The IBC’s Non-Obstante Bulldozer: NCLAT Strips SEBI of Asset-Freezing Powers as the 2026 Amendment Looms

The Shadow War Between India's Financial Regulators

If there is one undeniable theme emerging from the corridors of the NCLT and NCLAT in early 2026, it is this: the Insolvency and Bankruptcy Code (IBC) takes no prisoners when it comes to jurisdictional turf wars. For years, corporate insolvency practitioners have walked a tightrope between the Committee of Creditors' (CoC) mandate to maximize value and the capital market regulator's mandate to penalize non-compliance. But recent rulings from the NCLAT have decisively tilted the scales.

In a string of critical decisions culminating this quarter, the NCLAT has emphatically affirmed the NCLT’s jurisdiction under Section 60(5) of the IBC to defreeze demat accounts that were previously frozen by SEBI and the BSE for regulatory non-compliance, such as unpaid listing fees under the SEBI (LODR) Regulations, 2015. Coupled with the enactment of the landmark IBC (Amendment) Act, 2026 this April, the message to practicing lawyers is clear: Section 238 is the ultimate statutory trump card.

Section 60(5) as the RP’s Golden Key

Let's break down the mechanics of the NCLAT's ruling on frozen demat accounts. Historically, when a listed Corporate Debtor (CD) defaulted on its listing fees or failed to comply with LODR requirements, the stock exchanges (BSE/NSE) or SEBI would freeze the promoter's or CD's demat accounts. When the CD subsequently slipped into the Corporate Insolvency Resolution Process (CIRP), Resolution Professionals (RPs) found themselves paralyzed. How do you take control of assets that another statutory body has locked down?

The NCLAT has now firmly ruled that the NCLT can—and should—intervene. By invoking the residuary jurisdiction under Section 60(5), which allows the NCLT to entertain any question of law or fact arising out of or in relation to the insolvency resolution, the Tribunal prioritized the Section 14 moratorium and asset preservation over securities law enforcement.

"The legislative intent of the IBC is asset maximization and keeping the corporate debtor as a going concern. Regulatory penalties cannot operate as a backdoor encumbrance on the CD's estate during CIRP."

Why this matters for practice: If you are advising an RP, your days of writing polite, fruitless letters to SEBI or the BSE are over. You now have solid appellate backing to immediately file a Section 60(5) application before the NCLT to quash demat freezes. For lawyers representing regulatory bodies, the strategy must shift. Relying on parallel statutory freezes is a losing battle; regulators must now proactively file their claims as operational creditors and stand in line like everyone else.

SEBI’s Post-Liquidation Claims Evaporate

The NCLAT didn't just stop at CIRP moratoriums; it extended this logic deep into the liquidation phase. In the recent Annies Apparel case, SEBI attempted to recover a penalty of Rs 21.80 lakh imposed after the liquidation commencement date. The NCLAT summarily rejected SEBI's plea.

This is a crucial reaffirmation of the "clean slate" doctrine and the statutory freezing of claims as of the liquidation commencement date under Section 33. SEBI cannot generate fresh liabilities against a dying entity and expect to jump the Section 53 waterfall mechanism. The corporate veil in liquidation belongs entirely to the liquidator and the stakeholders defined under the Code.

Interestingly, the NCLAT also recently clipped the NCLT's own wings regarding liquidators, holding that the CoC has the primary right to appoint the liquidator under Section 34(1), and the adjudicating authority cannot whimsically override the creditors' commercial wisdom. The trend is absolute: creditor supremacy.

The 2026 Amendment: Codifying Creditor Supremacy

These tribunal developments do not exist in a vacuum. They are the jurisprudential runway for the newly enacted Insolvency and Bankruptcy Code (Amendment) Act, 2026.

The April 2026 amendments introduce the novel Creditor-Initiated Insolvency Resolution Process (CIIRP), drastically enhance creditor powers, enforce stricter timelines, and finally lay down the framework for group and cross-border insolvencies. The introduction of CIIRP represents a paradigm shift—moving away from the debtor-in-possession model's lingering shadows and giving creditors a more aggressive toolkit to force resolution before value destruction occurs.

However, litigators must heed the Supreme Court's recent warning regarding Section 9 applications. While the IBC is powerful, it is not a debt recovery tribunal. The Apex Court recently ruled that the NCLT cannot assess the merits of pre-existing disputes in operational creditor applications. If a genuine dispute exists prior to the demand notice, the NCLT must reject the plea, even if restructuring schemes under the Companies Act are pending. The NCLT's massive powers under Section 60(5) only spark into life after a valid admission.

The Verdict

For too long, parallel proceedings by SEBI, the Enforcement Directorate, and stock exchanges have acted as massive speed bumps in the CIRP and liquidation processes. The recent NCLAT rulings on demat defreezing and post-liquidation penalties represent a much-needed course correction.

Practicing corporate lawyers must integrate these developments immediately. When drafting resolution plans, specific clauses mandating the defreezing of regulatory accounts should cite these latest NCLAT precedents to bulletproof the plan against future regulatory harassment. SEBI and the stock exchanges, on the other hand, need to wake up and smell the Section 238 coffee. The IBC is a bulldozer, and standing in front of it with a LODR rulebook is no longer a viable legal strategy.