Bombay HC Holds IBC Amendment Removing Interim Moratorium for Personal Guarantors Applies to Pending Cases

Kaustav Chowdhury

Aug 19

5 min read

The Bombay High Court has ruled that the May 2026 amendment to the Insolvency and Bankruptcy Code, 2016 (IBC), which removed the automatic interim moratorium for personal guarantors of corporate debtors, applies to insolvency applications that were already pending when the amendment took effect. The decision clears the path for creditors to continue parallel recovery proceedings against personal guarantors even while insolvency applications filed under Section 95 of the IBC remain under adjudication.

In Tata Capital Financial Services Limited v. Neel Motors LLP & Ors. [Commercial Arbitration Petition No. 620 of 2021, decided on 24 July 2026, Citation: 2026 LLBiz HC(BOM) 430], Justice Somasekhar Sundaresan held that the newly inserted Section 96(4) of the IBC operates retroactively, not retrospectively, and consequently applies to all Section 95 applications pending before the Adjudicating Authority as of 26 May 2026. The court allowed Tata Capital to proceed with arbitration proceedings against the personal guarantors and granted limited interim relief in the form of asset disclosure and restraint against alienation.

Factual Background: The Tata Capital and Neel Motors Dispute

Tata Capital Financial Services Limited (now Tata Capital Limited) had extended financial assistance to Neel Motors LLP under a Channel Finance Agreement. Respondent Nos. 2 to 5 in the petition acted as personal guarantors for the borrowings of Neel Motors.

About a month before filing the arbitration petition in 2021, Tata Capital initiated the Corporate Insolvency Resolution Process (CIRP) against Neel Motors. The CIRP ultimately failed, and the NCLT, Mumbai Bench, ordered the liquidation of Neel Motors on 1 April 2022.

Separately, Tata Capital filed applications under Section 95 of the IBC before the NCLT against Respondent Nos. 2, 3 and 4, who were individual guarantors. The filing of these applications automatically triggered an interim moratorium under Section 96(1) of the IBC, which stayed all legal proceedings against those personal guarantors in respect of any debt. This interim moratorium effectively blocked Tata Capital from pursuing its arbitration petition against the guarantors.

The IBC Amendment Act, 2026 and Section 96(4)

The Insolvency and Bankruptcy Code (Amendment) Act, 2026 was notified by the Ministry of Corporate Affairs through Notification S.O. 2625(E) dated 22 May 2026. The Central Government appointed 26 May 2026 as the commencement date for specified provisions, including the newly inserted Section 96(4).

Section 96(4) provides that Section 96 (which creates the interim moratorium) 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 amendment addressed the concern that guarantors were using the automatic moratorium to delay and frustrate creditors' recovery actions, even where the corporate debtor was already in liquidation. Tata Capital accordingly argued that the moratorium no longer barred its arbitration petition.

The Central Question: Does the Amendment Apply to Pending Applications?

The guarantors contended that the amendment should apply only to Section 95 applications filed after 26 May 2026. Since their applications had been filed before that date, they argued, the interim moratorium should continue to protect them.

Justice Sundaresan rejected this argument. The court interpreted the phrase "where an application is filed" in Section 96(4) to encompass not just future filings but also applications already pending before the Adjudicating Authority. The court reasoned that if the legislature had intended to restrict the amendment to fresh filings only, it would have used express language to that effect.

Drawing on the Supreme Court's decision in SEBI v. Rajkumar Nagpal (2022), Justice Sundaresan distinguished between retroactive and retrospective operation of law. A retroactive law applies prospectively to facts existing when the new requirement comes into force, even if those facts arose earlier. A retrospective law, in contrast, disturbs vested rights that have already accrued. The court held that applying Section 96(4) to pending applications is retroactive, not retrospective, because it merely removes the ongoing moratorium protection going forward without disturbing crystallised rights.

The Court's Interpretation and Key Observations

Justice Sundaresan made several notable observations. First, Section 96(4) is "agnostic" to who filed the Section 95 application. The guarantors pointed out that Tata Capital itself had initiated the insolvency proceedings, so there was no misuse. The court acknowledged this but held the provision draws no distinction based on who files the application.

Second, the court observed that the removal of the interim moratorium under Section 96 for guarantors of corporate debtors covers only a temporary period. Once the Section 95 application is adjudicated and admitted under Section 100, a fresh moratorium commences under Section 101, which operates for 180 days and restricts the personal guarantor's ability to transfer or dispose of assets.

Third, the court acknowledged that a lender with a substantial interest may control a significant majority vote in the CoC that oversees the insolvency resolution process, creating a potential conflict of interest. However, the court stated that this is a matter of legislative design, and the court cannot import its own notions of fairness when applying clearly articulated provisions of law.

Relief Granted: Arbitration Proceedings and Asset Disclosure

Having held that the interim moratorium no longer barred the arbitration proceedings, the court granted Tata Capital limited interim relief under Section 9 of the Arbitration and Conciliation Act, 1996. The guarantors were directed to disclose their assets, and the court imposed a restraint against alienation of those assets pending arbitration. The court also directed the parties to take steps for commencement of the arbitration proceedings.

Implications for Personal Guarantors and Creditors

The ruling carries significant implications. Before the amendment, filing a Section 95 application against a personal guarantor of a corporate debtor triggered an automatic interim moratorium under Section 96, staying all debt-related proceedings. This mechanism was criticised for creating a perverse incentive: guarantors could exploit Section 95 applications solely to delay recovery proceedings.

Section 96(4) removes this protection specifically for personal guarantors of corporate debtors. The moratorium under Section 96 continues to apply to personal guarantors who are not guarantors of corporate debtors, creating a two-track regime.

For creditors, the ruling confirms that the amendment is not limited to newly filed applications. Financial institutions that had earlier filed Section 95 applications against personal guarantors of corporate debtors can now revive or continue parallel recovery proceedings, including arbitration, SARFAESI actions, and suits before the Debt Recovery Tribunal, without being blocked by the interim moratorium.

Key Takeaways

The Bombay High Court has held that the newly inserted Section 96(4) of the IBC, which removes the interim moratorium for personal guarantors of corporate debtors, applies to all Section 95 applications that were pending as of 26 May 2026.

The court distinguished between retroactive and retrospective operation of law, holding that Section 96(4) operates retroactively by applying prospectively to existing facts, without disturbing vested rights.

Section 96(4) is agnostic to who filed the Section 95 application. The moratorium exclusion applies whether the creditor, the debtor, or a third party initiated the insolvency proceedings.

The removal of the interim moratorium is temporary. Once a Section 95 application is admitted under Section 100, a fresh moratorium under Section 101 takes effect for 180 days.

Creditors can now pursue parallel recovery proceedings, including arbitration and SARFAESI actions, against personal guarantors of corporate debtors without being blocked by the Section 96 interim moratorium.