The Bombay High Court has held that the newly inserted Section 96(4) of the Insolvency and Bankruptcy Code, 2016 (IBC) applies to applications already pending against personal guarantors of corporate debtors, thereby lifting the interim moratorium under Section 96 from 26 May 2026 onwards. The Court clarified that the amendment operates retroactively, not retrospectively, and therefore governs pending insolvency proceedings without disturbing vested rights.
Justice Somasekhar Sundaresan was deciding a petition under Section 9 of the Arbitration and Conciliation Act, 1996 filed by Tata Capital Financial Services Limited (now Tata Capital Limited) against a borrower LLP and its guarantors seeking interim protection pending arbitration. The lender had earlier initiated insolvency proceedings against the corporate debtor under the IBC, following which the company entered liquidation. It had also filed applications under Section 95 of the IBC against the individual guarantors, which automatically triggered the interim moratorium under Section 96 and stalled the Section 9 proceedings.
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During the pendency of the petition, Parliament inserted Section 96(4) with effect from 26 May 2026, providing that the interim moratorium under Section 96 would not apply where an insolvency resolution application is filed against a personal guarantor to a corporate debtor. The petitioner argued that this amendment removed the statutory bar and revived the maintainability of the Section 9 petition, whereas the respondents contended that the amendment could apply only to applications filed after its commencement and not to pending proceedings.
Rejecting the respondents’ contention, the Court held that the phrase “where an application is filed” includes applications already filed and pending before the adjudicating authority. It observed that had the legislature intended to confine the amendment only to future filings, it would have expressly used language to that effect. The Court distinguished between retrospective and retroactive operation, explaining that the amendment does not alter past legal consequences but prospectively governs existing pending proceedings from the date it came into force.
In reaching this conclusion, the Court relied upon the Supreme Court’s decision in SEBI v. Rajkumar Nagpal (2023) 8 SCC 274, which explains that a retroactive law applies prospectively to situations or transactions that originated earlier but continue to subsist. Applying that principle, the Court held that the moratorium protecting the personal guarantors remained effective only until 25 May 2026 and automatically ceased from 26 May 2026 by virtue of Section 96(4).
Although the Court acknowledged that the lender itself had initiated the insolvency proceedings against the guarantors, it observed that the amended provision is agnostic as to who initiated the Section 95 application, and courts cannot read limitations into a clear legislative mandate. The Court also noted that any concerns regarding fairness or conflict of interest are matters of legislative policy rather than judicial interpretation.
Considering that the petitioner restricted its relief to disclosure of assets and restraint against alienation of assets, without seeking any deposit of money, the Court held that such limited interim measures were equitable and appropriate. It accordingly disposed of the Section 9 petition by directing the respondents to disclose their assets on affidavit and restraining them from creating third-party rights over those assets pending arbitration. The Court further clarified that the interim protection would continue subject to commencement of arbitration proceedings within the stipulated time.
