IBC Cannot Be Used As A Backdoor To Defeat Benami Confiscation: Supreme Court Shuts NCLT’s Door On Attachment Challenges

“NCLT Cannot Be Elevated To A Superior Court Exercising Judicial Review Over Sovereign Action”, In a decisive pronouncement reinforcing the constitutional discipline between special statutes, the Supreme Court on 24 February 2026 held that the National Company Law Tribunal has no jurisdiction to examine or interfere with provisional attachment and confiscation proceedings initiated under the Prohibition of Benami Property Transactions Act, 1988.

The Bench of Justice Pamidighantam Sri Narasimha and Justice Atul S. Chandurkar dismissed a batch of civil appeals filed by liquidators who sought to challenge attachment orders before the NCLT by invoking the Insolvency and Bankruptcy Code, 2016. Upholding the concurrent findings of the NCLT and NCLAT, the Court ruled that the Benami Act is a “complete and self-contained code” and that insolvency proceedings cannot be converted into a parallel appellate forum to review sovereign confiscatory action.

The appeals were dismissed with exemplary costs of Rs. 5 lakhs in each matter, payable to the Supreme Court Advocates on Record Association.

The controversy arose from proceedings initiated against M/s Padmaadevi Sugars Ltd. and connected entities. During search and seizure operations conducted in November 2017 under Section 132 of the Income Tax Act against V.K. Sasikala and her associates, authorities allegedly unearthed incriminating documents reflecting purchase of a sugar mill for approximately Rs. 450 crores in demonetised currency during November–December 2016.

Investigation under the Benami Act concluded that although the consideration was allegedly paid by the beneficial owner through an intermediary, legal title to the shares and underlying assets continued in the names of the original promoters. Authorities issued a show cause notice under Section 24(1) and passed a provisional attachment order under Section 24(3) on 01.11.2019, attaching immovable properties including factory land and plant machinery. Subsequent proceedings under Section 26 confirmed the attachment.

Meanwhile, Corporate Insolvency Resolution Process had commenced against the corporate debtor in October 2018, and liquidation was ordered in April 2021. The liquidator approached the NCLT seeking a stay of the attachment and inclusion of the attached assets in the liquidation estate. The NCLT declined jurisdiction. The NCLAT affirmed. The matter reached the Supreme Court.

Conflict Between Two Special Statutes

The principal issue before the Court was whether the NCLT could invoke Section 60(5) of the IBC to examine the legality of attachment under the Benami Act and whether such attached property could form part of the liquidation estate under Section 36 IBC.

The appellants argued that Section 238 of the IBC, containing a non obstante clause, must override Section 67 of the Benami Act; that the moratorium under Section 14 barred continuation of Benami proceedings; and that Section 32A insulated corporate debtor’s property from attachment.

Rejecting these submissions, the Court undertook a detailed analysis of the scheme of both statutes.

The Benami Act As A Sovereign Confiscatory Code

Tracing the legislative evolution of the Benami Act, particularly post the 2016 amendments expanding it into a 70-section regime, the Court noted that the Act provides a structured mechanism for notice, provisional attachment, adjudication, confiscation, vesting and appeal.

The Court observed that proceedings under the Benami Act are “not in the nature of inter se disputes between private parties” but represent sovereign action in rem culminating in vesting of property in the Central Government free from encumbrances.

Relying on Embassy Property Developments and Gujarat Urja Vikas Nigam Ltd., the Bench held that where a dispute arises in the public law domain, the NCLT cannot assume the role of a constitutional court exercising judicial review.

The Court made it clear that permitting the NCLT to examine the correctness of attachment under the Benami Act would amount to “elevating it to the status of a judicial review forum over sovereign action,” which is impermissible.

Section 60(5) IBC Has Definite Limits

The Bench categorically rejected the expansive interpretation of Section 60(5). It held that the residuary jurisdiction of the NCLT extends only to questions “arising out of or in relation to” insolvency resolution.

A challenge to attachment under a penal statute, the Court held, arises dehors insolvency and must be agitated before the authorities constituted under that statute.

The judgment reinforces that insolvency jurisdiction cannot trench upon fields founded in public law.

Moratorium Does Not Shield “Tainted Assets”

On the argument that the provisional attachment violated the moratorium under Section 14 IBC, the Court drew a sharp distinction between creditor recovery actions and sovereign confiscation.

It held that the moratorium is intended to protect the corporate debtor from “creditor actions” aimed at debt recovery and “not to shield tainted assets from sovereign actions against crime.”

Attachment under the Benami Act, being a statutory forfeiture in public interest, does not fall within the mischief of Section 14.

Benami Property Never Forms Part Of Liquidation Estate

The Court also examined Section 36 of the IBC and held that the liquidation estate comprises only assets beneficially owned by the corporate debtor.

A benamidar, by definition, holds property in a fiduciary capacity without beneficial interest. Once confiscated under Section 27, the property vests absolutely in the Central Government.

The Bench observed that insolvency proceedings cannot be used to “convert property held for another into distributable assets for creditors.”

Section 32A Does Not Cure Defective Title

Addressing reliance on Section 32A, the Court clarified that immunity under that provision is event-based and arises only upon approval of a resolution plan or completion of liquidation sale to an unconnected third party.

Section 32A does not legitimise benami property nor retrospectively validate defective title.

Abuse Of Process And Exemplary Costs

The Court expressed strong disapproval of the conduct of the appellants, noting that despite categorical findings of lack of jurisdiction by the NCLT, they pursued appeals before the NCLAT and Supreme Court instead of availing statutory remedies under the Benami Act.

The Bench observed that such invocation of the IBC mechanism was not bona fide and amounted to an attempt to circumvent the Benami statutory framework. Terming it a “complete abuse of the process,” the Court imposed exemplary costs of Rs. 5 lakhs in each appeal.

The Supreme Court has drawn a clear jurisdictional boundary between insolvency law and penal confiscatory statutes. The ruling reaffirms that the IBC cannot be weaponised to dilute sovereign proceedings under the Benami Act and that NCLT’s jurisdiction under Section 60(5) is not an all-encompassing supervisory power.

By insisting on harmonious construction and respecting the “distinct provinces” of special statutes, the Court has reinforced the principle that insolvency resolution concerns lawfully owned assets and cannot be used to launder tainted property into the liquidation estate.

Date of Decision: 24 February 2026