NCLAT rejects BSE pleas on Demat account freezing during insolvency

The National Company Law Appellate Tribunal (NCLAT) has dismissed the appeals filed by BSE, where the leading bourse challenged the power of the NCLT to defreeze the Demat accounts of businesses undergoing insolvency resolution and liquidation process. A two-member NCLAT bench said the National Company Law Tribunal (NCLT) has the jurisdiction under section 60 (5) of the Insolvency & Bankruptcy Code (IBC) to entertain applications for defreezing of the Demat accounts during insolvency and pass a direction also. “...the impugned orders have been passed in valid exercise of such jurisdiction,” the NCLAT said while setting aside the two petitions filed by BSE.

BSE had contended that the NCLT does not have any jurisdiction under Section 60 (5) of the IBC Code to adjudicate on the issues, which are within the Securities Law Framework and SEBI Circulars. The issues pertain to two companies - Future Corporate Resources and Liz Traders and Agents - where their Demat accounts were frozen by BSE due to default committed by them in paying the annual listing fee, among others, as non-compliance with LODR Regulations and unpaid dues from fines levied for such non-compliance. The Resolution Professionals/liquidators of both the Corporate Debtors (companies facing CIRP) approached the NCLT after BSE refused to defreeze the Demat accounts of these companies, as they intended to sell the shares held in those accounts and to recover money from the proceeds of such sale.

The Mumbai-bench of the NCLT, passing two separate orders on the two such applications moved by the respective RP, had on October 31, 2025, and July 31, 2024, directed BSE to vacate the freeze.

These orders were subsequently challenged by BSE before the appellate tribunal NCLAT by filing two appeals, which were also dismissed.

Passing a common order over the two petitions, the NCLAT said these applications to defreeze these Demat accounts were moved by the RP and Liquidator for the benefit of the debt-ridden companies, which action is not barred under Section 14 of the IBC.

“The fate of these appeals was dependent on the issue as to whether NCLT was having jurisdiction under Section 60 of the IBC to pass impugned orders, we do not find it relevant to discuss this aspect of the matter at length, as we have already held that NCLT was having jurisdiction under section 60 (5) of the Code to entertain such applications and the impugned orders have been passed in valid exercise of such jurisdiction,” the NCLAT said.

The appellate tribunal further said the ownership of the companies regarding the shares held in those Demat accounts has not been disputed.

“... the defreezing of these Demat accounts of the CD was a question arising out of and in relation to the Insolvency Resolution of the aforesaid CD’s and thus NCLT/Adjudicating Authority was having jurisdiction to pass impugned orders by assuming jurisdiction as provided under Section 60 (5) of the Code and we do not find any illegality in exercise of such jurisdiction by the NCLT,” said a bench, comprising members - Justice Mohd Faiz Alam Khan and Naresh Salecha.

The NCLAT said accounts were frozen on account of dues from those companies, which have become debt due to their finality under the insolvency process.

In that case, the NCLT would have jurisdiction to deal with those dues (debt) under the IBC framework, as they are connected to the insolvency of those companies, said the appellate tribunal.

Over BSE’s contention of the NCLT not having any jurisdiction in view of the SCRA, SEBI Act, LODR Regulations, the appellate tribunal said IBC has an overriding power over other laws, if there is any conflict during the insolvency or liquidation process.

“Section 238 of the Code wherein a specific provision has been made that in case of any conflict with the IBC with any other law, the provisions of the IBC would be having overriding effect and notwithstanding anything contained in any other law for the time being enforce the NCLT shall have jurisdiction to entertain or dispose of any question of fact or law arising out of or in relation to the Insolvency Resolution or Liquidation Proceedings of the Corporate Debtor or Corporate Person under this Code,” the NCLAT said in its 75-page-long order.