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

The connected writ petitions were filed by banks and other secured creditors challenging orders of the Debts Recovery Tribunal, the Debts Recovery Appellate Tribunal and related authorities that restrained recovery, auction, sale-certificate issuance or taking of physical possession of secured assets on the basis of an interim moratorium under Section 96 of the Insolvency and Bankruptcy Code, 2016 (“IBC”).

During the pendency of these proceedings, Section 96 of the IBC was amended with effect from 26 May 2026 by insertion of sub-section (4), providing that Section 96 would not apply where an application was filed to initiate insolvency resolution proceedings concerning a personal guarantor to a corporate debtor.

The petitions involved, among other matters, repeated or delayed applications under Section 95 of the IBC filed when recovery proceedings under the SARFAESI Act or before the DRT were nearing culmination.

Whether Section 96(4) of the IBC, introduced with effect from 26 May 2026, operates retroactively and applies to applications under Sections 94 or 95 that were already pending on that date?

Whether the interim moratorium under Section 96 constitutes a vested or accrued substantive right of a personal guarantor, such that it cannot be affected by the amendment?

Whether, after the amendment, pending recovery, securitisation, DRT/DRAT and possession proceedings could continue notwithstanding applications under Section 94 or 95 filed before 26 May 2026?

Whether the impugned DRT/DRAT orders restraining recovery actions were legally sustainable in the absence of a proper prima facie case, consideration of balance of convenience and irreparable injury, and compliance with natural justice?

The Court applied Sections 94–101 of the IBC, particularly Section 96 concerning the interim moratorium, Section 99 concerning the resolution professional’s report, Section 100 concerning admission or rejection of the application, and the newly inserted Section 96(4) excluding personal guarantors to corporate debtors from Section 96 protection.

It held that the stage between filing under Sections 94/95 and adjudication under Section 100 is procedural and that the interim moratorium is temporary and protective rather than an absolute or indefeasible vested right.

The Court relied on the distinction between retrospective and retroactive operation explained in State Bank’s Staff Union v. Union of India, Vineeta Sharma v. Rakesh Sharma and SEBI v. Rajkumar Nagpal, under which a provision may operate prospectively from its commencement while applying to pending or incomplete proceedings.

It further relied on BCCI v. Kochi Cricket Pvt. Ltd. to hold that a procedural amendment removing a clog on enforcement may apply to pending proceedings.

The Court also applied the principles requiring reasoned interim orders based on prima facie case, balance of convenience and irreparable injury, and compliance with natural justice.

The Court distinguished the interim moratorium under Section 96 from the substantive moratorium under Section 101.

Section 96 operates only during the procedural period in which the resolution professional examines the Section 94/95 application and prepares a report under Section 99; the substantive insolvency process begins only after an order under Section 100.

Accordingly, the respondents had no vested right to the continuation of a procedural shield against creditors.

Section 96(4) therefore applied from 26 May 2026 to pending applications, not by retrospectively invalidating past events, but by regulating the future operation of pending proceedings—an instance of retroactive or quasi-retroactive application.

The Court rejected the argument that the words “is filed” confined the amendment to future applications.

The legislative history showed that Section 96(4) was enacted to remedy the documented misuse of insolvency applications by personal guarantors to stall SARFAESI and other recovery proceedings.

Applying that rule, the Court held that the pending Section 95 applications could no longer sustain the interim moratorium after 26 May 2026.

Although the amendment operates from that date, the interim moratorium under Section 96 ceased to operate thereafter in pending proceedings involving personal guarantors to corporate debtors.

Accordingly, the Court allowed all connected writ petitions.

It set aside the impugned DRT/DRAT orders restraining recovery actions; permitted continuation of appeals and recovery proceedings; upheld the validity of specified auction and sale-certificate steps; directed delivery or taking of physical possession with police assistance where necessary; directed the DRAT/DRT and Court Commissioners to proceed expeditiously; and directed the respondents in the Godrej Finance matter to hand over possession within four weeks.

All pending applications were disposed of.