The Supreme Court has ruled that attachment and confiscation proceedings initiated under the Prohibition of Benami Property Transactions Act, 1988 (Benami Act) cannot be challenged before the National Company Law Tribunal (NCLT) or the National Company Law Appellate Tribunal (NCLAT) under the Insolvency and Bankruptcy Code, 2016 (IBC).

The bench of Justice Pamidighantam Sri Narasimha and Justice Atul S. Chandurkar while dismissing a batch of appeals led by S. Rajendran v. Deputy Commissioner of Income Tax (Benami Prohibition), the Court imposed exemplary costs of Rs. 5 lakh each on the appellants for attempting to invoke insolvency jurisdiction to question sovereign action under the Benami Act.

The case arose from proceedings initiated against M/s Padmaadevi Sugars Ltd. (formerly S.V. Sugar Mills Ltd.) and connected entities. Following search and seizure operations under the Income Tax Act in 2017, authorities alleged that the promoters had transferred 100% shareholding of the company to a beneficial owner through an intermediary for a consideration of approximately ₹450 crore, allegedly paid in demonetised currency during November–December 2016. Based on the material gathered, the Initiating Officer under Section 24 of the Benami Act issued a show cause notice and provisionally attached immovable properties of the corporate debtor, including factory land and plant machinery.

Meanwhile, the company had entered Corporate Insolvency Resolution Process (CIRP) under the IBC and was subsequently ordered into liquidation. The liquidators approached the NCLT seeking a stay on the attachment orders, contending that the properties formed part of the liquidation estate and that the Benami proceedings violated the moratorium under Section 14 of the IBC. Both the NCLT and NCLAT rejected the challenge, holding that the Benami Act provides a separate and exclusive adjudicatory mechanism. The matter was then carried to the Supreme Court.

The principal issue before the Court was whether attachment orders passed under the Benami Act could be assailed before insolvency forums by invoking Section 60(5) of the IBC. The appellants argued that the IBC, being a later and special legislation with an overriding clause under Section 238, would prevail over the Benami Act in case of conflict. They further contended that the moratorium under Section 14 bars such proceedings and that Section 32A protects the corporate debtor’s property from past liabilities. It was also argued that the Revenue should rank only as an operational creditor under the waterfall mechanism of Section 53.

Opposing these submissions, the Revenue maintained that the Benami Act is a self-contained special statute with its own hierarchy of authorities and appellate remedies. It was argued that attachment and confiscation proceedings are sovereign penal actions, not debt recovery measures, and that once property is adjudicated as benami and confiscated under Section 27, it vests absolutely in the Central Government. Therefore, such property cannot form part of the liquidation estate under Section 36 of the IBC.

The Supreme Court agreed with the Revenue and upheld the concurrent findings of the NCLT and NCLAT. The Court emphasised that the Benami Act, particularly after its comprehensive 2016 amendment, constitutes a complete code governing identification, provisional attachment, adjudication, confiscation, and appellate remedies. Allowing the NCLT to examine or nullify such attachment orders would undermine the statutory framework and render the appellate mechanism under the Benami Act redundant.

The Bench reiterated that the jurisdiction of the NCLT under Section 60(5) of the IBC is not unlimited. Relying on earlier precedents, the Court observed that insolvency forums cannot exercise judicial review over sovereign or public law actions undertaken under specialised statutes. Proceedings under the Benami Act operate in rem and are aimed at extinguishing illegal holdings and vesting tainted property in the State. They are not inter se disputes between private parties nor recovery proceedings that can be subsumed within insolvency resolution.

Addressing the argument on moratorium, the Court clarified that Section 14 of the IBC is designed to shield the corporate debtor from creditor enforcement actions. It does not interdict sovereign proceedings for attachment or confiscation under penal statutes. The moratorium cannot be interpreted to protect allegedly tainted property from statutory consequences arising under public law.

The Court also placed significant reliance on Section 36 of the IBC, which defines the liquidation estate. It observed that only assets beneficially owned by the corporate debtor can form part of the estate. A benamidar, by definition, has no beneficial interest in the property. Once the Adjudicating Authority under the Benami Act determines that the corporate debtor is merely a benamidar, beneficial ownership stands negated. Insolvency proceedings cannot be used to convert such property into distributable assets for creditors.

The Bench further held that Section 32A of the IBC does not assist the appellants. The immunity under Section 32A is triggered only upon approval of a resolution plan or completion of a liquidation sale to an unconnected third party. It does not retrospectively validate defective title nor legitimise benami property.

Expressing strong disapproval of the appellants’ conduct, the Court observed that despite clear findings by the NCLT and NCLAT regarding lack of jurisdiction, the liquidators pursued further appeals instead of availing remedies under the Benami Act. The Court described this as an abuse of process and concluded that the invocation of insolvency jurisdiction was not bona fide but intended to circumvent the statutory framework of the Benami Act.

Accordingly, the Supreme Court dismissed all the appeals and directed each appellant to deposit costs of ₹5 lakh with the Supreme Court Advocates-on-Record Association within four weeks.

Case Details

Case Title: S. RAJENDRAN versus DCIT

Citation: JURISHOUR-85-SC-2026

Case No.: CIVIL APPEAL NO. 7140 of 2022

Date: 24/02/2026

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