No Conflict Between The Prohibition Of Benami Property Transaction Act, 1998 and IBC, 2016 Concerning Attachment Of Property: NCLT, Chennai Bench

Factual Background-

In the order admitting the Section 7 application by which CIRP was initiated, the immovable property along with the machinery and equipment were handed over to the Resolution Professional.

The Corporate Debtor received a Provisional Attachment Order and a show cause notice u/s 24(3) of the Prohibition of Benami Property Transactions Act, 1988, prohibiting the Corporate Debtor from transferring or charging the properties mentioned in the show cause order until further order or till 90 days from the end of the month from the date of the show cause notice.

Subsequently, an order for liquidation of the Corporate Debtor was passed.

The Applicant, who is the Liquidator of the Corporate Debtor, M/s. Padmaadevi Sugars Ltd. filed an application in NCLT, Chennai Bench seeking quashing of the order of Provisional Attachment on the property of the Corporate Debtor, which was to be part of the Liquidation Estate. It was contended by the Liquidator that the same is preventing him from proceeding further with the Liquidation Process.

Contentions Of The Parties-

The Applicant relied on the judgment of the Supreme Court in Alchemist Asset Reconstruction Company Ltd. v. Hotel Gaudavan Pvt. Ltd. wherein it was held that once a moratorium is imposed under IBC, any proceeding initiated against the Corporate Debtor is non-est in law.

The Applicant contended that since the attachments arise out of claims against the Corporate Debtor, it is within the jurisdiction of this Adjudicating Authority u/s 60(5) and the provisional attachment orders are in violation of the moratorium imposed Section 14, IBC.

The Respondent, in its counter, contended that the attachment order is not in violation of Section 14 of the Code. It was further contended by the Respondent that the properties attached are not properties of the company, but are vested with the Government and thus are not eligible to be qualified as properties of the Corporate Debtor. Section 60(5) vests the Adjudicating Authority with powers to decide questions within the purview of the IBC and the issue at hand in this case, is not within the scope of the Code.

Decision Of The Adjudicating Authority-

The Adjudicating Authority noted that moratorium comes to an end in two circumstances:

• On the commencement of liquidation, or
• Upon approval of the resolution plan

In the present case, since liquidation has commenced, moratorium has ended.

The Adjudicating Authority, refusing to stay the order passed under the Prohibition of the Benami Property Transaction Act, 1988 which attached the property of the Corporate Debtor, held that the order of provisional attachment was made under the 1998 Act, which in itself has a stipulated due process with respect to attachment of property u/s 7.

It held that the IBC, 2016 and Prohibition of Benami Property Transaction Act, 1988 are two special acts. The general principle of construction in a circumstance where two special Acts are in conflict with each other is that, the Act made later should prevail as per the maxim- 'leges posteriores priores conterarias abrogant'. However, there is no conflict between the Prohibition of Benami Property Transaction Act, 1988 and the Insolvency and Bankruptcy Code, 2016.

Consequently, the Liquidator can add the said property to the liquidation estate and proceed with liquidation proceedings, if the said properties are part of the Liquidation Asset, unless proved otherwise.

Case Title:Shri. Mudapallur Varieth Gangadharan v. The Deputy Commissioner of Income Tax

Counsel for Applicant: S. Sathiyanarayanan, Advocate

Counsel for Respondent: R. Sankaranarayanan, ASG and Pawan Jhabakh, Advocate

Click Here To Read/Download Order