NCLAT upheld NCLT's power under Section 60(5) of the IBC to direct BSE to de-freeze demat accounts of corporate debtors — holding that once a liability is crystallised, insolvency proceedings must prevail over parallel regulatory action that merely blocks asset use.
⚖️ Quick Facts
- Cases: Future Corporate Resources Pvt. Ltd. v. BSE Limited & Liz Traders and Agents Pvt. Ltd. v. BSE Limited
- Tribunal: National Company Law Appellate Tribunal (NCLAT)
- Reported: 14 April 2026 (LiveLaw)
- Key Section: Section 60(5) of the Insolvency and Bankruptcy Code, 2016
- Outcome: NCLAT dismissed BSE's appeals — upheld NCLT's orders directing de-freezing of demat accounts
Can a stock exchange keep a company's demat account frozen even after that company enters insolvency? And if it does, can the insolvency court simply order the freeze to be lifted? These two deceptively simple questions have now received a clear answer from the NCLAT — and the answer carries major implications for every Resolution Professional, liquidator and corporate lawyer handling listed companies under the IBC.
📂 Background — What Led to These Cases?
What is a Demat Account and Why Does It Matter in Insolvency?
A demat (dematerialised) account holds securities — shares, bonds, mutual fund units — in electronic form. For a company undergoing insolvency, shares held in its demat account are often among its most liquid and valuable assets. A Resolution Professional (RP) during CIRP (Corporate Insolvency Resolution Process — the court-supervised restructuring period) or a liquidator during liquidation needs to be able to deal with these shares to either sell them as part of an approved resolution plan or liquidate them to repay creditors.
If those demat accounts are frozen — locked by a regulatory order — the insolvency professional cannot touch those assets. The entire process of asset realisation stalls. That is exactly what happened in these two cases.
Case 1 — Future Corporate Resources Pvt. Ltd. (CIRP)
Future Corporate Resources Pvt. Ltd. was a promoter-group entity of the well-known Future Retail Ltd. It was admitted into CIRP (meaning a formal insolvency process had commenced). BSE had frozen its demat account because Future Corporate Resources had defaulted on the payment of Annual Listing Fee (ALF) — the fee that listed companies must pay to stock exchanges to maintain their listing status.
The Resolution Professional applied to NCLT to get the freeze lifted so that the shares held in the account could be dealt with as part of the insolvency process. NCLT allowed the application and directed the de-freezing. BSE challenged this order before NCLAT.
Case 2 — Liz Traders and Agents Pvt. Ltd. (Liquidation)
Liz Traders and Agents Pvt. Ltd. was in liquidation — the stage after CIRP fails, where the company is wound up and its assets sold to repay creditors. Its demat account had been frozen by BSE due to defaults connected to listed group companies and securities law compliance failures. The liquidator needed access to the shares to monetise them and distribute proceeds to creditors. Again, NCLT directed de-freezing. BSE appealed.
The Core Conflict
Both cases placed two powerful legal frameworks in direct conflict. On one side: BSE and SEBI's regulatory enforcement powers under the Securities Contracts (Regulation) Act, 1956 and SEBI's LODR (Listing Obligations and Disclosure Requirements) Regulations, 2015 — which allow stock exchanges to freeze demat accounts for non-compliance. On the other: the IBC's insolvency framework — which mandates that once insolvency begins, assets must be preserved and maximised for the benefit of creditors.
❓ The Legal Question NCLAT Had to Answer
The Exact Question
Can BSE or SEBI freeze a corporate debtor's demat account during CIRP or Liquidation — even after a moratorium (a legal freeze on all proceedings against the company) is in place under Section 14 or Section 33(5) of the IBC — and does the NCLT have the power under Section 60(5) of the IBC to order that freeze to be lifted?
This question in turn raised three deeper sub-questions: Which law prevails — IBC or SEBI regulations? Does the moratorium under Section 14 cover regulatory actions like BSE's freeze? And does NCLT have the jurisdictional power to override a SEBI/BSE-imposed freeze?
⚖️ What NCLAT Held — The Four Key Principles
NCLAT dismissed BSE's appeals and upheld the NCLT orders in both cases. The reasoning rests on four interconnected principles — each one building on the last.
Principle 1 — The Crystallised Debt Rule
The NCLAT drew a crucial distinction between two types of regulatory action: regulatory adjudication (where the regulator is still deciding a dispute) and recovery action (where the liability has already been determined and only payment remains). This concept is called the "crystallised debt" principle.
In these cases, the Annual Listing Fee (ALF) amount owed by both companies had already been fixed. There was no ongoing regulatory inquiry or dispute about how much was owed. The amount was crystallised — fully determined. BSE's only remaining action was to recover that fixed amount. That recovery, NCLAT held, is not a regulatory function — it is a creditor function, and must follow the IBC process, not SEBI's enforcement mechanism.
📚 Supreme Court Precedent Cited
Embassy Property Developments Pvt. Ltd. v. State of Karnataka, (2020) 13 SCC 308 — The Supreme Court held that once dues to a government or statutory authority are crystallised and what remains is only payment, the claim must be adjudicated and paid as per the resolution plan approved by NCLT. NCLAT applied this principle directly to BSE's ALF claims.
NCLAT also cited ArcelorMittal India Pvt. Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1 — which established that matters concerning a corporate debtor's assets fall squarely within NCLT's jurisdiction under the IBC. Once dues are crystallised, they must be handled via the resolution plan — not through parallel regulatory channels.
Principle 2 — Assets of the Corporate Debtor Are Inviolable During Insolvency
The shares held in the demat accounts were undisputed assets of the corporate debtors — nobody was claiming that BSE or SEBI owned those shares. The ownership was clear. Keeping those shares frozen served no regulatory purpose — it was simply preventing the insolvency process from accessing assets that are needed to repay creditors.
NCLAT held that preventing the realisation of undisputed assets directly undermines the objectives of the IBC. In liquidation especially, asset monetisation is the entire purpose of the proceeding. A regulatory freeze that blocks this is not just inconvenient — it is fundamentally incompatible with the IBC's design.
Principle 3 — Section 60(5) Gives NCLT Full Power to Step In
Section 60(5)(c) of the IBC gives NCLT the power to adjudicate any question of law or fact "arising out of or in relation to" insolvency or liquidation proceedings. NCLAT held this is a broad residual (catch-all) jurisdiction that expressly covers situations where a regulatory restraint is blocking the insolvency process.
Since the question of de-freezing the demat accounts was intrinsically connected to the CIRP and liquidation process — it affected the RP's and liquidator's ability to perform their statutory duties — it fell squarely within Section 60(5). NCLT's orders directing BSE to lift the freeze were therefore within its jurisdiction and perfectly valid.
Principle 4 — The Critical Limit: This Does Not Eliminate Regulatory Power
NCLAT was careful to define the boundary of this ruling. It distinguished the facts before it from cases like Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta (2021 INSC 163) — where specialised regulatory authorities were still actively deciding disputes and adjudicating rights.
The ruling applies only when: (a) the regulatory liability is crystallised and no longer under determination, and (b) the regulatory action is functioning purely as a recovery/restraint mechanism rather than as an adjudicatory exercise. Where a regulator is still actively deciding something — investigating a fraud, adjudicating a penalty, resolving a compliance dispute — this ruling does not apply and the regulatory proceedings can continue.
🔑 The One Principle to Remember
"Once insolvency begins, no regulatory freeze on undisputed assets can survive if it is no longer adjudicating — it is merely blocking. At that point, the IBC takes over and the NCLT has full power to clear the path."
💼 Why This Matters — Practical Impact
| Who Is Affected | What Changes |
|---|---|
| Resolution Professionals (RPs) | RPs handling companies with listed securities can now approach NCLT under Section 60(5) to de-freeze demat accounts blocked by SEBI/BSE — provided the underlying liability is already crystallised |
| Liquidators | Liquidators can monetise shares held in demat accounts even if those accounts were previously frozen for listing fee defaults — a significant boost to asset realisation in liquidation |
| Promoter-group entities in CIRP | Companies in the promoter group of a larger listed entity — often caught in BSE freezes for group defaults — can now seek relief if they are themselves in CIRP |
| BSE / SEBI | Listing fee defaults cannot be used as a de facto tool to block insolvency asset realisation once the liability is fixed. Their claim for ALF must be filed as a creditor's claim in the CIRP — not enforced via a demat freeze |
| Creditors of Insolvent Listed Companies | This ruling removes a significant practical obstacle to asset realisation, meaning creditors are more likely to receive better recovery from insolvency proceedings involving listed companies |
📚 Key Legal Provisions — Explained
| Section | What It Says | Role in This Case |
|---|---|---|
| Section 14, IBC | Moratorium during CIRP — freezes all suits, proceedings, enforcement actions against the corporate debtor from the date of CIRP admission | Protects corporate debtor's assets from being taken or blocked during the resolution period |
| Section 33(5), IBC | Moratorium during Liquidation — similar freeze on all proceedings once liquidation order is passed | Applies to Liz Traders — BSE's freeze could not operate during liquidation moratorium |
| Section 60(5)(c), IBC | NCLT's residual (catch-all) jurisdiction — power to decide any question of law or fact arising from insolvency or liquidation proceedings | The legal basis for NCLT's order directing BSE to de-freeze demat accounts — upheld by NCLAT |
| Section 35 & 36, IBC | Liquidator's powers and duties — includes duty to take control of, collect and realise all assets of the corporate debtor | Supports the principle that demat accounts containing shares are assets that the liquidator must be able to access |
| Section 238, IBC | IBC overrides all other laws — where IBC provisions are inconsistent with any other enactment, IBC prevails | The foundational override provision — ensures IBC's insolvency framework takes precedence over SEBI/SCRA regulations in the insolvency context |
🔍 How This Fits the Bigger Picture — IBC vs Other Laws
This ruling is not isolated. It is part of a consistent judicial trend where courts have affirmed the IBC's supremacy in specific contexts — while being careful not to give it unlimited override powers. IBC has already been held to prevail over the Customs Act (in the context of CIRP asset sales free of customs dues), the Companies Act (in the context of directors' powers being superseded by the RP's authority), and now — in a significant expansion — over SEBI's securities regulatory framework in the specific context of demat account freezes.
What makes this ruling particularly elegant is NCLAT's careful calibration. It does not say SEBI has no power during insolvency. It says SEBI's enforcement power transforms in character once a liability is crystallised — it stops being regulatory and becomes a creditor's claim. And creditor claims must queue up in the IBC process, not jump the line through regulatory freezes. BSE can still file its ALF claim in the CIRP as a creditor — it simply cannot use the demat freeze as a leverage tool to extract payment outside the IBC framework.
✅ What Practitioners Should Do Now
📋 Action Checklist for RPs, Liquidators and Corporate Lawyers
- Identify all frozen demat accounts of the corporate debtor at the start of CIRP or liquidation — check with depositories (NSDL/CDSL) and the company's compliance records
- Determine if the underlying liability is crystallised — is the amount fixed and undisputed, or is there an ongoing regulatory inquiry? Only crystallised liabilities trigger this ruling
- File a Section 60(5) application before NCLT seeking de-freezing — cite this NCLAT ruling directly and the Embassy Property Supreme Court precedent
- Ensure BSE/SEBI's claim is recorded as a creditor's claim in the CIRP — either as an operational creditor (for ALF dues) so they receive their legitimate payment through the insolvency process
- Do not assume this ruling applies automatically where regulatory adjudication is still ongoing — check whether BSE/SEBI has any pending proceedings relating to the same subject matter
❓ Frequently Asked Questions
📝 Bottom Line — What This Ruling Means
✅ IBC takes over when the liability is fixed: Once a regulatory debt is crystallised and what remains is only recovery, the IBC process must govern — not regulatory enforcement mechanisms.
✅ Section 60(5) is powerful: NCLT's residual jurisdiction is broad enough to clear regulatory obstacles — including BSE and SEBI freezes — that block insolvency asset realisation.
✅ RPs and liquidators have a weapon: File a Section 60(5) application with this ruling as precedent — it is now confirmed that NCLT can order de-freezing of demat accounts.
✅ BSE/SEBI must use the creditor route: Their dues must be filed as creditor claims in CIRP — not enforced through regulatory freezes that block the entire insolvency process.
✅ Know the limit: This ruling does NOT apply where regulatory adjudication is still ongoing. Check carefully before filing any Section 60(5) application.
Sources: LiveLaw — "IBC Overrides Securities Law? NCLAT's Expanding Jurisdiction Over Frozen Demat Accounts" by Ankit Mishra, 14 April 2026 | Embassy Property Developments Pvt. Ltd. v. State of Karnataka, (2020) 13 SCC 308 | ArcelorMittal India Pvt. Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1 | Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta, 2021 INSC 163 | Insolvency and Bankruptcy Code, 2016 — Sections 14, 33(5), 60(5), 238 | Securities Contracts (Regulation) Act, 1956 | SEBI LODR Regulations, 2015.
This article is for informational and educational purposes only and does not constitute legal advice. For specific legal situations, consult a qualified insolvency professional or advocate.