NCLT possesses jurisdiction to order de-freezing of Demat accounts for crystallized and finalized regulatory liabilities.

The National Company Law Appellate Tribunal (NCLAT) heard two consolidated appeals involving BSE Limited (Appellant) challenging orders passed by the Adjudicating Authority (NCLT, Mumbai).

In the first case (CA 1786/2025), the demat account of the Corporate Debtor (CD), Future Corporate Resources Pvt. Ltd., was frozen by BSE due to non-payment of Annual Listing Fees (ALF) by its group company, Future Retail Ltd

In the second case (CA 1862/2024), the demat account of Liz Traders and Agents Pvt. Ltd. (under liquidation) was frozen because the CD was a promoter of non-compliant listed entities

In both instances, the Resolution Professional (RP) or Liquidator sought to de-freeze the accounts to take custody of shares belonging to the CDs.

BSE refused, asserting that de-freezing required compliance with Securities and Exchange Board of India (SEBI) regulations and payment of outstanding fines

The NCLT ordered BSE to de-freeze the accounts, leading to these appeals

1. Whether the Adjudicating Authority (NCLT) has jurisdiction under Section 60(5) of the Insolvency and Bankruptcy Code (IBC), 2016, to order the de-freezing of demat accounts frozen under the Securities Law Framework

2. Whether the provisions of the IBC, particularly the moratorium and the duties of the RP/Liquidator, override the recovery and enforcement powers of Stock Exchanges under SEBI regulations and the Securities Contracts (Regulation) Act (SCRA), 1956

The court primarily applied Section 60(5)(c) of the IBC, which vests the NCLT with residuary jurisdiction to decide any question of law or fact arising out of or in relation to insolvency proceedings

It invoked Section 238 of the IBC, which ensures the Code overrides any inconsistent provisions in other laws

The court relied on the Supreme Court's decisions in Embassy Property Developments Pvt. Ltd. v. State of Karnataka, which distinguished between matters of public law and crystallized dues

Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta, which affirmed NCLT’s jurisdiction over disputes with a nexus to the CD’s insolvency

It also considered Regulation 14 of the SEBI (LODR) Regulations regarding the payment of fees to stock exchanges

The NCLAT observed that while SEBI and Stock Exchanges have the power to regulate listed entities and freeze accounts for non-compliance, such powers are not absolute once insolvency proceedings commence

The Tribunal distinguished this case from others by noting that the ALF and fines were "crystallized" dues

Following the Embassy Property doctrine, once a statutory authority's claim is finalized and only recovery remains, the claim becomes an "operational debt" to be dealt with under the IBC framework rather than through independent enforcement by the regulator

Since the ownership of the shares was undisputed and the de-freezing was essential for the RP/Liquidator to perform their statutory duties under Sections 18, 25, and 35 of the IBC, the issue had a direct nexus with the insolvency process

Consequently, Section 238 of the IBC overrides the recovery mechanisms of the SEBI Act/SCRA during the moratorium or liquidation process

The Tribunal affirmed that the de-freezing of the demat accounts was a question arising out of and in relation to the insolvency resolution and liquidation proceedings of the CDs

It concluded that once dues are crystallized, the regulator cannot bypass the IBC's collective resolution process by maintaining a debit freeze on the CD's assets

The orders directing the de-freezing of the accounts were upheld