The IBC’s Non-Obstante Clause Bites Hard: Tribunals Strip SEBI and Exchanges of Their Exceptionalism

The Death of Regulatory Arrogance in Insolvency

For years, sectoral regulators and statutory bodies have operated under a persistent delusion: that the Insolvency and Bankruptcy Code (IBC) is a mild inconvenience rather than a superseding legal framework. The Securities and Exchange Board of India (SEBI) and the stock exchanges, in particular, have repeatedly tried to carve out exceptions to the IBC’s moratorium and liquidation waterfall, citing their own statutory powers.

But the early 2026 jurisprudence from the National Company Law Appellate Tribunal (NCLAT) and the Supreme Court has delivered a decisive, overdue reality check. The message to regulators is now unequivocal: Section 238 of the IBC (the non-obstante clause) is absolute, and the days of regulatory exceptionalism are over.

Defreezing Demat Accounts: NCLT’s Turf Expansion

The most consequential development for practicing insolvency professionals is the NCLAT’s April 14, 2026 ruling affirming the NCLT’s jurisdiction to direct stock exchanges (like the BSE) to defreeze the demat accounts of Corporate Debtors.

Historically, when a listed entity entered the Corporate Insolvency Resolution Process (CIRP), exchanges would routinely freeze their demat accounts citing non-compliance with the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR) or relying on Sections 9(2) and 21 of the Securities Contracts (Regulation) Act, 1956 (SCRA). This created a nightmare for Resolution Professionals (RPs) and Liquidators, who found themselves unable to access or monetize undisputed assets of the corporate debtor.

NCLAT has rightfully recognized that shares held in a demat account are assets of the corporate debtor. Freezing them flies directly in the face of the Section 14 moratorium and undermines the entire objective of the IBC: value maximization. By invoking the residual jurisdiction under Section 60(5) of the IBC, the NCLAT has empowered NCLTs to override securities laws to unlock these assets.

"This is a massive win for the facilitation of clean liquidations. When an exchange freezes a demat account to penalize past LODR non-compliance, it is essentially punishing the creditors, not the errant promoters who have already been ousted. NCLAT’s ruling restores commercial sanity to the process."

The Limitation Clock Cares Not for SEBI

If the demat ruling wasn't enough to humble securities regulators, the NCLAT’s recent dismissal of SEBI’s penalty claim in the Annies Apparel liquidation serves as a masterclass in statutory timelines.

SEBI attempted to recover a ₹21.80 lakh penalty from the liquidator, filing its claim a staggering 797 days after the commencement of liquidation. The liquidator rejected it, and both the NCLT Delhi and the NCLAT upheld the rejection.

For practitioners advising liquidators, this ruling is a potent weapon. Government departments and regulators frequently submit hopelessly delayed claims, expecting special treatment under the guise of "public money." The NCLAT has reaffirmed that under the IBBI (Liquidation Process) Regulations, 2016, the claims must be crystalized as of the liquidation commencement date. There is zero flexibility for late submissions, even for statutory dues. If SEBI sleeps on its rights, it forfeits its place in the Section 53 waterfall mechanism just like any other unsecured creditor.

Supreme Court Reaffirms the Boundaries of Section 7 and 9

While the NCLAT was busy disciplining SEBI, the Supreme Court in February 2026 issued critical clarifications on the initiation of CIRP, specifically concerning Section 7 (Financial Creditors) and Section 9 (Operational Creditors).

First, the Apex Court doubled down on the Mobilox Innovations precedent regarding pre-existing disputes. The Court held that NCLTs strictly cannot assess the merits of a pre-existing dispute when hearing a Section 9 application. If the Corporate Debtor can demonstrate a "plausible dispute," the NCLT must reject the application. Roving inquiries into the evidentiary weight of the dispute are entirely outside the Adjudicating Authority's jurisdiction.

Second, in a move that will accelerate debt recoveries, the Court ruled that the pendency of defunct debt restructuring schemes under the Companies Act does not bar a financial creditor from initiating CIRP under Section 7.

Corporate debtors have long used pending, often unviable restructuring schemes as a stalling tactic to avoid the admission of a Section 7 petition. By severing the link between the two, the Supreme Court has removed a major bottleneck in the admission phase.

What This Means for Your Practice

For Indian corporate lawyers, the aggregate impact of the Q1 2026 rulings is clear:

1. For RPs and Liquidators: You now have bulletproof precedent to immediately drag stock exchanges and depositories to the NCLT under Section 60(5) if they refuse to unfreeze demat accounts. Do not waste time negotiating with exchange compliance officers; file an IA.
2. For Creditors' Counsel: Scrutinize the claim registers closely. If a statutory body like SEBI, EPFO, or the Tax Department files a claim beyond the prescribed limitation period in liquidation, you must pressure the liquidator to reject it unequivocally. The tribunals have your back.
3. For Corporate Debtor Advocates: When defending against a Section 9 operational debt claim, focus entirely on establishing the plausibility of a dispute prior to the demand notice. Do not get dragged into a mini-trial on the merits of the breach of contract during the admission stage.

The IBC was designed to be a complete code. In 2026, the courts are finally forcing other regulators to accept that reality. The turf war is over, and the IBC has won.