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

These connected writ petitions concerned proceedings against personal guarantors to corporate debtors under Sections 94 or 95 of the Insolvency and Bankruptcy Code, 2016 (IBC). Creditors challenged orders restraining recovery and enforcement steps, or sought directions to proceed with such steps, on the basis that filing of an insolvency application triggered the interim moratorium under Section 96.

The petitions arose in different procedural settings, including pending recovery appeals, securitisation proceedings, and applications for physical possession of secured assets.

With effect from 26 May 2026, an amendment inserted Section 96(4), providing that Section 96 does not apply to an application for initiating an insolvency resolution process in respect of a personal guarantor to a corporate debtor. The Court consolidated the petitions to determine whether that amendment applied to applications already pending on its commencement date.

1. Whether Section 96(4) of the IBC, effective from 26 May 2026, applies to applications under Sections 94 or 95 that were already 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.

3. Whether, in the individual petitions, the claimed interim moratorium prevented creditors from continuing recovery, securitisation, or possession proceedings.

Section 96(1) of the IBC provides for an interim moratorium upon filing an application under Section 94 or 95; Section 96(4), effective 26 May 2026, excludes applications concerning personal guarantors to corporate debtors from that provision.

Under Sections 99–101, the application is examined by a resolution professional and then considered for admission or rejection by the adjudicating authority; the Court treated the pre-admission process, including the interim moratorium, as procedural and transitory, rather than an absolute or indefeasible vested right.

Applying the distinction between retrospective and retroactive operation discussed in State Bank’s Staff Union (Madras Circle) v. Union of India, Vineeta Sharma v. Rakesh Sharma and SEBI v. Rajkumar Nagpal, the Court held that a provision operating in futuro may apply to pending, incomplete proceedings that began before its commencement.

It also relied on BCCI v. Kochi Cricket Private Limited for the principle that a procedural amendment removing a clog on enforcement, without impairing a vested right, may apply to pending proceedings.

The Court applied the Heydon’s Rule of statutory interpretation to advance the amendment’s stated purpose of curbing misuse of the interim moratorium.

The Court concluded that the process from filing under Sections 94 or 95 through the resolution professional’s report under Section 99 remains procedural until the adjudicating authority acts under Section 100; the interim moratorium is therefore not a vested entitlement to immunity from creditors’ lawful proceedings.

It rejected the argument that the words “is filed” confined Section 96(4) to future applications, finding that the provision’s language and context included applications pending on 26 May 2026.

The Select Committee materials and prior judicial observations identified strategic use of Sections 94–96 to obstruct recovery. Applying the mischief rule, the Court reasoned that limiting the amendment to future filings would leave the identified problem intact in pending cases and frustrate the legislative remedy.

Accordingly, Section 96(4) operated from its commencement date and caused the interim moratorium in pending proceedings to cease from that date.

Applying that holding, the Court allowed the connected petitions and granted case-specific relief: it permitted the DRAT and DRT to proceed in the Asset Reconstruction Co. India Ltd. matter.

It set aside the DRT orders in the Indian Bank matter and permitted enforcement and possession steps, subject to the directions made.

It set aside the possession-restoration order in the Godrej Finance matter and directed the respondents to return possession within four weeks.

It quashed the impugned DRT orders in the three Apna Sahakari Bank matters.

It directed execution of the Magistrates’ possession orders in the two RBL Bank matters, with police assistance as specified. The writ petitions were disposed of in those terms.