IBC amendment ending interim moratorium for personal guarantors applies to pending cases, Bombay High Court rules

These connected writ petitions arose from recovery proceedings in which personal guarantors to corporate debtors relied on interim moratoria under Section 96 of the Insolvency and Bankruptcy Code, 2016 (IBC), following applications under Sections 94 or 95.

Secured creditors challenged orders of the Debts Recovery Tribunals (DRTs), or sought directions to continue recovery and possession proceedings.

The Insolvency and Bankruptcy Code (Amendment) Act, 2026, effective from 26 May 2026, inserted Section 96(4), excluding personal guarantors to corporate debtors from the protection of Section 96.

The petitions raised the question whether that amendment applied to applications already pending on its commencement.

1. Whether Section 96(4) of the IBC, effective from 26 May 2026, applies to applications under Sections 94 or 95 that were pending on that date, so that the interim moratorium ceases to operate in those proceedings

2. Whether the interim moratorium under Section 96 gives a debtor a vested right that prevents the amendment from applying to pending proceedings

Section 96(4) of the IBC provides that Section 96 does not apply where an application is filed to initiate an insolvency resolution process in respect of a personal guarantor to a corporate debtor.

Sections 94–100 establish the application, report and admission or rejection process; the Court treated the process before adjudication under Section 100 as procedural, distinguishing it from the moratorium under Section 101 that follows admission.

Applying Vineeta Sharma v. Rakesh Sharma and SEBI v. Rajkumar Nagpal, the Court distinguished retrospective operation from retroactive operation: a law may operate prospectively from its commencement yet apply to pending transactions or proceedings.

It also relied on BCCI v. Kochi Cricket Pvt. Ltd. for the principle that a procedural amendment that removes a restriction, without impairing a vested right, may apply to pending proceedings.

The Court applied the mischief rule, as approved in Bengal Immunity Co. Ltd. v. State of Bihar, to interpret the amendment in a manner that advances its remedial purpose.

The Court held that the interim moratorium under Section 96 operates during the procedural stage in which the resolution professional examines the application and prepares a report; it is temporary and does not confer an absolute or vested right to immunity from creditors’ proceedings.

The amendment therefore removed a procedural restriction on creditors rather than taking away a vested right.

The Court also considered the Select Committee’s findings that personal guarantors had misused the interim moratorium to obstruct recovery, and concluded that limiting the amendment to future applications would leave that identified problem unaddressed in pending cases.

It rejected the argument that the words “is filed” restricted Section 96(4) to future applications, finding that the provision, read in context, included applications pending on the commencement date.

Accordingly, the amendment operates from 26 May 2026 but applies to proceedings pending on that date.

It allowed the connected petitions: in Asset Reconstruction Co. India Ltd. v. Veer Gurjar Aluminium Industries Pvt. Ltd., it permitted the DRAT and DRT proceedings to continue and directed the DRAT to dispose of specified appeals by 31 October 2026; in Indian Bank v. Shabbir Abbas Patel, it quashed the DRT’s restraining orders and directed that recovery and possession steps proceed, with the securitisation application to be decided expeditiously; in Godrej Finance Ltd. v. Ashok Rajkumar Gupta, it set aside the DRT’s restoration-of-possession order and directed the respondents to return possession within four weeks; and in the three Apna Sahakari Bank petitions, it quashed the DRT’s restraining orders.

It also allowed both RBL Bank petitions and directed the Court Commissioners, with police assistance, to take physical possession of the secured assets.