The NCLT Paradox: Expanding Jurisdiction Meets Institutional Paralysis as Supreme Court Steps In

The Widening Chasm Between Power and Capacity

For insolvency practitioners, navigating the National Company Law Tribunal (NCLT) has become an exercise in cognitive dissonance. On one hand, recent appellate jurisprudence is aggressively expanding the NCLT’s jurisdictional footprint, handing it sweeping powers to override market regulators and order corporate investigations. On the other hand, the tribunal is structurally collapsing under the weight of its own docket, forcing the Supreme Court to intervene in what can only be described as an administrative crisis.

Recent developments across 2025 and 2026 highlight this paradox perfectly. We are witnessing a tribunal that is jurisprudentially stronger than ever, yet institutionally weaker than the Insolvency and Bankruptcy Code (IBC) requires it to be. For corporate lawyers and Resolution Professionals (RPs), understanding this dichotomy is critical for managing client expectations and formulating litigation strategies.

The SEBI Overlap: Section 60(5) vs. The Market Regulator

The turf war between the IBC and the Securities and Exchange Board of India (SEBI) has been a simmering doctrinal issue since the HBN Dairies matter. However, a recent 2026 NCLAT decision regarding the de-freezing of demat accounts has decisively shifted the momentum in favor of the IBC.

The NCLAT upheld the NCLT’s power to direct the de-freezing of demat accounts where the corporate debtor's share ownership was undisputed. The appellate tribunal reasoned that unencumbering the debtor's assets is intrinsically tied to the insolvency resolution process, placing it squarely within the residuary jurisdiction of Section 60(5) of the IBC.

Why does this matter for your practice? It reinforces the absolute primacy of Section 238 (the non-obstante clause) of the IBC over the SEBI Act. When securities-regulatory restraints impede the realization of a corporate debtor's assets, the NCLT is increasingly willing to tear those restraints down.

"For Successful Resolution Applicants (SRAs) demanding a 'clean slate,' this is a massive victory. It signals that regulators cannot use parallel statutes to hold insolvency assets hostage. However, lawyers should anticipate severe resistance from SEBI at the Supreme Court level, as this effectively neuters their enforcement recovery mechanisms against insolvent entities."

Section 213 Probes: No Ambush Investigations

While the NCLAT is expanding NCLT's reach against external regulators, it has placed necessary procedural guardrails on its internal powers. On May 15, 2025, the NCLAT clarified the NCLT’s authority to direct investigations into a company’s affairs under Section 213 of the Companies Act, 2013 during an ongoing insolvency process.

The NCLAT held that while the NCLT can indeed order such investigations, it cannot do so arbitrarily. Statutory preconditions must be met, and crucially, the concerned parties (typically the suspended board of directors or promoters) must be given a reasonable opportunity to be heard. The tribunal noted that while Rule 11 of the NCLT Rules, 2016 (inherent powers) allows the NCLT to forward orders to statutory authorities, these cannot be treated as mandatory, bypass-all-due-process directions for investigation.

This is a vital procedural check. In practice, RPs and aggressive Committees of Creditors (CoCs) often try to weaponize Section 213 or Section 66 (fraudulent trading) applications to corner ex-promoters. The NCLAT has clearly signaled that the IBC is not a drumhead court martial. Promoters cannot be ambushed with statutory investigations without natural justice. For defense counsel representing suspended management, this ruling is your primary shield against ex-parte investigative orders.

The Infrastructure Collapse and Supreme Court Intervention

Yet, all this jurisprudential evolution means little if the tribunal cannot clear its desk. The most consequential development for practicing lawyers is not a new legal interpretation, but the Supreme Court taking suo motu cognizance on April 29, 2026, regarding systemic delays in NCLT resolution approvals, particularly at the Principal Bench in New Delhi.

The Supreme Court flagged matters where CoC-approved resolution plans have been pending Section 31 approval for nearly two years. Let that sink in. The IBC was built on the bedrock of a strict 330-day timeline (under Section 12). When the adjudicating authority itself takes 24 months merely to stamp a plan that the creditors have already approved, the economic value of the asset degrades, the time value of money evaporates, and the foundational purpose of the IBC is defeated.

The Supreme Court has rightly stressed that SRAs cannot later back out of CoC-approved plans due to these delays. But from a commercial standpoint, who can blame them for trying? If an SRA bids for a steel plant, and the NCLT takes two years to approve the handover, the machinery has rusted, the market cycle has shifted, and the financial modeling of the bid is completely defunct.

This crisis was entirely predictable. In September 2024, the NCLT President publicly sought more manpower, noting that the tribunal's sanctioned strength was designed for the pre-IBC era. The government’s failure to scale the NCLT's infrastructure to match the IBC's workload has led directly to this Supreme Court intervention.

The Bottom Line for Practitioners

We are operating in an environment where the NCLT has teeth but lacks the muscle to bite down efficiently. When advising clients—whether they are financial creditors, RPs, or prospective resolution applicants—you must price in the institutional delay.

Drafting resolution plans now requires robust "material adverse effect" clauses and clear strategies for asset preservation during the prolonged Section 31 approval window. The law is giving you more tools to unearth fraud and consolidate assets, but you are going to be waiting in the NCLT corridors a lot longer to use them. Until the government drastically expands NCLT bench capacity, expect the Supreme Court to continue playing the role of an exasperated headmaster trying to keep the IBC timeline from becoming a complete fiction.