Ruling that the IBC 2026 amendment operates on pending applications and aligns guarantor treatment with SARFAESI regime, the Bombay High Court has curbed the rampant misuse of Sections 94–96 IBC by personal guarantors to corporate debtors. The Court explained that the newly inserted sub-section (4) of Section 96 of the IBC, introduced with effect from May 26, 2026, applies retroactively and covers applications under Sections 94 and 95 that were pending on the cut-off date, and those filed thereafter.
The Court went on to explain that the interim moratorium under Section 96 is procedural and transitory in nature, operating only till the resolution professional submits a report under Section 99, and does not create a vested right in the personal guarantor. The Court also invoked the Mischief Rule (Heydon’s Rule) to give full effect to the legislative intent of curbing the rampant misuse of the interim moratorium, which the IBBI Chairperson had flagged as the ‘number one mechanism’ for siphoning of crores by debtors.
The Court drew a clear distinction between ‘retrospective’ and ‘retroactive’ operation, holding that the amendment operates in futuro but is anchored to antecedent facts and pending transactions. Accordingly, all petitions were allowed, with directions to secured creditors (Indian Bank, RBL Bank, Godrej Finance, ARCIL, and Apna Sahakari Bank) to proceed with SARFAESI recovery, including execution of possession orders through Court Commissioners with police assistance.
The Division Bench comprising Justice Manish Pitale and Justice Shreeram V. Shirsat observed that the interim moratorium under Section 96 of the IBC was being rampantly misused by personal guarantors to corporate debtors, who would file applications under Sections 94/95 of the IBC at the fag end of recovery proceedings merely to trigger the moratorium and frustrate legitimate creditor action. The Court took judicial notice of this mischief.
The Court noted that the process between Sections 94 and 99 of the IBC is purely procedural in nature, and the substantive step of insolvency resolution begins only when the adjudicating authority passes an order under Section 100. The Court further observed that the interim moratorium under Section 96 is a transitory arrangement operating only till the resolution professional submits a report under Section 99 and therefore cannot be treated as an absolute or indefeasible right in favour of the debtor.
Briefly, a batch of petitions were filed by secured creditors, namely, Indian Bank, RBL Bank, Godrej Finance Limited, Asset Reconstruction Company (India) Limited, and Apna Sahakari Bank Limited, against personal guarantors/borrowers of corporate debtors. The core question was whether sub-section (4) of Section 96 of the Insolvency and Bankruptcy Code, 2016 (IBC), introduced by the Insolvency and Bankruptcy Code (Amendment) Act, 2026 with effect from 26.05.2026, operates retroactively. The newly inserted Section 96(4) provides that the interim moratorium under Section 96 shall not apply where an application is filed for initiating an insolvency resolution process in respect of a personal guarantor to a corporate debtor.
The personal guarantors had filed applications under Sections 94 and 95 of the IBC, thereby triggering the interim moratorium under Section 96, and were using the same as a shield to obstruct recovery proceedings initiated by the secured creditors under the SARFAESI Act, 2002. The secured creditors contended that the amendment must apply to pending proceedings as well, while the personal guarantors argued that the amendment applies only prospectively to applications filed after May 26, 2026.
