The IBC Supremacy Wars: NCLAT Uses Section 60(5) to Pierce SEBI’s Demat Freezes

The Turf War Over Frozen Assets

There is a fundamental friction in Indian corporate law: the Insolvency and Bankruptcy Code (IBC) wants to preserve and consolidate assets to rescue a failing company, while the Securities and Exchange Board of India (SEBI) and stock exchanges want to freeze those same assets to punish regulatory non-compliance. For years, Resolution Professionals (RPs) have been caught in the crossfire. But in a landmark April 2026 ruling, the NCLAT has drawn a hard line in the sand, firmly subordinating securities regulations to the IBC’s mandate.

The NCLAT has expansively interpreted its residuary jurisdiction under Section 60(5) of the IBC to direct the de-freezing of demat accounts previously frozen by the Bombay Stock Exchange (BSE) and SEBI. These accounts were typically frozen due to the Corporate Debtor’s failure to pay listing fees or comply with disclosure rules under the Securities Contracts (Regulation) Act (SCRA) and SEBI’s LODR Regulations.

By dismissing BSE's challenges, the NCLAT has sent a clear message: regulatory penalties cannot hold the Corporate Insolvency Resolution Process (CIRP) hostage.

Why This Matters for Practicing Lawyers

If you are advising an RP or a Committee of Creditors (CoC), this ruling is a critical weapon in your arsenal. Previously, stock exchanges acted as untouchable silos. When an RP attempted to take control of the Corporate Debtor's assets as mandated by Section 18 of the IBC, they would inevitably hit a brick wall if the company’s demat accounts were locked by SEBI or BSE. The exchanges would argue that their actions were statutory and distinct from debt recovery.

The NCLAT’s decision dismantles this defense. It affirms that the IBC’s non-obstante clause (Section 238) has overriding effect over the SCRA and SEBI Act when it comes to asset preservation during insolvency.

"The regulatory framework governing securities cannot operate to defeat the fundamental objective of the IBC—maximization of asset value and equitable distribution under the waterfall mechanism."

Furthermore, this aligns perfectly with another recent NCLAT ruling from late 2025, which held that SEBI penalties levied after the commencement of liquidation are inadmissible as claims. For practitioners, the strategy is now clear: use Section 60(5) aggressively to compel market regulators to release frozen assets, rather than wasting months negotiating with exchange compliance officers.

Supreme Court Closes the "Companies Act" Loophole

While the NCLAT is fighting off SEBI, the Supreme Court has been busy plugging another popular dilatory tactic used by desperate promoters: stalling CIRP by pointing to pending restructuring schemes under Section 230 of the Companies Act, 2013.

In a sharp rebuke to earlier NCLAT decisions that allowed such delays, the Apex Court ruled that the mere pendency of a restructuring or defunct scheme under the Companies Act cannot stall the admission of a CIRP application under Sections 7 or 9 of the IBC.

Let’s be frank—promoters have routinely used Section 230 schemes as a shield to delay the inevitable. By filing a convoluted scheme of arrangement, they could tie up the NCLT in endless hearings, preventing financial or operational creditors from initiating CIRP. The Supreme Court has rightly identified this as an abuse of process. The statutory right of a creditor to trigger insolvency upon a proven default cannot be suspended just because the debtor is floating a hypothetical restructuring plan elsewhere.

The Elephant in the Room: Systemic NCLT Delays

However, all these jurisprudential victories for the IBC are moot if the adjudicating authority takes years to pass an order. The Supreme Court has finally lost patience with the severe delays at the National Company Law Tribunal (NCLT). Flagging one egregious case where a resolution plan has been pending approval for nearly two years, the Court has directed a nationwide report from all NCLT benches on pendency.

This is the harsh reality of practicing in the NCLT today. The IBC’s mandated timeline of 330 days has become a complete fiction. Between understaffed tribunals, technical glitches, and the constant barrage of interim applications (IAs) filed by disgruntled promoters, resolution plans are losing their economic viability while waiting for a judicial stamp. The Supreme Court-ordered liquidation of Jet Airways—a direct result of NCLAT’s non-compliance with prior judgments and endless delays—stands as a grim monument to what happens when the judiciary fails to enforce timelines.

Looking Ahead: Specialization is the Only Way Out

The government seems to be waking up to the capacity crisis. The impending establishment of a special NCLT bench with specifically trained members for cross-border insolvency cases is a step in the right direction. As India prepares to implement its cross-border insolvency rules, pushing complex international battles through the already choked regular NCLT benches would be disastrous.

The Takeaway: The legislative and appellate trend is aggressively pro-IBC, favoring CoC commercial wisdom (as reinforced by the recent Byju's case) and asset preservation over competing regulatory actions. But for the lawyers on the ground, the real battle isn't just about the law anymore—it's about fighting the institutional lethargy of the tribunals to get that order signed before the underlying assets turn to dust.