No conflict between Benami Real Estate Transactions Prohibition Act, 1998 and IBC, 2016 regarding seizure of property: NCLT, Chennai Bench

the NCLT, Chennai Bench made up of Justice (retired) S. Ramathilangam, Judicial member and B. Anil Kumar, Technical Member in Sri. Mudapallur Varieth Gangadharan c. The Deputy Commissioner of Income Tax ruled that there was no conflict between the Benami Property Transactions Prohibition Act 1988 and the Insolvency and Bankruptcy Code 2016 regarding seizure of property, as both are special laws.

Factual background-

In the order admitting the Section 7 claim by which the CIRP was initiated, the real property and the machinery and equipment were turned over to the resolution professional.

The debtor company has received an interim foreclosure order and notice of cause u/s 24(3) of the Benami Property Transactions Prohibition Act 1988, prohibiting the debtor company from transferring or invoicing the properties mentioned in the show cause order until further notice or up to 90 days end of month from the date of the show cause notice.

Subsequently, an order for the liquidation of the debtor company was issued.

The plaintiff, who is the liquidator of the debtor company, M/s. Padmaadevi Sugars Ltd. filed an application with NCLT, Chennai Bench, requesting the cancellation of the interim seizure order on the property of the debtor company, which was to be part of the liquidation estate. The liquidator argued that this prevented him from continuing the liquidation process.

Arguments of the parties-

The Applicant relied on the judgment of the Supreme Court in Alchemist Asset Reconstruction Company Ltd. vs. Hotel Gaudavan Pvt. ltd. in which it was held that once a moratorium is imposed under BAC, any proceedings brought against the debtor company are invalid at law.

Plaintiff argued that since the foreclosures arise out of claims against the debtor company, they fall within the jurisdiction of this u/s 60(5) awarding authority and the interim foreclosure orders are in violation of the moratorium imposed section 14, IBC.

The Respondent, in its counter argument, argued that the seizure order is not contrary to Article 14 of the Code. The respondent further argued that the foreclosed properties are not company property, but are vested in the government and therefore cannot be characterized as property of the debtor company. Subsection 60(5) gives the contracting authority the power to decide matters within the jurisdiction of IBC and the issue in this case does not fall within the scope of the Code.

Decision of the contracting authority-

The contracting authority noted that the moratorium ends in two circumstances:

  • At the beginning of the liquidation, or
  • After approval of the resolution plan

In this case, since the liquidation has begun, the moratorium has ended.

The judicial authority, refusing to stay the order made under the Benami Real Estate Transactions Prohibition Act 1988, which seized the assets of the debtor company, considered that the provisional seizure order had was made under the 1998 Act, which in itself has a due process stipulation for seizure of property u/s 7.

He ruled that the IBC, 2016 and the Prohibition of Benami Property Transaction Act, 1988 are two special laws. The general principle of interpretation in a circumstance where two special laws are in conflict with each other is that the law subsequently enacted shall prevail according to the maxim-‘leges posteriores priores conterarias abrogating’. However, there is no conflict between the 1988 law prohibiting property transactions in Benami and the 2016 code on insolvency and bankruptcy.

Consequently, the Liquidator may add the said assets to the liquidation estate and proceed with the liquidation procedure, if the said assets form part of the Liquidation Assets, unless proven otherwise.

Case title: Shri. Mudapallur Varieth Gangadharan c. The Deputy Commissioner of Income Tax

Claimant’s advice: S. Sathiyanarayanan, lawyer

Respondent’s Counsel: R. Sankaranarayanan, ASG and Pawan Jhabakh, Lawyer

Click here to read/download the order

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