2022 (8) TMI 933 - AT - Insolvency and Bankruptcy

Tribunal dismisses challenge to property attachment during moratorium under IBC, citing Benami Act rules.

The tribunal held that the appellant's applications challenging the attachment of immovable property during the moratorium period under the Insolvency and ... Moratorium under Section 14 of the Insolvency & Bankruptcy Code, 2016 - provisional attachment under The Benami Transactions (Prohibition) Act, 1988 (as amended) - conflict between IBC and special statutes - maintainability of IBC applications to challenge attachments under special statutes - jurisdictional competence to challenge attachment orders under the Benami Act - supremacy of Section 238 of the Insolvency & Bankruptcy Code, 2016Moratorium under Section 14 of the Insolvency & Bankruptcy Code, 2016 - provisional attachment under The Benami Transactions (Prohibition) Act, 1988 (as amended) - conflict between IBC and special statutes - Whether provisional attachment of immovable property under the Benami Act is barred by the moratorium under Section 14 of the IBC - HELD THAT: - The Tribunal examined whether the IBC moratorium prevents authorities from proceeding under a special statute to effect provisional attachment. Having considered submissions and relevant precedents relied upon by the parties, the Tribunal accepted that laws operating in different fields (special statutes) permitting attachment or forfeiture are not necessarily rendered inoperative by the IBC moratorium. The Tribunal also noted that where a statute contains its own procedure and remedies for attachment, challenge to such attachment must ordinarily follow the procedural code of that statute rather than be subsumed into IBC proceedings. On that basis, the impugned provisional attachment under the Benami Act was not held to be automatically barred by Section 14 of the IBC.Attachment under the Benami Act is not per se prohibited by the moratorium under Section 14 of the IBC in the facts of this case.Maintainability of IBC applications to challenge attachments under special statutes - jurisdictional competence to challenge attachment orders under the Benami Act - procedural hierarchy under special statutes - Whether the Resolution Professional / Liquidator could maintain MA(IBC)/05(CHE)/2020 and MA(IBC)/543(CHE)/2022 before the Adjudicating Authority (NCLT) to challenge Benami Act attachments - HELD THAT: - The Tribunal held that the challenge to provisional attachment effected under the Benami Act must be attempted under the Benami Act's inbuilt procedure and remedies. The Appellate Tribunal observed that the NCLT is not the appropriate forum to adjudicate the correctness of attachments effected under the Benami Act and that invoking IBC provisions (such as Section 32A or Section 60(5)) to circumvent the special statute's procedural code was impermissible. The Tribunal emphasised that the Applicant cannot supplant or avoid the procedural hierarchy prescribed by the Benami Act and that an application before the Adjudicating Authority was therefore misconceived and not maintainable.The miscellaneous applications filed before the Adjudicating Authority to challenge the Benami Act attachment were not maintainable and are dismissed.Supremacy of Section 238 of the Insolvency & Bankruptcy Code, 2016 - interaction of competing non obstante clauses - Whether the IBC (by virtue of Section 238) overrides the Benami Act so as to permit the Resolution Professional to ignore or vacate attachments effected under the Benami Act within the liquidation process - HELD THAT: - While submissions were made invoking the overriding effect of Section 238 of the IBC, the Tribunal analysed the matter in light of the nature and scope of the Benami Act and the procedural remedies it provides. The Tribunal concluded that mere invocation of Section 238 does not authorize the Resolution Professional to bypass the specific procedure for challenging Benami attachments under the Benami Act. The Tribunal treated the Benami Act as a self contained special statute for attachment and remedy and held that the IBC does not enable the Adjudicating Authority to assume jurisdiction to decide upon the correctness of such attachments outside the Benami Act's framework.Section 238 of the IBC does not operate so as to render the Benami Act's attachment procedure inapplicable or to confer jurisdiction on the Adjudicating Authority to entertain challenges that must be decided under the Benami Act.Final Conclusion: The Company Appeal (AT)(INS) No.292/2022 is dismissed as devoid of merit. The miscellaneous applications MA(IBC)/05(CHE)/2020 and MA(IBC)/543(CHE)/2022 before the Adjudicating Authority were held not maintainable and are dismissed; the Tribunal declined to entertain substantive challenges to provisional attachment under the Benami Act in IBC proceedings. Issues Involved:1. Legality of the attachment of immovable property of the Corporate Debtor during the moratorium period under the Insolvency and Bankruptcy Code (IBC), 2016.2. The interplay between the Insolvency and Bankruptcy Code, 2016, and The Benami Transactions (Prohibition) Act, 1988.3. Whether the National Company Law Tribunal (NCLT) has the jurisdiction to entertain applications related to the attachment under The Benami Transactions (Prohibition) Act, 1988.Issue-Wise Detailed Analysis:1. Legality of the Attachment of Immovable Property During Moratorium:The appellant contended that the attachment of the immovable property of the Corporate Debtor by the respondent was illegal as it was done during the moratorium period under Section 14 of the Insolvency & Bankruptcy Code, 2016. The appellant cited several Supreme Court judgments, including 'Alchemist ARC Vs Hotel Gaudavan Private Limited (2018) 16 SCC 94' and 'Anand Rao Korada Vs Varsha Fabrics - taxman.com 474 (2019)', to support the argument that such attachments are non-est in the eye of law during the moratorium period.The respondent countered that Section 14 of the IBC does not prohibit actions under The Benami Transactions (Prohibition) Act, 1988, and cited the judgment of the Hon'ble Madras High Court in Deputy Director, Office of the Joint Director, Directorate of Enforcement -Versus- Asset Reconstruction Company India Limited, which held that the moratorium under Section 14 of the IBC does not affect provisional attachment orders under the Prevention of Money Laundering Act, 2002.2. Interplay Between IBC, 2016 and The Benami Transactions (Prohibition) Act, 1988:The appellant argued that the IBC, being a special enactment, overrides The Benami Transactions (Prohibition) Act, 1988, as per Section 238 of the IBC. The appellant also pointed out that the immovable properties attached by the respondent were mortgaged with financial creditors before the attachment order and thus should not be subject to the Benami Act.The respondent argued that the attachment under The Benami Transactions (Prohibition) Act, 1988, is valid and that the NCLT does not have jurisdiction to entertain applications challenging such attachments. The respondent cited the judgment in Kiran Shah-Versus-Enforcement Directorate, Kolkata, which held that the moratorium under the IBC does not hinder actions under the Prevention of Money Laundering Act, 2002.3. Jurisdiction of NCLT to Entertain Applications Related to Attachment Under The Benami Transactions (Prohibition) Act, 1988:The tribunal observed that the attachment under The Benami Transactions (Prohibition) Act, 1988, can only be challenged under the said Act, which is a self-contained code. The tribunal noted that the appellant cannot seek a public law remedy under the Benami Act before the NCLT.The tribunal also noted that the provisional attachment dated 01.11.2019 was affirmed on 10.11.2021 by the competent authority under Section 24(3) of The Benami Transactions (Prohibition) Act, 1988. The tribunal concluded that the appellant cannot circumvent the procedural hierarchy established under the Benami Act by filing applications before the NCLT.Conclusion:The tribunal held that the applications filed by the appellant before the NCLT were not maintainable in law. The tribunal dismissed the appeal, stating that the appellant is not entitled to prefer applications under the IBC to challenge the attachment under The Benami Transactions (Prohibition) Act, 1988. The tribunal emphasized that the procedural wrangle under the Benami Act must be adhered to and followed by the aggrieved parties.In fine, the tribunal dismissed the instant Company Appeal (AT)(INS) No.292/2022 and closed the connected IA/612/2022 (for Stay). The applications MA(IBC)/05(CHE)/2020 and MA(IBC)/543(CHE)/2022 filed by the Resolution Professional and Liquidator of M/s. Padmaadevi Sugars Ltd. before the NCLT were also dismissed as not maintainable in law.