Bombay HC – IBC – Personal Guarantors Cannot Misuse IBC

Judgment dated 18.9.2026 of the High Court of Bombay in Writ Petition No.2819 of 2016 of Indian Bank  Vs.  Shabbir Abbas Patel and others with connected writ petitions

Section 96 IBC provides for interim moratorium where an application is filed under section 94 or section 95.  However, by the amendment of 26.5.2026, sub-section (4) is inserted that that the provisions of section 96 IBC i.e. interim moratorium shall not apply to an insolvency application in respect of personal guarantor to a corporate debtor.

This amendment was made in view of the serious concerns noted in the Report of the Committee on gross misuse of the interim moratorium.  The corporate debtors were taking advantage of triggering of such interim moratorium by misusing the provisions of Sections 94 or 95 of the IBC for individual insolvency resolution under part III of the IBC.

The question that arises for consideration in these writ petitions is as to whether sub-section (4) of Section 96 of the Insolvency and Bankruptcy Code 2016 (IBC) introduced by way of amendment with effect from 26.05.2026 operates retroactively? In other words, whether Section 96(4) of the IBC, stating that the said provision shall not apply where an application is filed under Sections 94 or 95 thereof for initiating an insolvency resolution process in respect of a personal guarantor to a corporate debtor, applies to such applications already filed and pending or that it would apply only to applications filed after the aforesaid sub-section (4) is added by way of amendment to Section 96 of the IBC.

Sub-section (4) to Section 96 of the IBC was introduced by way of the Insolvency and Bankruptcy Code (Amendment) Act, 2026 and by Notification issued by the Central Government, it was made effective from 26.05.2026

The whole purpose of introducing the amendment to address the mischief noted hereinabove must be satisfied in the fullest by applying the same to the pending proceedings also, in larger public interest. This is quite apart from the fact that the respondents do not have a ‘vested right’ under Section 96 of the IBC during the procedural realm between Sections 94 to 99 thereof, and they cannot claim that the amendment should apply only prospectively.

In view of the above, we answer the question framed at the outset in this judgment by holding that sub-section (4) of Section 96 of the IBC added by way of amendment with effect from 26.05.2026, applies retroactively and hence, even to pending proceedings. Although it operates from the said date in futuro, its effect is equally on proceedings pending on the said date under Sections 94 and/or 95 of the IBC.