Turf Wars and Bypass Surgeries: Why the Supreme Court Must Defend the IBC’s Supremacy Against SEBI

The IBC at a Crossroads: Regulatory Turf Wars and the Desperate Need for Speed

For corporate lawyers navigating the labyrinth of Indian insolvency, 2026 is shaping up to be a watershed year. The Insolvency and Bankruptcy Code (IBC) was originally envisioned as a single-window, time-bound mechanism to rescue distressed assets. Instead, practicing Resolution Professionals (RPs) and insolvency litigators frequently find themselves trapped in a crossfire between statutory regulators and the National Company Law Tribunal (NCLT).

This escalating jurisdictional friction is about to reach a boiling point. Come July 2026, the Supreme Court of India will hear a massive jurisdictional clash between the Securities and Exchange Board of India (SEBI) and the NCLT. How the apex court interprets the non-obstante clause of the IBC will fundamentally dictate the future of corporate insolvency practice.

The Section 238 Showdown: SEBI’s Overreach vs. Asset Maximization

The genesis of the July Supreme Court hearing lies in a classic turf war. SEBI, acting under the SEBI Act, froze the demat accounts of a corporate debtor embroiled in a Collective Investment Scheme (CIS) violation. However, the NCLT subsequently ordered the de-freezing of these accounts to facilitate the Corporate Insolvency Resolution Process (CIRP), a decision recently upheld by the NCLAT.

This is where the rubber meets the road for practicing lawyers. Section 238 of the IBC explicitly states that the Code shall have an overriding effect over any other inconsistent law. Yet, regulators—whether SEBI, the Enforcement Directorate (ED), or the EPFO—consistently attempt to ring-fence "their" assets, frustrating the RP’s duty to take control of the corporate debtor’s estate under Section 18.

"If every statutory regulator is permitted to carve out exceptions to the moratorium under Section 14 or withhold assets from the resolution pool, the IBC will suffer the same agonizing death as the SICA and the SARFAESI frameworks before it."

The NCLAT rightly affirmed that the IBC must take precedence. For litigators representing Committees of Creditors (CoCs) or RPs, a favorable Supreme Court ruling in July will be the ultimate weapon to quash obstinate regulators. The apex court must unequivocally rule that once CIRP is initiated, the SEBI Act—specifically regarding asset attachment—must yield to the IBC’s objective of value maximization.

Out-of-Court Insolvency: A Necessary Bypass Surgery

While the Supreme Court tackles regulatory overlaps, the legislature is attempting to fix the NCLT’s crippling backlog. The proposed Insolvency and Bankruptcy (Amendment) Bill 2025, which cleared the lower house in March 2026 and awaits upper house approval, introduces an out-of-court "creditor-initiated insolvency resolution process."

This is a seismic shift for banking and finance lawyers. Under the proposed mechanism, financial creditors holding 51% or more of the debt can bypass the tribunal entirely to trigger insolvency via a public announcement.

Why does this matter? Because filing a Section 7 application at the NCLT has become an exercise in extreme patience. Between endless hearings on the "existence of default" and the discretionary admission powers highlighted in Vidarbha Industries, the NCLT is choking. The new bill proposes brutal, welcome timelines: 30 days for the tribunal to merely rubber-stamp or reject the final resolution plan, and 180 days for liquidation.

Furthermore, the bill allows for the piecemeal sale of individual assets rather than forcing the sale of the entire business as a going concern. While purists may argue this dilutes the "resolution" ethos of the IBC into a disguised liquidation mechanism, practical lawyers know that forcing a whole-business sale on a deeply fractured corporate debtor often leads to zero bids and massive value erosion.

Setting Boundaries: Title Disputes and Director Liabilities

Amidst these macro-level shifts, the tribunals are also drawing vital procedural boundaries that will alter day-to-day drafting and strategy:

1. Stop Using Section 60(5) for Title Suits: In May 2026, the NCLT Kolkata passed a crucial order dismissing an application that sought to determine ownership disputes over CIRP property. The tribunal correctly held that Section 60(5) of the IBC is not a magical portal to bypass civil courts. Litigators must stop dressing up complex property title disputes as IBC applications. While this unfortunately means RPs must brave the delays of civil courts, it prevents the NCLT from drowning in evidentiary trials.

2. Finality of Resolution Plans: In Mohammed Ismail Ansari v. Mamta Binani (March 2026), the NCLAT reiterated a golden rule: if a resolution plan complies with Section 30(2)(b)—ensuring operational creditors get at least their liquidation value—the tribunal will not interfere with the CoC’s commercial wisdom. Dissenting creditors need to stop filing frivolous appeals hoping the NCLAT will rewrite the financial matrix.

3. The D&O Insurance Imperative: With the IBC creating a stringent liability architecture under Section 66 (fraudulent and wrongful trading), SEBI’s mandate requiring Directors’ and Officers’ (D&O) insurance for independent directors of the top 1000 listed companies is no longer just a compliance checkbox. Corporate advisors must urgently review these policies. As liquidators increasingly weaponize Section 66 to claw back funds, uninsured independent directors are sitting ducks.

The Verdict

The 2026 landscape of Indian corporate law is defined by a singular theme: the desperate need to insulate the insolvency process from systemic delays and external regulatory interference. As we look toward the July Supreme Court showdown, the legal fraternity must champion a strict, literal interpretation of Section 238. Concurrently, the swift passage of the out-of-court insolvency framework is essential. If the IBC is to remain the crown jewel of Indian economic reform, it needs both its supremacy validated and its arteries unclogged.