Benami Property Attachment Must Be Challenged Under 1988 Act, Not IBC: SC

New Delhi, Feb 25 (KNN) The Supreme Court on Tuesday upheld a ruling of the National Company Law Appellate Tribunal (NCLAT), holding that attachment of properties under the Prohibition of Benami Property Transactions Act, 1988 can be challenged only before authorities under that Act and not before the NCLT under the Insolvency and Bankruptcy Code, 2016 (IBC).

A Bench of Justices P.S. Narasimha and Atul S. Chandurkar dismissed an appeal against the NCLAT judgment, which had upheld provisional attachment of certain properties of a company during the pendency of corporate insolvency resolution proceedings (CIRP). 

Background of the Case

The case stemmed from insolvency proceedings against Padmaadevi Sugars Ltd and a parallel attachment of its properties under the Benami Act. 

On November 1, 2019, the Deputy Commissioner provisionally attached certain immovable properties under Section 24(1) of the 1988 Act, which was confirmed on November 10, 2021, under Section 24(3).

At the time, CIRP was pending and a Section 14 IBC moratorium was in force. The Resolution Professional, and later the Liquidator after liquidation on April 20, 2021, sought lifting of the attachment before the NCLT, but relief was denied and the NCLAT dismissed the appeal.

Key Legal Issue

The main question was whether attachment under the Benami Act could continue despite the IBC moratorium, and whether Section 238 of the IBC — which provides an overriding effect — would prevail.

The liquidator argued that the attachment violated Sections 14 and 33(5) of the IBC. Tax authorities maintained that the Benami Act is a separate statutory framework and that challenges must be made before authorities designated under that law.

The NCLAT held that the Benami Act is a self-contained code and that Sections 32A and 60(5) of the IBC cannot be used to bypass its statutory mechanism. 

Affirming this view, the Supreme Court ruled that insolvency proceedings do not bar action under the Benami Act and that remedies must be pursued within that Act.

Impact on MSMEs

For micro, small and medium enterprises (MSMEs), the ruling means assets attached under the Benami Act may remain outside the control of the resolution professional, potentially reducing the asset pool available for revival or recovery.

Promoter-driven MSMEs with informal ownership structures may face higher compliance risks, as attachments must be contested through the Benami Act’s mechanism, adding cost and procedural complexity during insolvency. 

While the judgment reinforces regulatory discipline, it may increase recovery and revival challenges for stressed MSMEs.

(KNN Bureau)