NCLT and NCLAT Lack Jurisdiction Over Benami Property Attachments: Supreme Court Clarifies Limits of IBC
Introduction
The intersection of insolvency law and anti-money laundering or anti-benami legislation has increasingly generated complex jurisdictional disputes particularly where assets of a corporate debtor are subjected to attachment under special statutes. A recurring question has been whether insolvency forums can intervene when such attachments are challenged.
In a significant judgment dated 24 February 2026 in S. Rajendran v. Deputy Commissioner of Income Tax (Benami Prohibition), the Supreme Court decisively held that the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) do not have jurisdiction to adjudicate challenges to property attachments made under the Benami law framework.
The Court reaffirmed that the adjudicatory mechanism under the Prohibition of Benami Property Transactions Act, 1988 is a self-contained code, and cannot be bypassed by invoking the residuary jurisdiction of insolvency tribunals under the Insolvency and Bankruptcy Code, 2016.
This ruling is a critical addition to the evolving jurisprudence delineating the boundaries between insolvency proceedings and sovereign enforcement actions.
Table of Contents
Statutory & Doctrine Framework
Adjudicatory Scheme under the Benami Act
The Prohibition of Benami Property Transactions Act, 1988 (as substantially amended in 2016) establishes a comprehensive framework to prohibit benami transactions and provide for attachment and confiscation of such properties.
Key provisions include:
- Section 24: Empowers the Initiating Officer to provisionally attach suspected benami property
- Section 26: Vests the Adjudicating Authority with power to confirm attachment and order confiscation
- A dedicated appellate hierarchy, culminating in appeals to the High Court
The statute thus constitutes a complete code, with clearly defined forums and remedies.
Jurisdiction of NCLT under the IBC
The Insolvency and Bankruptcy Code, 2016 establishes the NCLT as the adjudicating authority for corporate insolvency and liquidation.
Relevant provisions include:
- Section 14: Imposes a moratorium on proceedings against the corporate debtor during the Corporate Insolvency Resolution Process (CIRP)
- Section 36: Defines the scope of the liquidation estate
- Section 60(5): Confers residuary jurisdiction on the NCLT over “any question of law or fact arising out of or in relation to insolvency resolution or liquidation”
While the IBC is often described as a comprehensive code on insolvency, its jurisdiction is not unbounded.
Principles Governing Conflicts Between Special Statutes
Where two special statutes operate in overlapping domains, courts apply:
- Harmonious construction
- Limited operation of non obstante clauses
- The principle that implied repeal is disfavoured unless irreconcilable conflict exists
The Supreme Court has consistently held that two special statutes must be allowed to operate in their respective fields, unless Parliament expressly provides otherwise.
Factual Background
The appellant, S. Rajendran, was a promoter of a corporate debtor undergoing CIRP under the IBC. During this process:
- The Initiating Officer under the Benami Act provisionally attached certain immovable properties alleged to be held benami
- The Adjudicating Authority confirmed the attachment
Instead of availing the statutory appellate remedies under the Benami Act, the appellant approached the NCLT, contending that:
- The attached properties formed part of the insolvency estate
- The attachment violated the moratorium under Section 14 of the IBC
- The NCLT could exercise jurisdiction under Section 60(5)
The NCLT rejected the application, holding that it lacked jurisdiction. This view was upheld by the NCLAT, leading to an appeal before the Supreme Court.
Issues Before the Supreme Court
- Whether proceedings under the Benami Act are hit by the moratorium under Section 14 of the IBC.
- Whether the residuary jurisdiction under Section 60(5) empowers the NCLT to examine the validity of benami property attachments.
- Whether property attached under the Benami Act forms part of the liquidation estate under Section 36 of the IBC.
Supreme Court’s Analysis
Coexistence of Two Special Statutes
The Court held that both the IBC and the Benami Act are special statutes operating in distinct fields:
- The IBC addresses insolvency resolution and value maximisation
- The Benami Act targets prohibition and confiscation of illicit property holdings
The Court rejected the argument that the IBC, being a later enactment, overrides the Benami Act. Instead, it applied the doctrine of harmonious construction, ensuring that both statutes operate without encroaching upon each other.
Moratorium Does Not Extend to Sovereign Actions
- The moratorium under Section 14 is intended to protect the corporate debtor from creditor actions
- It does not extend to sovereign or regulatory actions, including confiscation proceedings under penal or anti-benami laws
Thus, proceedings under the Benami Act are not barred by the IBC moratorium.
Limits of NCLT’s Residuary Jurisdiction
A central holding of the judgment is that:
- Section 60(5) does not confer unlimited jurisdiction on the NCLT
- The provision is confined to matters arising out of or directly connected with insolvency proceedings
The Court cautioned against interpreting this provision as transforming the NCLT into a general-purpose adjudicatory forum capable of reviewing actions under other special statutes.
Exclusive Forum under the Benami Act
The Court emphasised that:
- The Benami Act provides a complete adjudicatory mechanism, including appellate remedies
- Challenges to attachment or confiscation must be pursued within that statutory framework
Permitting such challenges before the NCLT would undermine the legislative scheme and encourage forum shopping.
Exclusion from Insolvency Estate
The Court also indicated that:
- Property alleged to be benami or tainted cannot automatically be treated as part of the liquidation estate
- Illegally held property does not vest in the corporate debtor in a manner that benefits creditors
Operative Directions
The Supreme Court:
- Dismissed the appeals
- Imposed exemplary costs for abuse of process
- Affirmed that remedies must be pursued under the Benami Act framework
- Clarified that NCLT/NCLAT lack jurisdiction over such disputes
Position Within Existing Jurisprudence
The ruling aligns with prior Supreme Court decisions concerning the interplay between insolvency law and enforcement statutes. In Directorate of Enforcement v. Manoj Kumar Agarwal1, the Court held that attachment proceedings under the Prevention of Money Laundering Act (PMLA) are not subject to the IBC moratorium. The present judgment extends similar reasoning to the Benami Act.
It also reinforces the principle that:
- NCLT’s jurisdiction is statutory and limited
- It cannot adjudicate matters falling within specialised statutory regimes
This is consistent with decisions such as ArcelorMittal India Pvt. Ltd. v. Satish Kumar Gupta2 and Jaypee Kensington Boulevard Apartments Welfare Association v. NBCC (India) Ltd.3, which emphasise that the powers of the NCLT are confined to the IBC framework.
Conclusion
The Supreme Court’s decision in S. Rajendran provides much-needed clarity on the jurisdictional boundaries between insolvency tribunals and statutory enforcement authorities.
The ruling establishes that:
- NCLT and NCLAT cannot entertain challenges to benami property attachments
- The IBC moratorium does not bar sovereign confiscatory actions
- Residuary jurisdiction under Section 60(5) is not plenary
- Litigants must seek remedies in the appropriate statutory forum
For practitioners, the judgment serves as a clear directive against attempting to use insolvency proceedings as a shield against enforcement under special statutes. More broadly, it reinforces a foundational principle of Indian statutory interpretation: specialised legal regimes must be respected within their designated spheres.
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