Padmaadevi Sugars, a company which the Income Tax department believes to be a ‘benami’ company of VK Sasikala, a close confidant of former Chief Minister of Tamil Nadu, J Jayalalitha, has brought into focus a point of law. 

If the IT department has sent a provisional attachment order and a show-cause notice for attaching the properties of a company (in this case, Padmaadevi Sugars) and later if the company has gone into liquidation under the Insolvency and Bankruptcy Code, which law shall prevail? 

The applicant, Mudapallur Varieth Gangadharan, who is the Resolution Professional of Padamaadevi Sugars, praying for quashing the provisional attachment of the IT department, noted that as a general principle, if two special Acts are in conflict with each other, then the Act that came in later should prevail, as per the maxim ‘leges posteriores priores conterarias abrogant‘.  

On the other hand, the IT department stressed that the Courts had held that where an Act has a distinct purpose, it shall have precedence. To support this, the department placed reliance on a Delhi High Court decision in Deputy Director, Director of Enforcement Vs Axis Bank. In this case, the Court held that when the government exercises its power under the Prevention of Money Laundering Act to seek attachment leading to confiscation of proceeds of crime, the government does not stand as a creditor, nor the offending person acquires the status of a debtor. In this case, the PMLA was seen to be in conflict with Recovery of Debts and Bankruptcy Act, the SARFAESI and the IBC. The High Court said that the three legislations do not prevail over PLMA. 

So, which law should prevail in the Padmaadevi Sugars case—the Benami Act or the IBC? 

The NCLT, Chennai Bench, comprising Justice (retd) S Ramathilangam, Judicial Member and B Anil Kumar, Technical Member, just held that the two special Acts were not in conflict with each other, in the first place. They said that while the ‘later Act prevails’ is a maxim that holds, but only if there is a conflict between two pieces of legislation.  

The applicant argued that unless the provisional attachment order is quashed, the liquidator would not be able to proceed further with the liquidation process. 

But NCLT said: “The liquidator can add the said property to the liquidation estate and proceed with liquidation proceedings, if the said properties are part of the liquidation asset, unless proved otherwise.” 

The IT department said that during its investigation and search action in November 2017, it had seized incriminating documents that establish that “during the period of demonetisation, an amount of ₹386 crore was paid for the purchase of the immovable property of Padmaadevi Sugars,” which the sellers, respondents in this case, had admitted.

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