Orders Of Attachment Under Benami Act Can't Be Questioned Under IBC: Supreme Court

The Supreme Court recently observed that orders passed under the Prohibition of Benami Property Transactions Act, 1988 (Benami Act) cannot be challenged before authorities under the Insolvency and Bankruptcy Code, 2016 (IBC).

A Bench of Justices P S Narasimha and Atul S Chandurkar said that the National Company Law Tribunal, while dealing with insolvency cases, cannot ignore or set aside actions taken under another law. Court clarified that the IBC cannot be used as an indirect way to question decisions validly taken under a penal statute like the Benami Act.

The Bench observed that allowing the NCLT to examine attachment or adjudication orders under the Benami Act by using its powers under Section 60(5) of the IBC would effectively turn it into a forum for judicial review over government action, which is not its role.

Court explained that the IBC is meant for resolving insolvency and maximising the value of assets that legally belong to the debtor. It cannot be used to interfere with proceedings under public law, such as confiscation of properties identified as benami.

It further noted that the Benami Act is a complete law in itself, laying down a full mechanism for identifying, attaching, adjudicating and confiscating benami properties, along with a separate appellate system. The authorities under this Act alone have the power to decide such issues, and the IBC does not override this system or allow the NCLT to reopen such findings.

The Bench also pointed out that benami property, by its nature, is held by one person on behalf of another. Under the IBC, assets held in trust for someone else are excluded from the liquidation estate. Therefore, if a company is only a name holder (benamidar), the property does not truly belong to it and cannot be distributed among its creditors during liquidation.

Court stressed that once the authority under the Benami Act decides that a company is merely a benamidar, it means the company has no real ownership over the property. Any challenge to such a decision can only be made through the appeal process under the Benami Act, not through insolvency proceedings. The IBC deals only with the debtor’s own assets, not those held on behalf of others.

On Section 32A of the IBC, Court said that protection under this provision arises only after a resolution plan is approved or a liquidation sale is completed. Until then, it does not apply. In any case, it cannot be used to fix defects in ownership or convert benami property into assets of the company.

The Bench also clarified that the moratorium under Section 14 of the IBC is meant to stop recovery actions by creditors during insolvency. It does not stop government actions like attachment or confiscation of property under penal laws. Such proceedings are independent and are not aimed at recovering debts, but at dealing with illegal or tainted assets.

In the present case, Court dismissed civil appeals filed by S Rajendran and others against orders of the National Company Law Appellate Tribunal, Chennai bench, and imposed costs of Rs five lakh on each appellant.

The NCLAT had refused to interfere with the NCLT’s decision, holding that the tribunal had no jurisdiction to hear challenges against attachment orders passed under the Benami Act, and that the proper remedy lay under that Act itself. The Supreme Court agreed with these findings.

The case arose from transactions involving M/s Padmaadevi Sugars Ltd., where the promoters had transferred their entire shareholding to V.K. Sasikala through an intermediary for around Rs 450 crore.

A provisional attachment order passed in November 2019 under the Benami Act was initially challenged by the resolution professional, claiming it was invalid due to the moratorium under the IBC. However, after the company went into liquidation in 2021, that challenge became irrelevant.

The liquidator then filed a fresh application seeking to stay the attachment and proceed with liquidation, arguing that the attached properties were part of the company’s assets.

Court rejected this argument, noting that once the properties were attached and confirmed under the Benami Act, they stood vested in the Central Government, subject only to appeal under that Act. These findings remain valid and cannot be set aside in insolvency proceedings.

The Bench held that the appellants could not have challenged the attachment orders before IBC authorities and said the attempt was not bona fide. It observed that the appeals were filed only to bypass the proper legal process under the Benami Act and amounted to an abuse of process.

Finding no merit in the appeals, Court dismissed them with costs, noting that the appellants had wasted the time of the NCLT, NCLAT and the Supreme Court despite the legal position being clear and remedies under the Benami Act being available.

Case Title: S Rajendran Vs The Deputy Commissioner of Income Tax (Benami Prohibition) & Ors

Bench: Justices P S Narasimha and Atul S Chandurkar

Date of Judgment: February 24, 2026