Supreme Court Upholds Primacy of Benami Act over IBC; Bars NCLT from Reviewing Sovereign Attachment Orders

The Hon’ble Supreme Court, in its judgment dated February 24, 2026, addressed the critical question of whether the legality of a provisional attachment order passed under the Benami Act can be questioned before the adjudicatory fora of the IBC.

The batch of appeals arose from the Corporate Insolvency Resolution Process (CIRP) and subsequent liquidation of M/s Padmaadevi Sugars Ltd. (formerly S.V. Sugar Mills Ltd.). Investigation by Benami authorities revealed that the company’s promoters, the “Patel Group,” had transferred their 100% shareholding to a beneficial owner, V.K. Sasikala, through an intermediary for a consideration of approximately Rs. 450 Crores paid in demonetized currency notes. Based on these findings, the authorities issued provisional attachment orders against the company’s immovable properties, including its factory land and machinery.

The Appellant-Liquidator challenged these attachments before the National Company Law Tribunal (NCLT), arguing that the Section 14 moratorium interdicted the proceedings and that the assets should be included in the liquidation estate for value maximization. The NCLT and NCLAT concurrently dismissed these applications, holding that the Benami Act provides its own hierarchy of remedies.

The Hon’ble Supreme Court, while dismissing the appeals and imposing exemplary costs of Rs. 5 lakhs per appeal, held as follows:

1. Self-Contained Code: The Benami Act is a special, exhaustive legislation with a defined procedure for attachment, adjudication, and confiscation.

2. Public Law Domain: The NCLT cannot be elevated to a forum for judicial review over sovereign statutory powers exercised in the public law domain, such as the determination of title and confiscation under penal laws.

3. Scope of Moratorium: The Section 14 moratorium is intended to protect the corporate debtor from “creditor actions” for debt recovery, not to shield “tainted assets” from sovereign actions against statutory illegality.

4. Exclusion from Estate: Under Section 36 of the IBC, the liquidation estate comprises only assets beneficially owned by the debtor. Property held benami is, by definition, held in a fiduciary capacity for a third party and is expressly excluded from the estate.

5. Residuary Jurisdiction: The NCLT’s power under Section 60(5) does not extend to reviewing quasi-judicial orders passed under independent public law statutes.

6. Limits of Section 32A: Immunity under Section 32A is event-based and does not retrospectively validate defective title or convert benami property into distributable assets.

The ruling reinforces that the IBC cannot be employed as a mechanism to dilute sovereign actions aimed at identifying and extinguishing benami transactions. Ultimately, the Court clarified that when a liquidator seeks to exercise a right falling outside the realm of insolvency, they must approach the relevant competent authority rather than short-circuiting the process through the NCLT.

Importantly, the Court characterized the liquidator’s persistent appeals as a “complete abuse of the process,” noting that the legal position was already amply clear.