The Imperial IBC: How Section 238 is Swallowing SEBI’s Jurisdiction and the Death of 'Vidarbha Industries'

The Turf War of the Decade: Insolvency vs. Securities Regulation

For years, Section 238 of the Insolvency and Bankruptcy Code (IBC) has been the nuclear option in a restructuring lawyer’s arsenal. Its non-obstante clause dictates that the IBC overrides any other law in force. But how far does that supremacy extend? Can it defang India’s market regulator?

This July 2026, the Supreme Court of India is set to answer exactly that, as the Securities and Exchange Board of India (SEBI) challenges the National Company Law Tribunal (NCLT) in an existential jurisdictional turf war. The battleground? Collective Investment Schemes (CIS).

Recently, the NCLT—backed by the NCLAT—ruled that the IBC's mandate prevails over the SEBI Act when resolving entities running CIS. SEBI, quite understandably, is up in arms. From a practitioner's perspective, this clash is far more than an academic debate over statutory interpretation; it is about the hierarchy of claims and the survival of regulatory enforcement.

"If the NCLT can override SEBI’s jurisdiction over fraudulent investment schemes, defrauded retail investors lose the disgorgement protections of securities law and are thrown into the brutal meat grinder of the IBC’s Section 53 waterfall mechanism."

If you are advising a defrauded investor today, the forum you choose matters immensely. SEBI’s disgorgement orders aim to make investors whole. Under the IBC, however, those same investors often find themselves classified as unsecured creditors or operational creditors, fighting for pennies on the rupee while secured financial creditors (banks) take the lion's share. If the Supreme Court upholds the NCLAT’s view, expect corporate debtors to tactically use voluntary insolvency as a shield against SEBI enforcement. The IBC cannot be allowed to become a safe harbor for securities fraud, and the Supreme Court must draw a line in the sand this July.

Asset Realization Trumps Regulatory Freezes

While we wait for the Supreme Court to rule on the CIS issue, the NCLAT has already signaled its aggressive stance on asset realization. In a hallmark ruling this April, the NCLAT upheld the NCLT’s power to direct the de-freezing of demat accounts of corporate debtors, explicitly stating that regulatory policies cannot hinder the Corporate Insolvency Resolution Process (CIRP).

For Resolution Professionals (RPs), this is a massive victory. One of the most frustrating bottlenecks in CIRP has been dealing with assets frozen by statutory authorities (like the Enforcement Directorate, EPFO, or SEBI). This ruling arms RPs with the judicial backing to compel depositories and regulators to release assets, ensuring that value maximization isn't stalled by bureaucratic red tape. Litigators defending RPs should immediately cite this precedent when faced with uncooperative regulators.

The IBC Amendment Act, 2026: Restoring Creditor Supremacy

While the courts expand the IBC's reach, the legislature has stepped in to fix its most glaring recent flaw. The IBC Amendment Act, 2026 has finally received Presidential assent, and it effectively buries the ghost of Vidarbha Industries Power Ltd. v. Axis Bank (2022).

Practitioners will recall the chaos Vidarbha caused. By ruling that the NCLT had the "discretion" to reject a Section 7 application even if debt and default were clearly established, the Supreme Court temporarily turned the IBC from a predictable, creditor-in-control mechanism into an equitable lottery. Debtors used it to stall admissions indefinitely by citing extraneous financial constraints or pending awards.

The 2026 Amendment restores the mandatory-admission approach. If there is a debt, and there is a default, the NCLT must admit the application. For banking lawyers, this is the most critical development of the year. You can finally advise your financial creditor clients with certainty: the defense of "we'll pay you when we win our arbitration" is dead.

Furthermore, the Amendment introduces Section 240C, an enabling provision for cross-border insolvency. While rules are pending notification, law firms need to start building capacity now. Once notified, the ability to recognize foreign proceedings and seek judicial cooperation across jurisdictions will radically change how we handle defaults of multinationals and tech startups with offshore holding structures.

Setting Boundaries: NCLT is Not a Civil Court

Despite the "imperial" expansion of the IBC, tribunals are showing some self-awareness regarding their limitations. The NCLAT recently reiterated that the IBC is not a recovery mechanism, dismissing a plea against United Telecoms. We have to stop using Section 9 as a glorified legal notice for disputed commercial debt.

More importantly, the NCLT Kolkata recently laid down a crucial boundary regarding Section 60(5) of the IBC. When approached to decide an ownership dispute over a property entangled in a CIRP, the Tribunal firmly stated that title disputes belong in civil courts, not before the Adjudicating Authority.

This is a vital procedural clarification. Section 60(5) has been widely abused by lawyers trying to bypass the Civil Procedure Code and the delays of civil courts. The NCLT exercises summary jurisdiction; it is not equipped to conduct full-fledged trials on property titles involving complex evidentiary hearings. If you are representing a third party whose property is wrongfully attached by an RP, do not rely solely on Section 60(5)—draft your civil suits and seek injunctions.

The Bottom Line

The corporate law landscape in 2026 is defined by a centralizing force: The IBC. Through legislative amendments reversing pro-debtor precedents, and tribunals aggressively asserting Section 238 against other regulators, the system is doubling down on resolving distress quickly. However, the impending Supreme Court decision on SEBI's jurisdiction will determine if the IBC remains a specialized resolution tool, or if it formally becomes the apex economic legislation in India, capable of swallowing all other regulatory regimes.