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S. Rajendran v. The Deputy Commissioner of Income Tax (Benami Prohibition) & Ors.

Civil Appeal · 2026 INSC 187Decided 24 Feb 2026
C.A. No.-007140 - 2022
Justice Pamidighantam Sri Narasimha · Justice Atul S. Chandurkar · Justice Alok Aradhe

Background

This batch of appeals involved corporate debtors (including Padmaadevi Sugars Ltd.) whose properties were provisionally attached by tax authorities under the Prohibition of Benami Property Transactions Act, 1988, after investigations linked a benami sale of company shares (allegedly to V.K. Sasikala, paid for in demonetised currency) to the company's assets. While the companies were separately undergoing liquidation under the Insolvency and Bankruptcy Code (IBC), their liquidators tried to challenge the Benami attachment orders before the NCLT/NCLAT, arguing the IBC's moratorium and liquidation-estate provisions should override the Benami proceedings. Both the NCLT and NCLAT held they had no jurisdiction to entertain such a challenge, since the Benami Act has its own dedicated appellate mechanism.

Decision Breakdown

The Supreme Court dismissed the appeals, holding that orders passed under the Benami Act cannot be challenged before authorities constituted under the IBC. It held both statutes are "special" laws, but the Benami Act's attachment and confiscation process is a sovereign, in rem public-law function distinct from private debt-recovery proceedings, so the IBC's moratorium (meant to protect against creditor action) does not stay it. Property already confirmed as benami and vested in the Central Government under Section 27 of the Benami Act was also held to fall outside the "liquidation estate" under Section 36 of the IBC, since a benamidar has no beneficial ownership to distribute to creditors. The Court found the liquidators' repeated attempts to route this challenge through the IBC forums, despite clear rulings that the Benami Act's own appellate hierarchy was the only proper avenue, amounted to an abuse of process.

Lesson Learnt

Insolvency proceedings under the IBC cannot be used as a backdoor to challenge sovereign, penal actions (like Benami property attachment) taken under a separate specialised statute: a party must exhaust the appellate remedy built into that specific law instead of forum-shopping through the NCLT/NCLAT.

Official source (sci.gov.in)View Judgment (PDF)

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