The IBC’s Hollow Supremacy: Winning the Turf War but Losing the Clock

The Non-Obstante Juggernaut Continues

If you are practicing in the corporate insolvency space today, you are witnessing a fascinating paradox. Jurisprudentially, the Insolvency and Bankruptcy Code, 2016 (IBC) has never been stronger. Courts are aggressively weaponizing Section 238 (the overriding effect) to bulldoze competing regulatory claims. Yet, practically, the system is grinding to a halt, forcing the Finance Ministry into the awkward position of micromanaging bankers to push cases through a severely under-resourced National Company Law Tribunal (NCLT).

Recent developments at the Supreme Court and the National Company Law Appellate Tribunal (NCLAT) send a clear message to practitioners: when it comes to asset maximization and the moratorium under Section 14, the IBC bows to no one. But for lawyers advising Resolution Professionals (RPs) or Committee of Creditors (CoC), this legal supremacy is cold comfort if a standard Corporate Insolvency Resolution Process (CIRP) takes three years to conclude.

Defeating Customs and SEBI: NCLT’s Expanding Jurisdiction

Two major structural conflicts have recently been resolved in favor of the IBC, reinforcing the primacy of the CIRP over concurrent regulatory actions.

First, the Supreme Court has decisively settled the turf war between the IBC and the Customs Act. The Apex Court held that during the moratorium period, the IBC prevails. Customs authorities are now strictly limited to the assessment of dues. They cannot enforce recovery through confiscation or sale of the corporate debtor’s assets. Instead, they must swallow their pride, file a claim, and stand in line as operational creditors under the waterfall mechanism of Section 53.

Second, in a bold expansion of the Adjudicating Authority’s power, the NCLAT recently upheld the NCLT’s jurisdiction to direct the de-freezing of a corporate debtor’s demat accounts, even when those accounts were caught in the crosshairs of securities regulations. By utilizing Section 60(5) of the IBC—which grants the NCLT jurisdiction to entertain any question of law or fact arising out of insolvency—the tribunal effectively bypassed SEBI’s freezing orders.

The message from the appellate corridors is unmistakable: statutory authorities cannot use their specialized acts to ring-fence assets and bypass the CIRP. For practicing lawyers, this means Section 60(5) remains your most potent weapon. Draft your applications broadly. If a regulatory action blocks the realization of insolvency assets, drag it to the NCLT.

The Infrastructure Collapse: Why Legal Wins Aren't Enough

While appellate courts are meticulously fortifying the IBC's legal architecture, its physical infrastructure is crumbling. The NCLT President’s recent plea for more manpower is not just an administrative grievance; it is a red flag for the entire restructuring ecosystem. The tribunal’s sanctioned strength was designed for a pre-IBC era. Today, it is suffocating under the weight of Section 7, 9, and 10 applications.

The situation is so dire that the Finance Ministry recently instructed state-run bank chiefs to personally monitor top pending IBC admissions and resolution cases. Let that sink in. The Executive is urging financial creditors to push harder because the Adjudicating Authority is too paralyzed to adhere to the mandate of Section 12.

The 330-day outer limit for CIRP completion has become a jurisprudential mirage. When systemic delays at the NCLT prevent timely admissions and plan approvals, the value of the corporate debtor’s assets degrades daily. A ruling that Customs cannot confiscate machinery means very little if that machinery sits rusting in a locked factory for four years while the NCLT struggles to find a quorum to approve the resolution plan.

What This Means for Your Practice

For Indian corporate lawyers, this dichotomy between strong law and weak infrastructure requires a shift in strategy:

1. Aggressive Shielding for RPs: If you represent an RP, you must immediately move the NCLT under Section 60(5) the moment a statutory authority (be it SEBI, Customs, or the Enforcement Directorate) attempts to attach or freeze assets. Rely heavily on the recent SC and NCLAT precedents. The law is firmly on your side—do not let regulators bully the RP into compliance outside the IBC framework.

2. Pricing in the Delay: If you are advising a Successful Resolution Applicant (SRA) on an M&A transaction via the IBC route, you must factor in severe NCLT delays. The asset valuation models used by your clients need to account for a 24-to-36 month holding pattern. Ensure that your resolution plans include clear clauses on the treatment of interim cash flows and the right to withdraw if NCLT approval extends beyond a commercial drop-dead date.

3. The Push for Pre-Packs: Given the NCLT bottlenecks, lawyers should increasingly advise corporate clients to explore Pre-Packaged Insolvency Resolution Processes (under Chapter III-A) or out-of-court restructuring under RBI circulars before diving into a full-blown CIRP.

The IBC has won the jurisprudential war against other laws. But until the government radically scales up the NCLT’s bench strength, the Code risks becoming a brilliant piece of legislation trapped in a broken delivery mechanism.