NCLAT Rules Against BSE On Demat Freeze In Insolvency Proceedings

The National Company Law Appellate Tribunal (NCLAT) has dismissed petitions filed by the Bombay Stock Exchange (BSE).

BSE had questioned orders permitted by the National Company Law Tribunal (NCLT) to unfreeze demat accounts of companies undergoing insolvency proceedings.

The appellate body upheld earlier directions issued by the NCLT. It states that these decisions fall within its legal authority under the Insolvency and Bankruptcy Code (IBC) under Section 60 (5).

The matter involved two companies undergoing an insolvency process, Future Corporate Resources and Liz Traders and Agents. Their demat accounts had been frozen by BSE due to pending dues and regulatory non-compliance.

Why Did BSE Challenge NCLT’s Orders?

BSE claimed that the issues involving demat accounts were subject to securities laws and regulatory mechanisms. Thus, this cannot be treated through the Insolvency and Bankruptcy Code.

It argued that under Section 60(5) of the IBC, the NCLT lacks the power to make such decisions because they are subject to the regulation of the Securities and Exchange Board of India (SEBI) and securities laws.

Nevertheless, liquidators and resolution professionals went to the NCLT in order to unfreeze these accounts in such a way that shares held in them could be sold to earn back some value for creditors.

The Mumbai bench of the NCLT had earlier directed BSE, through two separate orders passed in July 2024 and October 2025, to lift the freeze on these accounts. These directions were later challenged by BSE before the appellate tribunal.

What Did NCLAT Say On IBC’s Overriding Powers?

The NCLAT ruled out these two appeals filed by BSE and noted that the NCLT was not in any way exceeding its jurisdiction to make such orders in accordance with Section 60(5) of the IBC.

It noted that requests to unfreeze the accounts were made as part of the insolvency process and were aimed at supporting recovery for debt-laden companies.

Referring to Section 238, it stated that the IBC will take precedence over frameworks such as the Securities Contracts (Regulation) Act, SEBI Act, and Listing Obligations and Disclosure Requirements (LODR) regulations when issues arise in the course of insolvency.

This means that the NCLT can examine and decide on any matter linked to the insolvency resolution process, even if it intersects with other legal frameworks.

The tribunal also noted that the requests to unfreeze demat accounts were made to support the resolution process and are not restricted under Section 14 of the IBC.

It further highlighted that ownership of the shares was not disputed and that unlocking these accounts would enable asset monetisation and improve recovery outcomes for creditors.

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The Key Takeaway

The decision sheds more light on the treatment of insolvency-related issues and reinforces the legal support of the IBC framework.

It is an indication that Section 60(5) and Section 238 will remain in support of the resolution processes by allowing access to assets that had been tied to stressed companies.

Investors should expect more streamlined operations and improved recovery outcomes, given the reduced obstacles to asset access.

Sources:

The Hindu

Mint