The Expanding Reach of Section 60(5): NCLAT Defreezes Demat Accounts as Supreme Court Pierces the Corporate Veil

The IBC Turf War: NCLT Consolidates Power Over Distressed Assets

For corporate insolvency practitioners, the jurisdictional boundaries between the Insolvency and Bankruptcy Code (IBC) and other regulatory regimes have always been a fertile ground for litigation. The latest slew of rulings from the NCLAT and the Supreme Court signals a definitive jurisprudential shift: the tribunals are aggressively expanding their equitable and residuary powers to ensure the resolution process is not derailed by parallel regulatory roadblocks or corporate structuring workarounds.

However, this expansion of substantive power comes with a severe warning on the procedural front. The Supreme Court has made it abundantly clear that while the NCLT’s reach is growing, the apex court’s tolerance for systemic delays and sloppy appellate drafting has entirely evaporated.

Section 60(5) Trumps Securities Law: The Demat Defreezing Order

In what is arguably the most significant recent development for cross-practice litigators, the NCLAT has emphatically dismissed the BSE’s pleas challenging the NCLT’s power to defreeze demat accounts in insolvency cases.

The core issue here was a classic turf war: Does the NCLT have the jurisdiction to order the defreezing of a Corporate Debtor's (CD) demat account, or is that strictly the domain of SEBI and the Securities Appellate Tribunal (SAT)? The NCLAT leaned heavily on the non-obstante clause of the IBC and the residuary jurisdiction under Section 60(5)(c) of the Code.

"Where share ownership is undisputed, the act of de-freezing is intrinsically connected to insolvency administration and falls squarely within the NCLT’s jurisdiction," the NCLAT observed.

Why this matters for your practice: Until now, Resolution Professionals (RPs) often found themselves running from pillar to post—approaching SEBI or filing writ petitions—just to gain control over the CD’s securities. This ruling fundamentally centralizes insolvency administration. If you are representing an RP, you can now seamlessly use Section 60(5) applications to bypass securities market regulators for asset consolidation, provided the title to the shares is not in dispute. It reinforces the NCLT as a "single-window clearance" for distressed assets.

Piercing the Veil: A Lethal Weapon for Homebuyers

In a parallel expansion of tribunals' powers, the Supreme Court, on May 5, delivered a massive victory for homebuyers stalled in real estate Corporate Insolvency Resolution Processes (CIRPs). The Court indicated that the assets of subsidiary companies may be included in CIRP proceedings against a holding company.

Real estate developers frequently use Special Purpose Vehicles (SPVs) and subsidiary structures to siphon funds, leaving the holding company—the entity facing CIRP—as an empty shell. By allowing the lifting of the corporate veil in specific homebuyer-centric CIRPs, the Supreme Court is effectively endorsing group insolvency concepts without waiting for Parliament to formally legislate them.

Practice Point: If you are representing a Committee of Creditors (CoC) or an association of allottees, your Section 7 or Section 9 strategy must immediately adapt. You should now actively trace funds and draft pleadings that justify piercing the veil to attach subsidiary assets, citing the broader objective of the IBC: maximizing the value of assets and protecting homebuyers.

Section 213 Probes: NCLT Flexes Rule 11 Powers

Further arming the NCLT, the NCLAT ruled in a May 15 order that the NCLT can direct investigations into a company's affairs under Section 213 of the Companies Act, 2013 during insolvency-related matters, invoking its inherent powers under Rule 11 of the NCLT Rules, 2016.

However, the NCLAT attached a crucial caveat: such an order can only be passed after giving a reasonable opportunity to the concerned parties. For defense counsels representing erstwhile promoters, this caveat is your shield. Any Section 213 probe ordered ex-parte or without adequate hearing during a CIRP is now highly susceptible to being struck down on natural justice grounds.

The Procedural Whip: SC’s Zero Tolerance for Defective E-Filing

While the NCLT’s substantive powers expand, the Supreme Court is ruthlessly tightening the procedural screws. On April 29, the apex court took suo motu cognizance of the staggering delays in the approval of resolution plans, particularly at the Principal Bench in New Delhi.

But the real shockwave for litigators came on May 12. The Supreme Court ruled that e-filing an NCLAT appeal without the certified copy of the impugned order is not a mere "curable defect"—it renders the appeal "wholly incompetent."

The Takeaway: Stop treating e-filings as a placeholder to stop the limitation clock. Many law firms have developed a lazy habit of e-filing bare-bones appeals without certified copies, hoping to cure the defects later while claiming they filed within the 30-day window under Section 61. The Supreme Court has just outlawed this strategy. If you file without a certified copy, your appeal is void ab initio. By the time you procure the copy and refile, your limitation period will likely have expired, leaving you vulnerable to fatal delays.

Conclusion

The jurisprudence of 2025 is sending a dual message to Indian corporate lawyers. Substantively, courts will back you if you use the IBC creatively to consolidate assets, protect creditors, and corner rogue promoters—even if it means stepping on SEBI's toes or piercing the corporate veil. Procedurally, however, the era of judicial leniency is over. Successful resolution applicants can no longer back out of CoC-approved plans, delayed NCLT benches are under SC surveillance, and defective appellate filings will be thrown out without mercy. Adapt your practice accordingly.