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

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.

List of Cases Reviewed

• • P. Eswaramoorthy, Liquidator of Senthil Papers & Boards (P.) Ltd. v. Dy. CIT [2022] 137 taxmann.com 232 (NCLT – Chennai) (para 98) affirmed.

List of Cases Referred to

• • Directorate of Enforcement v. Manoj Kumar Agarwal [2021] 126 taxmann.com 210/168 SCL 433 (NCLAT – New Delhi) (para 15)
  • Welspun Steel Resources (P.) Ltd. v. Union of India [2023] 147 taxmann.com 413 (Guj.) (para 20)
  • Bank of India v. Dy. Director, Directorate of Enforcement [2018] 100 taxmann.com 232 (PMLA-AT – New Delhi) (para 21)
  • Nitin Jain, Liquidator PSL Ltd. v. Enforcement Directorate [2021] 133 taxmann.com 184 (Delhi) (para 23)
  • JSW Steel Ltd. v. Mahendar Kumar Khandelwal [2020] 114 taxmann.com 428 (NCLAT – New Delhi) (para 25)
  • Solidaire India Ltd. v. Fairgrowth Financial Services (P.) Ltd. [2001] 30 SCL 59/1 SCR 932 (para 26)
  • Pr. CIT v. Monnet Ispat and Energy Ltd. [2019] 107 taxmann.com 481 (SC) (para 27)
  • Embassy Property Developers (P.) Ltd. v. State of Karnataka [2019] 112 taxmann.com 56/[2020] 157 SCL 445 (SC)/2020 (1) MLJ 65/CDJ 2019 SC 1351, (para 36)
  • C. Ramasubramaniam, Liquidator of Padmaadevi Sugars Ltd. v. Dy. CIT (Benami Prohibition) [2022] 145 taxmann.com 303 (NCLAT – Chennai) (para 37)
  • C. Ramasubramaniam v. Dy. CIT (Benami Prohibition), [Civil Appeal No(s). 7140 of 2022, dated 31-10-2022] (para 38)
  • Kiran Shah v. Enforcement Directorate [MANUNL/0005/2022, dated 3-1-2022] (para 39)
  • Marg Realities Ltd. v. Dy. CIT (Benami Prohibition) [2022] 134 taxmann.com 137/448 ITR 574 (Mad.) (para 40)
  • Meenakshi Mills Ltd. v. CIT AIR 1957 SC 49 (para 49)
  • Thakur Bhim Singh v. Thakur Kan Singh [1980] 3 SCC 72 (para 51)
  • R.S. Raghunath v. State of Karnataka AIR 1992 SC 81 (para 57)
  • Aswini Kumar Ghose v. Arabinda Bose AIR 1952 SC 369 (para 60)
  • Jaydayal Poddar (Deceased) v. Mst. Bibi Hazra [1974] 1 SCC 3 (para 82)
  • Marcel Martins v. M Printer [2012] 21 taxmann.com 7/207 Taxman 103 (SC)/AIR 2012 SC 1987 (para 84).