Benami Transactions Law & IBC are Independent, AA can’t Address Benami Act Attachment Issues under IBC: NCLAT

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  • Last Updated on 13 June, 2023

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Benami Transactions Law

Case Details: P. Eswaramoorthy v. Deputy Commissioner of Income-tax (Benami Prohibition) - [2023] 150 taxmann.com 321 (NCLAT-Chennai)

Judiciary and Counsel Details

    • M. Venugopal, Judicial Member & Shreesha Merla, Technical Member
    • B. Dhanaraj, Adv. for the Appellant.
    • R. Sankaranarayanan, Addl. Solicitor General, B. Ramana Kumar & Rajesh, Income-tax Standing Counsels for the Respondent.

Facts of the Case

In the instant case, the corporate debtor had been ordered for liquidation by the Adjudicating Authority (NCLT). The respondent (i.e. the Department of Income-tax (Benami Prohibition) had attached property belonging to the corporate debtor under the Prohibition of Benami Property Transactions Act, 1988.

Subsequently, the appellant (i.e. liquidator) filed an application before the NCLT stating that the attachment of property by the respondent was illegal.

NCLAT Held

The NCLT by the impugned order held that there was no conflict between the two statutes as there was no bar in selling the property of the corporate debtor solely on the ground that the corporate debtor was under the liquidation. Further, the liquidator was not barred by the IBC from adding the said property to the liquidation estate.

The NCLT further held that the liquidator was free to approach the appropriate forum to raise an attachment or seek any other relief as per provisions of the Act. Consequently, an appeal was filed with the NCLAT.

The NCLAT observed that section 60(5) of the IBC does not confer jurisdiction to the NCLT to determine any questions relating to the corporate debtor. Therefore, one cannot rely on this section to seek a remedy relating to the Prohibition of Benami Property Transactions Act, 1988.

The NCLAT, further observed that the moratorium u/s 14 of the IBC does not affect the Provisional Attachment Order passed under the Prohibition of Benami Property Transactions Act, 1988.

The NCLAT held that the Prohibition of Benami Property Transactions Act, 1988 and, IBC, operate in their respective fields. Consequently, issues or disputes, pertaining to an attachment effected under the Prohibition of Benami Property Transactions Act, 1988, cannot be adjudicated by the Adjudicating Authority (Tribunal), under IBC.

Further, the NCALT held that the liquidator could not bypass a remedy provided under the Benami Act in assailing the order passed by the Adjudicating Authority, before the Appellate Tribunal. Therefore the impugned order passed by the NCLT was free from legal infirmities.

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