In a significant ruling on the interplay between the Insolvency and Bankruptcy Code (Amendment) Act, 2026 and pending personal guarantor insolvency applications, the Delhi High Court has held that the newly inserted sub-section (4) to Section 96 of the IBC is “retroactive” in nature and applies to applications filed prior to May 26, 2026 which remain pending adjudication, thereby vacating the interim moratorium that had accrued in favour of personal guarantors to corporate debtors.
The High Court clarified that where an amendment to a statute is intended to rectify a mischief or curb abuse that has crept into the working of the enactment, and the amendment does not expressly state its temporal operation, the doctrine of quasi-retroactivity applies. Such an amendment operates in futuro but is anchored to a character, status, or event that arose earlier, and consequently applies to all pending proceedings where the relevant facts continue to subsist.
Applying this principle, the Court held that the interim moratorium under Section 96 of the IBC, which had accrued in favour of a personal guarantor to a corporate debtor upon filing of a Section 95 application prior to May 26, 2026, stood vacated by the retroactive operation of sub-section (4) inserted by the Amending Act, 2026, and the suit against such personal guarantor was therefore maintainable.
A Single Judge Bench of Justice Tushar Rao Gedela rejected the application under Order VII Rule 11 of the CPC filed by the Personal Guarantor seeking rejection of the plaint on the ground of interim moratorium under Section 96 of the IBC, holding that the Insolvency and Bankruptcy Code (Amendment) Act, 2026, which inserted sub-section (4) to Section 96 with effect from May 26, 2026, is “retroactive” in nature and not merely prospective, and therefore applies to applications that were filed prior to the cut-off date but remain pending adjudication.
The Court applied the doctrine of “quasi-retroactivity” as expounded by the Supreme Court in Vineeta Sharma [(2020) 9 SCC 1], State Bank’s Staff Union vs. Union of India [(2005) 7 SCC 584], and SEBI vs. Rajkumar Nagpal [(2023) 8 SCC 274], holding that the expression “an application is filed” in sub-section (4) of Section 96 must be read to include applications filed and pending as on May 26, 2026.
The Court placed heavy reliance on the Report of the Select Committee on the Insolvency and Bankruptcy Code (Amendment) Bill, 2025, which expressly recorded that the amendment was aimed at curbing the rampant misuse of the interim moratorium by personal guarantors to obstruct legitimate recovery proceedings, a loophole flagged by NCLT members as being responsible for significant value erosion.
Following the reasoning of the Bombay High Court in Tata Capital Financial Services Limited vs. Neel Motors LLP [Commercial Arbitration Petition No.620 of 2021 decided on 24.07.2026], the Court rejected the contention that the amendment would render Section 96 otiose, observing that the Legislature consciously retained the provision for future application to personal guarantors per se while removing protection only qua personal guarantors to corporate debtors.
Briefly, the dispute arose in the context of a loan of Rs. 64.50 crores advanced by Kautilya Finance BV and Kautilya Real Estate Fund to Defendant No. 3, who is the Corporate Debtor. Defendant Nos. 1 and 2 stood as Personal Guarantors to the Corporate Debtor. Upon an alleged default of Rs. 15.23 crores, the plaintiff filed Company Petition before the NCLT, Chandigarh Bench against the Corporate Debtor, and simultaneously invoked the personal guarantee of Defendant No. 1 by issuing a demand notice dated May 30, 2025.
The plaintiff had earlier filed an application under Section 95 of the Insolvency and Bankruptcy Code, 2016 against Defendant No. 2 on Aug 10, 2024, and a Resolution Professional was appointed on Feb 20, 2025. The plaintiff then instituted the present suit on July 28, 2025 seeking injunctive orders against the Personal Guarantors. Defendant No. 2 filed an application under Order VII Rule 11 of the Code of Civil Procedure, 1908 seeking rejection of the plaint on the ground that the suit was barred by the interim moratorium under Section 96 of the IBC, since an insolvency application was already pending against him.
