The Apex Predator: How NCLAT's 2026 Rulings Cement IBC's Absolute Supremacy Over SEBI and NCLT's "Equity" Adventures

The Turf War is Over, and Section 238 Has Won

For corporate insolvency practitioners, 2026 has brought absolute clarity on a lingering jurisdictional headache: what happens when the Insolvency and Bankruptcy Code (IBC) collides with the Securities and Exchange Board of India (SEBI)? The answer from the NCLAT is resounding. The IBC is the apex predator of Indian corporate law, and regulators like SEBI must step aside when the Corporate Insolvency Resolution Process (CIRP) kicks in.

The most consequential development this quarter is the NCLAT’s decisive ruling upholding the National Company Law Tribunal’s (NCLT) power to order the de-freezing of a Corporate Debtor’s (CD) demat accounts. Historically, SEBI has fiercely defended its turf, arguing that assets frozen under securities law for regulatory infractions cannot simply be unlocked by an insolvency court. SEBI has even moved the Supreme Court in the past to protect the sanctity of its enforcement actions from the sweeping arms of the IBC.

But the NCLAT has drawn a hard line in the sand, leaning heavily on the non-obstante clause in Section 238 of the IBC. For practicing lawyers, the implication is massive: an attachment or freeze by a statutory authority like SEBI no longer operates as an impenetrable shield against the Resolution Professional (RP). If the assets belong to the CD, they must form part of the insolvency estate.

"The Adjudicating Authority is not a rubber stamp for other regulators. When the objective is value maximization and asset preservation under the IBC, statutory freezes under securities law must yield to the insolvency process."

Why this matters for your practice: If you are advising an RP, you now have the jurisprudential ammunition to aggressively pursue defreezing of demat accounts and other SEBI-attached assets. If you represent SEBI or a similarly situated regulator, your litigation strategy must pivot. Relying on the primacy of special regulatory statutes is a losing battle against Section 238. You must now engage directly with the CIRP mechanisms rather than trying to blockade them from the outside.

NCLAT Reins in the NCLT: Stop Playing the "Court of Equity"

While the NCLAT has expanded the IBC’s external jurisdiction against SEBI, it has simultaneously clamped down heavily on the NCLT’s internal overreach. The appellate tribunal’s 2026 docket shows a clear trend of disciplining Adjudicating Authorities that try to inject "equity" into the rigid statutory framework of the IBC.

Take the recent case where the NCLT attempted to play Robin Hood by inserting a condition into an approved MSME resolution plan, mandating that 5% equity be reserved for public shareholders. The NCLAT swiftly struck this down. The law is settled: once a resolution plan complies with Section 30(2)(b) of the IBC—ensuring Operational Creditors are paid at least the liquidation value and parity is maintained—the NCLT cannot bolt on new conditions.

This strict constructionist approach was further cemented in Uday J. Desai v. Bank of India. The NCLAT reiterated that admission under Section 7 is a binary exercise. If the Financial Creditor establishes the existence of a financial debt and a default, the NCLT must admit the petition. There is no room for the NCLT to drag its feet, assess the CD’s general financial health, or grant unmerited equitable reprieves.

The Supreme Court has echoed this intolerance for NCLT adventurism, recently setting aside concurrent NCLT and NCLAT findings that had improperly refused to initiate CIRP. The message from the apex court is clear: adjudicating authorities are gatekeepers of a process, not arbiters of commercial morality.

The Heat on Directors: D&O Insurance Meets Section 66

As the IBC process becomes more streamlined and inevitable, the focus is shifting toward the personal liability of suspended management. Recent analyses of 2026 corporate commercial developments highlight a dangerous intersection for corporate boards: Section 66 of the IBC (fraudulent trading or wrongful trading) and SEBI’s mandate for Directors and Officers (D&O) insurance for independent directors of top listed companies.

With RPs and liquidators feeling emboldened—and knowing that liquidators can be replaced at will if they underperform, as recently ruled by the NCLAT—we are seeing a surge in Section 66 applications. RPs are actively hunting for clawback opportunities. If a CD slides into insolvency and the RP suspects the directors knew (or ought to have known) that there was no reasonable prospect of avoiding CIRP, they will initiate wrongful trading proceedings to fasten personal liability.

Practical Takeaway: Corporate lawyers advising boards of distressed companies must sound the alarm early. D&O insurance is no longer just a perk; it is a critical shield. However, practitioners must carefully review D&O policy exclusions regarding "fraudulent acts" under Section 66, as insurers will actively litigate to deny coverage if the NCLT finds deliberate malfeasance.

The Bottom Line

The 2026 jurisprudence paints a picture of an insolvency regime that is maturing, aggressive, and highly intolerant of delays. Whether it is SEBI trying to hold onto frozen demat accounts, promoters trying to stall Section 7 admissions, or NCLT benches trying to rewrite resolution plans for "fairness," the appellate courts are striking them down. For Indian lawyers, the strategy is clear: align with the statutory text of the IBC, respect the commercial wisdom of the Committee of Creditors (CoC), and stop relying on parallel proceedings to derail the inevitable.