NCLT Cannot Decide Controversies Relating To Attachment Of Property Under Benami Prohibition Act: NCLAT Chennai

Background Facts

M/s. Senthil Paper & Boards Private Ltd. (“Corporate Debtor”) was admitted into Corporate Insolvency Resolution Process (“CIRP”). Subsequently, on 14.02.2019 the Adjudicating Authority ordered Liquidation of the Corporate Debtor and appointed a Liquidator.

On 01.11.2019, the Deputy Commissioner of Income Tax (Benami Prohibition) sent a Show Cause Notice to the Corporate Debtor, under the Prohibition of Benami Property Transactions Act, 1988 (“PBPT Act”). The Income Tax Department alleged that the Land on which the factory of Corporate Debtor is located is a Benami Property. During Demonetization, Rs.400 Crores in `Old High Denomination Notes’ were given to Senthil Group for the purchase of the Paper Mill in Coimbatore District, belonging to Smt. Sasikala, through her Intermediaries, etc.

The Income Tax Department also issued a Provisional Attachment Order dated 01.11.2019 under PBPT Act and attached the concerned asset of the Corporate Debtor during Liquidation.

The Liquidator filed an application under Section 60(5) of IBC before the Adjudicating Authority, seeking setting aside of the Provisional Attachment Order and argued that IBC prevails over PBPT Act. On 29.03.2022, the Adjudicating Authority dismissed the application while observing that remedy lies before an appropriate forum and not NCLT.

The Liquidator challenged the Order dated 29.03.2022 before the NCLAT.

NCLAT Verdict

The Bench observed that the NCLT is not the proper Fora to determine the controversies revolving around the Attachment of Property under the Prohibition of Benami Property Transactions Act, 1988. Thus, the application filed by the Liquidator seeking setting aside of Attachment Order is not maintainable.

“A mere running of the eye of the ingredients of Section 60(5) of the Code, clearly indicates that it is not an all pervasive Section, conferring `Jurisdiction’, to an `Adjudicating Authority’ (`Tribunal’), to determine any questions, relating to the `Corporate Debtor’. One cannot fall back upon Section 60(5) of the I & B Code, 2016, for seeking `remedy’, concerning the matter, relating to `The Prohibition of Benami Property Transactions Act, 1988’, in the earnest opinion of this `Tribunal’.”

The Bench held that Section 60(5) of IBC does not confer jurisdiction upon NCLT to determine any questions relating to the Corporate Debtor and no remedy can be sought under the same with regards to the PBPT Act.

“It is to be remembered that a `Moratorium’, under Section 14 of the I & B Code, 2016, does not affect the `Provisional Attachment Order’, passed under `The Prohibition of Benami Property Transactions Act, 1988’.”

Further, Moratorium imposed under Section 14 of IBC does not affect a Provisional Attachment Order issued under PBPT Act.

The Bench upheld the Order of the Adjudicating Authority and dismissed the appeal.

Case Title: Mr. P. Eswaramoorthy v The Deputy Commissioner of Income Tax (Benami Prohibition)

Case No.: Company Appeal (AT) (CH) (INS) No. 188 of 2022

Counsel For Appellant: Mr. B. Dhanaraj, Advocate

Counsel For Respondent: Mr. R. Sankaranarayanan, Addl. Solicitor General For Mr. B. Ramana Kumar and Mr. Rajesh, Income Tax Standing Counsels.

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