IBC's Absolute Primacy: NCLAT Strips SEBI's Powers Over Demat Accounts While Supreme Court Cracks Down on CIRP Delays

The jurisdictional turf war between India’s market regulators and the bankruptcy tribunals has definitively tilted. For insolvency practitioners, the latest wave of National Company Law Appellate Tribunal (NCLAT) and Supreme Court rulings sends an unequivocal message: the Insolvency and Bankruptcy Code (IBC) bows to no one. Not to the Securities and Exchange Board of India (SEBI), not to the stock exchanges, and certainly not to the dilatory stratagems of corporate debtors.

If you are a Resolution Professional (RP) or a liquidator, your life just got considerably easier. If you represent statutory regulators, it is time to wake up and read the limitation periods.

The Unstoppable Force of Section 238: Defreezing Demat Accounts

In a landmark move expanding the NCLT's jurisdiction, the NCLAT has ruled that the bankruptcy tribunal holds the absolute power to direct the de-freezing of demat accounts, overriding securities law frameworks. The appellate tribunal rightly dismissed pleas from the Bombay Stock Exchange (BSE) that challenged the NCLT’s authority to lift freezes imposed under SEBI regulations.

Why does this matter for your practice? Historically, RPs and liquidators have been caught in a frustrating game of regulatory ping-pong. When a Corporate Debtor (CD) goes into insolvency, its assets—including shares held in demat accounts—must be taken into custody by the RP under Section 18 of the IBC (or by the liquidator under Section 35). However, exchanges and SEBI have routinely refused to lift regulatory freezes, forcing insolvency professionals to file appeals before the Securities Appellate Tribunal (SAT).

The NCLAT has now firmly dropped the hammer using Section 238—the IBC's non-obstante clause. By categorizing shares in demat accounts as undisputed assets of the CD, the tribunal recognized that preventing their realization fundamentally undermines the objective of value maximization.

For practicing lawyers, the strategy is now crystal clear: Do not waste billable hours in protracted correspondence with the depositories or SEBI. File an Interlocutory Application (IA) directly before the NCLT to defreeze the accounts. The NCLT is the single window, and its jurisdiction over the CD's estate is absolute.

Regulators Are Not VIP Creditors: The Annies Apparel Ruling

SEBI’s attempt to play by its own rules during liquidation has also been unceremoniously shut down. In the case of Annies Apparel, the NCLAT rejected SEBI’s plea to recover a penalty, flatly stating that claims filed after the liquidation commencement date are legally inadmissible.

The facts are stark: SEBI filed its claim a staggering 797 days after the liquidation process began. The market watchdog seemingly operated under the delusion that its statutory dues enjoyed an indefinite shelf life. The NCLAT disagreed, holding that the liquidation commencement date possesses an "inviolable sanctity."

This is a critical jurisprudential victory for the "clean slate" theory. Under the Section 53 waterfall mechanism, government and statutory dues already sit lower in the priority order. Allowing regulators to bypass the strict timelines of the IBBI (Liquidation Process) Regulations, 2016 would inject fatal uncertainty into the distribution of assets. This ruling reinforces that statutory bodies must monitor public announcements and submit their claims (Form C) within the prescribed 30-day window, exactly like any other operational creditor.

Supreme Court to NCLT: Stop the Clock-Running

While the NCLAT was busy protecting the IBC from external regulators, the Supreme Court turned its gaze inward to the NCLT’s own systemic failures. The Apex Court has raised serious alarms over prolonged delays in the approval of resolution plans, flagging cases that have languished for nearly two years awaiting a final stamp from the adjudicating authority.

By calling for a nationwide report from the NCLT Principal Bench on these bottlenecks, the Supreme Court is addressing the elephant in the insolvency courtroom. The statutory mandate of 330 days under Section 12 is routinely mocked by the tribunals' own dockets. For financial creditors, a two-year delay at the approval stage erodes the time-value of money and often destroys the commercial viability of the very resolution plan being approved.

Furthermore, the Supreme Court has slammed the door on a favorite delay tactic of corporate debtors: using pending restructuring schemes to stall insolvency. The Court ruled that a defunct or pending Scheme of Arrangement under Section 230 of the Companies Act, 2013 cannot prevent the initiation of a Corporate Insolvency Resolution Process (CIRP) under Section 7 of the IBC.

This is a massive win for lenders. Debtors can no longer file a frivolous amalgamation or compromise scheme in the NCLT merely to create an artificial bar against a financial creditor's Section 7 petition. The existence of a default is the only trigger that matters.

The Next Frontier: Dedicated Cross-Border Benches

Looking ahead, the government's plan to establish a specialized NCLT bench exclusively for cross-border insolvency cases signals the imminent notification of the long-awaited cross-border insolvency framework (modeled on the UNCITRAL Model Law).

As Indian corporate groups increasingly hold complex foreign assets, generalist NCLT members have struggled with the nuances of foreign main proceedings and secondary proceedings. A specialized bench with specifically trained judicial and technical members will drastically reduce the friction in recognizing foreign representatives and executing joint protocols.

The Bottom Line: The jurisprudence of late 2025/early 2026 is aggressively protective of the IBC's original intent. Tribunals are elevating the Code's timelines and jurisdiction above all competing statutes. For corporate lawyers, the takeaway is simple: the IBC remains the alpha statute in Indian commercial law, and relying on parallel regulatory frameworks to stall it is a losing bet.