It's a simple matter of jurisdiction. It's the duke's privilege to appoint lords in his duchy, and the ruler's to promote lords to dukes, in turn creating new duchies.
The ruler is not all powerful, nor is he intended to be. Perhaps there should be an option for the duke and the ruler to both give their consent and have the ruler assume lordship and dukedom at the same time, but I do not believe an option will ever exist for the ruler to simply rip a region out of a duchy and take the titles alone.