Supreme Court Upholds Benami Act's Independence from IBC Jurisdiction, Apex Court Affirms NCLT and NCLAT Lack Authority Over Benami Property Attachments
In a landmark judgment, the Supreme Court of India has ruled that proceedings under the Prohibition of Benami Property Transactions Act, 1988, cannot be challenged before the authorities of the Insolvency and Bankruptcy Code, 2016 (IBC). The decision comes as a significant affirmation of the Benami Act's autonomy, emphasizing its status as a self-contained code for identifying and confiscating benami properties.
The judgment arose from a series of appeals challenging the National Company Law Appellate Tribunal's (NCLAT) decision to uphold the National Company Law Tribunal's (NCLT) ruling. The NCLT had concluded that it lacked jurisdiction to adjudicate challenges against attachment orders issued under the Benami Act, suggesting that such challenges should be pursued before the designated authorities of the Benami Act.
The Supreme Court's decision articulates that the Benami Act, with its comprehensive framework for identifying and confiscating properties held in benami, operates independently of the IBC's insolvency proceedings. The Court highlighted that the Benami Act's proceedings are sovereign actions within the public law domain, aimed at prohibiting and penalizing benami transactions, and thus, cannot be subsumed under the IBC's jurisdiction.
The judgment further clarified that the Benami Act's mechanism for attachment and confiscation of properties is not akin to debt recovery processes under the IBC. The moratorium under Section 14 of the IBC, intended to protect corporate debtors from creditor actions, does not extend to sovereign proceedings under the Benami Act.
The Supreme Court also imposed exemplary costs of Rs. 5 lakhs on the appellants, to be deposited with the Supreme Court Advocates on Record Association, citing the appeals as an abuse of process given the clear statutory remedies available under the Benami Act.
This decision underscores the necessity for insolvency professionals and corporate entities to respect the jurisdictional boundaries set by distinct statutory frameworks, reaffirming that the IBC cannot override or review sovereign actions under public law statutes like the Benami Act.
Bottom Line:
Proceedings under the Prohibition of Benami Property Transactions Act, 1988, cannot be challenged before the Insolvency and Bankruptcy Code, 2016 (IBC) authorities. Sovereign actions under public law statutes like the Benami Act operate independently and are not subject to the jurisdiction of IBC tribunals.
Statutory provision(s): Sections 14, 36, 60, 238 of the Insolvency and Bankruptcy Code, 2016; Sections 24, 26, 27 of the Prohibition of Benami Property Transactions Act, 1988.
