S 32A of IBC Bars Action against CD’s Property for Pre‑CIRP Offences: Madras HC Blocks Benami Attachment
Applying the Solidaire India principle, the Court held that IBC’s overriding clause prevails over the PBPT Act in case of conflict.
In a recent ruling on the interplay between the Insolvency and Bankruptcy Code, 2016 (IBC) and the Prohibition of Benami Property Transactions Act, 1988, (PBPT) the Madras High Court has held that Section 32A of the IBC bars any action against the corporate debtor’s property for offences committed prior to the commencement of the Corporate Insolvency Resolution Process (CIRP)....
In a recent ruling on the interplay between the Insolvency and Bankruptcy Code, 2016 (IBC) and the Prohibition of Benami Property Transactions Act, 1988, (PBPT) the Madras High Court has held that Section 32A of the IBC bars any action against the corporate debtor’s property for offences committed prior to the commencement of the Corporate Insolvency Resolution Process (CIRP).
The Court therefore restrained the Income Tax Department from enforcing the benami attachment over “Milanem Mall”, a commercial property standing in the name of the petitioner, now under new management pursuant to an NCLT‑approved Resolution Plan.
The petitioner Milan Textile Enterprises Pvt. Ltd., challenged the provisional attachment order dated 01.11.2019 and the continuation order dated 28.01.2020 issued under Section 24 of the PBPT Act.
Also Read:ITC Denial for Supplier’s GSTR-1 Default Iniquitous: Gauhati HC Reads Down S.16(2)(aa) CGST/AGST in Mcleod Russel Case to Safeguard Bona Fide Purchasers [Read Order]
While an appeal against the confirmation of attachment was pending before the PBPT Appellate Tribunal, the petitioner,now under a new management inducted through CIRP,a pproached the High Court invoking Section 32A protection.
The Department objected, arguing that parallel remedies cannot be pursued and that benami property does not fall within the expression “property of the corporate debtor”.
Justice Swaminathan first addressed maintainability. While acknowledging the principle in Jai Singh v. Union of India (AIR 1977 SC 898) that parallel remedies cannot be pursued, the Court invoked the more flexible approach in S.J.S. Business Enterprises v. State of Bihar (2004) 7 SCC 166, noting that the appeal was filed by the erstwhile management and the new management could not withdraw it.
More importantly, the PBPT Appellate Tribunal lacked jurisdiction to decide the effect of Section 32A of the IBC. Thus, the writ petition was held maintainable.
The core issue was whether Section 32A(2) of the IBC, read with Section 238, overrides the PBPT Act’s attachment mechanism. Both statutes contain overriding clauses,Section 238 of the IBC and Section 67 of the PBPT Act. The Court invoked the well‑known “two arrows” metaphor: “when two arrows of equal strength meet mid‑air, they may cancel each other, but overriding clauses do not behave that way”.
Instead, applying the rule in Solidaire India Ltd. v. Fairgrowth Financial Services Ltd. (2001), the Court held that when two special statutes contain non‑obstante clauses, the later statute prevails.
Since the IBC (2016) is later in time than the PBPT Act (1988), Section 238 of the IBC prevails in case of conflict. This principle was reaffirmed in Kotak Mahindra Bank Ltd. v. Girnar Corrugators Pvt. Ltd. (2023)
The Court then examined the scope of Section 32A(2), which bars “any action” against the “property of the corporate debtor” relating to an offence committed before CIRP. The term “property” is unqualified and must be given its widest amplitude, consistent with Section 3(27) of the IBC.
The Department’s argument that benami property is not “property of the corporate debtor” was rejected. The court relied on the statutory scheme of the PBPT Act itself: while benami transactions are prohibited, the benamidar continues to hold the property until the Central Government confiscates it.
The Court used the “temple hundiyal” metaphor, once a coin is dropped, it cannot be reclaimed, to illustrate that the beneficial owner cannot recover the property, and until confiscation, the benamidar remains the holder. Thus, the property remains “property of the corporate debtor” for purposes of Section 32A.
The Department also invoked Section 57 of the PBPT Act, which nullifies transfers after issuance of notice.
The Court rejected this argument, holding that a change in management under a Resolution Plan is not a “transfer” of property. The property remains with the same corporate debtor; only the management changes through a statutory process.
While the Court declined to quash the attachment orders, holding that they were validly passed, it declared that they cannot be enforced against the property due to the “impregnable firewall” created by Section 32A.
The Resolution Plan approved by the NCLT thus operates as a complete shield against further action.
Allowing the writ petition, the Court held that the new management must begin with a clean slate, and no action under the PBPT Act can proceed against the corporate debtor’s property for pre‑CIRP offences.
Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
