IBC Section 226: Power of Central Government to supersede Board

Section 226 of Insolvency and Bankruptcy Code, 2016: Power of Central Government to supersede Board

Official Bare Act Text

Override / Mandate Mens Rea (Intent) Actus Reus (Conduct) Punishment Limitation Monetary

(1) If at any time the Central Government is of opinion-

(a) that on account of grave emergency, the Board is unable to discharge the functions and duties imposed on it by or under the provisions of this Code; or

(b) that the Board has persistently not complied with any direction issued by the Central Government under this Code or in the discharge of the functions and duties imposed on it by or under the provisions of this Code and as a result of such noncompliance the financial position of the Board or the administration of the Board has deteriorated; or

(c) that circumstances exist which render it necessary in the public interest so to do, the Central Government may, by notification, supersede the Board for such period, not exceeding six months, as may be specified in the notification.

(2) Upon the publication of a notification under sub-section (1) superseding the Board,-

(a) all the members shall, as from the date of supersession, vacate their offices as such;

(b) all the powers, functions and duties which may, by or under the provisions of this Code, be exercised or discharged by or on behalf of the Board, shall until the Board is reconstituted under sub-section (3), be exercised and discharged by such person or persons as the Central Government may direct; and

(c) all property owned or controlled by the Board shall, until the Board is reconstituted under sub-section (3), vest in the Central Government.

(3) On the expiration of the period of supersession specified in the notification issued under sub-section (1), the Central Government may reconstitute the Board by a fresh appointment and in such case any person or persons who vacated their offices under clause (a) of sub-section (2), shall not be deemed disqualified for appointment:

Provided that the Central Government may, at any time, before the expiration of the period of supersession, take action under this sub-section.

(4) The Central Government shall cause a notification issued under sub-section (1) and a full report of any action taken under this section and the circumstances leading to such action to be laid before each House of Parliament at the earliest.

Legal Commentary & Landmark Judgments: Section 226

Section 226 authorizes the Central Government to supersede the Board if it defaults in complying with directions, fails to perform functions, or in public emergency.

Grounds for Supersession: Triggered if the Board defaults in complying with government directions, persistently fails in performing statutory functions, or circumstances exist rendering it necessary in the public interest.
Maximum Six-Month Period: The Central Government may supersede the Board for a period not exceeding six months by notification in the Official Gazette.
Parliamentary Accountability: A full report on the circumstances leading to supersession and the actions taken must be laid before each House of Parliament at the earliest.

Key Landmark Precedents:

Swiss Ribbons Pvt. Ltd. v. Union of India (2019) 4 SCC 17: The Supreme Court noted that executive power to supersede under Section 226 is an extreme constitutional safety-valve subject to strict parliamentary oversight.
Innoventive Industries Ltd. v. ICICI Bank (2018) 1 SCC 407: Emphasized that regulatory bodies remain democratically accountable to Parliament through executive oversight mechanisms.

Courtroom Practice & Strategic Litigation Guidance:

During any temporary supersession of the Board under Section 226, all statutory powers of the Board are vested in and exercised by a designated officer or commission appointed by the Central Government.