IBC Amendment Removing Interim Moratorium For Personal Guarantors Applies To Pending Cases: Bombay High Court

The Bombay High Court has ruled that a recent amendment removing the automatic interim moratorium available to personal guarantors to corporate debtors under the Insolvency and Bankruptcy Code applies even to pending insolvency proceedings.

Justice Somasekhar Sundaresan observed that the amendment, which took effect on May 26, 2026, applies to pending proceedings and operates retroactively, not retrospectively.

Rejecting the guarantors' argument that the change applies only to fresh filings, the court observed:

"Having heard the parties and having examined the record and the provisions of law with their assistance, in my opinion, the phrase 'where an application is filed' would bring within its sweep anything that is filed and is pending with the Adjudicating Authority as of that date. If the intention had been to bring within the sweep of Section 96(4) only filings made after the introduction of the provision, the legislature would have consciously used language to that effect. Equally, while it is arguable that the legislature has not used clarificatory language in the provision to indicate that it covers applications already filed and to be filed, in my opinion, this provision would squarely fit within the ambit of a retroactive application. The reading of the words 'is filed' as including those that have been filed and are pending, will not give retrospective effect, but will have prospective effect from the date on which the provision takes effect."

The court's clarification came in a plea filed by Tata Capital Financial Services Limited (now Tata Capital Limited) seeking interim relief under the Arbitration Act. The company sought interim relief against Neel Motors LLP and the guarantors to its borrowings under a Channel Finance Agreement.

About a month before filing the arbitration petition in 2021, it initiated the corporate insolvency resolution process against Neel Motors. The process failed, and the National Company Law Tribunal, Mumbai, ordered the company's liquidation on April 1, 2022.

Tata Capital later moved NCLT against individual guarantors under the Code, triggering the interim moratorium under Section 96. While those proceedings were pending, Section 96(4) came into force on May 26, 2026, exempting personal guarantors to corporate debtors from the interim moratorium.

Tata Capital argued that the amendment removed the bar on the continuation of its Section 9 petition.

The guarantors, however, contended that the amendment applied only to Section 95 applications filed after May 26, 2026.

According to them, it could not apply to applications that were already pending before the adjudicating authority.

Rejecting that contention, the court held that the expression "where an application is filed" in Section 96(4) includes applications that had already been filed and remained pending before the adjudicating authority. Applying the amendment to such pending proceedings, the court held, does not amount to giving the provision retrospective effect.

"Therefore, in my opinion, any Application that is filed for initiating an insolvency resolution process in respect of a personal guarantor to a corporate debtor would not fall within the ambit of Section 96(1) and related provisions with effect from May 26, 2026. In other words, anything that 'is filed' would include within its sweep anything that has been filed and is continuing to remain under adjudication under the IBC.", the court ruled.

Relying on the Supreme Court's decision in SEBI v. Rajkumar Nagpal, the court explained that a retroactive law applies prospectively to facts or a state of affairs existing when the new legal requirement comes into force, even if those facts arose earlier.

"A plain reading of the foregoing would make it clear that the term 'retroactive', while being used differently in different judgements is actually a prospective application of a newly introduced requirement of a law to facts existing as of the date of the introduction of the requirement. The mere reason that some facts may have already been into existence but continue to exist would not mean that the application becomes retrospective.". the court ruled.

The guarantors also argued that the amendment was intended to curb the misuse of the interim moratorium by individuals colluding with friendly creditors. They pointed out that, in this case, it was Tata Capital itself that had initiated the insolvency proceedings against them. The court was not persuaded. It observed that the amended Section 96 is agnostic to the person at whose behest the Section 95 application was filed and declined to read any such limitation into the provision.

"I am conscious that IBC proceedings were initiated by none other than the Petitioner and it is nobody's case that the Respondent had exploited any perverse incentive to use the automatic moratorium under Section 96 to frustrate the Petitioner's recovery proceedings. However, the provisions of Section 96, as amended, are agnostic to the person at whose behest the application under Section 95 of the IBC was filed.", the court observed.

It further added, "I am also conscious that by legislative design, in a given situation, a lender with substantial interest may constitute a significant majority vote in the Committee of Creditors that would oversee the resolution process, and therefore in litigation between the individual undergoing insolvency and such creditor, there can arise a conflict of interest with the same creditor controlling both parties to the litigation. However, this is a matter of legislative design and the court cannot import its notions of fairness in applying clearly articulated provisions of law. Besides, the absence of automatic moratorium under Section 96 for guarantors of corporate debtors undergoing corporate insolvency resolution process would only cover the temporary time period until the moratorium commences under Section 101 when the application filed under Section 95 of the IBC is adjudicated."

Holding that the interim moratorium under Section 96 no longer barred the arbitration proceedings, the court granted Tata Capital's request, confined to disclosure of assets and restraint against their alienation pending arbitration. It also directed the parties to take steps for commencement of arbitration.

For Petitioner: Advocates Rohan Savant and Pooja Jhaveri

For Respondents: Advocates Yayha Batatawala and Sneha Mishra