The IBC Paradox: NCLAT Expands Tribunal Power Over SEBI, While the Supreme Court Slams "Grim" Structural Delays

For insolvency practitioners, April 2026 has offered a masterclass in the cognitive dissonance of Indian corporate law. On one hand, our appellate tribunals are aggressively expanding the jurisdictional boundaries of the Insolvency and Bankruptcy Code (IBC), handing Resolution Professionals (RPs) powerful weapons to bulldoze through sectoral regulatory hurdles. On the other hand, the Supreme Court has dramatically intervened to point out that these "powerful" tribunals are structurally collapsing under their own weight.

The Section 238 Supremacy: NCLAT Defeats SEBI/BSE Freezes

The most consequential substantive development for practicing corporate lawyers arrived on April 14, 2026. The National Company Law Appellate Tribunal (NCLAT) delivered a decisive ruling affirming that the NCLT can direct the de-freezing of a Corporate Debtor’s demat accounts, even if those accounts were frozen by the BSE or SEBI for non-compliance with securities laws.

Why this matters: Historically, RPs and Liquidators have faced a bureaucratic nightmare when dealing with listed Corporate Debtors. Sectoral regulators like SEBI and stock exchanges routinely freeze demat accounts of defaulting companies under the SEBI Act or SCRA. When an RP steps in, they are legally mandated to take control of all assets to ensure maximization of value. SEBI's stance has often been: "Clear the compliance dues first, then we unfreeze."

The NCLAT has unequivocally squashed this regulatory turf war. By invoking Section 60(5)(c) of the IBC—which grants the NCLT sweeping jurisdiction to entertain any question of law or fact arising out of insolvency proceedings—the appellate tribunal reinforced the non-obstante power of Section 238. The IBC overrides securities laws. Period.

"This ruling is a critical victory for the doctrine of asset maximization. A sectoral regulator cannot hold the CIRP hostage over procedural non-compliances of the erstwhile management."

Practitioners should immediately take note: if you are advising an RP, you no longer need to file tedious appeals with the Securities Appellate Tribunal (SAT) to release demat assets. A simple application under Section 60(5) before the NCLT will suffice. This aligns perfectly with a December 2025 NCLAT ruling which held that SEBI penalties imposed post-liquidation commencement are inadmissible as claims. The message is clear: once the IBC kicks in, SEBI stands in the operational creditor queue like everyone else.

The Reality Check: Supreme Court’s Suo Motu Cognizance

But what good is sweeping jurisdiction if the courtroom doors are effectively jammed? Just two weeks after the NCLAT ruling, on April 29, 2026, the Supreme Court took suo motu cognizance of the "grim" delays plaguing the NCLT.

The Apex Court highlighted a staggering reality: a resolution plan at the Delhi Principal Bench has been pending approval for nearly two years. Let that sink in. Section 12 of the IBC mandates a strict 330-day outer limit for the completion of the Corporate Insolvency Resolution Process (CIRP), including all litigation. Yet, plans are gathering dust for 700+ days merely awaiting a judicial stamp.

The Supreme Court rightly identified the root cause: chronic shortages of judicial and technical members across NCLT benches nationwide. The Court has directed a comprehensive nationwide report on NCLT functioning. For lawyers, this suo motu action is a double-edged sword. While it might force the government to expedite appointments, in the short term, practitioners must manage client expectations. The statutory timelines of the IBC are currently an illusion. When drafting resolution plans, factor in a minimum of 12-18 months of sheer judicial delay post-CoC approval.

Corporate Guarantees and Cross-Border Horizons

While the NCLT battles its backlog, the jurisprudence around what constitutes debt continues to solidify. In a recent crucial ruling involving Reliance Infratel and SBI, the Supreme Court definitively held that corporate guarantees qualify as "financial debt" under the IBC. This closes a frequent loophole used by guarantor companies attempting to reclassify their liabilities as operational or contingent debts to escape the CoC’s voting thresholds.

Looking ahead, the legislative machinery is preparing for IBC 2.0. The government has proposed 68-70 amendments aimed at aligning Indian insolvency law with the UNCITRAL Model Law. The most anticipated change? A formal framework for Cross-Border and Group Insolvency.

To support this, the government recently announced plans for a Special NCLT Bench solely dedicated to cross-border insolvency cases, staffed with specially trained members. While this sounds excellent on paper, seasoned practitioners will view it with healthy skepticism, given the Supreme Court's recent observations on the lack of basic manpower in existing benches.

Meanwhile at SEBI...

Outside the insolvency ecosystem, SEBI has been quietly cleaning house. January 2026 saw sweeping merchant banker reforms emphasizing ex-ante discipline—shifting the regulatory focus from post-facto penalization to proactive information disclosure. Interestingly, SEBI also allowed stock brokers to undertake other regulated activities, signaling a move toward universal financial brokering.

But the most amusing regulatory action of the year goes to SEBI’s January 1st order cancelling a research analyst's registration. The reason? The registered "analyst" admitted to the regulator that he actually just runs a grocery shop and has no idea about stock advisories. It is a stark reminder that while the Supreme Court wrestles with macroeconomic tribunal delays, SEBI is still fighting the ground war against retail market absurdities.

The Takeaway for Litigators: The substantive law of the IBC is stronger than ever. The NCLT has the power to override SEBI, defreeze accounts, and enforce corporate guarantees. But strategically, your biggest enemy in 2026 isn't the opposing counsel or the sectoral regulator—it is the tribunal's daily cause list. Draft your interim applications wisely.