Turf War Settled: Why NCLAT's Sec 60(5) Ruling on Thawing Demat Accounts is a Gamechanger for RPs

The Regulator vs. The Resolution Professional

For corporate lawyers navigating the Insolvency and Bankruptcy Code (IBC), the turf war between market regulators and insolvency professionals is a familiar, frustrating battlefield. Statutory authorities like SEBI and stock exchanges have long operated under the assumption that their regulatory penal actions exist in a silo, immune to the sweeping powers of the IBC. But with its landmark ruling on April 14, 2026, the National Company Law Appellate Tribunal (NCLAT) has delivered a decisive blow to this regulatory exceptionalism.

By expanding its jurisdiction under Section 60(5) of the IBC to direct the de-freezing of corporate debtor demat accounts frozen by the BSE and SEBI, the NCLAT has reaffirmed a core principle: when a company enters insolvency, asset maximization trumps market regulation. For practicing lawyers, this isn't just an academic debate on statutory interpretation—it is a powerful new weapon for Resolution Professionals (RPs) and Liquidators fighting to preserve the value of the corporate debtor's estate.

Deconstructing the Clash: SCRA vs. IBC

The genesis of this dispute lies in the standard operating procedure of market regulators. When a listed entity defaults on compliance, stock exchanges swiftly invoke provisions like Sections 9(2) and 21 of the Securities Contracts (Regulation) Act, 1956 (SCRA), coupled with SEBI’s Listing Obligations and Disclosure Requirements (LODR) Regulations 14 and 98, to freeze the promoters' and the company's demat accounts.

Historically, BSE and SEBI argued that these actions are punitive and regulatory, falling outside the purview of the National Company Law Tribunal (NCLT). They contended that attempting to unfreeze these accounts required approaching the Securities Appellate Tribunal (SAT), not the NCLT.

The NCLAT rightly dismantled this argument. The Tribunal recognized that a frozen demat account fundamentally undermines the Section 14 Moratorium and paralyzes the liquidation process. How can an RP float a viable resolution plan, or a liquidator distribute assets, if the securities of the corporate debtor are held hostage by the stock exchange?

"The IBC is a complete code. Allowing parallel regulatory freezes to persist during CIRP or Liquidation defeats the very objective of value maximization and timely resolution."

The Magic Wand of Section 60(5)

The jurisprudential heart of this ruling is the NCLAT’s robust application of Section 60(5)(c) of the IBC. This residuary clause grants the NCLT jurisdiction to entertain any question of law or fact arising out of or in relation to the insolvency resolution or liquidation proceedings.

For years, the Supreme Court, notably in Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta, has warned against the NCLT usurping the jurisdiction of other tribunals. However, the NCLAT has cleverly threaded the needle here. By establishing a direct nexus between the frozen demat accounts and the inability to complete the insolvency process, the Tribunal justified the use of Section 60(5) to override the SCRA and SEBI regulations. This is bolstered by the non-obstante clause in Section 238 of the IBC, which ensures the Code prevails over inconsistent laws.

What This Means for Your Practice

If you are advising an RP or a Liquidator, the tactical playbook has just changed.

• No more forum shopping: You no longer need to file separate, time-consuming appeals before SAT to unfreeze assets locked by market regulators. You can file an Interlocutory Application (IA) directly before the NCLT under Section 60(5).
• Protection against post-liquidation penalties: This ruling aligns neatly with the NCLAT’s December 13, 2025, decision which categorically stated that SEBI penalties imposed after the commencement of liquidation are inadmissible claims. Regulators cannot back-door their claims to jump the Section 53 waterfall mechanism.
• Deal certainty for Resolution Applicants: Successful Resolution Applicants can now acquire listed corporate debtors with greater confidence, knowing the NCLT has the teeth to compel stock exchanges to release frozen securities.

The Elephant in the Room: Systemic Delays

While the NCLAT is busy fortifying the legal supremacy of the IBC, the ground reality at the NCLTs remains grim. We must juxtapose this jurisprudential victory with the Supreme Court's scathing observations in early 2026. Justices JB Pardiwala and KV Viswanathan correctly flagged the "very unfortunate" reality of resolution plans languishing before NCLT benches for nearly two years awaiting final approval.

The Supreme Court is clearly losing patience with delay tactics. Just weeks earlier, on February 24, 2026, the same bench ruled that the pendency of defunct debt restructuring schemes under the Companies Act cannot be used as a shield to stall a Section 7 CIRP application. The message from the apex court is unambiguous: IBC proceedings must move at a commercial pace, not a bureaucratic one.

The Verdict

The April 14 NCLAT ruling is a massive win for the sanctity of the insolvency process. It firmly puts SEBI and the stock exchanges in their place when a company goes belly-up. However, as practitioners, we must realize that expansive jurisdictional precedents mean very little if the tribunals wielding that jurisdiction are choked by infrastructural bottlenecks. Until the government addresses the gaping vacancies and infrastructural deficits at the NCLT level—perhaps starting with their newly proposed specialized cross-border insolvency bench—these legal victories will remain brilliant in theory, but agonizingly slow in practice.