IBC Vs Securities Law: NCLAT’s Expanding Jurisdiction Over Frozen Demat Accounts

There is one important question: can a stock exchange freeze a company's demat account after insolvency proceedings have started? This question is important because the main objective of the Insolvency and Bankruptcy Code, 2016 (IBC), is to protect the assets of the corporate debtor and to preserve or increase their value.

And many corporate debtors have securities in their demat accounts. If these accounts are frozen, the Resolution Professional or liquidator may face difficulty in selling those assets. In this case, they may face issues with the Corporate Insolvency and Bankruptcy Process (CIRP) or liquidation proceedings.

The problem becomes serious when a demat account is frozen under securities law due to the company's non-compliance (e.g., non-payment of Annual Listing Fees (ALF) or failure to meet listing obligations). On one side, securities law objectives are to maintain market discipline and protect investors. On the other hand, the IBC's objective is to ensure the insolvency process and the maximum value of the corporate debtor’s assets.

The NCLAT has played an important role in this case. It said that if the amount to be paid is already fixed and the freeze only prevents the corporate debtor from using its assets, the NCLT can order the demat accounts unfrozen. This is an important development because it creates a difference between insolvency law and securities law.

Legal Framework: IBC and Securities Law

In this case, there is a problem between IBC and securities law because they have different goals. The IBC was created to provide a time-bound process for solving insolvency cases. and get the best recovery for creditors. Once the CIRP starts, Section 14 of the IBC applies a moratorium. This prevents all legal cases, recovery actions, and other enforcement steps against the corporate debtor and its assets during the moratorium period.

Section 238 of the IBC is also very important. It says that if there is any issue between the IBC and another law, the IBC will prevail. This means that if another law creates a problem with the proper functioning of the IBC, the IBC's provisions will apply. Section 60(5) is also important. It gives the NCLT power to decide legal and factual issues related to insolvency or liquidation.

Securities law mainly focuses on protecting investors and regulating the market. SEBI and recognised stock exchanges can take action against listed companies and their promoters if they fail to comply with the rules. These actions may include penalties, restrictions, suspension, or freezing of demat accounts. The problem emerges when restrictions prevent the Resolution Professional or liquidator from using or dealing with the corporate debtor's assets.

NCLAT’s Approach

The NCLAT dealt with this issue in the cases of Future Corporate Resources Pvt. Ltd. and Liz Traders and Agents Pvt. Ltd. In one case, Future Corporate Resources Pvt. Ltd., which was part of the promoter group of Future Retail Ltd., was going through CIRP. Its demat account was frozen due to unpaid Annual Listing Fees. In the other case, Liz Traders and Agents Pvt. Ltd. was under liquidation. Its demat account was frozen due to defaults associated with listed group companies and non-compliance with securities laws.

In both cases, the Resolution Professional or liquidator requested unfreezing of a demat account. So that the share can be sold and used. The NCLT accepted these requests and ordered the stock exchanges and depositories to remove the freeze. BSE challenged these orders before the NCLAT. BSE argued that the NCLT had no power to pass such orders.

The NCLAT rejected the appeals and supported the NCLT’s orders. It said that this issue was directly related to the insolvency or liquidation process because the frozen demat accounts hold the assets of the corporate debtor.

An important part of the NCLAT’s decision was the idea of “crystallised debt.”

A debt is called crystallised when the amount is fixed and undisputed. In that situation, no further decision is needed. Only payment or recovery is left. The tribunal held that the amount of the Annual Listing Fees had already been decided. There was no pending decision by the regulator on this issue.

When the liability is decided, and only recovery is left, the matter should be handled under the IBC. In this case, the stock exchange can and should file its claim with the Resolution Professional or liquidator, as other creditors do. It cannot impose restrictions and block the corporate debtor’s assets through a separate recovery process.

In this case, the NCLAT relied on Section 60(5) of the IBC. This section gives the NCLT the power to resolve issues related to insolvency or liquidation. If the shares of the corporate debtor are in the demat accounts. These accounts are frozen by securities regulators, so the Resolution Professional or liquidator cannot use or sell those assets. This can affect the basic principles of the insolvency process.

So, the issue of unfreezing the Demant accounts was not only a securities law issue. It concerned the management of the corporate debtor’s assets. Therefore, the NCLAT held that the NCLT had the power to pass such orders.

This approach indicates that the NCLT can step in when regulatory restrictions impede the proper functioning of CIRP or liquidation.

The reasoning of NCLAT is supported by the Supreme Court  

In the case of Embassy Property Developments Pvt. Ltd. v. State of Karnataka , the Supreme Court stated that the NCLT has power under Section 60(5). The Court also stated that if the amount has already been decided and only payment remains, the claim must be dealt with in accordance with the NCLT-approved resolution plan.

In the case of ArcelorMittal India Private Limited v. Satish Kumar Gupta, the Supreme Court held that matters related to the corporate debtor and its assets fall within its jurisdiction. It should be handled under the insolvency process.

In the case of Sundaresh Bhatt v. Commissioner of Customs, it is also important that the Supreme Court said that customs authorities can calculate the dues. But after the moratorium begins, they cannot recover the money or take control of the goods. This means that government authorities can decide their claims, but recovery must be done under the IBC process.

The final view of the courts is that the NCLT should not interfere in matters within the purview of regulators. But the NCLT must use its power carefully.

Critical Analysis

The NCLAT gave its decision in favour of the IBC in matters related to the corporate debtor's assets. If the securities are frozen, they cannot be used in the resolution or liquidation process. This can harm the creditors. It also goes against the IBC's main purpose.

This decision is very important because it prevents securities authorities from using asset-freezing steps to recover funds after insolvency has started. This decision is important because the IBC provides a single process for all claims. All claims must be submitted and resolved in accordance with the resolution plan or liquidation process as per IBC Law.

But this decision does not mean that securities law is not important. SEBI and stock exchanges still have an important role in different ways for different purposes. Because, as we know, these regulators protect investors and maintain market discipline. Their powers are still very important in cases of fraud, insider trading, market manipulation, or ongoing investigations.

Roles and responsibilities of Law are decided on the basis of the difference between deciding responsibility and recovering money. If the matter is still under investigation or decision, the securities regulator can continue its work, and they have power to make a decision under this situation. But if the amount is already fixed and decided. Then, the Securities regulator freezes and stops the use or sale of assets, and then the IBC law will apply.

This is a balanced approach. It protects the insolvency process. It also keeps securities regulation important.

Practical Implications

This decision is very important for Resolution Professionals and liquidators. It gives them permission to access and use assets held in demat accounts. This helps complete the resolution or liquidation process.

For creditors, this decision is very helpful. It stops valuable assets from being blocked by other laws. For stock exchanges and securities regulators, this decision means that, once insolvency commences, fixed dues should be recovered through the IBC process. They should not recover money by freezing assets. For investors and the securities market, this may create some concern. If restrictions are removed too easily, securities law may become weak. So, in future cases, it is important to check the reason for the freeze. It should be checked whether the freeze is only for recovery or for an ongoing regulatory reason.

Conclusion

The conflict between the IBC and securities law shows that it is not easy to balance two important legal aims. The aim of the IBC is to protect the value of assets and help creditors recover money. The aim of securities law is to maintain discipline in the market and protect investors. The NCLAT gave an important decision on this issue. It said that if the liability is already fixed and only recovery is left, authorities should not keep blocking the assets of the corporate debtor. In such cases, the claim should be handled under the insolvency process. At the same time, this decision does not remove the importance of securities law. It only limits such restrictions when they stop the use or sale of assets during insolvency.

References / Endnote

1. Ankit Mishra, IBC Overrides Securities Law? NCLAT’s Expanding Jurisdiction Over Frozen Demat Accounts, IBC Overrides Securities Law? NCLAT’s Expanding Jurisdiction Over Frozen Demat Accounts (Apr. 14, 2026)
2. Insolvency & Bankruptcy Bd. of India, Understanding the Insolvency and Bankruptcy Code, available at https://ibbi.gov.in/uploads/whatsnew/e42fddce80e99d28b683a7e21c81110e.pdf (last visited Apr. 20, 2026).
3. IBC Laws, NCLAT Holds NCLT Has Jurisdiction Under IBC to Order De-freezing of Demat Accounts Where Listing Fee Dues Are Crystallised, https://ibclaw.in/nclat-holds-nclt-has-jurisdiction-under-ibc-to-order-de-freezing-of-demat-accounts-where-listing-fee-dues-are-crystallized/ (last visited Apr. 20, 2026).
4. IBC Laws, IBC February 2026: Important NCLT Insolvency and Bankruptcy Judgments, https://ibclaw.in/ibc-february-2026-important-nclt-insolvency-and-bankruptcy-judgments/ (last visited Apr. 20, 2026).
5. Pooja Rajawat & Jayam Jha, The IBC Vs. SEBI: Critical Analysis of Moratorium Under IBC, https://www.livelawbiz.com/amp/columns/the-ibc-vs-sebi-critical-analysis-of-moratorium-under-ibc-221119 (Feb. 9, 2023).
6. Hitoishi Sarkar & Yash More, Demystifying the Interface between Securities Law and the IBC, https://indiacorplaw.in/2020/06/22/demystifying-the-interface-between-securities-law-and-the-ibc/ (June 22, 2020).
7. Insolvency and Bankruptcy Code, No. 31 of 2016, pmbl. (India).
8. Insolvency and Bankruptcy Code, 2016, § 14 (India).
9. Insolvency and Bankruptcy Code, 2016, §§ 60(5), 238 (India).
10. Embassy Prop. Dev. Pvt. Ltd. v. State of Karnataka, (2020) 13 SCC 308.
11. Sundaresh Bhatt v. Cent. Bd. of Indirect Taxes & Customs, (2023) 1 SCC 472.

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