NCLAT Upholds NCLT's Power to Freeze Demat Accounts in Insolvencies

NCLAT Upholds NCLT’s Power to Unfreeze Demat Accounts During Insolvency​

NCLAT Dismisses BSE Appeals on Jurisdiction Issue​

The National Company Law Appellate Tribunal (NCLAT) has dismissed appeals filed by Bombay Stock Exchange (BSE), affirming that the National Company Law Tribunal (NCLT) has the authority to order the unfreezing of Demat accounts during insolvency proceedings.

The appellate tribunal ruled that the NCLT acted within its jurisdiction under Section 60(5) of the Insolvency and Bankruptcy Code (IBC), validating its earlier orders.

NCLT Has Jurisdiction Under IBC Section 60(5)​

The NCLAT bench clarified that the NCLT is empowered to handle matters related to insolvency, including applications to unfreeze Demat accounts of companies undergoing resolution or liquidation.

It stated that such actions are directly connected to insolvency proceedings and fall within the tribunal’s legal authority.

BSE’s Argument on SEBI Framework Rejected​

BSE had argued that the NCLT lacked jurisdiction, claiming that such matters fall under securities laws and regulations governed by Securities and Exchange Board of India (SEBI), including LODR (Listing Obligations and Disclosure Requirements) norms.

However, the NCLAT rejected this contention, emphasizing that the IBC overrides other laws in case of conflict during insolvency proceedings.

Cases Involved: Future Corporate Resources and Liz Traders​

The dispute involved two companies:

• Future Corporate Resources
• Liz Traders and Agents

Their Demat accounts had been frozen by BSE due to non-compliance with regulatory requirements and unpaid penalties.

Resolution Professionals Sought Account Unfreezing​

Resolution Professionals (RPs) and liquidators approached the NCLT after BSE refused to lift the freeze on the accounts. The intent was to:

• Sell shares held in the Demat accounts
• Recover funds for creditors during insolvency proceedings

The NCLT Mumbai bench had earlier ordered the unfreezing of these accounts through rulings issued in July 2024 and October 2025.

NCLAT Validates NCLT Orders​

The NCLAT upheld these decisions, stating that:

• The ownership of shares by the companies was undisputed
• The unfreezing of accounts was directly linked to insolvency resolution
• The NCLT acted within its legal framework

The bench, comprising Justice Mohd Faiz Alam Khan and Naresh Salecha, found no illegality in the NCLT’s actions.

IBC Overrides Other Laws in Case of Conflict​

A key aspect of the ruling was the reaffirmation of Section 238 of the IBC, which grants overriding powers to the insolvency law over other legal frameworks.

The tribunal emphasized that in cases where conflicts arise between the IBC and other laws, such as securities regulations, the provisions of the IBC will prevail.

Impact on Insolvency Proceedings in India​

The ruling strengthens the authority of the NCLT in handling insolvency-related matters and ensures smoother resolution processes by allowing access to frozen financial assets.

It also clarifies the legal hierarchy between insolvency law and securities regulations, providing greater certainty for stakeholders.

Conclusion: Landmark Ruling Reinforces IBC Supremacy​

The NCLAT’s decision marks a significant development in India’s insolvency framework, reinforcing the supremacy of the IBC and empowering tribunals to take necessary actions for effective resolution and liquidation of distressed companies.