Turf Wars and Tribunal Tears: NCLAT Subordinates SEBI’s Demat Freezes to the IBC, While SC Blasts NCLT Delays

The IBC's Supremacy: NCLAT Breaks the SEBI/BSE Demat Deadlock

Let us not mince words: when it comes to the clash between market regulation and corporate insolvency, the Insolvency and Bankruptcy Code (IBC) has officially cemented its status as the apex legislation. For years, Resolution Professionals (RPs) have been caught in a frustrating jurisdictional crossfire. On one side, the NCLT pushes for asset maximization. On the other, stock exchanges like the BSE—acting under SEBI's Listing Obligations and Disclosure Requirements (LODR) or the SCRA—freeze corporate and promoter demat accounts for regulatory non-compliance.

In a decisive April 2026 ruling, the NCLAT has finally put an end to this deadlock. Dismissing the BSE's challenges against earlier Mumbai NCLT orders, the Appellate Tribunal asserted its residuary jurisdiction under Section 60(5) of the IBC to direct the de-freezing of these demat accounts. NCLAT's rationale is legally sound and practically necessary: once the Corporate Insolvency Resolution Process (CIRP) commences, the Section 14 moratorium and the overriding effect of Section 238 of the IBC take precedence over securities enforcement.

"The legislative intent of the IBC is not to punish corporate debtors for past regulatory sins, but to resurrect them. A frozen demat account is a frozen asset, and you cannot maximize the value of an estate you cannot access."

Why this matters for your practice: If you are advising an RP, you no longer need to file parallel appeals before the Securities Appellate Tribunal (SAT) to release frozen shares. The NCLT is now firmly established as the single-window forum for these disputes. However, expect SEBI to aggressively challenge this at the Supreme Court, arguing that regulatory penalties should not be washed away by the CIRP initiation. Until then, use this NCLAT precedent to quickly unblock dematerialized assets and keep the resolution timeline moving.

The Supreme Court Loses Patience: Suo Motu Action on NCLT Delays

While the NCLAT is expanding its jurisdictional muscle, the foundational tribunals are crumbling under their own weight. On April 29, 2026, the Supreme Court took suo motu cognizance of the "grim" delays in NCLT approvals of resolution plans. This is a massive wake-up call for the Ministry of Corporate Affairs.

The Supreme Court flagged a specific case pending for nearly two years at the Delhi Principal Bench—a delay that makes an absolute mockery of the 330-day outer limit mandated by Section 12 of the IBC. Calling the situation "very unfortunate," the apex court has directed nationwide status reports from both the NCLT and the IBBI. The core issues are no secret to any practicing lawyer: an acute shortage of judicial and technical members, compounded by inadequate infrastructure.

Furthermore, in a critical ruling for banking litigators, the Supreme Court recently clarified the boundaries of limitation under the IBC. The Court held that the mere admission of a claim by an RP does not constitute an acknowledgment of debt to extend the limitation period under Section 7 of the IBC. This is a strict, literal interpretation of the Limitation Act that places the burden squarely back on financial creditors to file their Section 7 applications before the clock runs out, regardless of the RP's internal list of creditors.

Legislative Fixes on the Horizon: The 2026 Amendment Bill

The government is clearly feeling the heat from both the judiciary and the market. Scheduled for the second half of the Budget session (post-March 9, 2026), the upcoming IBC Amendment Bill is slated to introduce between 68 to 70 tweaks to align Indian insolvency law with global standards.

The most anticipated change? Cross-Border and Group Insolvency frameworks. India is finally moving to adopt the UNCITRAL Model Law on Cross-Border Insolvency. To support this, the government plans to establish a specialized NCLT bench exclusively for cross-border cases, staffed with specially trained members. For corporate litigators dealing with multinational holding structures, this will fundamentally alter how you structure recovery strategies. Instead of fighting fragmented battles across jurisdictions, we are moving toward a centralized, protocol-driven insolvency regime.

IBBI Chairperson Ravi Mital recently highlighted that over 32,000 applications involving ₹14.5 lakh crore in debt were withdrawn before admission. He frames this as the "deterrence effect" of the IBC—promoters paying up to avoid losing their companies. While true, we must ask: how many of those withdrawals were actually driven by creditors realizing that a two-year wait in the NCLT would destroy whatever value was left in the corporate debtor?

The Bottom Line

The IBC is evolving from a blunt instrument of debt recovery into a highly complex, globally aligned restructuring tool. The jurisprudence is clear: the IBC overrides conflicting statutes, whether it's SEBI's demat freezes or local tax authorities. However, the substantive law is writing checks that the tribunal infrastructure cannot cash. For practitioners, 2026 will be defined by aggressive NCLT litigation to enforce statutory timelines, while preparing for the systemic overhaul the new Amendment Bill will bring.