Recovery Falls Under IBC Once Dues Are Crystallised Even If Action Originates Under Securities Law: NCLAT

The National Company Law Appellate Tribunal (NCLAT) on Tuesday held that once dues against a corporate debtor stand crystallised and the dispute relates to recovery affecting the insolvency or liquidation process, the matter falls within the ambit of the Insolvency and Bankruptcy Code.

In such cases, the National Company Law Tribunal has jurisdiction to pass directions concerning the assets of the corporate debtor, even if the action originates under the securities law.

The appellate tribunal observed that securities laws govern regulatory compliance by listed entities, but where the issue no longer concerns regulatory enforcement and only recovery of crystallised dues remains, jurisdiction shifts to the insolvency forum.

“At the cost of repetition, it is stated that by passing the aforesaid SEBI Act or SCRA or LODR Regulations and by issuance of circular letters the business of listing of the securities has been controlled and streamlined and any cause of action with regard to conduction or regulation of such business or levying of any penalty or reduction of the same would certainly fall within the domain of the Securities Regulatory Framework.

However, where no such cause of action is accruing in the realm of the public law and the fee or dues towards the corporate debtor have been finalised/crystallized and only the recovery of the same is left the matter will fall squarely within the ambit of the IBC and the NCLT by virtue of Section 60(5) and Section 238 of the Code would have jurisdiction with regard to the same.”

The bench of Judicial Member Justice Mohammad Faiz Alam Khan, and Technical Member Naresh Salecha made the observations while dismissing appeals filed by BSE Limited against orders passed by the NCLT, Mumbai, directing de-freezing of demat accounts of corporate debtors during insolvency resolution and liquidation proceedings.

The appeals arose from orders dated October 31, 2025, and July 31, 2024, passed by the NCLT, Mumbai, in insolvency proceedings relating to Future Corporate Resources Pvt. Ltd. and Liz Traders and Agents Pvt. Ltd., where the tribunal had directed stock exchanges and depositories to lift debit freezes imposed on the demat accounts of the corporate debtors.

In the first case, the demat account was frozen on the instructions of the stock exchange due to non-payment of annual listing fees by Future Retail Ltd., a group company of the corporate debtor. In the second case, the account was frozen for non-compliance with SEBI Listing Obligations and Disclosure Requirements Regulations and unpaid penalties, as the corporate debtor had been disclosed as promoter in certain listed entities.

The resolution professional and the liquidator sought de-freezing of the accounts to take control of the shares held by the corporate debtors and realise them for the benefit of creditors.

The tribunal noted that the shares lying in the frozen demat accounts were admittedly owned by the corporate debtors and formed part of the insolvency or liquidation estate.

“There is no dispute with regard to the ownership of these shares by CD's of these shares.”

It held that the freezing of the accounts prevented the resolution professional and liquidator from taking custody of assets belonging to the corporate debtor, which directly affected the insolvency and liquidation process.

“...in our, considered opinion, the issue of de-freezing of the Demat account of the CD, wherein the shares, which are admittedly the property of the CD, were lying, was/is a question of fact arising out of and in relation to the insolvency resolution and liquidation proceedings of the corporate debtors, as provided under Section 60 (5) (c) of the Code.”

BSE argued that the freezing action had been taken under SEBI circulars and the securities regulatory framework and that the NCLT had no jurisdiction to interfere with such measures.

Rejecting the contention, the appellate tribunal held that once the dispute shifted from regulatory compliance to recovery and control of assets during insolvency, the matter fell within the jurisdiction of the NCLT under Section 60(5) of the Code, and the overriding effect of Section 238 would apply.

The tribunal accordingly upheld the orders directing de-freezing of the demat accounts and dismissed the appeals filed by BSE Limited.