SEBI (ICDR) Regulations 2018 And SEBI (SAST) Regulations 2011 - Implications For IBC

Author: LawSphereX

Category: Corporate & Insolvency

Published: 2026-08-23T21:03:15.947291+00:00

Updated: 2026-08-26T17:06:23.825+00:00

SEBI (ICDR) REGULATIONS 2018 AND SEBI (SAST)

REGULATIONS 2011: IMPLICATIONS FOR IBC

Narsingh Yadav, Indian Institute of Corporate Affairs

ABSTRACT

This research examines the regulatory interplay between the Securities and Exchange Board of India’s (SEBI) Issue of Capital and Disclosure Requirements (ICDR) Regulations, 2018, Substantial Acquisition of Shares and Takeovers (SAST) Regulations, and the Insolvency and Bankruptcy Code (IBC), 2016, highlighting the challenges posed by their coexistence in corporate insolvency resolutions. SEBI’s investor-centric mandates, aimed at ensuring market integrity, often clash with the IBC’s objective of timebound, creditor-driven restructuring of distressed companies. Through doctrinal analysis of statutory frameworks, case law, and comparative insights, the study identifies critical regulatory gaps, including jurisdictional conflicts between SEBI and the National Company Law Tribunal (NCLT), misaligned valuation principles (SEBI’s “fair value” vs.

IBC’s “liquidation value”), and ambiguities in takeover exemptions for insolvency-driven acquisitions. Case studies such as Bhushan Steel, Jet Airways, and Essar Steel illustrate how SEBI’s pricing norms and open offer obligations delay resolution plans, deter potential bidders, and undermine the IBC’s 330-day timeline. The research also reveals stakeholder-specific challenges: resolution applicants face dual compliance burdens, investors grapple with liquidity constraints, and resolution professionals navigate conflicting regulatory deadlines. To address these issues, the study proposes reforms such as legislative amendments to harmonize SEBI’s pricing mechanisms with IBC’s commercial flexibility, automatic exemptions for NCLT-approved acquisitions under SAST, and institutional coordination through a SEBI- IBBI joint committee to streamline approvals.

Judicial clarity on jurisdictional hierarchies and post-acquisition compliance is also emphasized. By balancing investor protection with insolvency efficiency, this research advocates for a synergistic regulatory framework that accelerates corporate recovery, enhances creditor returns, and strengthens India’s insolvency ecosystem. The findings underscore the urgent need for policy interventions to align capital market regulations with insolvency

objectives, fostering a resilient and investment-friendly economic landscape. Keywords: SEBI, ICDR, SAST, IBC, Insolvency Resolution, Regulatory Conflicts, Investor Protection, Takeover Exemptions. Chapter 1: Legal Framework The Indian regulatory ecosystem governing corporate restructuring and capital market transactions is shaped by three pivotal frameworks: the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR Regulations), the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011/2018 (SAST Regulations), and the Insolvency and Bankruptcy Code, 2016 (IBC). While each framework serves distinct objectives, their interplay often creates complexities in insolvency resolutions. The ICDR Regulations focus on capital raising, disclosure norms, and pricing mechanisms to protect investors and maintain market stability.

The SAST Regulations govern substantial acquisitions and takeovers, ensuring fair treatment of minority shareholders. The IBC, on the other hand, provides a structured process for resolving distressed assets efficiently. This chapter examines the core provisions of these regulations and their implications for companies undergoing insolvency and restructuring. SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 Enacted on September 11, 2018, the SEBI (ICDR) Regulations1 streamline capital-raising activities in India’s securities market. These regulations replaced the 2009 ICDR Regulations, introducing revised disclosure norms, pricing guidelines, and capital issuance rules to enhance transparency and safeguard investor interests.

The framework applies to various modes of public fundraising, including Initial Public Offerings (IPOs), Further Public Offerings (FPOs), and Preferential Allotments. The primary objective of these regulations is to ensure fair valuation of securities, prevent insider trading, and mandate comprehensive disclosures to empower investors. To access public markets, companies must meet strict eligibility criteria. For instance, an issuer must maintain net tangible assets of ₹3 crore over three years, with no more than 50% in monetary assets, and report an average operating profit of ₹15 crore in three of the last five years. These conditions serve as a filter to prevent financially unstable entities from raising 1 SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, Gazette of India, pt. III, sec. 4, No. SEBI/LAD-NRO/GN/2018/31 (Sept. 11, 2018)

capital. The regulations also impose lock-in requirements to deter speculative trading. Promoters’ minimum contribution of 20% of post-issue capital is locked in for three years, while any additional holdings beyond this threshold are locked in for one year. Pre-issue shares held by non-promoters must remain locked for six months, ensuring stability post-listing. Preferential allotments, a commonly used mechanism by companies under Corporate Insolvency Resolution Process (CIRP), are subject to SEBI’s pricing norms. However, recognizing the need for distressed companies to raise capital efficiently, SEBI has introduced relaxations for insolvency cases. Companies undergoing CIRP can issue shares to resolution applicants at a negotiated price, bypassing SEBI’s standard pricing benchmarks.

Lock-in requirements are also waived for shares allotted to resolution applicants, facilitating quicker capital infusion. These amendments align the ICDR framework with insolvency objectives, reducing procedural hurdles in distressed asset acquisitions. SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011/20182 The SEBI (SAST) Regulations govern takeovers and substantial acquisitions in listed companies, ensuring equitable treatment of minority shareholders. A key feature of these regulations is the mandatory open offer requirement, which is triggered when an acquirer crosses 25% of a company’s shareholding or gains control through board dominance or special rights, even without exceeding the 25% threshold. Additionally, any creeping acquisition beyond 5% annually post-25% ownership also mandates an open offer.

These provisions are designed to protect minority shareholders by allowing them an exit opportunity at a fair price when there is a change in control. However, strict adherence to these takeover norms can complicate IBC-driven acquisitions. In many insolvency resolutions, new investors acquire a controlling stake in a distressed company under an NCLT-approved resolution plan. If SAST regulations were applied strictly, resolution applicants would be forced to make an open offer, increasing financial burdens and discouraging investors from bidding for distressed assets. To address this, SEBI introduced Regulation 3(1)(e), which exempts resolution applicants from open offer obligations if: (i) the acquisition occurs under an NCLT-approved resolution plan, and (ii) the acquirer did not hold 2 SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, Gazette of India, pt.

III, sec. 4, No. SEBI/CFD/DCR/2/2011 (Sept. 23, 2011).

shares in the target company before the insolvency process. The exemption played a crucial role in the Bhushan Steel resolution, where Tata Steel acquired a majority stake without triggering an open offer. However, despite the exemption, delays in SEBI approvals and minority shareholder objections remain significant challenges. Shareholders often contest the dilution of their holdings, arguing that they are left without a fair exit. These concerns necessitate further regulatory refinements to balance investor protection with insolvency resolution efficiency. Insolvency and Bankruptcy Code, 20163 The IBC revolutionized India’s insolvency regime by shifting the focus from debtor protection to creditor-driven resolution, ensuring that financially stressed companies are either restructured efficiently or liquidated in a time-bound manner.

The Corporate Insolvency Resolution Process (CIRP), the core mechanism under the IBC, follows a structured approach: (i) initiation by financial or operational creditors, (ii) appointment of a Resolution Professional (RP) to manage operations, (iii) formation of the Committee of Creditors (CoC) to approve resolution plans, and (iv) final approval by the NCLT. The resolution process is mandated to be completed within 330 days, failing which the company faces liquidation. A key aspect of IBC-driven restructuring is equity restructuring, which includes debt-to-equity

swaps, fresh capital infusion, and strategic acquisitions. In a debt-to-equity swap, creditors convert outstanding loans into equity, leading to significant dilution of existing shareholders. Similarly, fresh capital infusions through preferential allotments allow new investors to acquire controlling stakes, often at discounted prices. These mechanisms, while essential for revival, create regulatory conflicts with SEBI’s ICDR and SAST provisions, which mandate fair pricing and open offers for acquisitions. The Essar Steel resolution is a notable case highlighting these regulatory overlaps. ArcelorMittal’s acquisition of Essar Steel involved a significant equity dilution and fresh capital infusion. SEBI initially objected, citing the need for compliance with ICDR’s pricing norms and SAST’s open offer triggers.

However, the Supreme Court ruled that IBC overrides SEBI norms in insolvency cases, reinforcing the primacy of insolvency resolution over capital

3 Insolvency and Bankruptcy Code, 2016, No. 31, Acts of Parliament, 2016 (India).

market compliance. This judgment set a precedent for similar cases, streamlining distressed asset takeovers under IBC. The interplay between SEBI regulations and the IBC is marked by overlapping mandates that often create regulatory hurdles in insolvency resolutions. While SEBI’s framework ensures market integrity and investor protection, its rigid application in CIRP cases can delay restructuring efforts. The introduction of SAST exemptions and ICDR pricing relaxations has addressed some concerns, but procedural delays and compliance burdens continue to hinder resolution applicants. To enhance regulatory synergy, further reforms are necessary. Potential solutions include automatic exemptions for IBC-approved acquisitions, predefined pricing relaxations for CIRP cases, and accelerated SEBI approvals to align with IBC’s strict timelines.

Addressing these issues will ensure faster resolutions, greater investor confidence, and a more robust insolvency ecosystem in India. As insolvency cases involving listed companies continue to rise, striking the right balance between SEBI’s regulatory oversight and IBC’s insolvency objectives will be critical to sustaining market stability and economic recovery. Chapter 2: Interplay Between SEBI Regulations and IBC The intersection of the Securities and Exchange Board of India (SEBI) regulations and the Insolvency and Bankruptcy Code, 2016 (IBC) presents significant legal and procedural challenges for companies undergoing insolvency resolution. While SEBI’s regulatory framework ensures market transparency, investor protection, and fair trading practices, the IBC is designed to facilitate corporate restructuring, creditor recovery, and business revival.

However, in practice, these frameworks often come into conflict, particularly in cases involving equity issuances, takeovers, and compliance requirements for companies under the Corporate Insolvency Resolution Process (CIRP). This chapter explores key conflicts in regulatory mandates, analyzes significant case law, and highlights practical challenges in aligning SEBI’s capital market rules with IBC’s insolvency framework.

1. Conflicts in Regulatory Mandates

Regulatory conflicts between SEBI and IBC arise due to the differing objectives of these laws. SEBI’s regulations are designed for stable, publicly traded companies, whereas the IBC

facilitates the acquisition and restructuring of distressed companies, often at significantly lower valuations. This divergence leads to practical challenges in insolvency resolutions. § SEBI’s Pricing Norms (ICDR) vs. IBC’s Commercial Wisdom One of the major conflicts arises from SEBI’s Issue of Capital and Disclosure Requirements (ICDR) Regulations, 2018, which impose strict pricing norms on preferential allotments and public issues. These regulations are intended to ensure fair valuation and prevent stock manipulation. However, under IBC, companies in distress often issue shares at significantly discounted prices as part of resolution plans to enable fresh capital infusion and ensure the viability of the restructuring process.

For instance, Regulation 164 of ICDR mandates that the price of shares issued through preferential allotments be based on historical trading data, typically considering the higher of the average price over the past 26 weeks or 2 weeks. However, resolution applicants acquiring companies through CIRP often need to issue shares at lower valuations to make the acquisition financially viable. This was evident in the Bhushan Steel resolution, where Tata Steel acquired equity at a price significantly lower than SEBI’s ICDR pricing formula, raising concerns about compliance with SEBI norms. SEBI had to clarify that pricing relaxations apply in cases of NCLT-approved resolution plans, yet the lack of codified exemptions continues to create delays and uncertainties in insolvency-driven transactions. § SAST’s Open Offer Triggers vs.

NCLT-Approved Acquisitions Another major conflict arises under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (SAST Regulations), which mandate a mandatory open offer when an acquirer crosses the 25% threshold in a listed company or gains control through board dominance. This rule is meant to protect minority shareholders by giving them an exit option at a fair price whenever control of a company changes hands. However, in the context of IBC-driven acquisitions, applying this requirement creates additional financial burdens on resolution applicants. Even when an acquisition is approved under an NCLT-approved resolution plan, SEBI still mandates an open offer unless an exemption is granted. To address this issue, SEBI introduced Regulation 3(1)(e) in the SAST Regulations, exempting acquirers from open offer obligations if the acquisition occurs under

an NCLT-approved resolution plan. Despite this exemption, delays in SEBI approvals have been observed in several cases, affecting insolvency resolution timelines. In the Essar Steel case, ArcelorMittal’s acquisition was delayed due to SEBI’s concerns regarding compliance with the SAST Regulations and Section 29A of IBC, which bars defaulting promoters from bidding for their own company. This case highlighted the regulatory uncertainties in M&A transactions involving distressed assets and emphasized the need for clearer integration between SEBI’s framework and IBC provisions. § Case Law Analysis Bhushan Steel Ltd. v. Vijaykumar V. Iyer (NCLT) – Tata Steel’s Acquisition and Compliance with ICDR In the Bhushan Steel insolvency resolution, Tata Steel emerged as the winning resolution applicant, acquiring the distressed company through NCLT approval.

4The resolution plan included issuance of fresh equity at a discounted price, which raised concerns regarding SEBI’s preferential allotment pricing norms under ICDR. While SEBI provided relaxations on pricing rules, it emphasized the need for regulatory approvals before executing such transactions. The NCLT upheld the resolution plan, allowing Tata Steel to acquire Bhushan Steel without additional capital market obligations. However, the case highlighted ambiguities in applying SEBI’s pricing regulations in insolvency cases, leading to continued uncertainty in future transactions. Essar Steel Case – SEBI’s Objection to ArcelorMittal’s Eligibility In the Essar Steel CIRP, ArcelorMittal bid for the company, but SEBI raised objections under Section 29A of IBC, arguing that ArcelorMittal’s past indirect shareholding in defaulting firms made it ineligible to bid.

This led to a conflict between SEBI’s investor protection framework and IBC’s criteria for resolution applicants. The Supreme Court ultimately ruled in favor of ArcelorMittal, stating that IBC takes precedence over SEBI’s concerns in insolvency cases. This ruling established the primacy of IBC in corporate resolution matters, reducing SEBI’s

4 Bhushan Steel Ltd. v. Vijaykumar V. Iyer, NCLT, New Delhi Bench (2018).

discretionary authority in insolvency-driven acquisitions.5 Jet Airways Insolvency – Challenges in Raising Fresh Equity Under SEBI Norms In the Jet Airways insolvency case, resolution applicants sought to raise fresh capital through preferential allotments. However, SEBI’s strict disclosure and pricing norms delayed approvals, impacting the financial restructuring timeline. The conflict between ICDR regulations and the need for expedited capital raising under IBC created legal uncertainties, leading to multiple rounds of litigation. SEBI eventually provided relaxations for listed companies under CIRP, but these were granted on a case-by-case basis, creating inconsistencies in regulatory approvals.

2. Practical Challenges

§ Dual Compliance Burden on Resolution Applicants Resolution applicants must simultaneously comply with IBC requirements and SEBI regulations, leading to a dual compliance burden that discourages investors from bidding for distressed companies. Under IBC, applicants must obtain approval from the Committee of Creditors (CoC) and NCLT, while SEBI requires compliance with minimum public shareholding norms, preferential allotment pricing norms, and open offer exemptions. These additional procedural requirements create delays and financial burdens for resolution applicants. 6 § Delays Due to SEBI Approvals During CIRP Timelines Under IBC, the CIRP must be completed within 330 days, but SEBI’s approval processes often take longer, leading to procedural delays.

Some key issues include: • Open Offer Exemptions: SEBI’s discretionary power in granting exemptions under Regulation 3(1)(e) of SAST leads to inconsistent decisions. • Preferential Allotment Approvals: Resolution plans involving equity infusion require SEBI approval, creating additional delays in the process.

5 Essar Steel India Ltd. v. Satish Kumar Gupta, (2020) 8 SCC 531 (India).

6 Jet Airways (India) Ltd. v. State Bank of India, NCLT, Mumbai Bench (2020).

Regulatory Overlaps: SEBI’s pricing norms sometimes contradict IBC’s objective of facilitating debt-to-equity swaps and discounted issuances, leading to prolonged legal disputes. The interplay between SEBI’s regulations and IBC’s insolvency framework creates significant legal and procedural challenges. While SEBI’s ICDR and SAST Regulations aim to protect investors and maintain market stability, their rigid application in insolvency cases often contradicts IBC’s goal of swift resolution. Although SEBI has introduced exemptions and regulatory relaxations, delays in approvals and inconsistencies in implementation remain key concerns. To address these challenges, future reforms should focus on:

1. Automatic exemptions for CIRP cases rather than discretionary approvals.

2. Standardized pricing relaxations for preferential allotments under IBC.

3. Faster SEBI regulatory clearances to align with IBC’s strict resolution timelines.

Implementing these changes will enhance investor confidence, expedite insolvency resolutions, and create a more robust corporate restructuring framework, ensuring greater synergy between SEBI’s market regulations and IBC’s insolvency mechanisms. Chapter 3: Implications for Stakeholders The interaction between the Securities and Exchange Board of India (SEBI) regulations and the Insolvency and Bankruptcy Code, 2016 (IBC) has far-reaching consequences for multiple stakeholders involved in the corporate insolvency resolution process (CIRP). Resolution applicants, investors, and resolution professionals (RPs) are particularly impacted by the compliance requirements, procedural challenges, and regulatory overlaps that arise due to the coexistence of SEBI’s market governance framework and IBC’s insolvency mechanism.

While SEBI regulations seek to ensure investor protection and market stability, they sometimes create additional compliance burdens and valuation challenges for distressed asset buyers. This chapter examines the implications of SEBI regulations for key stakeholders in CIRP and highlights the challenges they face in navigating the regulatory framework.

1. Impact on Resolution Applicants

§ Compliance Costs and Procedural Hurdles Resolution applicants (RAs) play a critical role in the revival of distressed companies under IBC. However, they face significant compliance costs due to the simultaneous application of SEBI and IBC regulations. Under IBC, RAs must comply with the procedural requirements set forth by the Committee of Creditors (CoC) and obtain NCLT approval for their resolution plans. At the same time, SEBI mandates that listed companies undergoing insolvency resolution continue to comply with its regulations, including minimum public shareholding norms, disclosure requirements, and preferential allotment rules. One of the major hurdles RAs face is obtaining SEBI approvals for preferential allotments and capital infusions.

SEBI’s Issue of Capital and Disclosure Requirements (ICDR) Regulations, 2018, impose strict pricing norms on securities issued by distressed companies, requiring pricing to be determined based on historical market data. However, resolution plans often involve deeply discounted share issuances to attract new investors and ensure the financial viability of the restructuring process. Although SEBI has introduced case-by-case relaxations, the lack of a standardized framework results in delays and uncertainty, discouraging potential resolution applicants from investing in distressed assets. § Impact on Valuation Due to SEBI’s Pricing and Disclosure Mandates Another major concern for RAs is the impact of SEBI’s pricing and disclosure requirements on the valuation of distressed companies.

Under ICDR regulations, securities issued by a company undergoing CIRP must adhere to minimum price formulas based on past stock performance. This pricing mechanism often results in overvaluation, making it unattractive for resolution applicants who intend to acquire companies at a discount in line with their actual financial condition. In the Bhushan Steel resolution, for example, Tata Steel’s acquisition faced regulatory scrutiny due to SEBI’s preferential allotment pricing norms, which conflicted with the deeply discounted valuations approved under IBC. Additionally, SEBI’s stringent disclosure norms can affect the bidding process. Resolution applicants are required to disclose detailed financial projections and business plans, which may lead to market speculation and volatility in stock prices before the resolution plan is formally implemented.

This creates an additional layer of risk for RAs, who must ensure that their resolution strategy remains viable despite the public scrutiny imposed by SEBI’s regulatory

framework.

2. Implications for Investors

§ Protection Under SEBI vs. Risks in Distressed Assets SEBI regulations are primarily designed to protect retail and institutional investors from unfair market practices, but their implementation in CIRP cases sometimes conflicts with the realities of distressed asset acquisitions. Investors in listed companies under insolvency face significant risks, including equity dilution, uncertain business continuity, and price volatility. SEBI attempts to mitigate these risks by enforcing mandatory disclosures and requiring that any substantial acquisition comply with the Substantial Acquisition of Shares and Takeovers (SAST) Regulations, 2011. However, this investor protection framework is often at odds with the practical challenges of insolvency resolution.

For example, in Essar Steel’s CIRP, minority shareholders raised concerns about ArcelorMittal’s takeover and the dilution of their holdings, despite the acquisition being approved by the CoC and NCLT. SEBI’s involvement in reviewing takeovers in such cases adds an additional layer of scrutiny, which, while beneficial for investor protection, also results in delays and uncertainty in the resolution process. 7 § Liquidity Issues for Securities Issued During CIRP Another key concern for investors is liquidity constraints on securities issued during CIRP. SEBI’s regulations impose lock-in requirements on preferential allotments made to resolution applicants, meaning that newly issued shares cannot be traded for a certain period.

While this measure is intended to prevent market manipulation and speculative trading, it also reduces the immediate liquidity of the stock, making it less attractive for investors. Additionally, many companies that emerge from CIRP continue to face financial instability, leading to low trading volumes and depressed stock prices. Investors who acquire shares in such companies often struggle to exit their positions, as market confidence in companies that have undergone insolvency remains weak. These liquidity issues highlight the need for a more

7 Insolvency and Bankruptcy Board of India, Annual Report 2022-23 (2023).

flexible approach to SEBI’s post-CIRP trading restrictions, ensuring that investor interests are balanced with the need for market stability.

3. Challenges for Resolution Professionals (RPs)

§ Liability for Non-Compliance with SEBI Norms Resolution professionals (RPs) play a crucial role in managing the CIRP process and ensuring compliance with all applicable regulations. However, they often find themselves caught between SEBI’s regulatory mandates and IBC’s procedural deadlines. SEBI requires that listed companies under CIRP continue to comply with disclosure norms, stock exchange listing requirements, and corporate governance standards. Failure to comply can lead to penalties and potential legal action against RPs, even if non-compliance is due to the financial distress of the company. In several cases, RPs have faced liability for failing to provide timely disclosures regarding material developments in the insolvency process.

This creates a significant administrative burden, as RPs must not only oversee the insolvency proceedings but also ensure regulatory filings and market disclosures are made in accordance with SEBI norms. The Jet Airways insolvency is a notable example where regulatory delays and disclosure concerns added complexity to the resolution process, creating uncertainty for both investors and bidders. § Balancing NCLT Deadlines with SEBI Processes One of the biggest challenges for RPs is balancing the strict deadlines set by IBC with SEBI’s regulatory processes. The IBC mandates that CIRP must be completed within 330 days, but SEBI’s approval timelines for preferential allotments, open offer exemptions, and other compliance matters often exceed this period.

These procedural delays can jeopardize resolution plans, as investors and bidders may withdraw their interest if approvals are not obtained in a timely manner. For instance, in several high-profile insolvency cases, including Reliance Capital and Jet Airways, SEBI’s scrutiny of resolution plans and capital raising mechanisms resulted in extended delays, making it difficult for RPs to execute resolution strategies within the IBC’s prescribed timeframe. This has led to calls for a more streamlined approval mechanism,

ensuring that SEBI’s regulatory oversight does not undermine the effectiveness of the insolvency resolution framework. 8 The interplay between SEBI’s regulations and IBC’s insolvency resolution framework has significant implications for resolution applicants, investors, and resolution professionals. While SEBI’s oversight ensures investor protection and market transparency, its strict compliance requirements often create challenges for resolution applicants, impacting valuation, liquidity, and the overall efficiency of the CIRP process. Investors face risks related to equity dilution and trading restrictions, while RPs struggle with dual compliance burdens and regulatory delays. To address these issues, policy reforms are needed to harmonize SEBI’s regulatory requirements with the realities of insolvency resolution.

Potential solutions include automatic exemptions for CIRP-driven acquisitions, streamlined approval processes for capital infusion, and greater regulatory coordination between SEBI and the IBBI. These measures will ensure that while investor interests remain protected, insolvency resolutions can be executed in a more efficient and timely manner, ultimately fostering a stronger and more resilient corporate recovery framework in India. Chapter 4: Critical Analysis of Regulatory Gaps The intersection of the Securities and Exchange Board of India (SEBI) regulations and the Insolvency and Bankruptcy Code, 2016 (IBC) has revealed significant regulatory ambiguities, jurisdictional conflicts, and procedural inefficiencies.

This chapter critically examines three core areas of friction: (1) jurisdictional overlaps between SEBI and the National Company Law Tribunal (NCLT), (2) divergent pricing mechanisms under SEBI's Issue of Capital and Disclosure Requirements (ICDR) and the IBC, and (3) ambiguities in takeover exemptions for IBC-driven acquisitions.

1. Jurisdictional Overlaps

The IBC grants the NCLT exclusive authority to approve resolution plans, while SEBI retains statutory powers to enforce securities laws. This duality often leads to conflicting mandates. 8 Umakanth Varottil & A. K. Chawla, Corporate Insolvency Law and Practice in India (Oxford Univ. Press, 2020).

§ Non-Obstante Clauses and Conflicting Statutes: Section 238 of the IBC contains a non-obstante clause stating that its provisions shall have effect notwithstanding anything inconsistent in any other law. Similarly, Section 28A(3) of the SEBI Act includes a non-obstante clause for recovery of penalties. This creates an apparent conflict between the two statutes. 9 § Judicial Precedents Highlighting Conflicts: In the case of Ms. Anju Agarwal v. Bombay Stock Exchange, the National Company Law Appellate Tribunal (NCLAT) held that Section 14 of the IBC, which imposes a moratorium during the Corporate Insolvency Resolution Process (CIRP), takes precedence over Section 28A of the SEBI Act due to the non-obstante clause in Section 238 of the IBC. 10 Conversely, in Roofit Industries Ltd. v.

BSE Limited, the NCLT Mumbai held that the nonobstante clause in Section 238 of the IBC can only be invoked when there is an actual conflict between the provisions of the IBC and another statute, suggesting that SEBI's actions may not always be overridden by the IBC. § Implication: The lack of a clear hierarchy between SEBI and NCLT creates delays and legal uncertainty, undermining the IBC’s time-bound resolution mandate.

2. Pricing Mechanisms

The valuation principles under SEBI’s ICDR and the IBC are fundamentally misaligned, complicating insolvency resolutions. ICDR’s “Fair Value” vs. IBC’s “Liquidation Value”: SEBI’s ICDR mandates that securities issued during preferential allotments be priced at “fair value,” calculated using historical trading averages. Conversely, the IBC requires resolution plans to offer at least the “liquidation value”—often a steep discount to fair value—to maximize creditor recovery.

9 ArcelorMittal India Pvt. Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1 (India).

10 SEBI, Press Release on Amendments to SAST Regulations, (Mar. 10, 2023), available at

https://www.sebi.gov.in/media/press-releases.

Case Study – Jet Airways: Potential bidders for Jet Airways faced resistance from SEBI for proposing equity issuances at a significant discount to market price. SEBI argued this violated ICDR norms, while the Committee of Creditors (CoC) insisted the discount was necessary to attract investors. Haircuts for Creditors vs. Investor Protection: Creditors under IBC often accept significant haircuts to expedite resolutions. However, SEBI views such discounts as detrimental to public shareholders, who may not receive equitable treatment. Example: In the resolution of Reliance Capital, the CoC approved a plan offering creditors 60% recovery, but SEBI flagged concerns about preferential treatment to institutional investors over retail shareholders.

Implication: The absence of a harmonized valuation framework forces resolution applicants to navigate contradictory pricing mandates, deterring investment in distressed assets.

3. Takeover Exemptions

While SEBI’s Substantial Acquisition of Shares and Takeovers (SAST) Regulations exempt IBC-driven acquisitions from open offer obligations, ambiguities persist. Ambiguity in SAST Exemptions: Regulation 3(1)(e) of SAST exempts acquisitions under NCLT-approved resolution plans. However, the exemption applies only if the acquirer has no prior shareholding in the company. This disqualifies existing shareholders (e.g., financial creditors converting debt to equity) from participating in bids without triggering open offers. Example: In the case of Lanco Infratech’s resolution, lenders converting debt to equity during CIRP were forced to make open offers, as SEBI deemed them “existing shareholders” under SAST.

Need for Explicit Carve-Outs: SEBI’s exemptions lack clarity on post-acquisition compliance. For instance, if a resolution applicant acquires 75% equity under IBC, SAST does not clarify whether subsequent stake reductions require public offers. Judicial Gap: The NCLAT in MBL Infrastructures Ltd. v. SEBI ruled that SAST exemptions apply only during the acquisition phase, leaving post-resolution compliance unresolved. Implication: Ambiguities deter strategic investors and prolong litigation, defeating the IBC’s objective of swift resolution.

4. Way Forward: Bridging Regulatory Gaps

Legislative Reforms: • Amend SEBI regulations to recognize IBC-specific pricing norms, such as allowing discounted equity issuances during CIRP if approved by the CoC. • Introduce explicit carve-outs in SAST for post-acquisition compliance by resolution applicants. Institutional Coordination: • Establish a SEBI-Insolvency and Bankruptcy Board of India (IBBI) Joint Committee to resolve disputes during CIRP, ensuring timely approvals and harmonized decisionmaking. Judicial Clarity: • The Supreme Court should delineate SEBI’s jurisdiction in insolvency cases, clarifying that NCLT’s commercial wisdom prevails unless SEBI identifies fraud or market abuse. Addressing these regulatory gaps is essential to harmonize SEBI’s investor protection mandate with the IBC’s objective of efficient insolvency resolution, thereby fostering a more predictable and investment-friendly environment.

CHAPTER 5: CONCLUSION

The interplay between SEBI’s regulatory framework and the Insolvency and Bankruptcy Code (IBC) underscores a complex yet critical balancing act between investor protection and the efficient resolution of distressed companies. This research highlights how SEBI’s ICDR and SAST Regulations, designed to ensure market integrity and safeguard minority shareholders, often clash with the IBC’s mandate of swift, creditor-driven insolvency resolutions. Through an analysis of legal frameworks, case studies, and stakeholder challenges, it becomes evident that the coexistence of these regimes creates procedural bottlenecks, valuation conflicts, and jurisdictional ambiguities that hinder the insolvency ecosystem. Key Findings

1. Regulatory Conflicts: SEBI’s stringent pricing norms under ICDR and open offer

obligations under SAST frequently conflict with the IBC’s commercial flexibility. For instance, resolution applicants are compelled to navigate SEBI’s “fair value” requirements while adhering to the IBC’s “liquidation value” benchmarks, often leading to delays and valuation disputes, as seen in cases like Jet Airways and Bhushan Steel.

2. Jurisdictional Overlaps: The lack of a clear hierarchy between SEBI and the NCLT has

resulted in legal uncertainty. While the IBC’s non-obstante clause grants primacy to insolvency proceedings, SEBI’s enforcement actions during moratorium periods—such as penalties for non-compliance—create friction, as observed in the Roofit Industries and Essar Steel rulings.

3. Stakeholder Challenges: Resolution applicants face dual compliance burdens, investors

grapple with liquidity constraints, and resolution professionals struggle to meet conflicting deadlines. These challenges deter investment in distressed assets and prolong resolution timelines, undermining the IBC’s 330-day mandate.

4. Ambiguities in Takeover Exemptions: While SEBI’s SAST exemptions for IBC-driven

acquisitions are a step forward, ambiguities around existing shareholders (e.g., debtconverting creditors) and post-acquisition compliance persist, as highlighted in the Lanco Infratech and MBL Infrastructures cases.

To harmonize these frameworks, legislative, institutional, and judicial reforms are imperative: • Legislative Amendments: SEBI regulations should incorporate explicit carve-outs for IBC cases, such as standardized pricing relaxations for equity issuances during CIRP and automatic exemptions from open offers for NCLT-approved acquisitions. • Institutional Coordination: A joint SEBI-IBBI committee could streamline approvals, resolve disputes, and align regulatory processes with insolvency timelines. • Judicial Clarity: The Supreme Court must delineate SEBI’s jurisdictional limits in insolvency matters, affirming the NCLT’s authority over resolution plans while reserving SEBI’s role for cases involving fraud or market abuse. India’s insolvency landscape stands at a crossroads.

While SEBI’s regulations are indispensable for maintaining market confidence, their rigid application in distressed asset scenarios risks stifling the IBC’s transformative potential. By fostering regulatory synergy, policymakers can ensure that investor protection complements—rather than contradicts—the urgent need for corporate revival. A harmonized framework will not only expedite resolutions but also bolster investor confidence, positioning India as a resilient and investment-friendly economy. As insolvency cases grow in complexity, striking this balance will be pivotal to sustaining economic recovery and long-term financial stability.