NCLT upholds attachment order against Corporate Debtor's property under Benami Property Act

The NCLT upheld the provisional attachment order issued against the Corporate Debtor's property under the Prohibition of Benami Property Transactions Act, 1988. It ruled that the NCLT lacked jurisdiction to revoke the attachment under Section 60(5) of the IBC. The applications challenging the attachment were dismissed, affirming the validity of the attachment. The NCLT highlighted that the Liquidator could challenge the attachment under the relevant provisions of the Benami Property Transactions Act.

---

---

Issues Involved:
1. Provisional attachment of the Corporate Debtor's property.
2. Jurisdiction of the NCLT under Section 60(5) of the IBC.
3. Conflict between the Insolvency and Bankruptcy Code, 2016 (IBC) and the Prohibition of Benami Property Transactions Act, 1988.
4. Effect of moratorium under IBC on provisional attachment orders.

Issue-wise Detailed Analysis:

1. Provisional Attachment of the Corporate Debtor's Property:
The applications MA(IBC)/05(CHE)/2020 and IA(IBC)/599(CHE)/2021 sought to raise the provisional attachment order dated 01.11.2019 issued by the Deputy Commissioner of Income Tax (Benami Prohibition) against the Corporate Debtor's property. The attachment was based on allegations of benami transactions involving Rs. 386 Crores for the purchase of the Corporate Debtor's immovable property. The Applicant argued that the transaction was not reflected in the Corporate Debtor's books and was orchestrated by the 2nd Respondent, making the attachment order unsustainable.

2. Jurisdiction of the NCLT under Section 60(5) of the IBC:
The Respondents contended that the NCLT does not have jurisdiction to revoke the provisional attachment under the Prohibition of Benami Property Transactions Act, 1988. They relied on the Supreme Court judgment in Embassy Property Developments Pvt. Ltd. Vs. State of Karnataka and Others, which held that decisions taken by government or statutory authorities in public law matters cannot be challenged under Section 60(5) of the IBC. The NCLT's jurisdiction is limited to insolvency resolution-related questions and cannot extend to matters outside this scope.

3. Conflict between IBC and Prohibition of Benami Property Transactions Act, 1988:
The Applicant argued that the IBC, being a later special Act, should prevail over the Prohibition of Benami Property Transactions Act, 1988. However, the Respondents countered that both Acts have distinct purposes and should operate within their respective domains. The judgment in Deputy Director, Directorate of Enforcement Vs. Axis Bank & Ors. was cited, emphasizing that the government does not act as a creditor under the Prohibition of Benami Property Transactions Act, and its objectives differ from those of the IBC.

4. Effect of Moratorium under IBC on Provisional Attachment Orders:
The Applicant claimed that the provisional attachment violated the moratorium under Section 14 of the IBC, which prohibits transferring or charging the Corporate Debtor's assets during the CIRP. The Respondents argued that the attached properties were not part of the Corporate Debtor's assets but vested with the government, thus not subject to the moratorium. The NCLT noted that the moratorium ends upon the commencement of liquidation or approval of a resolution plan. Since the Corporate Debtor was ordered for liquidation, the moratorium had ended, and the provisional attachment could not be stayed based on the moratorium.

Conclusion:
The NCLT concluded that the provisional attachment order dated 01.11.2019 was within the legal framework of the Prohibition of Benami Property Transactions Act, 1988. The NCLT did not have jurisdiction to revoke the attachment under Section 60(5) of the IBC. The applications MA(IBC)/05(CHE)/2020 and IA(IBC)/599(CHE)/2021 were dismissed, and the provisional attachment remained in effect. The NCLT emphasized that the Liquidator could proceed under the relevant sections of the Prohibition of Benami Property Transactions Act to challenge the attachment if necessary.

---