The Supreme Court has ruled that attachment of assets under the Prohibition of Benami Property Transactions Act, 1988 cannot be challenged before the National Company Law Tribunal (NCLT) or the National Company Law Appellate Tribunal (NCLAT) by invoking provisions of the Insolvency and Bankruptcy Code (IBC). Holding that the Benami Act is a self-contained statute with its own adjudicatory and appellate framework, the court made it clear that parties must pursue remedies within that statutory structure rather than seek relief under insolvency proceedings.

A bench of Justice PS Narasimha and Justice Atul Chandurkar quashed the appeal against the NCLAT ruling that upheld the attachment of properties – under the Benami Act – of a company undergoing insolvency proceedings, according to a report by the Financial Express.

The apex court supported the NCLAT stance which had previously said that the Benami Act is a self-contained code with its own authorities and appeal route, so parties must go there rather than use IBC jurisdiction as a shortcut.

The court dismissed the appellant’s argument that Section 14 of the IBC temporarily prevents the institution or continuation of any suit against an entity undergoing bankruptcy proceedings, especially when a moratorium is in force under the Code.

“This decision is an important one. In the context of attachments under PMLA (Prevention of Money Laundering Act) during the moratorium period, it has been held from time to time that these economic offences stand on a different pedestal and more importantly, attachment is not a recovery action.

The IBC should not become an amnesty route for the corporate debtor to discharge the civil liability owed to creditors,” said Amit Maheshwari, managing partner at AKM Global.

Experts said that Benami Act proceedings are part of a public-law enforcement regime, and not merely a debt-recovery mechanism. “This judgment appears to protect that statutory enforcement channel from dilution by insolvency proceedings,” said Srinivasa Rao, partner and leader (risk advisory services) at Nangia Global.

Meanwhile, the SC order is likely to have immediate consequences for ongoing insolvency cases and liquidation strategies. Earlier, many insolvency stakeholders tried to bring attachment disputes before the NCLT or NCLAT citing the moratorium. After this order, challenging the attachments under the Benami Act would likely increase the coordination burden for insolvency professionals. Also, asset mapping and attachment-status verification will become even more critical at the start of the insolvency proceedings. Further, prospective bidders will likely demand sharper diligence on whether any property is under the Benami Act attachment or its status before the Benami adjudicating authority.

“This judgment does not necessarily eliminate all future Section 32A-based protection arguments in every case. But it signals that parties cannot use Section 32A to obtain immediate jurisdictional relief before the NCLT or NCLAT in a Benami attachment dispute,” said Rao.

Section 32A of the Insolvency and Bankruptcy Code (IBC), 2016, provides permanent immunity to an insolvent company and its assets from attachment for offences committed prior to the beginning of the corporate insolvency resolution process (CIRP).

The case pertains to the insolvency proceedings against Padmaadevi Sugars wherein the Income Tax department provisionally attached the company’s immovable assets. The company’s liquidator challenged the move stating that the company is under CIRP and, therefore, immune to such actions. When the NCLT refused to interfere in the matter, the liquidator approached the NCLAT, which ruled that Section 32A of the IBC cannot be invoked to bypass the Benami statutory hierarchy.