Parliamentary panel recommends clearing corporations get overriding priority over IBC in Securities Markets Code

The Standing Committee on Finance has recommended a change to the Securities Markets Code, 2025 that would give clearing corporations’ recovery rights an overriding priority over the Insolvency and Bankruptcy Code, 2016 — a shift that alters where clearing corporations sit in the insolvency waterfall relative to other creditors.

The recommendation is contained in the Committee’s 36th Report on the Code, presented in Lok Sabha on July 23, 2026. The Code itself seeks to consolidate three existing laws — the Securities Contracts (Regulation) Act, 1956, the SEBI Act, 1992, and the Depositories Act, 1996 — into a single statute.

What changes

Clause 70 of the Bill, in its introduced form, gives a clearing corporation’s dues — recovered from a clearing member’s collateral, deposits and other assets held for clearing and settlement — precedence over other rights and attachments in the event of the member’s insolvency, winding-up, liquidation or resolution. But the clause currently qualifies this precedence with the phrase “subject to the provisions of the Insolvency and Bankruptcy Code, 2016.”

The Committee has recommended that this qualifying phrase be replaced with “notwithstanding anything contained in the Insolvency and Bankruptcy Code, 2016” — a drafting change that would remove the IBC’s overriding effect on Clause 70 and instead let the clearing corporation’s claim override the IBC.

The case made for it

According to the report, one stakeholder had originally proposed going further and inserting “notwithstanding anything contained in any other law for the time being in force,” on the ground that the existing “subject to IBC” formulation could hurt investors whose trades are cleared through a clearing member undergoing insolvency, since it effectively let secured creditors’ claims rank above those investors.

When the Committee questioned the Ministry on this during evidence, the Secretary defended the underlying objective as protecting the finality of settlement — the principle that once a trade is executed, netted and settled, it should not unwind even if a clearing member later turns insolvent. The Ministry told the Committee it had examined comparable frameworks, including the Payment and Settlement Systems Act, 2007 and the Bilateral Netting of Qualified Financial Contracts Act, 2020, both of which already give netting and settlement precedence over the IBC. It also pointed to IOSCO Principles and the UNCITRAL Legislative Guide on Insolvency Law, and to US, Canadian and Singaporean law, as supporting the position that netting and settlement should sit outside the insolvency process, whether that process is liquidation or resolution.

Notably, the Ministry conceded a narrower point: the IBC’s moratorium protects against liquidation but not against resolution — meaning, under the current “subject to IBC” wording, a clearing corporation’s priority claim could in theory be affected during a resolution process. That gap is what the redrafted “notwithstanding” language is meant to close. When the Committee directly asked whether the Ministry supported the substitution, the Secretary confirmed it did.

The Committee’s own reasoning, recorded in the report, is that certainty and finality of completed trades are essential to market integrity and investor confidence, and that the IOSCO/UNCITRAL and comparative-law material presented by the Ministry supported carving settlement obligations out of the ordinary insolvency process.

Context: who was in the room

The Committee’s examination of the Code involved evidence from the NSE, BSE, SEBI, IRDAI, RBI, former SEBI chairperson M. Damodaran, and — notably for this clause — Dr M.S. Sahoo, former chairperson of the IBBI and former whole-time member of SEBI, who appeared before the Committee on April 23, 2026, the same day IBBI itself also gave evidence. The report does not attribute the specific Clause 70 suggestion to a named stakeholder; it is recorded only as coming from “one stakeholder.”

Why it matters for insolvency practice

If Parliament enacts Clause 70 as recommended, clearing corporations would join a narrow set of claims — alongside those already carved out under the Payment and Settlement Systems Act and the Bilateral Netting Act — that sit outside the IBC’s waterfall and moratorium framework entirely, rather than merely ranking within it. For resolution professionals and committees of creditors dealing with insolvent clearing members or their group entities, this would mean clearing corporation dues could be recovered from pledged collateral without regard to the moratorium under Section 14, a materially different position from today’s “subject to IBC” text.

The recommendation is not yet law. The Bill returns to Parliament for consideration with the Committee’s report; the Ministry has said it will make “suitable” drafting changes, but the precise statutory language is yet to be finalised.

Also See: Insolvency sword hanging over Reliance Power