Benami attachment orders cannot be challenged before IBC tribunals, Supreme Court holds

A bench of Justices Pamidighantam Sri Narasimha and Atul S. Chandurkar heard appeals arising from orders of the National Company Law Appellate Tribunal (NCLAT) and National Company Law Tribunal (NCLT) concerning whether provisional attachment and adjudication under the Prohibition of Benami Property Transactions Act, 1988 (Benami Act) could be challenged before fora constituted under the Insolvency and Bankruptcy Code, 2016 (IBC). The appeals were filed by liquidators of corporate debtors who sought to impugn Benami Act attachment orders before insolvency tribunals.

The Court dismissed the appeals and affirmed the concurrent view of the NCLT and NCLAT that proceedings under the Benami Act formed part of a "self-contained code" and could not be re-opened before tribunals acting under the IBC. The Court held that the Benami Act prescribed a complete adjudicatory and appellate machinery and that insolvency fora could not be converted into parallel appellate forums to review attachment or confiscation orders under that special statute. The judgment noted, quoting earlier tribunals, that the Benami Act was “a special legislation constituting a self-contained code” and observed that the moratorium under Section 14 of the IBC did not operate as an automatic bar to sovereign in rem proceedings under penal statutes. The Court, in its reasoning, observed: “In view of the above discussion, 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.”

Background

The disputes arose after investigations revealed alleged benami transactions in respect of corporate debtors, including Padmaadevi Sugars Ltd. and others, where promoters purportedly transferred shareholding to a beneficial owner through intermediaries and valuable consideration was paid in demonetised notes. Authorities under the Benami Act issued show cause notices on 01.11.2019 and passed provisional attachment orders under Section 24(3), followed by adjudication steps under Sections 26–27 leading to confirmation and vesting consequences. Parallel corporate insolvency resolution processes had earlier been conducted under the IBC, culminating in liquidation orders by the NCLT.

Liquidators challenged the attachment orders before the NCLT seeking stay and representation of such assets in the liquidation estate; the NCLT held that challenges to Benami Act orders lay exclusively before authorities constituted under that Act. The NCLAT dismissed appeals against the NCLT rulings, relying inter alia on precedent that special statutory adjudicatory hierarchies must be exhausted. The liquidators submitted that the IBC's broad non-obstante clause and the moratorium under Section 14 insulated the insolvency estate from parallel attachments, and that Section 60(5) conferred jurisdiction upon the NCLT to decide “questions of law or fact arising out of or in relation to” insolvency. Revenue respondents countered that the Benami Act provided a complete code (including vesting on confiscation and a dedicated appellate forum), that confiscation was a sovereign penal act not akin to debt recovery, and that benami property never formed part of the debtor’s beneficial estate and therefore lay outside the liquidation estate and the Section 53 waterfall.

The Supreme Court examined the schemes and purposes of both enactments, applied principles for resolving conflicts between special statutes and earlier authorities (including Embassy Property and recent guidance in State Bank of India v. Union of India), and concluded that where sovereign in rem proceedings under the Benami Act were concerned, the IBC fora must yield to the specialised mechanism. The Court held that property found to be benami did not form part of the liquidation estate, that Section 32A did not cure defective title absent the triggering events, and that the moratorium under Section 14 did not automatically stay penal confiscatory actions. The appeals were dismissed as an abuse of process and were disposed of with costs of Rs. 5 lakhs each to be deposited with the Supreme Court Advocates-on-Record Association within four weeks.

Case Details:
Case No.: Civil Appeal No. 7140 of 2022 (with Civil Appeal Nos. 6971 of 2025, 6661 of 2023 and 6662 of 2023)
Case Title: S. Rajendran v. The Deputy Commissioner of Income Tax (Benami Prohibition) & Ors.
Appearances:
For the Petitioner(s): Mr. Krishnan Venugopal, Mr. Sajan Poovayya, Mr. Rajiv Shakdher (Senior Counsels)
For the Respondent(s): Mr. S. Dwarakanath, Learned Additional Solicitor General

Source: [2026 CaseBase(SC) 152]