As SEBI Settles Adani’s MPS Violations for Peanuts, the Supreme Court Tightens the Noose on IBC Promoters

For Indian corporate lawyers, the closing months of 2026 have delivered a masterclass in the stark dualities of our regulatory and insolvency regimes. On one end of the spectrum, the Securities and Exchange Board of India (SEBI) has signaled that high-profile market violations can be quietly buried for pocket change. On the other, the Supreme Court is aggressively expanding the teeth of the Insolvency and Bankruptcy Code (IBC), systematically stripping away the procedural shields long exploited by promoters.

If you are advising lenders, promoters, or navigating the crumbling infrastructure of the National Company Law Tribunal (NCLT), here is why the latest developments fundamentally alter your litigation strategy.

The SEBI-Adani Settlement: A ₹14.82 Million Slap on the Wrist

In a move that surprised absolutely no one but frustrated many capital markets practitioners, SEBI has allowed Gautam Adani and four Adani group companies to settle proceedings over alleged violations of the 25% Minimum Public Shareholding (MPS) requirement. The cost of making this regulatory headache disappear? A paltry ₹14.82 million paid collectively by the firms and 14 directors.

Let’s put this in perspective. The MPS rule under Rule 19A of the Securities Contracts (Regulation) Rules, 1957 is the bedrock of market integrity, designed to prevent price manipulation by ensuring adequate free float. Settling such a critical violation for less than ₹1.5 crore via the SEBI (Settlement Proceedings) Regulations, 2018, sends a very specific message to the market.

"For securities lawyers, the takeaway is crystal clear: Do not litigate SEBI show-cause notices on disclosure or public-float issues if your client has the liquidity to settle. The regulatory bite is toothless when the settlement mechanism offers a 'no admission of guilt' exit for negligible sums."

Supreme Court to Promoters: The Section 14 Moratorium Will Not Save You

While SEBI is handing out settlement orders, the Supreme Court is slamming doors shut for corporate debtors' promoters. In a landmark clarification of Section 14 of the IBC, the Apex Court ruled that the statutory moratorium protects only the Corporate Debtor (CD)—not its promoters, directors, or third-party landowners.

For years, promoters have successfully stalled parallel civil and criminal proceedings by hiding behind the CD’s CIRP moratorium. This judgment formally severs that lifeline. If you represent financial creditors, you now have the green light to aggressively pursue promoters' personal assets and initiate proceedings against third-party collateral providers without waiting for the CIRP to conclude.

Further arming creditors, the Supreme Court has definitively ruled that corporate guarantee liability constitutes "financial debt" under Section 5(8) of the IBC. Paired with another recent ruling—that a Section 13(2) SARFAESI demand notice is sufficient to invoke a guarantee for the purposes of initiating Personal Guarantor (PG) insolvency under Section 95 of the IBC—the recovery playbook has been radically streamlined. Lenders no longer need convoluted invocation mechanisms; a standard SARFAESI notice now effectively primes the IBC trigger.

The Section 65 Paradox: Fraudulent Triggers Don't Kill the CIRP

In perhaps the most jurisprudentially fascinating ruling of the quarter, the Supreme Court held that a Corporate Insolvency Resolution Process (CIRP) can continue even if the insolvency plea that triggered it was fraudulent.

Under Section 65 of the IBC, fraudulent or malicious initiation of proceedings is penal in nature. Historically, defending counsels argued that if the foundation (the Section 7 or 9 petition) is tainted by fraud, the entire CIRP superstructure must collapse. The Supreme Court has rightly rejected this.

Why this matters in practice: Once admitted, CIRP is an action in rem. The Committee of Creditors (CoC) takes the reins. Scrapping the CIRP because the original applicant acted in bad faith would severely prejudice third-party resolution applicants and the broader creditor pool. For restructuring lawyers, this means you can no longer torpedo an advanced CIRP by merely unearthing dirt on the original petitioning creditor. The focus must remain on the resolution of the CD.

IBC Overrides Securities Law: The Demat De-Freezing Precedent

The turf war between SEBI and the IBC continues, and the IBC is winning. The NCLAT recently upheld the NCLT’s power to order the de-freezing of a Corporate Debtor’s demat accounts, overriding disputes involving the BSE and securities law. Relying on the non-obstante clause in Section 238 of the IBC, the tribunal reaffirmed that asset preservation for the CD supersedes capital market freezing orders. Insolvency professionals can now breathe easier knowing they have the statutory backing to unlock frozen liquid assets essential for keeping the CD as a going concern.

Cosmetic Reforms in a Collapsing Tribunal

All these sweeping jurisprudential victories for creditors mean absolutely nothing if the tribunal machinery is broken. And right now, the NCLT is in crisis.

Due to a severe shortage of technical and judicial members, 18 NCLT benches are currently holding half-day sittings. The Acting President has been forced to allow single-bench judicial members to hear certain matters just to keep the wheels turning. The situation is dire enough that the Supreme Court has demanded a status report from the Centre on NCLT infrastructure.

Against this backdrop, the NCLT Registry’s recent procedural reforms—mandating double-sided A4 paper filings across all benches and introducing a uniform "With Defects" mechanism for initial case listings—feel like rearranging deck chairs on the Titanic. Uniform registry practices are desperately needed, yes, but litigators don't need thinner case files; they need Judges on the bench.

The Bottom Line: If you are practicing corporate law in India today, you are operating in a bifurcated reality. You have an incredibly powerful, pro-creditor insolvency statute being sharpened by the Supreme Court, hindered only by a severely bottlenecked NCLT. Meanwhile, across town at SEBI, the biggest corporate players are proving that with the right settlement application, even the most critical market violations can simply be made to disappear.