IBC amendment excluding personal guarantors from interim moratorium applies to pending cases, Bombay High Court rules

The connected writ petitions were filed principally by secured creditors and banks challenging orders of the Debts Recovery Tribunal (“DRT”), Debts Recovery Appellate Tribunal (“DRAT”) and related authorities that restrained recovery and securitisation proceedings on the ground that interim moratorium under Section 96 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) had been triggered by applications under Sections 94 or 95 of the IBC.

The petitions involved pending insolvency applications filed before 26 May 2026, including applications by or against personal guarantors to corporate debtors.

The Insolvency and Bankruptcy Code (Amendment) Act, 2026 introduced Section 96(4), effective from 26 May 2026, providing that Section 96 would not apply where an application was filed for initiating insolvency resolution proceedings in respect of a personal guarantor to a corporate debtor.

The Court considered the legal question in Part I and thereafter applied its ruling to the individual petitions.

The Court applied Sections 94–101 of the IBC, particularly Section 96, which provides for an interim moratorium upon filing an application under Sections 94 or 95, and the newly inserted Section 96(4), which excludes personal guarantors to corporate debtors from that protection.

It held that the process from filing under Sections 94 or 95 until consideration under Sections 99 and 100 is procedural and incomplete, whereas the substantive insolvency process commences upon admission under Section 100, followed by the moratorium under Section 101.

Relying on Vineeta Sharma v. Rakesh Sharma, SEBI v. Rajkumar Nagpal, and State Bank’s Staff Union v. Union of India, the Court distinguished “retroactive” operation—application to an ongoing or incomplete proceeding—from true retrospectivity, which impairs vested rights.

It relied on BCCI v. Kochi Cricket Pvt. Ltd. for the principle that procedural amendments removing a statutory impediment may apply to pending proceedings where no vested right is impaired.

The Court also applied the mischief rule or Heydon’s Rule, holding that legislation enacted to remedy a recognised abuse should be construed to suppress the mischief and advance the remedy.

The principles concerning vested rights in J.S. Yadav v. State of Uttar Pradesh and Howrah Municipal Corporation v. Ganges Rope Co. Ltd. were applied to hold that the interim moratorium was not an absolute or indefeasible vested right.

The Court held that the interim moratorium under Section 96 is a temporary procedural protection operating only while the resolution professional examines the application and prepares a report under Section 99.

It does not amount to a vested right to remain immune from lawful recovery proceedings.

Section 96(4) therefore did not retrospectively invalidate completed acts; rather, from 26 May 2026 it operated prospectively in relation to the future conduct of pending proceedings.

Since the applications under Sections 94 and 95 remained pending and the procedural process had not culminated in admission under Section 100, the amendment could apply to them without impermissibly impairing accrued rights.

The Court further relied on the legislative history and Select Committee materials, which recorded widespread misuse of Section 96 proceedings by personal guarantors to obstruct SARFAESI and other recovery measures, including through strategic or collusive filings.

A prospective-only interpretation would allow the very mischief identified by Parliament to continue in all pending matters.

The words “is filed” in Section 96(4) were therefore held capable of covering pending applications; the Court found no requirement that the provision be limited to applications filed after 26 May 2026.

Applying this interpretation, the Court found repeated and belated Section 95 filings in several matters to have been used as a protective shield against recovery, auction and possession proceedings.

It consequently held that the interim moratorium ceased to operate in all such cases from 26 May 2026.

Although the provision operates from that date and does not retrospectively invalidate completed transactions, any interim moratorium existing in pending proceedings ceased to operate from 26 May 2026.

Consequently, the Court allowed all connected writ petitions.

In Indian Bank v. Shabbir Abbas Patel, the DRT’s restraining orders were quashed; the auction sale and sale certificate were upheld, and possession proceedings were permitted to continue.

In ARCIL v. Veer Gurjar Aluminium Industries, the DRAT and DRT were directed to proceed notwithstanding the Section 95 application.

In Godrej Finance Ltd. v. Ashok Rajkumar Gupta, the DRT’s restoration order was set aside and the respondents were directed to hand over possession within four weeks.

The three Apna Sahakari Bank petitions were allowed and the orders restraining acceptance of the auction balance and issuance of sale certificates were quashed.

In the two RBL Bank petitions, the Court directed the Court Commissioners, with police assistance, to take physical possession of the secured properties pursuant to orders under Section 14 of the SARFAESI Act.