IBC Amendment Excluding Personal Guarantors From Interim Moratorium Is Retroactive: Delhi High Court

The Delhi High Court on 19 August held that the amendment inserting Section 96(4) into the Insolvency and Bankruptcy Code, 2016 (IBC) is retroactive and applies to pending insolvency applications, even though the Amending Act does not expressly say so.

Justice Tushar Rao Gedela held that the amendment applied to the pending Section 95 IBC application filed by IDBI Trusteeship Services Ltd. against Manish Jain, a personal guarantor to the corporate debtor, and consequently vacated the interim moratorium available to him. He observed:

“Apropos the above, read conjointly, the aforesaid amendment to Section 96 of IBC by addition and insertion of sub-section (4), and the principles of “retroactive” legislation laid down by the Supreme Court, leave no doubt in the mind of this Court that the provisions of sub-section (4) of Section 96 of IBC by way of the amendment dated 06.04.2026, are “retroactive”, even though the Amending Act did not expressly state so. If that be so, then the import, purport and impact of such retroactive legislation would amount to “quasi retroactivity” and would be applicable to pending applications.”

The amendment, which came into force on 26 May 2026, excludes personal guarantors to corporate debtors from the interim moratorium under Section 96. The provision ordinarily protects a person from legal proceedings relating to debts once an insolvency application is filed.

The dispute arose from a suit filed by IDBI Trusteeship Services Ltd. against Jain and others. IDBI Trusteeship had filed the Section 95 application against Jain on 10 August 2024, while the suit was instituted on 28 July 2025.

Jain, being a personal guarantor to the corporate debtor, contended that the interim moratorium under Section 96 barred continuation of the suit. He argued that the amendment dated 6 April 2026 was prospective and could not retrospectively remove the moratorium that had arisen when the Section 95 application was filed.

IDBI Trusteeship argued that the amendment had been introduced to address the misuse and abuse of the Section 96 moratorium and should operate on pending proceedings.

The Court relied on the Supreme Court's principles governing retroactive legislation and held that the amendment could operate on an existing proceeding without retrospectively applying to past conduct. It noted that Section 96(4) was introduced after concerns over the misuse of the interim moratorium by personal guarantors. It held that the amendment was intended to remove such abuse. The Bench held:

“Aptly, this Court is of the considered opinion that the Committee having noted the misuse and abuse of the provisions in Section 96 of the IBC clearly accepted the proposal in Clause 47 of the aforesaid Bill and recommended the amendment to Section 96 by addition and insertion of sub- section (4) solely to rectify and remove the “abuse”, even if not the “mischief” that was being caused, and noted with great alacrity by the stakeholders, and appreciated by the Committee.”

Justice Gedela also noted that Section 96 could still be made applicable to personal guarantors in future, as the IBC permits different provisions to come into force on different dates. Therefore, the fact that part of Section 96 had become inapplicable did not render the provision redundant.

Accordingly, the High Court held that the interim moratorium enjoyed by Jain stood vacated by operation of the amended Section 96(4) and rejected his application under Order VII Rule 11 of the Code of Civil Procedure, 1908 (CPC), seeking rejection of IDBI Trusteeship's suit.

For Plaintiff: Advocates Pranjit Bhattacharya, Nitya Prabhakar, Shalini Basu and Kunal Dave

For Defendants: Advocates Sarul Jain, Rajat Joneja, Sakshi Kapoor and Tina Aneja