The Death of Discretion: 2026 Amendment Buries Vidarbha Industries as IBC Bulldozes SEBI's Regulatory Turf

Welcome to July 2026. If you represent financial creditors, the latest legislative and judicial developments have just made your job significantly easier. For years, the insolvency resolution process has been bogged down by judicial overreach and inter-regulatory turf wars. But the tide has decisively turned. The enactment of the Insolvency and Bankruptcy Code (Amendment) Act, 2026, alongside a slew of aggressive NCLAT rulings, sends a clear message: the IBC is the supreme law for corporate distress, and the NCLT’s jurisdiction is near-absolute.

The Burial of Vidarbha Industries: Section 7 is Mandatory Again

The most consequential update for practicing insolvency lawyers is the structural overhaul of Section 7 of the IBC via the 2026 Amendment Act. Let us be blunt: the Supreme Court’s 2022 decision in Vidarbha Industries Power Ltd. v. Axis Bank Ltd. was a procedural disaster for creditors. By reading the word "may" in Section 7(5)(a) as discretionary, it allowed Adjudicating Authorities to reject or keep insolvency applications in abeyance based on extraneous factors like the Corporate Debtor’s (CD) overall financial health or pending arbitrations.

The 2026 Amendment Act rightly corrects this judicial misstep. It largely restores the mandatory-admission approach codified early on in Innoventive Industries Ltd. v. ICICI Bank.

If debt is proven, and default is established, the NCLT must admit the application. The era of Corporate Debtors leveraging "imminent arbitral awards" or "temporary liquidity crunches" as dilatory tactics to stall CIRP admission is officially over.

Why this matters for your practice: As a litigator filing a Section 7 application, your drafting burden just got lighter. You no longer need to preemptively argue the insolvency of the CD on a macro level. Focus strictly on the existence of the financial debt and the factum of default. For defense counsel, the window to stall admission has slammed shut—your only real defense now is disproving the debt or default itself.

The Turf War: Section 238 vs. The SEBI Act

While the legislature clarifies Section 7, a massive jurisdictional battle is brewing at the Supreme Court this month. SEBI has challenged NCLAT orders that allowed insolvency proceedings to override SEBI’s regulatory actions against Collective Investment Schemes (CIS).

At the heart of this conflict is Section 238 of the IBC—the non-obstante clause. NCLT and NCLAT have consistently held that the IBC prevails over the SEBI Act. SEBI argues that allowing CIRP to proceed essentially ring-fences fraudulent CIS operators from securities market penalties and investor restitution.

Our take? SEBI is fighting a losing battle, and rightly so. The very objective of the IBC is a single, consolidated forum for asset maximization and creditor resolution. If we allow SEBI, the Enforcement Directorate (under PMLA), or the PF authorities to carve out their own fiefdoms and attach assets independently, the entire CIRP machinery collapses. The Supreme Court's upcoming July ruling will likely cement the IBC's overriding effect, forcing market regulators to stand in line as operational creditors rather than parallel adjudicators.

NCLT Flexes Section 60(5) Muscle: Defreezing Demat Accounts

Adding insult to injury for market regulators, the NCLAT recently dismissed appeals by BSE Limited, affirming the NCLT’s power to order the defreezing of Demat accounts of corporate debtors undergoing insolvency or liquidation.

Historically, liquidators and Resolution Professionals (RPs) have faced a nightmare trying to monetize securities held by the CD, with stock exchanges citing their own bye-laws to keep accounts frozen. The NCLAT has now firmly rooted the power to defreeze these accounts in Section 60(5) of the IBC, the residuary jurisdiction clause.

Practice Note: If you are advising an RP or Liquidator, you no longer need to engage in endless correspondence with depository participants or exchanges. File an Interlocutory Application (IA) under Section 60(5) directly. The NCLT has the explicit backing of the appellate tribunal to bulldoze exchange regulations to facilitate asset realization.

Crucial Procedural Shifts in 2026

Beyond the headline-grabbing turf wars, recent NCLAT decisions have clarified several procedural ambiguities that trip up even seasoned practitioners:

• Limitation and E-Filing: In Bank of Baroda, the NCLAT finally settled the e-filing limitation debate. For appeals under Section 61(2), the date of e-filing is the date of filing. Stop waiting for the physical presentation to toll the limitation period. Get your digital filings in before midnight on the 30th day.
• Personal Guarantors and Moratorium: Under Section 95, the interim moratorium commences automatically the moment the application is filed, provided it is filed before the correct Adjudicating Authority. Guarantors cannot be pursued in civil courts while the NCLT registers the application.
• Section 29A Eligibility: The NCLAT clarified that former promoters and directors are not blanketly banned from submitting resolution plans. Unless they trigger a specific ineligibility under Section 29A (e.g., undischarged insolvent, wilful defaulter), they can bid. If you represent erstwhile management, thorough Section 29A due diligence might just save their company.

The Bottom Line: The Indian corporate insolvency regime in the second half of 2026 is brutally efficient. Discretion is dead, statutory overlaps are being ironed out in favor of the IBC, and the NCLT is being empowered to act as a true unified bankruptcy court. Litigators must adapt to a faster, more rigid system where the margin for procedural error is shrinking by the day.