Amended IBC Section 96(4) applies to pending personal-guarantor insolvency applications, Bombay High Court holds

Tata Capital Financial Services Limited, subsequently renamed Tata Capital Limited pursuant to a scheme of arrangement, extended financial assistance to Respondent No. 1, Neel Motors LLP, under a Channel Finance Agreement.

Respondent Nos. 2–5 guaranteed the indebtedness; Respondent Nos. 2–4 were individuals and Respondent No. 5 was another LLP.

The guarantees contained arbitration agreements with Mumbai as the seat of arbitration.

The Petitioner filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996 in 2021.

Shortly before filing it, the Petitioner had initiated CIRP against Respondent No. 1, resulting in a moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016.

After the CIRP failed, Respondent No. 1 was ordered to be liquidated on 1 April 2022.

In June 2022, the Petitioner also initiated proceedings under Section 95 of the IBC against Respondent Nos. 2–4, thereby triggering the interim moratorium under Section 96.

With effect from 26 May 2026, Section 96(4) of the IBC was brought into force.

The Petitioner consequently sought only disclosure and protection against dissipation of the Respondents’ assets under prayers (c) and (d), while reserving the right to seek deposit before the arbitral tribunal.

The Court applied Section 9 of the Arbitration and Conciliation Act, 1996, which empowers the court to grant interim measures in aid of arbitration, and Sections 95 and 96 of the IBC, under which filing an application against an individual ordinarily triggers an interim moratorium.

Section 96(4), brought into force on 26 May 2026, excludes applications concerning personal guarantors to corporate debtors from the operation of Section 96.

The Court relied on SEBI v. Rajkumar Nagpal, (2023) 8 SCC 274, and the principles explained in Vineeta Sharma v. Rakesh Sharma, (2020) 9 SCC 1, and State Bank’s Staff Union (Madras Circle) v. Union of India, (2005) 7 SCC 584, distinguishing retrospective operation from retroactive or prospective application to pending transactions.

The Court further applied the equitable nature of Section 9 jurisdiction and recognised that limited protective measures may be granted where they preserve assets without directing payment or effecting recovery.

The Court held that the words “where an application is filed” in Section 96(4) include applications already filed and continuing to remain pending before the adjudicating authority.

Applying the distinction between retrospective and retroactive operation, it reasoned that applying Section 96(4) from 26 May 2026 did not retrospectively alter the legal consequences that operated before that date; rather, it prospectively terminated the moratorium’s operation from the date the amendment came into force.

Accordingly, the interim moratorium that operated against Respondent Nos. 2–4 until 25 May 2026 ceased to operate from 26 May 2026.

The Court rejected the argument that the Petitioner’s own initiation of the Section 95 proceedings, or the absence of any collusive conduct by the Respondents, altered the result.

Section 96(4) was held to be agnostic as to who initiated the insolvency proceedings.

Since the Petition had remained pending because of the moratorium and not because of any delay by the Petitioner, the Court considered the Section 9 relief on merits.

The requested relief was limited to asset disclosure and preservation, did not require deposit or immediate recovery, and was therefore considered reasonable and equitable.

The Court also noted that information concerning the assets would in any event be relevant to the insolvency process.

The Petition was finally disposed of in terms of prayers (c) and (d), directing disclosure of the Respondents’ assets and restraining their sale, transfer, alienation, encumbrance, pledging, mortgaging, hypothecation, charging, or parting with possession pending arbitration and enforcement of the arbitral award.

The parties were permitted to take steps for commencement of arbitration.

The order would stand vacated if the Petitioner did not file a Section 11 application within four weeks from the date of uploading of the order; if filed, the order would continue subject to modification, expansion, contraction, or vacation by the arbitral tribunal.