The IBC Supremacy: NCLAT Strips SEBI of Veto Power as the Turf War Reaches a Climax

The Regulatory Turf War Finally Has a Victor

For years, a silent but fierce turf war has raged between India’s market regulator and its insolvency tribunals. When a listed corporate debtor goes into insolvency, who holds the ultimate trump card: the Securities and Exchange Board of India (SEBI) demanding compliance, or the National Company Law Tribunal (NCLT) pursuing asset maximization? Following a watershed ruling by the NCLAT on April 14, 2026, the answer is definitively the latter.

In a move that drastically recalibrates the balance of power, the NCLAT ruled that the Insolvency and Bankruptcy Code (IBC) overrides securities law. The Appellate Tribunal unequivocally affirmed that the NCLT, exercising its residuary jurisdiction under Section 60(5) of the IBC, possesses the authority to direct the de-freezing of demat accounts previously frozen by SEBI and the BSE for non-compliance with listing norms.

Deconstructing the Demat Deadlock

To understand why this is a massive victory for insolvency practitioners, we must look at the statutory friction. Exchanges routinely freeze promoter or corporate debtor demat accounts for unpaid listing fees or disclosure failures, drawing power from Section 9(2) of the Securities Contracts (Regulation) Act, 1956 (SCRA) and the SEBI (LODR) Regulations.

Historically, Resolution Professionals (RPs) found themselves paralyzed. How do you maximize asset value or facilitate a resolution plan when the debtor’s securities are locked in a regulatory deep freeze? SEBI’s stance has always been that specialized securities laws operate in their own silo, immune to the IBC’s sweeping arms.

The NCLAT has now shattered that silo. By reading the moratorium under Section 14 harmoniously with the non-obstante clause in Section 238 of the IBC, the tribunal made it clear: regulatory penalties cannot choke the resolution process. This upholds earlier NCLT Mumbai orders from late 2024 and 2025 that the BSE had fiercely, but unsuccessfully, challenged.

"The legislative intent of the IBC is corporate revival and asset maximization. Allowing collateral regulatory freezes to persist during the Corporate Insolvency Resolution Process (CIRP) defeats the very soul of the Code. The moratorium is absolute."

Why This Changes the Game for Practitioners

If you are an RP or advising a Committee of Creditors (CoC), this ruling is your new battering ram. You no longer need to engage in protracted, parallel litigation before the Securities Appellate Tribunal (SAT) to release frozen assets. The NCLT is now your one-stop shop for unencumbering the corporate debtor’s estate.

This supremacy was further cemented in the recent Annies Apparel liquidation case. The NCLAT summarily rejected SEBI’s delayed claim for a Rs 21.80 lakh penalty, backing the liquidator who dismissed the claim filed 797 days after the liquidation commencement date. The message to SEBI is blunt: The IBC’s timeline is a guillotine. Miss the deadline, and your statutory dues evaporate like any other operational debt.

The Supreme Court’s Reality Check: Power vs. Pendency

However, while the NCLAT is busy expanding the NCLT’s jurisdictional muscle, the Supreme Court of India is losing patience with the tribunal's operational paralysis. It is a bitter irony that a tribunal armed with such vast overriding powers is suffocating under its own docket.

The Apex Court recently flagged "very unfortunate" delays in the NCLT’s approval of resolution plans, noting that some plans have been pending for nearly two years. The Court has directed a nationwide report on these delays. For corporate lawyers, this is the harsh reality of practice: you may have the law on your side to override SEBI, but you will still lose years waiting for the NCLT bench to pronounce the final order.

In a related crucial clarification, the Supreme Court also ruled that pending or defunct restructuring schemes under the Companies Act cannot be used as a shield to stall a financial creditor’s CIRP application under Section 7 of the IBC. (This follows the Court's strict approach seen in the Jet Airways liquidation order, where it heavily criticized the NCLAT for disregarding prior judgments regarding the Jalan-Kalrock Consortium).

Looking Ahead: Group Insolvency and Specialized Benches

The IBC is gearing up for its next evolutionary leap. As we head into the upcoming winter session, structural amendments are on the horizon. The most anticipated is the introduction of a voluntary group insolvency framework. Drawing from the UK Sinha and KP Krishnan panel reports, this will allow CoCs of affiliated bankrupt entities to coordinate resolutions under NCLT supervision—a desperately needed tool for unravelling complex, intertwined corporate structures like Videocon or Future Group.

Furthermore, the government is planning a special NCLT bench manned by trained members specifically for cross-border insolvency. This indicates a shift away from a generalized tribunal approach toward specialized technical adjudication.

The Takeaway

The jurisprudential trend of late 2025 and early 2026 is unmistakable: The IBC is the undisputed king of corporate statutes, and the NCLT is its supreme domain, capable of batting away SEBI, BSE, and defunct Companies Act schemes. However, for practitioners, the true test remains institutional capacity. Until the Supreme Court’s crackdown on NCLT delays results in tangible infrastructural upgrades, the IBC’s overriding powers will remain trapped in judicial gridlock.