NCLAT Chennai: NCLT Not the proper FORA to Determine Controversies Related to Attachment of Property under Benami Prohibition Act

NCLAT Chennai: NCLT Not the proper FORA to Determine Controversies Related to Attachment of Property under Benami Prohibition Act

The National Company Law Appellate Tribunal (NCLAT), Chennai by its division bench of Justice M. Venugopal (Judicial Member) and Shri Naresh Salecha (Technical Member), observed, that the ‘Attachment,’ made as per Section 24(3) of The Prohibition of Benami Property Transactions Act, 1988 (PBPT Act), cannot be a ‘subject matter’ of proceedings, under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (IBC). Further, the Adjudicating Authority (National Company Law Tribunal), is not the proper FORA to determine the controversies, revolving around the `Attachment’ of the `Property,’ under The Prohibition of Benami Property Transactions Act, 1988.

The background of the case is that M/s. Senthil Paper and Boards Private Ltd. (“Corporate Debtor”) was admitted into Corporate Insolvency Resolution Process (“CIRP”). Subsequently, on 14 February, 2019 the Adjudicating Authority ordered Liquidation of the Corporate Debtor and appointed a Liquidator.

The Deputy Commissioner of Income Tax (Benami Prohibition) on 1 November, 2019 issued a Show Cause Notice and a Provisional Attachment Order, against the assets of the Corporate Debtor.

The Learned Counsel for the Appellant stated that in regard to the date of Moratorium and the Assets of the Corporate Debtor, were not purchased from the funds of the Benami Proceeds, and the Assets of the Corporate Debtor, was mortgaged in favor of the Secured Creditors, from the year 2013.

Per contra, the clear-cut stand of the Respondent was that, in the instant case, the Adjudicating Authority, having passed an Order, treating the Appellant’s Assets as Benami Assets, only the Appellate Tribunal, under PBPT Act, can test the veracity of the PBPT Adjudicating Authority.

The NCLAT stated that in the instant case, it was quite evident that the Respondent / Department had attached the `Property’ of the Corporate Debtor, as per the ingredients of the Provisions of The Prohibition of Benami Property Transactions Act, 1988. Therefore, an `Attachment’ effected, under The Prohibition of Benami Property Transactions Act, 1988, is to be assailed under the relevant provisions of the said Act, 1988, and in fact, the IBC 2016, only pertains to questions concerning the `Insolvency Resolution’ or `Liquidation Proceedings’ of the `Corporate Debtor’.

The bench observed, “the ‘Attachment’, made as per Section 24(3) of The Prohibition of Benami Property Transactions Act, 1988, cannot be a `subject matter’ of `proceedings’, under Section 60(5) of the IBC, 2016, in the considered opinion of this Tribunal. To put it differently, the `Adjudicating Authority’ (NCLT), is not the proper FORA, to determine the controversies, revolving around the `Attachment’ of the `Property’, under The Prohibition of Benami Property Transactions Act, 1988.”

The NCLAT pertinently pointed out that the onus has to be strictly discharged by adducing legal evidence of the Definitive Character, which would either directly prove the fact of `Benami’ or establish circumstances unerringly and reasonably, raising an inference of that fact.

The NCLAT said that it cannot be gainsaid that the Benami Transactions, are not confined to purchases only, and can extend to other Modes of Transfer, as well. The burden to establish `Benami’, lies on a `Person’, who asserts so. The relevant circumstances are:

(i) Source of Consideration;

(ii) The nature of Possession of Property;

(iii) The Motives, if any;

(iv) The position of the Parties;

(v) The custody of Title Deed and;

(vi) The conduct of Parties in dealing with the Property, after Sale.

In so far as the Revocation of the Attachment, effected by the Respondent / Department was concerned, the NCLAT opined that the PBPT Act, 1988, has a `Viable’, `Effective’ and `Efficacious Hierarchy’, to be resorted to, and the Appellant, is to take Recourse, to that Remedy. Even an Appeal mechanism, is provided, under the PBPT Act, 1988, for Redressal of Grievances, suffered by an Aggrieved Person.

“A mere running of the eye of the ingredients of Section 60(5) of the IBC, 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 IBC, 2016, for seeking remedy concerning the matter, relating to PBPT Act, 1988,” stated the NCLAT.

The NCLAT highlighted that it is important to remember that a Moratorium, under Section 14 of the IBC, 2016, does not affect the `Provisional Attachment Order’, passed under PBPT Act. The object of the PBPT Act 1988, is to Prohibit the Benami Transactions, and the right to redeem / recover, the Property, held Benami, for matters connected therewith or incidental thereto.

Lastly, the bench concluded by stating that only when a Resolution Plan was approved by the Adjudicating Authority (Tribunal), Section 32A of the IBC, 2016, gets attracted. An Adjudicating Authority (Tribunal), cannot traverse upon matters which is beyond its scope.

The NCLAT precisely held that issues/disputes, pertaining to an `Attachment,’ effected under PBPT Act, 1988, cannot be gone into, by an Adjudicating Authority (Tribunal), under the IBC, 2016. In short, the Appellant / Liquidator, cannot take umbrage, either under the ingredients of Section 32A, coupled with Section 60(5) of the IBC, 2016.

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