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Informist, Tuesday, Feb. 24, 2026

 

NEW DELHI – The Supreme Court Tuesday held that attachment orders passed under the Prohibition of Benami Property Transactions Act, 1988, cannot be challenged before the National Company Law Tribunal and the National Company Law Appellate Tribunal set up under the Insolvency and Bankruptcy Code, 2016. The Code, which is concerned 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 apex court said.

 

The properties, which have been provisionally attached and confirmed by the adjudicating authority, stand vested in the central government, subject to statutory appeal, a bench of Justice P.S. Narasimha and Justice Atul S. Chandurkar said. The tribunals under insolvency jurisdiction cannot disregard or nullify a statutory vesting effected under another enactment, the bench said. The 2016 Code does not provide an indirect route to challenge sovereign acts validly undertaken under a penal statute, it said.

 

Once the adjudicating authority under the Benami Act had concluded that the corporate debtor was a benamidar, beneficial ownership stood negated, the court said. The legality and validity of such determinations were subject matter of appeal under the provisions of the Benami Act alone, it said. Insolvency proceedings cannot be utilised to convert property held for another into distributable assets for creditors, the court said. The 2016 Code contemplates distribution of the debtor's estate, not assets impressed with a trust or held on behalf of a third party, the court said.

 

"Likewise, the moratorium under Section 14 (of the 2016 Code) is intended to preserve the debtor's estate for orderly resolution; it does not interdict sovereign proceedings in rem for attachment or confiscation under penal statutes," the bench said. 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, the court said. 

 

The court was hearing a plea by the liquidator of Padmaadevi Sugars Ltd., challenging attachment orders issued by the deputy commissioner of income tax (benami prohibition) against the company. The bench rejected the plea and said the liquidator had abused the process of law and wasted the time of the tribunal, the appellate tribunal, and the apex court, when the position of law was amply clear. It asked the petitioner to pay a fine of INR 500,000, payable to the Supreme Court Advocates on Record Association.

 

The case relates to the tax department issuing an attachment order against Padmaadevi Sugars for benami transactions of INR 4.50 billion by the company's promoters. The liquidator challenged the attachment in the tribunal and the appellate tribunal.  End

 

Reported by Surya Tripathi

Edited by Saji George Titus

 

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