The Death of Discretion: IBC Amendment Act 2026 Kills 'Vidarbha' Defenses as NCLT Steamrolls SEBI

If you are a litigator representing corporate debtors, it is time to rewrite your Section 7 defense playbook. June 2026 has proven to be a watershed month for India’s corporate insolvency regime, marked by two massive developments: the legislative burial of the Vidarbha Industries discretion, and a fierce jurisdictional turf war where the National Company Law Tribunal (NCLT) has aggressively asserted its supremacy over the Securities and Exchange Board of India (SEBI).

For practicing lawyers, the message from both the Parliament and the appellate tribunals is unambiguous: the Insolvency and Bankruptcy Code (IBC) is an unstoppable juggernaut, and the days of leveraging regulatory conflicts or discretionary equity to delay the Corporate Insolvency Resolution Process (CIRP) are over.

The Fall of Vidarbha: Mandatory Admission is Back

The most consequential development for daily NCLT practice is the Presidential assent to the Insolvency and Bankruptcy Code (Amendment) Act, 2026. This amendment is a direct, targeted legislative strike against the Supreme Court’s 2022 ruling in Vidarbha Industries Power Ltd. v. Axis Bank Ltd.

For the past four years, Vidarbha was the ultimate shield for corporate debtors. By reading the word "may" in Section 7(5)(a) of the IBC as discretionary, the Supreme Court allowed Adjudicating Authorities to reject or keep insolvency applications in abeyance even if debt and default were clearly established. Debtors successfully argued that despite a default, they were solvent, or that exogenous factors (like pending arbitrations or regulatory dues) justified keeping them out of CIRP.

The 2026 Amendment completely strips away this discretion. We are officially back to the strict, binary test laid down in Innoventive Industries.

"The Adjudicating Authority is now required to admit a Section 7 application if debt and default are established, provided no disciplinary proceedings are pending against the proposed IRP."

Practice Implication: Financial creditors can breathe a sigh of relief. If you are representing a bank or an NBFC, your Section 7 strategy just became infinitely simpler. Prove the debt, prove the default, and admission is virtually guaranteed. Conversely, if you are defending a corporate debtor, arguing "temporary illiquidity" or "imminent cash flow from a pending dispute" will no longer save your client from the clutches of an Interim Resolution Professional (IRP).

Section 238 Steamrolls SEBI: The Battle Over Demat Accounts

While the legislature tightened Section 7, the NCLAT has been busy flexing the IBC’s overriding non-obstante clause—Section 238—against market regulator SEBI.

A massive conflict has erupted regarding Collective Investment Schemes (CIS). SEBI, acting under the SEBI Act, froze demat accounts and attached assets of defaulting entities to protect investors. However, when these entities were dragged into CIRP, the NCLT ordered the immediate de-freezing of these demat accounts (most notably in appeals involving BSE Limited), citing that the IBC supersedes the SEBI Act.

SEBI has now dragged the matter to the Supreme Court, with hearings scheduled for July 2026. But from a purely jurisprudential standpoint, SEBI is fighting an uphill battle.

Why it matters: Section 238 is the heartbeat of the IBC’s effectiveness. If regulatory penal actions (like SEBI attachments or Enforcement Directorate seizures) are allowed to paralyze a corporate debtor's assets, the entire objective of asset maximization under CIRP collapses. The NCLAT’s firm stance clarifies that once the moratorium under Section 14 kicks in, the IRP/RP must have unfettered access to all assets, including frozen securities. For transaction lawyers and RPs, this means you can confidently demand the release of regulatory-frozen assets to facilitate a resolution plan.

Procedural Strictness: No Room for Sloppy Lawyering

The Supreme Court has also issued stark warnings to the insolvency bar regarding procedural compliance, particularly concerning limitation periods and simultaneous proceedings.

First, the apex court has clamped down on the practice of filing heavily defective appeals under Section 62 of the IBC merely to stop the limitation clock, with the intent of curing defects weeks later. The Court reaffirmed that the statutory limitation regime is sacrosanct. Litigators treating the NCLAT registry like a casual drop-box will find their appeals dismissed at the threshold.

Second, in a major win for creditors, the Supreme Court definitively ruled that simultaneous CIRP proceedings against a principal borrower and a corporate guarantor are entirely maintainable. Drawing on Section 128 of the Indian Contract Act, 1872 (which states the liability of the surety is co-extensive with that of the principal debtor), creditors can now aggressively pursue both entities in parallel NCLT proceedings without waiting for one to conclude.

We see a similar aggressive posture toward Personal Guarantors. In Siemens Financial Services v. Ravi Kumar Jain, the NCLAT ruled that the interim moratorium under Section 96 commences automatically upon filing a Section 95 application. The only defense against this automatic freeze is proving the Adjudicating Authority completely lacks jurisdiction.

The Road Ahead: Faster Resolutions?

Finally, to handle the impending avalanche of fast-tracked Section 7 admissions, the government is reportedly preparing to induct up to 100 new members into the NCLT. Furthermore, the NCLT Kolkata bench recently ruled that title and ownership disputes over CIRP property cannot be decided under Section 60(5) and must be relegated to civil courts.

Both of these developments point to one overarching theme: the NCLT is clearing its desk. It is refusing to entertain complex civil title suits and is shedding discretionary baggage. The IBC is not a recovery mechanism, nor is it a civil trial court—it is a swift, ruthless mechanism for resolving insolvency. With the 2026 amendments and recent tribunal orders, the Code has never looked sharper.