The Turf War Culminates: Why the Supreme Court Must Finally Settle the SEBI vs. IBC Jurisdictional Clash

The Impending Supreme Court Showdown

For years, restructuring practitioners in India have been caught in the crossfire of an institutional turf war: the Insolvency and Bankruptcy Code (IBC) versus the Securities and Exchange Board of India (SEBI). As we look toward the Supreme Court’s critical July 2026 hearing, the stakes for corporate insolvency practice have never been higher. At the heart of the matter is whether SEBI’s regulatory powers to freeze assets under the SEBI Act can survive the overriding non-obstante clause of Section 238 of the IBC. The NCLAT has already drawn a line in the sand, upholding the NCLT’s order directing the de-freezing of a corporate debtor's demat accounts. But until the Supreme Court speaks, Resolution Professionals (RPs) will continue to face regulatory roadblocks.

Practicing insolvency lawyers know the frustration intimately. You get a company admitted into the Corporate Insolvency Resolution Process (CIRP), the Section 14 moratorium kicks in, and yet, you find the company’s demat accounts frozen by SEBI due to legacy Collective Investment Scheme (CIS) violations. Without access to these assets, the RP is paralyzed, and the resolution timeline bleeds out.

When a statutory regulator's punitive actions paralyze a corporate debtor's revival, the fundamental objective of the IBC is defeated. The Supreme Court must recognize that preserving the debtor's estate takes precedence over regulatory penalties during CIRP.

The Section 238 Shield: Why SEBI Must Yield

The NCLAT’s recent reliance on Section 60(5) of the IBC to de-freeze these accounts is legally sound and practically indispensable. Section 238 dictates that the IBC prevails over any other law that is inconsistent with it. If SEBI is allowed to keep assets frozen during CIRP, it essentially elevates a regulatory penalty above the claims of secured creditors and the statutory resolution process.

For practitioners advising RPs and Liquidators, the NCLAT ruling provides powerful ammunition. If you are facing attachments from SEBI, the Enforcement Directorate (ED), or the Employees' Provident Fund Organisation (EPFO), the strategy remains aggressive application under Section 60(5) to release assets. However, you must be prepared for these regulators to aggressively litigate these un-freezing orders up to the apex court, as SEBI has done here.

Drawing Boundaries: NCLT is Not a Civil Court

While the NCLT is rightfully expanding its jurisdiction to protect the corporate debtor's estate from regulators, it is simultaneously—and correctly—refusing to become a glorified civil court. A significant reality check was delivered by the NCLT Kolkata in May 2026, which categorically dismissed an application attempting to resolve property ownership disputes under the guise of Section 60(5).

This is a vital practice point. Lawyers frequently attempt to shoehorn complex title and ownership disputes into NCLT proceedings to benefit from faster timelines. The NCLT is a summary jurisdiction. It cannot conduct the detailed evidentiary trials required to settle contested property titles. If third parties are disputing the corporate debtor’s ownership of a CIRP property, you must approach the competent civil court. Relying on the NCLT to adjudicate title disputes is a strategic error that will result in dismissal for want of jurisdiction, costing your client crucial time.

Guarantors and Directors in the Crosshairs

Beyond asset recovery, 2026 is proving to be a perilous year for promoters and guarantors. The Supreme Court has firmly settled the law on simultaneous CIRP proceedings: creditors can simultaneously pursue both the principal debtor and the corporate guarantor. Relying on Section 128 of the Indian Contract Act, the Court reaffirmed that a surety's liability is co-extensive.

For banking lawyers, this is a green light to file parallel Section 7 applications without waiting to exhaust remedies against the principal borrower. For corporate defense counsel, the shield is gone. Furthermore, with the NCLT increasingly fastening personal liability on directors for fraudulent and wrongful trading under Section 66 of the IBC, the exposure for management is immense.

This judicial aggression contextualizes SEBI’s mandate requiring Directors & Officers (D&O) insurance for independent directors of top listed companies. D&O insurance is no longer just a boardroom perk; it is a critical necessity. When simultaneous CIRPs are initiated and Section 66 applications are filed, directors need robust policies to fund their legal defense before the Adjudicating Authority.

The Real Estate Exception: Judicial Engineering

While the IBC strictly dictates creditor hierarchy under Section 53, real estate insolvency continues to operate in a parallel jurisprudential universe. The Supreme Court’s recent decision upholding the NCLAT’s direction to engage NBCC India Ltd. to complete stalled Supertech projects—explicitly prioritizing home buyers over secured financial creditors—demonstrates the Court’s willingness to invoke its extraordinary powers under Article 142 of the Constitution.

This is a double-edged sword. While it delivers much-needed relief to stranded homebuyers, it injects severe unpredictability into real estate financing. If you are advising a bank or an NBFC lending to a developer, your risk assessment must account for the fact that, in a default scenario, the Supreme Court may bypass the standard IBC waterfall mechanism to protect retail allottees.

The Practice Takeaway

As we navigate the remainder of 2026, the jurisprudence is leaning heavily toward maximizing asset value and ensuring CIRP efficiency, even if it steps on the toes of market regulators. The upcoming July Supreme Court judgment will be a watershed moment. If the SC upholds the NCLAT’s view on Section 238 against SEBI, it will cement the IBC as the undisputed apex economic legislation in India. Practitioners must keep their powder dry, reassess their jurisdictional strategies under Section 60(5), and advise their corporate clients that the days of hiding behind regulatory freezes or complex corporate guarantees are definitively over.