The Great Regulatory Turf War: Why Section 238 IBC is Decimating SEBI's Jurisdiction (And What It Means for Your Practice)

The Bulldozer Statute: IBC's Expanding Footprint in 2026

Welcome to the 2026 corporate litigation landscape, where the Insolvency and Bankruptcy Code (IBC) isn't just a statute—it is a jurisdictional bulldozer. If your practice involves representing resolution professionals, corporate debtors, or financial creditors, the dominant theme of this year is the aggressive expansion of the IBC's overriding effect, aggressively clashing with established market regulators.

At AnrakLegal, we’ve been tracking this friction for years, but the boiling point has finally arrived. The conflict between the Securities and Exchange Board of India (SEBI) and the National Company Law Tribunal (NCLT) has escalated to the Supreme Court, and the outcome will fundamentally alter how we handle corporate distress involving regulated entities.

The SEBI vs. IBC Conundrum: Who Owns the CIS?

The most consequential legal battle of the year revolves around Collective Investment Schemes (CIS). We have a classic Mexican standoff: SEBI passed orders attaching assets of a defaulting CIS under the SEBI Act to protect investors, while the NCLT simultaneously assumed jurisdiction over the same entity under the IBC.

The NCLAT has taken a definitive stance: The IBC prevails over the SEBI Act. The appellate tribunal relied explicitly on Section 238 of the IBC—the non-obstante clause that gives the Code overriding effect over any other inconsistent law.

"If market regulators are allowed to carve out exceptions to the moratorium under Section 14, or attach assets independently, the entire edifice of the Corporate Insolvency Resolution Process (CIRP) collapses. You cannot resolve a company if its assets are locked in regulatory purgatory."

SEBI has rightly panicked and moved the Supreme Court, with hearings scheduled for July 2026. Our take? The Supreme Court must uphold the NCLAT's interpretation. The "Clean Slate Theory" established in Ghanshyam Mishra dictates that a successful resolution applicant cannot be haunted by past regulatory liabilities. If SEBI wins this, expect a chilling effect on resolution applicants who will fear hidden regulatory landmines.

Defreezing Demat Accounts: A Practical Win for RPs

In a related blow to securities law primacy, the NCLAT recently upheld the NCLT's power to direct BSE Limited to de-freeze the demat accounts of a corporate debtor. Historically, securities laws and exchange regulations mandated the freezing of accounts for non-compliance.

For practicing Resolution Professionals (RPs), this is a massive practical victory. Managing a corporate debtor as a going concern is impossible if its financial arteries are blocked by stock exchange compliance freezes. This ruling cements the absolute nature of the Section 14 Moratorium, making it clear that exchange rules cannot override the statutory duties of an RP to manage the debtor's estate.

Simultaneous CIRP: The Creditor’s Double-Barrel Weapon

While regulators fight over territory, financial creditors have just been handed a loaded double-barrel shotgun. The Supreme Court has unequivocally reinforced the maintainability of simultaneous CIRP proceedings against both the principal debtor and its corporate guarantor.

For years, guarantors have tried to hide behind procedural delays, arguing that creditors must first exhaust their remedies against the principal debtor. The Supreme Court has shut this down, anchoring its reasoning in Section 128 of the Indian Contract Act, 1872, which states that the liability of a surety is co-extensive with that of the principal debtor.

What this means for your practice: If you represent financial creditors, the strategy is now clear—file against both entities concurrently. The pressure this places on promoter-guarantors is immense. It forces them to the negotiating table much faster, knowing they cannot use the principal debtor's CIRP as a shield to protect their own holding companies.

Drawing the Line: Section 60(5) is Not a Civil Court

Lest we think the NCLT has become the court of infinite jurisdiction, the NCLT Kolkata (Labh Singh Bench) recently delivered a necessary reality check. The Tribunal ruled that complex ownership and title disputes over property involved in a CIRP cannot be decided under Section 60(5) of the IBC.

This is a critical reminder for litigators who try to bypass the agonizing delays of civil courts by dressing up property disputes as insolvency applications. The NCLT is a tribunal of summary jurisdiction. If you have a bona fide dispute over who actually holds the title to a piece of land claimed by the corporate debtor, you must head to the civil court. Section 60(5) is wide, but it is not a substitute for a full civil trial.

Looking Ahead: Cross-Border Insolvency Arrives (Almost)

Finally, keep your eyes on the newly passed Insolvency and Bankruptcy Code (Amendment) Act, 2026. The introduction of Section 240C is the legislative foundation we’ve been waiting for to handle cross-border insolvency. While the specific rules are still being drafted by the Central Government, this provision will soon allow for the recognition of foreign proceedings and judicial cooperation.

As we wait for the rules to be notified, corporate litigators should start familiarizing themselves with the UNCITRAL Model Law on Cross-Border Insolvency, as the Indian framework will heavily mirror it.

The takeaway for 2026? The IBC is consolidating its power. Whether you are dealing with SEBI, stock exchanges, or corporate guarantors, the Code is the center of gravity in commercial litigation. Adapt your strategies accordingly.