Benami Act Attachment Cannot Be Challenged Under IBC: Supreme Court Draws the Line in 2026

The Supreme Court resolved a significant conflict between two major enforcement statutes in February 2026. In S. Rajendran v. The Deputy Commissioner of Income Tax (Benami Prohibition), reported as 2026 INSC 187 and decided on 24 February 2026, the Court held that an attachment order passed under the Prohibition of Benami Property Transactions Act, 1988 cannot be challenged before the National Company Law Tribunal or the National Company Law Appellate Tribunal under the Insolvency and Bankruptcy Code, 2016. The ruling has important consequences for insolvency resolution professionals, lenders, and resolution applicants conducting due diligence on corporate debtors.

The Conflict Between the Benami Act and the IBC

The Prohibition of Benami Property Transactions Act, 1988, as amended in 2016, empowers income tax authorities to attach and ultimately confiscate property held in the name of a fictitious person or a person who paid no consideration for it, in order to conceal true ownership. The IBC imposes a moratorium under Section 14 once a corporate insolvency resolution process begins, staying all legal proceedings against the corporate debtor and its assets. The tension arises when property belonging to a corporate debtor is simultaneously subject to Benami Act attachment, creating uncertainty about which statutory regime prevails.

The Court's Reasoning: Sovereign Act vs Creditor Action

The Supreme Court held that the Section 14 moratorium under the IBC is designed to protect the corporate debtor from creditor actions aimed at debt recovery, not from sovereign enforcement actions taken to deal with criminally tainted assets. The Benami Act is concerned with identifying and extinguishing benami holdings through a confiscatory mechanism grounded in public law. Permitting the IBC to override Benami Act attachments would create an indirect route for shielding tainted property from the State's enforcement powers, which was never the legislative intent of either statute.

NCLT Has No Jurisdiction to Review Benami Attachments

The Court expressly held that the NCLT cannot sit in judicial review over attachment orders passed under the Benami Act. The Benami Act provides its own complete mechanism for identifying, attaching, adjudicating, and confiscating benami properties, with its own appellate structure under the Adjudicating Authority and the Appellate Tribunal. Any challenge to a Benami Act attachment must travel through that statutory route. The Court emphasised that the IBC does not provide an indirect route to challenge sovereign acts validly undertaken under a penal statute for the confiscation of tainted property.

Practical Takeaways

Insolvency resolution professionals, lenders, and resolution applicants must account for outstanding Benami Act attachment orders when conducting due diligence on corporate debtors. A resolution plan that assumes unencumbered title to an asset subject to Benami Act attachment may face serious challenges. Any allegation that property belongs to the corporate debtor must be tested against the possibility that income tax authorities have already initiated, or could initiate, Benami proceedings. Early identification of such exposure before the plan is submitted to the Committee of Creditors is essential. Resolution applicants should request disclosure from the resolution professional about any Benami Act notices or attachment orders affecting assets of the corporate debtor.