the competent forum constituted under the Benami Act.
During a search and seizure operation conducted under Section 132 of the Income Tax Act, 1961 (IT ACT) certain incriminating documents were unearthed suggesting purchase of properties made using demonetization period.
It was revealed that the corporate debtor (who was having a sugar factory and plant) had transferred their 100% shareholding to the beneficial owner through an intermediary advocate for a consideration of approximately Rs. 450 Crores, paid in demonetised high-value currency notes.
In the meanwhile, the corporate debtor was subjected to corporate insolvency resolution proceedings (CIRP) on the basis of an application instituted by the financial creditors. The application was admitted by the NCLT and the moratorium commenced. However, after the failure of the resolution process, NCLT proceeded further and passed an order for the liquidation of corporate debtor.
However before the order of liquidation was passed Income Tax Authorities issued a show cause notice under Section 24(1) of the Benami Act to the RP, representing the corporate debtor, characterizing it as the benamidar and the transaction as a “benami transaction”. The rationale provided was that while the beneficial owner had paid the full consideration of Rs. 450 Crores and obtained physical possession of the share certificates through her agent, the legal title to the shares and the underlying assets (the sugar plant and machinery) was deliberately not transferred in the records. This arrangement was allegedly designed to mask the true ownership while holding the property for the immediate or future benefit of the beneficial owner.
Before the liquidation order by NCLT, a provisional attachment order was passed under Section 24(3) of the Benami Act, attaching the immovable properties of the corporate debtor, including the factory land and plant machinery.
The Liquidator before NCLT sought a stay on the attachment order and to enable the liquidation process to continue on the ground that the attached properties formed part of the liquidation estate.
The NCLT held that the challenge to the order of attachment under the Benami Act must be before the statutory authorities under that Act and not before the authorities under the IBC. In other words, NCLT held that such an application is not maintainable under IBC.
The Hon’ble Supreme Court observed that the properties in question, having been provisionally attached and confirmed by the Adjudicating Authority under the Benami Act, stand vested in the Central Government under Section 27, subject to statutory appeal. Those determinations remain operative. 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.
The Hon’ble Supreme Court further observed that 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.
The Hon’ble Supreme Court observed that the liquidation estate comprises only assets beneficially owned by the corporate debtor. On the other hand, property held benami is, by definition, held in a fiduciary or representative capacity for the real owner. Section 36(4)(a)(i) excludes assets held in trust for third parties from the liquidation estate.
The Hon’ble Supreme Court opined that the contention of the appellants that the attachment order is impermissible as the moratorium under Section 14 of the Act commenced before was not acceptable because the mandate of moratorium must be understood in the context of the applicability of the Act. The moratorium is intended to protect the corporate debtor from “creditor actions” aimed at debt recovery, not to shield “tainted assets” from sovereign actions against crime. In any event of the matter, the liquidator would have power and jurisdiction to deal with the property only when the corporate debtor has a beneficial interest in the said property.
The Hon’ble Supreme Court accordingly held that the orders passed under Benami Act cannot be questioned before authorities under the Insolvency and Bankruptcy Code, 2016 (“IBC”).
The Hon’ble Supreme Court opined that appellants could not have challenged the attachment order passed under the Benami Act before the statutory authorities under the IBC. Such invocation was not bonafide and is actually intended to circumvent and interdict the procedures contemplated under the Benami Act.
As a result, all the appeals were dismissed with costs quantified at Rs. 5 lakhs each.
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