2022 (4) TMI 1436 - Tri - Insolvency and Bankruptcy

Validity of attachment order - direction to Respondents 2-4, to deposit to the credit of the account of the Corporate Debtor, received by them in lieu of alienating the property owned by the Corporate Debtor - HELD THAT - It is seen from the submissions and the documents that the 1st Respondent has only provisionally attached the said properties, which means that it is for a period of either until further orders or 90 days from the end of month from the date of the notice under Section 24(1) of the Prohibition of Benami Property Transaction Act, 1988; whichever is earlier. It can be seen that the Date of the order for attachment was 01.11.2019 and the date of filing the Application is 03.01.2020 which is only 63 days from the date of attachment order. The Applicant had sought that as the Corporate Debtor is undergoing CIRP, the provisional attachment Order of the 1st Respondent be raised, failure of which would result in liquidation of the Corporate Debtor. However, as it can be seen that the Corporate Debtor has been ordered for Liquidation, the present Application has become infructuous. The provisional attachment made by the Respondents comes under the statute of Prohibition of Benami Property Transaction Act, 1988 which in itself has stipulated a due process with respect to attachment of property under Section 7 of the same. As the Insolvency and Bankruptcy Code, 2016 and the Prohibition of Benami Property Transaction Act, 1988 are two special Acts, the Applicant has alleged that the former should prevail over the latter as the IBC, 2016 was framed in 2016 - The general principle for construction in a circumstance where two special Acts are in conflict with each other is that, the Act made later should prevail vide the maxim 'leges posteriores priores conterarias abrogant'. However, in the present case, as there is nothing to stop the Applicant/Liquidator herein to proceed under the relevant section to raise the provisional attachment. This Adjudicating Authority does not find any conflict between these two statutes as the Liquidator is not barred by IBC, 2016 to add the said property into the liquidation estate to proceed with the liquidation proceedings if the said properties are part of the Liquidation Asset unless it is proved otherwise - Application dismissed.

Summary

Issues Involved:
1. Provisional attachment of the Corporate Debtor's property.
2. Jurisdiction of the NCLT under Section 60(5) of the IBC.
3. Conflict between the Insolvency and Bankruptcy Code, 2016 (IBC) and the Prohibition of Benami Property Transactions Act, 1988.
4. Effect of moratorium under IBC on provisional attachment orders.

Issue-wise Detailed Analysis:

1. Provisional Attachment of the Corporate Debtor's Property:
The applications MA(IBC)/05(CHE)/2020 and IA(IBC)/599(CHE)/2021 sought to raise the provisional attachment order dated 01.11.2019 issued by the Deputy Commissioner of Income Tax (Benami Prohibition) against the Corporate Debtor's property. The attachment was based on allegations of benami transactions involving Rs. 386 Crores for the purchase of the Corporate Debtor's immovable property. The Applicant argued that the transaction was not reflected in the Corporate Debtor's books and was orchestrated by the 2nd Respondent, making the attachment order unsustainable.

2. Jurisdiction of the NCLT under Section 60(5) of the IBC:
The Respondents contended that the NCLT does not have jurisdiction to revoke the provisional attachment under the Prohibition of Benami Property Transactions Act, 1988. They relied on the Supreme Court judgment in Embassy Property Developments Pvt. Ltd. Vs. State of Karnataka and Others, which held that decisions taken by government or statutory authorities in public law matters cannot be challenged under Section 60(5) of the IBC. The NCLT's jurisdiction is limited to insolvency resolution-related questions and cannot extend to matters outside this scope.

3. Conflict between IBC and Prohibition of Benami Property Transactions Act, 1988:
The Applicant argued that the IBC, being a later special Act, should prevail over the Prohibition of Benami Property Transactions Act, 1988. However, the Respondents countered that both Acts have distinct purposes and should operate within their respective domains. The judgment in Deputy Director, Directorate of Enforcement Vs. Axis Bank & Ors. was cited, emphasizing that the government does not act as a creditor under the Prohibition of Benami Property Transactions Act, and its objectives differ from those of the IBC.

4. Effect of Moratorium under IBC on Provisional Attachment Orders:
The Applicant claimed that the provisional attachment violated the moratorium under Section 14 of the IBC, which prohibits transferring or charging the Corporate Debtor's assets during the CIRP. The Respondents argued that the attached properties were not part of the Corporate Debtor's assets but vested with the government, thus not subject to the moratorium. The NCLT noted that the moratorium ends upon the commencement of liquidation or approval of a resolution plan. Since the Corporate Debtor was ordered for liquidation, the moratorium had ended, and the provisional attachment could not be stayed based on the moratorium.

Conclusion:
The NCLT concluded that the provisional attachment order dated 01.11.2019 was within the legal framework of the Prohibition of Benami Property Transactions Act, 1988. The NCLT did not have jurisdiction to revoke the attachment under Section 60(5) of the IBC. The applications MA(IBC)/05(CHE)/2020 and IA(IBC)/599(CHE)/2021 were dismissed, and the provisional attachment remained in effect. The NCLT emphasized that the Liquidator could proceed under the relevant sections of the Prohibition of Benami Property Transactions Act to challenge the attachment if necessary.