The Supreme Court has ruled that tainted property accumulated under the Benami Act cannot be used as a subterfuge to seek immunity from attachment by raising a liquidation plea under the Insolvency and Bankruptcy Code, 2016.

“We are of the opinion that the appellants could not have challenged the attachment order passed under the Benami Act before the statutory authorities under the IBC. We have no doubt in our mind that such invocation is not bona fide and is actually intended to circumvent and interdict the procedures contemplated under the Benami Act.

“Further, filing of appeal before National Company Law Appellate Tribunal (NCLAT), despite the finding that the appropriate forum is not the National Company Law Tribunal (NCLT), but the statutory authorities under the Benami Act, leaves no doubt that it is a complete abuse of the process,” a bench of Justices Pamidighantam S. Narasimha and Atul S. Chandurkar said in a judgment while dismissing the batch of appeals. An NCLT order can be challenged before the NCLAT.

The apex court passed the ruling while rejecting the claim of a corporate entity, M/S Padmaadevi Sugars Ltd, challenging the attachment of properties worth ₹450 crore by income tax authorities under the Benami Properties Act, 1988, and its amended version of 2016.

The corporate entity had pleaded that since the company was under liquidation, its assets cannot be attached or seized by the income tax authorities under the Benami Act. The company is stated to have sold the properties to V.K. Sasikala, who, according to the income tax authorities, had paid ₹450 crore through demonetised currency in 2016-17. A similar plea was raised by certain other corporates which were clubbed by the top court while passing the ruling.

Under a benami transaction, the beneficial owner pays money for the property but the titles of such assets are in the name of another person known as the benamidar.

The Benami Act prohibits the illegal accumulation of movable and immovable property with a view to avoiding taxes, money laundering, and other illegal activities. It imposes a punishment of up to seven years for those involved in the prohibited activities.

Writing the judgment, Justice Narasimha said the Benami Act was concerned with identifying and extinguishing benami (illegal) holdings through a confiscatory mechanism, while the Insolvency and Bankruptcy Code (IBC) was directed at a resolution and liquidation of assets of a corporate debtor within a time-bound framework.

“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.

“The properties in question, having been provisionally attached and confirmed by the adjudicating authority under the Benami Act, stand vested in the Central government under Section 27, subject to statutory appeal. Those determinations remain operative.

“The NCLT cannot, in exercise of insolvency jurisdiction, disregard or nullify a statutory vesting effected under another enactment. The IBC does not provide an indirect route to challenge sovereign acts validly undertaken under a penal statute,” the judge said.