The IBC Turf War Escalates: NCLAT Empowers NCLT to Defreeze Demat Accounts Over SEBI and BSE Objections

A Jurisdictional Masterstroke Under Section 60(5)

The perennial turf war between the Insolvency and Bankruptcy Code (IBC) and India’s sectoral regulators has just witnessed another decisive battle. In a significant development this April-May 2026, the National Company Law Appellate Tribunal (NCLAT) has unequivocally ruled that the NCLT exercises valid residuary jurisdiction under Section 60(5) of the IBC to direct the defreezing of demat accounts frozen by stock exchanges under securities laws.

For resolution professionals (RPs) and corporate insolvency lawyers, this is a massive sigh of relief. The conflict arose when the Bombay Stock Exchange (BSE) froze the demat accounts of corporate debtors for non-compliance with the SEBI (Listing Obligations and Disclosure Requirements) Regulations, specifically Regulations 14 and 98, read with Sections 9(2) and 21 of the Securities Contracts (Regulation) Act (SCRA), 1956. BSE's argument was predictable: securities market enforcement mechanisms belong strictly to the domain of SEBI and the exchanges, not the insolvency courts.

NCLAT, dismissing BSE’s appeals against earlier NCLT Mumbai orders, rightly prioritized the Section 14 moratorium. The tribunal’s logic is sound and heavily rooted in the commercial realities of the Corporate Insolvency Resolution Process (CIRP). If a corporate debtor's demat accounts remain frozen, the RP is severely handicapped in preserving the corporate debtor's asset value, effectively crippling the resolution process.

"The IBC’s non-obstante clause under Section 238 is not merely decorative. By allowing NCLT to bypass SCRA and SEBI LODR freezes, the NCLAT has reinforced that value maximization of the corporate debtor cannot be held hostage by parallel regulatory penal actions."

Practice Pointer: If you are advising an RP, you no longer need to file separate, time-consuming representations before SEBI or the Securities Appellate Tribunal (SAT) to lift demat freezes. You can directly invoke Section 60(5) before the NCLT, citing this precedent to bring the frozen assets back into the CIRP pool.

Supreme Court Drops a Limitation Bomb for Creditors

While the NCLAT expanded the IBC's protective umbrella, the Supreme Court delivered a sharp procedural reality check regarding the admission of claims. In a ruling that alters the calculus for financial creditors, the Apex Court held that an RP’s admission of a claim during CIRP does not constitute an "acknowledgment of debt" under Section 18 of the Limitation Act for the purpose of extending limitation for Section 7 applications.

Why does this matter? Historically, creditor counsels have tried to use an RP’s collation and admission of claims, or entries in the Information Memorandum, to cure limitation defects in subsequent or related proceedings. The Supreme Court has now slammed this door shut. The RP's duty is administrative—to collate claims based on records as they exist on the insolvency commencement date. It is not an acknowledgment by the corporate debtor that restarts the limitation clock.

Furthermore, the Court brought clarity to the treatment of corporate guarantees, affirming that guarantees backed by hypothecation firmly qualify as "financial debt." This is a major procedural victory for SBI-led consortiums and other institutional lenders, ensuring that complex security structures do not get bogged down in admissibility disputes at the pre-admission stage.

The Elephant in the Room: Systemic Delays and Structural Reforms

Despite these jurisprudential advances, the procedural machinery of the NCLT is grinding to a halt, prompting the Supreme Court to take suo motu cognizance on April 29, 2026, of the "grim" delays in resolution plan approvals.

We are seeing resolution plans languishing before NCLT benches for nearly two years post-CoC approval. The Supreme Court rightly pointed out the severe shortage of judicial and technical members, demanding nationwide reports from both the NCLT and the IBBI. It is a paradox of practice today: we have world-class jurisprudence being laid down by the appellate courts, but the trial-level infrastructure is suffocating under its own weight.

This judicial exasperation coincides with the IBBI’s ambitious proposal of 68-70 amendments to the Code, stemming from the August 2025 bill. The government is pushing for global alignment, floating the idea of a special NCLT bench dedicated exclusively to cross-border insolvency cases. While training specialized members for cross-border and group insolvency is a fantastic theoretical step, one must ask: How effective will a specialized cross-border bench be if domestic cases cannot clear the 330-day mandate?

The Takeaway for Practitioners

The landscape of Indian corporate insolvency in mid-2026 is defined by a dichotomy. On substantive law, the IBC is baring its teeth. The NCLAT's ruling on demat accounts proves that when the IBC clashes with specialized regimes like SEBI/SCRA, the IBC's mandate of asset preservation will win. However, on procedural law, litigators must be hyper-vigilant. You cannot rely on an RP's claim admission to save your limitation period, and you must prepare your clients for grueling administrative delays at the NCLT level.

As the government gears up to implement the new IBC tweaks to enforce credit discipline—evidenced by over 32,000 applications withdrawn pre-admission—lawyers must pivot from merely filing Section 7 and 9 applications to structuring pre-insolvency settlements and utilizing the rising threat of CIRP as a primary negotiation tool.