Benami property and corporate debtor assets during insolvency protected; NCLT-approved resolution plan and new management insulated from actions

Interaction between prohibition of benami transactions and corporate insolvency law: the court held that assets of the corporate debtor under the insolvency resolution process include properties held benami, and that an NCLT-approved change of management pursuant to an approved resolution plan does not constitute a transfer within the meaning of the benami regime; consequently the approved resolution plan and new management are entitled to protection from actions against those properties, while the benamidar continues to hold title until lawful confiscation by the Central Government. Writ allowed on these terms.

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Issues: Whether, upon approval of a resolution plan under Section 31 of the Insolvency and Bankruptcy Code, 2016 resulting in a change in management, Section 32A(2) of the Code (read with Section 238) bars action (including attachment) against properties of the corporate debtor that are covered by the resolution plan even if those properties are alleged to be held benami under the Prohibition of Benami Property Transactions Act, 1988.

Analysis: Section 32A(2) provides that no action shall be taken against the property of the corporate debtor in relation to an offence committed prior to the commencement of CIRP where such property is covered by an approved resolution plan that results in change in control; the term "property of the corporate debtor" is unqualified and of wide amplitude. Section 32A(1) contains a non-obstante clause and Section 238 of the IBC gives the Code overriding effect over other laws. Where the resolution plan approved by the Adjudicating Authority covers the attached property and results in change of control to persons not falling within the excepted categories, the combined effect of Section 32A(2) and Section 238 precludes actions against such property, including attachment, notwithstanding provisions of the PBPT Act. The PBPT Act recognises the benamidar as the holder of the property until confiscation by the State and Section 57 (prohibiting transfers after notice) does not apply where there has been no transfer of the property but only a change in the company's management pursuant to an NCLT-approved resolution plan. Parallel remedy considerations do not bar exercise of the court's jurisdiction where the new management cannot effectively pursue or withdraw an appeal filed by the erstwhile management and where the issue (application of Section 32A) falls outside the appellate tribunal's jurisdiction.

Conclusion: Section 32A(2) of the Insolvency and Bankruptcy Code, 2016 (read with Section 238) protects properties of the corporate debtor covered by an NCLT-approved resolution plan that effects change in control from action (including attachment) in relation to offences committed prior to commencement of CIRP; this protection extends to properties alleged to be held benami where the property is included in the resolution plan and the excepted categories in Section 32A are not attracted. The writ petition is allowed on these terms and the impugned attachment orders shall not be acted upon in respect of the subject properties covered by the approved resolution plan until further order.

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