IBC Overrides SEBI Again: NCLAT’s Aggressive Stance on Frozen Demat Accounts Reshapes Corporate Restructuring

The Supremacy of the IBC Estate Over Regulatory Freezes

In a decisive victory for Resolution Professionals (RPs) and a bitter pill for market regulators, the National Company Law Appellate Tribunal (NCLAT) has once again reaffirmed the supremacy of the Insolvency and Bankruptcy Code (IBC). On April 14, 2026, the NCLAT dismissed pleas by the Bombay Stock Exchange (BSE), ruling that the National Company Law Tribunal (NCLT) possesses the requisite jurisdiction to order the defreezing of demat accounts suspended under securities laws.

For practicing restructuring lawyers, this ruling is a critical weapon in the CIRP (Corporate Insolvency Resolution Process) arsenal. The conflict is a classic one: a listed corporate debtor defaults, triggering non-compliance with the Securities Contracts (Regulation) Act (SCRA) and SEBI (Listing Obligations and Disclosure Requirements) Regulations. Consequently, exchanges freeze the promoter and corporate debtor’s demat accounts under LODR Regulations 14 and 98.

However, once the corporate debtor enters CIRP, these regulatory freezes directly collide with the RP’s mandate for value maximization and the strictures of the Section 14 moratorium. The NCLAT anchored its decision in Section 60(5)(c) of the IBC, the residuary jurisdiction clause, interpreting it expansively. Because the frozen demat accounts constitute undisputed assets of the corporate debtor essential for resolution, the NCLT has the absolute right to adjudicate their release.

"The regulatory disciplinary mechanisms of SEBI and the stock exchanges, while vital for market integrity, cannot operate in a vacuum that starves the corporate debtor of its own assets during insolvency. Section 238’s non-obstante clause, coupled with Section 60(5), leaves no room for regulatory ring-fencing of assets."

What This Means for Daily Practice

If you are advising an RP, this ruling streamlines your asset-tracing and recovery strategy. Previously, RPs faced jurisdictional ping-pong, often forced to approach the Securities Appellate Tribunal (SAT) or SEBI to lift suspensions on securities—a process notorious for bleeding the clock on the 330-day CIRP timeline. Now, an application under Section 60(5) before the adjudicating authority is sufficient to override BSE/NSE freezes.

Furthermore, this tracks with NCLAT’s earlier December 2025 precedent holding that SEBI penalties levied post-commencement of liquidation are inadmissible as claims. The jurisprudence is crystallizing: the IBC is not a collection agency for regulatory penalties, and market regulators must stand in the queue (often at the very back) like any other operational creditor.

Institutional Overhaul: The Cross-Border Bench and IBC 2.0

While the NCLAT expands the NCLT’s jurisdictional footprint, the physical infrastructure of the tribunals is finally getting a much-needed, specialized upgrade. The government’s announcement to establish a Special NCLT Bench exclusively for cross-border insolvency cases is arguably the most significant structural reform since the IBC’s inception.

Current capacity constraints at the NCLT have led to horrific value erosion, defeating the very premise of the Code. By dedicating trained members to cross-border and complex group insolvencies, India is signaling its readiness to adopt the UNCITRAL Model Law framework. For corporate law firms, this means cross-border restructuring practice will shift from a niche academic exercise to a high-volume litigation and advisory practice.

This institutional shift is paired with the IBBI’s push for 68-70 sweeping amendments to the Code. As IBBI Chairman Ravi Mital noted, with ₹4 lakh crore recovered from 1,300 resolutions by late 2025, the focus is pivoting heavily toward creditor-led processes globally aligned to minimize delays. We can expect the upcoming amendments to heavily curtail the frivolous interlocutory applications by suspended management that currently clog the NCLT dockets.

A Word of Caution: The Supreme Court’s Jet Airways Rebuke

Lest restructuring professionals get too comfortable with the NCLAT's aggressive expansion of IBC powers, the Supreme Court’s recent handling of the Jet Airways saga serves as a sobering reminder of the appellate tribunal's limits. The apex court ultimately ordered the liquidation of Jet Airways, delivering a scathing critique of the NCLAT for ignoring established jurisprudence on resolution plan compliance.

The Supreme Court’s 2026 jurisprudence—including the 2:1 ruling striking down AGI Greenpac’s unsustainable resolution plan for HNGIL—demonstrates a sharp judicial intolerance for commercial unviability masking as resolution. The message from the top is clear: NCLTs and NCLATs may wield vast powers to protect the corporate debtor from external regulators like SEBI, but they cannot use those same powers to rubber-stamp commercially defective resolution plans.

The Takeaway

The intersection of securities law and insolvency law has always been fraught, but the 2026 developments clearly crown the IBC as the undisputed heavyweight. For corporate lawyers, the strategy is clear: leverage Section 60(5) aggressively against regulatory asset freezes, prepare your practice for the imminent surge in specialized cross-border litigation, and ensure your resolution plans are commercially bulletproof to survive Supreme Court scrutiny.