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Cessation of Interim Moratorium for Personal Guarantors to Corporate Debtors
The Insolvency and Bankruptcy Code (Amendment) Act, 2026 introduced Section 96(4) and Section 124(4) with effect from 26 May 2026, clarifying that the interim moratorium shall not apply to personal guarantors of corporate debtors. Following are Key Judicial Clarifications
Bombay High Court :
Case: Tata Capital Financial Services Limited v. Neel Motors LLP & Others (Judgment dated 24 July 2026)
The Hon'ble Bombay High Court held that:
- The expression "where an application is filed" includes applications that had already been filed and were pending before the Adjudicating Authority as on 26 May 2026.
- Section 96(4) has a retroactive (not retrospective) effect.
- The amendment applies not only to new applications filed after 26 May 2026 but also to pending proceedings.
- Consequently, any interim moratorium that existed in favour of personal guarantors ceased from 26 May 2026.
- Key takeaway: Pending insolvency applications under Section 95 do not continue to enjoy interim moratorium protection after 26 May 2026.
Delhi High Court :
Case: IDBI Trusteeship Services Ltd. v. Manish Jain & Others (Judgment dated 19 August 2026). The Hon'ble Delhi High Court reaffirmed the same principle and observed that:
- The insertion of Section 96(4) is retroactive legislation.
- The amendment creates a form of quasi-retroactivity, meaning it affects ongoing and pending proceedings.
- Even though the Amendment Act did not expressly state that it would apply to pending cases, the legal effect of the provision extends to applications already pending before the Adjudicating Authority.
- Key takeaway: The benefit of interim moratorium cannot be claimed in pending personal guarantor insolvency proceedings after 26 May 2026.
Practical Impact of Cessation of Interim Moratorium for PG to CD
- Before 26 May 2026 : When an application under Section 95 was filed against a personal guarantor An interim moratorium automatically commenced. And Creditors were restricted from initiating or continuing certain legal proceedings against the guarantor.
- After 26 May 2026 : For personal guarantors to corporate debtors No interim moratorium protection is available and Creditors can continue arbitration, recovery actions, suits, and other legal proceedings, subject to applicable laws. Even where Section 95 applications were already pending, the moratorium ended on 26 May 2026.
Illustration:
Suppose a bank filed a Section 95 application against a personal guarantor in March 2026.
- Before amendment: Interim moratorium became effective upon filing.
- On 26 May 2026: Due to Section 96(4), the moratorium automatically ceased.
- Result: The bank can continue recovery proceedings, arbitration, or civil actions against the guarantor notwithstanding the pending insolvency application.
Conclusion
Both the Bombay High Court and Delhi High Court have confirmed that the amendment introducing Sections 96(4) and 124(4) operates retroactively and applies to pending as well as future insolvency applications. Accordingly, the interim moratorium in respect of personal guarantors to corporate debtors ceased with effect from 26 May 2026, even for applications that were already pending before the Adjudicating Authority on that date.
From 26 May 2026 onwards, personal guarantors to corporate debtors can no longer claim interim moratorium protection under Sections 96 and 124 of the IBC, even in cases where insolvency applications were already pending.
