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Supreme Court Draws Line: Benami Act Trumps IBC in Attachment Battles
In a landmark ruling on , the dismissed appeals by liquidators challenging provisional attachments under the . A bench comprising Justice Pamidighantam Sri Narasimha and Justice Atul S. Chandurkar held that the and lack jurisdiction over such challenges during proceedings. The lead case involved liquidator S. Rajendran for M/s Padmaadevi Sugars Ltd., with respondents including the .
Demonetisation-Era Deals Unravel in Sugar Mill Saga
The controversy traces back to , amid India's demonetisation drive. Investigations revealed promoters of M/s Padmaadevi Sugars Ltd. (formerly S.V. Sugar Mills Ltd., owned by the "Patel Group") allegedly sold 100% shareholding to beneficial owner V.K. Sasikala via intermediary advocate S. Senthil. The Rs. 450 crore consideration? Paid entirely in demonetised high-value notes.
Searches under uncovered incriminating notes linking "Patel: Sugar" purchases. Original share certificates and a blank MoU were seized. Sworn statements from Patel representatives confirmed the cash deal and transfer intent, though legal title to shares and assets (factory land, plant) remained unchanged to mask ownership.
Corporate insolvency resolution process (CIRP) began for Padmaadevi on , leading to liquidation on . Similar timelines applied to connected cases like M/s Senthil Papers. On , Benami authorities issued a show-cause notice under , provisionally attaching properties under , deeming the corporate debtor a for Sasikala.
Liquidators sought stays before NCLT, arguing attachments depleted the . NCLT ( ) and NCLAT ( , and ) rejected these, directing challenges to Benami Act forums.
Liquidators' Plea: IBC as Ultimate Shield
Appellants, represented by senior advocates including , argued IBC's primacy as a later, comprehensive code. Key points:
- overrides inconsistent laws, prioritizing asset maximization.
- under halts all proceedings, including attachments that freeze estate assets.
- NCLT's residuary jurisdiction ( ) covers disputes "arising out of" insolvency.
- immunizes approved plans/sales from prior attachments.
- Attachments stalled time-bound CIRP (330 days), undermining creditor distribution under .
- Factual defense: Taint on shareholder funds doesn't impute to corporate assets acquired lawfully pre- .
They warned parallel Benami proceedings would gut liquidation estates.
Revenue's Rebuttal: Sovereign Power Untouchable
Assistant Solicitor General countered that Benami Act is a self-contained code for confiscating tainted property:
- Specialized hierarchy ( ) with overriding ; NCLT can't bypass.
- Attachments are sovereign, for public interest, not creditor recovery— inapplicable.
- ( ) excludes benami-held property lacking beneficial ownership; (3)(e) defers to external authorities.
- Post-confiscation ( ), property vests absolutely in Central Government.
- post-facto only; doesn't legitimize benami title.
Harmonizing Titans: Why Benami Act Prevails
The Court meticulously dissected both regimes. Benami Act, amended in , evolved from a declaratory ban to a robust machinery for attachment, adjudication, and vesting—insulated from civil courts ( ).
IBC focuses on revival and value maximization of lawfully owned assets ( Swiss Ribbons Pvt. Ltd. v. Union of India , 2019). No supremacy clash: Benami governs title pedigree; IBC, insolvency of true estate.
Drawing from Embassy Property Developments v. State of Karnataka (2020), the bench clarified NCLT isn't a judicial review forum over public law actions like attachments. Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta (2021) limits to insolvency-linked disputes, not matters.
Recent State Bank of India v. Union of India (2026 INSC 153) guided: Between special acts, harmonize by dominant purpose—Benami's penal confiscation yields no ground to IBC.
Benami proceedings are
"not inter se disputes... nor recovery,"
but sovereign deterrence. Liquidators must exhaust Benami appeals.
Punchy Pronouncements from the Bench
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"Proceedings under Benami Act squarely fall within the public law domain... the adjudicatory fora under the IBC must necessarily yield to the specialised mechanism created by such statute."
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"The IBC, concerned as it is with insolvency resolution and value maximisation of lawfully owned assets, cannot be employed as a mechanism to dilute or override statutory proceedings undertaken in the public law sphere for confiscation of tainted property."
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"Benami property, held in a fiduciary capacity without beneficial interest, is excluded and never becomes distributable in liquidation."
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"Such invocation [before NCLT] is not bonafide and is actually intended to circumvent... the procedures contemplated under the Benami Act."
As echoed in reports, this reinforces Benami mechanisms prevail on title, attachment, and confiscation.
Final Verdict: Appeals Axed, Costs Imposed
"All the appeals are dismissed with costs quantified at Rs. 5 lakhs each."
Parties must deposit with
within four weeks.
Implications : Liquidators can't forum-shop via IBC to lift Benami attachments—straight to Adjudicating Authority. Shields sovereign probes from insolvency delays, ensuring tainted assets face confiscation. Future cases? Clear directive: Public law first, insolvency second. A win for revenue integrity amid corporate distress.
