IBC / Personal Guarantor · F2J-C-2810
IDBI Trusteeship Services Limited v. Manish Jain & Ors.
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Holding (ratio)
The amendment excluding personal guarantors from the section 96 moratorium operated on pending cases and did not require rejection of the creditor's suit.
Operative order (extract)
28. In view of the above, the application stands disposed of. CS(COMM) 800/2025, I.A. 18917/2025, I.A. 18918/2025, I.A. 18921/2025, O.A. 59/2026, I.A. 10831/2026, I.A. 10898/2026 & I.A. 10935/2026
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Complete searchable judgment text
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Order Reserved on: 06.08.2026
Order Delivered on:19.08.2026
+ CS(COMM) 800/2025, I.A. 18917/2025, I.A. 18918/2025, I.A.
18921/2025, O.A. 59/2026, I.A. 10831/2026, I.A. 10898/2026 & I.A.
10935/2026
IDBI TRUSTEESHIP SERVICES LIMITED .....Plaintiff
versus
MANISH JAIN & ORS. ....Defendants
Advocates who appeared in this case:
For the Plaintiff: Mr. Pranjit Bhattacharya, Ms. Nitya Prabhakar,
Ms. Shalini Basu and Mr. Kunal Dave,
Advocates.
For the Defendants: Mr. Sarul Jain, Advocate for D-1.
Mr. Rajat Joneja, Ms. Sakshi Kapoor and Ms.
Tina Aneja, Advocates for D-2.
CORAM:
HON’BLE MR. JUSTICE TUSHAR RAO GEDELA
ORDER
TUSHAR RAO GEDELA, J.
I.A. 32519/2025 (Application under Order VII Rule 11 (a) and (d), CPC
on behalf of Defendant No.2)
1. The present application has been filed by the defendant no.2 under
Order VII Rule 11 of the Code of Civil Procedure, 1908 (hereinafter referred
to as “the Act”) seeking rejection of the plaint on the ground that the present
suit is not maintainable qua defendant no.2, being barred by law in view of
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Section 96 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred
to as “IBC”), which provides that no legal proceedings in respect of any debt
may be initiated or continued during the subsistence of an interim moratorium.
It is further stated that the plaint fails to disclose any cause of action within the
meaning of Order VII Rule 11(a) of CPC; and is also vexatious and without
merit.
2. It is stated by defendant no.2 that the plaintiff company had filed
Company Petition bearing No. C.P. (IB) 206 of 2025 before the Hon'ble
National Company Law Tribunal, Chandigarh Bench, against defendant no.3,
who is the principal borrower, for an alleged default amount of
Rs.15,23,73,367/-. Simultaneously, plaintiff had invoked Personal Guarantee
of defendant no.l by issuing a demand notice dated 30.05.2025. However,
plaintiff did not invoke PG by defendant no.2, being fully aware that an
interim moratorium was already subsisting in respect of defendant no.2, and
consequently, no proceedings could have been initiated against the defendant
no.2.
3. It is stated that, in order to safeguard the interests of the Debenture
Holders of the defendant no.3, the plaintiff proceeded to file the present suit
seeking injunctive orders against the PGs i.e. defendant nos.1 and 2. It is in
this background that the defendant no.2 has preferred the present application
for rejection of the plaint, inter alia, on the ground that interim moratorium
under Section 96 of the IBC is currently in force against the defendant no.2.
CONTENTIONS ON BEHALF OF DEFENDANT NO.2:
4. Mr. Rajat Joneja, learned counsel appearing on behalf of the defendant
no.2 would submit that defendant no.3 is a debenture trustee, who received a
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loan amount 64,50,00,000/- by its debenture holders (i.e. Kautilya Finance BV
and Kautilya Real Estate Fund), and is a Corporate Debtor (for short “CD”),
defendant nos.1 and 2 are Personal Guarantors (for short “PG”) to defendant
no.3, and defendant no.3 is facing Corporate Insolvency Resolution Process
(for short “CIRP”) proceedings. It is stated that the present application under
Order VII Rule 11 of CPC has been preferred on the ground that the defendant
no.3 is undergoing the CIRP, and the defendant nos.1 and 2 being the PG to
CD, are enjoying the interim moratorium as provided under Section 96 of the
IBC, and therefore, the present suit is not maintainable against the defendants.
In support of the application, learned counsel would submit as under:
4.1. At the outset, learned counsel invited attention to the provisions
of Section 96 of the IBC to submit that by virtue of such provisions, the
defendant no.2 is enjoying the interim moratorium and emphasizes that
no suit can be maintainable as against the defendant nos.1 and 2. He
also asserted that since the defendant no.3 is the CD, equally the present
suit is not maintainable against it, and the plaintiff may have to look for
remedies elsewhere.
4.2. He would bring attention of this Court to the amendment brought
to Section 96 Insolvency and Bankruptcy Code (Amendment) Act, 2026
(hereinafter referred to as “Amending Act”) whereby Section 96 was
amended by insertion of sub-section (4) by virtue of Section 51 of the
Amending Act with effect from 26.05.2026. Reading sub-section (4),
learned counsel would submit that the said provision takes away the
interim moratorium granted previously to the PG to CD, and render the
said PG liable to be proceeded against in a suit or any other
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proceedings. However, he would stoutly contend that the same would
not have any effect or impact upon the interim moratorium granted in
favour of the defendant no.2 for the reason that the plaintiff filed the
application under Section 95 of the IBC against defendant no.2 on
10.08.2024, and the amendment was brought into force w.e.f.
26.05.2026. He also submitted that even the Resolution Professional
(hereinafter referred to as “the RP”), was appointed on 20.02.2025. He
informed that the suit was filed on 28.07.2025, which is much after the
interim moratorium was deemed in favour of defendant no.2.
4.3. Learned counsel would forcefully contend that the amendment is
prospective and not retrospective, and thus, would not divest the
defendant no.2 of the interim moratorium deemed in his favour with
effect from 10.08.2024, when the plaintiff filed its application under
Section 95 of the IBC against defendant no.2. Referring to the
Amending Act, he emphatically urged that there is neither any express
nor even an implied suggestion that the amendment brought, was
retrospective in operation. He emphasised that the amendment was
neither clarificatory nor procedural in nature to have an automatic
retrospective application. He would also contend that once a vested
right has been conferred by a statute, it cannot be divested by an
amendment to the enactment at any time in future, unless of course,
expressly made retrospective. Since the Amending Act does not
expressly provide for any retrospectivity, this Court cannot read the
same into it. If considered so, learned counsel would submit that the suit
cannot be maintained against either defendant nos.1 or 2 or even
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defendant no.3, and is liable to be rejected wholly against all the
defendants.
4.4. Referring to the IBC, learned counsel would contend that
Sections 94 to 96 fall within Part - III, which is respecting PG on one
hand, and PGs to CD, on the other. He also brought attention to the IBC
to submit that different provisions of IBC were brought into force on
different dates. Likewise, he would submit that provisions of Sections
94 to 96 were brought into force with effect from 15.11.2019, however,
significantly in respect only of the PG to CD and not PG per se. In this
context, he vehemently argued that if the amendment is now to be
applied retrospectively, it would render the provisions of Section 96
otiose, inasmuch as so far as PG is concerned, it has not been brought
into force till date, and so far as PG to CD is concerned, the interim
moratorium would be rendered nugatory on account of the amendment
being read retrospectively. Thus, in all, the whole of Section 96 of the
IBC would be otiose, being inapplicable to any entity identified therein.
According to learned counsel, this can never be the intention of the
Legislature.
4.5. Learned counsel also referred and read the Preamble of IBC and
Section 1of the Amending Act to submit that the bare reading of both
shows the clear intent of the legislature inasmuch as the Amending Act
would apply prospectively i.e. on the proceedings already pending.
4.6. In support of his contentions, learned counsel relied upon the
judgments of the Supreme Court in Hitendra Vishnu Thakur v. State of
Maharashtra, (1994) 4 SCC 602, Govind Das v. ITO, (1976) 1 SCC
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906, Snowtex Investment Ltd. v. CIT, (2020) 13 SCC 762, and Rajesh
Mitra v. Karnani Properties Ltd., 2024 SCC OnLine SC 2607.
CONTENTIONS ON BEHALF OF THE PLAINTIFF:
5. Mr. Pranjit Bhattacharya, learned counsel appearing for plaintiff stoutly
contested and refuted the arguments urged on behalf of the defendant no.2. He
would submit that there is no vested right with the PG to CD that moratorium
would be deemed by mere filing of an application under Section 94 of the
IBC. He clarified that the plaintiff had preferred an application under Section
95 IBC, which permits creditors to file an application under Section 95 of the
IBC. He would further submit as under:
5.1. Referring to the provisions of Section 96 of the IBC, learned
counsel would forcefully submit that the reliance of defendant no.2
upon the said provision to contend that legislature has conferred interim
protection to PG to CD by way of interim moratorium, and created a
vested right, is misplaced. He would contend that rather than a right
being conferred upon the PGs to CD, the provisions of Section 9 of the
IBC deprived the creditor to sue such PGs to CD. Explaining the
scheme of IBC, he would contend that the provisions of Section 96 fall
within Part - III, which creates an exception and suspends the rights of
the creditors from suing the PGs or the PGs to CD. Thus, by way of the
amendment, the Legislature has merely reopened the right of the
creditors to sue PG to CD, which was kept suspended in the
interregnum, as an interim moratorium. Thus, what the legislature did
was to re-grant the said rights to the creditors which was even otherwise
always available and has not taken away any vested right of PG to CD.
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5.2. Handing over the Bench a compilation comprising the Amending
Act, the Report of the Committee on the Insolvency and Bankruptcy
Code (Amendment) Bill, 2025, and judgements relied upon, learned
counsel copiously read various clauses in the Report to submit that it is
clear that the amendment was recommended by the Committee after
having considered the misuse and abuse of the provisions of Section 96
of the IBC, by PGs. Drawing attention to the Amending Act,
particularly to Section 51 whereunder sub-section (4) was inserted in
Section 96 of the IBC, learned counsel would contend that though
retrospectivity has not been specifically mentioned, however, having
regard to the Report of the Committee, it is apparent that the
amendment was brought into effect to apply to pending cases too, so as
to ensure that the abuse could be controlled and reined in.
5.3. Apart from the above, learned counsel would heavily rely upon
the judgement of the learned Single Judge 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, whereby the judgements of the Supreme Court propounding
the doctrine of “retroactivity” were considered, followed and applied to
the facts arising therein. Learned counsel drew attention to the relevant
paragraphs of the Supreme Court judgements in Vineeta Sharma vs.
Rakesh Sharma, reported in (2020) 9 SCC 1; Securities and Exchange
Board of India vs. Rajkumar Nagpal, (2023) 8 SCC 274; and State
Bank’s Staff Union (Madras Circle) vs. Union of India, (2005) 7 SCC
584 to contend that it is trite that amendments in the nature of the
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present amendment by insertion of sub-section (4) to Section 96 of the
IBC would operate retroactively, which is applicable to pending cases,
even though the amendment is not “retrospective”. He would forcefully
contend that the Supreme Court defined the scope of such amendments
and applied the doctrine of retroactivity to conclude that having regard
to the nature of the amendments which tend to rectify or correct the
“mischief” or misuse/abuse that may have crept in, the amended
provision would be applicable even to pending cases, notwithstanding
that there is no express retrospectivity to those. Therefore, he would
submit that the interim moratorium which prevented the plaintiff from
suing the PG to CD, that is, the defendant nos.1 and 2, is removed, and
the suit would be maintainable. He also relied upon the judgement in
Dilip B. Jiwrajka v. Union of India, (2024) 5 SCC 435.
REJOINDER OF THE DEFENDANT NO.2:
6. In rejoinder, Mr Joneja, learned counsel for defendant no.2 would
submit that the expression “an application is filed” occurring in sub-section
(4) of Section 96 of IBC, has to be necessarily read prospectively, as on the
date of coming into force of the amendment and not pending applications. He
would contend that once it is clear that the amendment is not retrospective, it
cannot have any application to pending cases. It is stated that the Legislature
in the provisions of Section 96, IBC had specifically conferred a vested right
on the PGs, and PGs to CD, of interim moratorium as and when an application
is filed either under Sections 94 or 95 of the IBC, which vested right cannot be
taken away by legislation, unless made expressly retrospective. Learned
counsel also emphasised that having regard to the fact that the present
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amendment to Section 96 is clearly prospective and may affect future
applications, however, a right conferred upon the PGs to CD prior thereto,
surely cannot be interfered with in this manner.
ANALYSIS AND CONCLUSION:
7. An interesting issue has arisen in this suit by way of an application
under Order VII Rule 11, CPC filed by the defendant no.2. In that, whether a
benefit granted upon a party by way of a provision in an enactment can be
taken away by way of an amendment under the Amending Act without
expressly being retrospective. Particularly, while a proceeding is pending in a
court of law. Ordinarily, amendments are construed to be prospective, unless
retrospectivity is expressed or implied.
8. In order to determine the aforesaid quandary, one has to consider the
ratio laid down by the Supreme Court in Vineeta Sharma (supra). The
doctrine of “retroactivity” was profoundly expounded. The relevant
paragraphs are reproduced hereunder:
61. The prospective statute operates from the date of its enactment
conferring new rights. The retrospective statute operates backwards and
takes away or impairs vested rights acquired under existing laws. A
retroactive statute is the one that does not operate retrospectively. It
operates in futuro. However, its operation is based upon the character or
status that arose earlier. Characteristic or event which happened in the past
or requisites which had been drawn from antecedent events. Under the
amended Section 6, since the right is given by birth, that is, an antecedent
event, and the provisions operate concerning claiming rights on and from
the date of the Amendment Act.
[emphasis supplied]
9. The ratio postulated in Vineeta Sharma (supra) propounds that where
the Amending Act proposes to rectify the “mischief” that may have arisen or
continued despite the enactment being promulgated to address such
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“mischief”, the amendment is neither retrospective nor can be concluded to be
prospective, as it would be construed in the ordinary course. Such an
amendment has been held to be “retroactive” in operation, in that, it would
clearly apply to all pending proceedings, wherever the circumstances require,
and the Courts can give effect to the import of such amendment.
10. It would be apt to appreciate and consider the judgement of a learned
Single Judge of the Bombay High Court in Tata Capital Financial Services
(supra), where, while considering an application under Section 9 of the
Arbitration and Conciliation Act, 1996, the principle propounded in Vineeta
Sharma (supra) was applied. The relevant paragraphs of the judgement of the
Bombay high Court is extracted hereunder:
“11. Having heard the parties and having examined the record and the
provisions of law with their assistance, in my opinion, the phrase “where an
application is filed” would bring within its sweep anything that is filed and
is pending with the Adjudicating Authority as of that date. If the intention
had been to bring within the sweep of Section 96(4) only filings made after
the introduction of the provision, the legislature would have consciously
used language to that effect. Equally, while it is arguable that the legislature
has not used clarificatory language in the provision to indicate that it covers
applications already filed and to be filed, in my opinion, this provision
would squarely fit within the ambit of a retroactive application. The reading
of the words “is filed” as including those that have been filed and are
pending, will not give retrospective effect, but will have prospective effect
from the date on which the provision takes effect. Therefore, in my opinion,
any Application that is filed for initiating an insolvency resolution process in
respect of a personal guarantor to a corporate debtor would not fall within
the ambit of Section 96(1) and related provisions with effect from May 26,
2026. In other words, anything that “is filed” would include within its sweep
anything that has been filed and is continuing to remain under adjudication
under the IBC.
xx xx xx
14. A plain reading of the foregoing would make it clear that the term
“retroactive”, while being used differently in different judgements is
actually a prospective application of a newly introduced requirement of a
law to facts existing as of the date of the introduction of the requirement.
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The mere reason that some facts may have already been into existence but
continue to exist would not mean that the application becomes retrospective.
15. Applying the same principles to Section 96(4) of the IBC, in my opinion,
a moratorium insofar as it operated in respect of Respondent Nos. 2, 3 and 4
until May 25, 2026 ceased to operate with effect from May 26, 2026, in
respect of applications filed under Section 95 of the IBC. In this view of the
matter, in my opinion, the Petition would need to be considered as not being
barred by the moratorium under IBC.”
11. The Supreme Court in Vineeta Sharma (supra) clearly shed the light on
those amendments which may neither fall in the category of “prospective” nor
"retrospective". A separate category of amendments to a statute was carved
out which were propounded as “retroactive”. It was held that a retroactive
statute is one that does not operate retrospectively, but, in futuro. However,
such an operation is based upon the character or status that arose earlier. The
Supreme Court in State Bank’s Staff Union (supra) held as under:
“21. ….
“Retroactivity” is a term often used by lawyers but rarely defined. On
analysis it soon becomes apparent, moreover, that it is used to cover at
least two distinct concepts. The first, which may be called “true
retroactivity”, consists in the application of a new rule of law to an act
or transaction which was completed before the rule was promulgated.
The second concept, which will be referred to as “quasi-retroactivity”,
occurs when a new rule of law is applied to an act or transaction in the
process of completion…. The foundation of these concepts is the
distinction between completed and pending transactions……” T.C.
Hartley, Foundations of European Community Law, p. 129 (1981).”
12. The Supreme Court in State Bank’s Staff Union (supra) has further
clarified the nature of “retroactivity” into (i) “true retroactivity” where the
new rule of law is applied to an act or transaction which was completed before
the rule was promulgated; and (ii) “quasi retroactivity” when the new rule or
act is applied to act of transaction which is still in the process of completion,
in other words, pending. This construction and interpretation appears to have a
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direct bearing on the present facts.
13. Finally, the decision of the Supreme Court in SEBI vs. Rajkumar
Nagpal (supra), after examining and analysing the above judgements, held in
para 102 of its judgement as under:
“102. Many decisions of this Court define “retroactivity” to mean laws
which destroy or impair vested rights. In real terms, this is the definition of
“retrospectivity” or “true retroactivity”. “Quasi-retroactivity” or simply
“retroactivity” on the other hand is a law which is applicable to an act or
transaction that is still underway. Such an act or transaction has not been
completed and is in the process of completion. Retroactive laws also apply
where the status or character of a thing or situation arose prior to the
passage of the law. Merely because a law operates on certain circumstances
which are antecedent to its passing does not mean that it is retrospective.”
[emphasis supplied]
14. Reiterating the principles and ratio laid down in the previous
judgements, the Supreme Court has succinctly summed the applicability by
declaring that retroactive laws also apply where the status or character of a
thing or situation arose prior to the passage of the law and that “quasi
retroactivity” is a principle of law, which is applicable to an act or transaction
that is still underway.
15. It needs emphasis to examine as to whether the amendment brought to
Section 96(4) of the IBC would be “retrospective” or “prospective” or as
postulated in the aforementioned judgements, “retroactive”. Before the said
issue is examined, it may be pertinent to consider as to what transpired in the
minds of the Select Committee on Insolvency & Bankruptcy Code
(Amendment) Bill, 2025 while recommending amendment to Section 96 of
IBC, which was proposed under Clause 47 of the said Bill. The relevant
provisions like Clauses 47.1, 47.2, 47.3, 47.4, 47.5, 47.5.1, 47.5.2, 47.5.3 and
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47.6 are reproduced hereunder:
“47. Clause 47 of the Bill proposes to amend the Section 96 of the
Principal Act.
47.1 Provision proposed in the Insolvency and Bankruptcy Code
(Amendment) Bill, 2025:
In section 96 of the principal Act, after sub-section (3), the following sub-
section shall be inserted, namely:-
"(4) The provisions of this section shall not apply where an application is
filed for initiating an insolvency resolution process in respect of a personal
guarantor to a corporate debtor."
47.2. Relevant Provision of the Principal Act (Insolvency and Bankruptcy
Code, 2016):
96. Interim- moratorium. – (1) When an application is filed under section
94 or section 95-
(a) an interim-moratorium shall commence on the date of the application in
relation to all the debts and shall cease to have effect on the date of
admission of such application; and
(b) during the interim-moratorium period –
(i) any legal action or proceeding pending in respect of any debt shall
be deemed to have been stayed; and
(ii) the creditors of the debtor shall not initiate any legal action or
proceedings in respect of any debt.
(2) Where the application has been made in relation to a firm, the interim
moratorium under sub-section (1) shall operate against all the partners of
the firm as on the date of the application.
(3) The provisions of sub-section (1) shall not apply to such transactions as
may be notified by the Central Government in consultation with any
financial sector regulator.
47.3 Reasons/Justification given by the Ministry for the proposed
provisions:
The interim moratorium under section 96 provides that upon the filing of an
application, all legal actions or proceedings pending in respect of the
concerned debt shall remain stayed, and creditors shall not initiate any
legal action or proceeding in respect of such debt.
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The Adjudicating Authority (AA) has, on occasion, expressed concerns
regarding the misuse of initiation of the individual insolvency resolution
process by personal guarantors to take advantage of the interim
moratorium. Clause 47 therefore seeks to insert a new sub-section (4) to
section 96 of the Code to provide that provisions of section 96 of the Code
will not apply where an application to initiate an insolvency resolution
process in respect of a personal guarantor to a corporate debtor is filed by a
creditor or the debtor itself.
47.4 Important Views/Suggestions given by Experts/Stakeholders:
Some of the important suggestions of the stakeholders in this regard are
furnished below:
(i) Consider providing an interim moratorium on disposal of assets
by the debtor. The report of the Insolvency Law Committee of
February 2020 recommended that Section 96 and 124 should be
amended to include a stay on actions relating to disposition of assets
by the debtor.
(ii) Removal of this amendment may be considered. The proposed
amendments make the provision of interim moratorium non
applicable in cases of personal guarantor to a corporate debtor
which provides for protection to the personal guarantor critical from
legal actions of the creditors. However, such interim protection is
arisen in to practice the resolution process. Some of the other
important issues that have insolvency have not been addressed i.e. no
thresholds for admission to guarantors etc. process have been
specified, no specific guidelines for MSME guarantors etc.
(iii) The Bill seeks to introduce a new sub- section excluding
application of interim moratorium in respect of personal guarantor
to a CD. Non-application-of interim moratorium might encourage
the personal guarantor to dispose of their assets to the detriment of
creditors. Non-application of interim moratorium might encourage
the disposal PG to of dispose assets of by assets PG, to the detriment
of creditors. To prevent such wrongful provisions for moratorium
may be introduced to prohibit alienation of assets by the guarantors
post filing of the application.
47.5 Examination by the Committee:
47.5.1 The Ministry in their written replies to the corresponding suggestions
above have submitted as under:
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(i) The interim moratorium under section 96 provides that upon the
filing of an application, all legal actions or proceedings pending in
respect of the concerned debt shall remain stayed, and creditors
shall not initiate any legal action or proceeding in respect of such
debt. Concerns have been expressed regarding the misuse of
initiation of the individual insolvency resolution process (IIRP)by
PGs to take advantage of the interim moratorium. To remove any
perverse incentives to initiate IIRP, the proposed amendment seeks to
dispense with the concept of interim moratorium for the insolvency of
PG to CD. Hence, the provision in the Insolvency and Bankruptcy
Code (Amendment) Bill, 2025 may be retained without any change.
(ii) Additionally, Part III currently applies to personal guarantors,
who may or may not be MSMEs. Hence, the provision in the
Insolvency and Bankruptcy Code (Amendment) Bill, 2025 may be
retained without any change.
(iii) It is clarified that the proposed Amendment Bill restricts the
interim moratorium protection for personal guarantors, thereby
creating a level playing field for PGs and their creditors to seek
appropriate remedies outside the IBC before the insolvency
resolution or bankruptcy process is initiated. Hence, no changes
required. to the Insolvency and Bankruptcy Code (Amendment) Bill,
2025 are required.
47.5.2 Regarding the issue of removal of Interim moratorium, the secretary,
Ministry of Corporate Affairs stated as under during the deposition before
the Committee:
"This concerns individual insolvency, personal guarantees, etc. They
recommend reconsidering the removal of interim moratorium protection for
personal guarantors during insolvency and bankruptcy processes. They also
suggest allowing automatic commencement of the bankruptcy process
without a three-month gap after completion of the CIRP or liquidation
proceedings. They further propose extending provisions similar to Section
66 regarding fraudulent or wrongful trading to personal insolvency. Our
position is that removing the interim moratorium for personal guarantors is
intended primarily to prevent misuse. Currently, when recovery proceedings
begin against a personal guarantor, the guarantor rushes to file an
application before the NCLT, triggering the interim moratorium
immediately. This provision has been subject to misuse, hence our proposal
to remove it. Under statutes such as SARFAESI and through multiple
Supreme Court judgments, it is very clear that the creditor is not required to
exhaust remedies against the borrower first. The law treats the borrower
and guarantor on the same footing once default occurs. That means, once
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there is a default, the law applies equally to the borrower as well as to the
guarantor. It is pointed out in the SARFAESI Act, there is no moratorium."
47.5.3. Elaborating further on the issue, Chairperson, IBBI stated as under
during oral evidence:
NCLT members have repeatedly flagged this issue. In fact, in our
colloquiums, they cite it as the number one mechanism through
which thousands of crores are being siphoned off. Therefore, this
amendment is one of the most crucial for plugging a major loophole
in the IBC.
47.6 Observations/Recommendations of the Committee:
The Committee note that Clause 47 seeks to amend Section 96 to
exclude personal guarantors to corporate debtors from the scope of the
interim moratorium. The Committee observe that this amendment is aimed
at addressing a persistent concern flagged by the Adjudicating Authority
and insolvency practitioners namely, the misuse of interim moratorium by
personal guarantors who file applications solely to obstruct or delay
legitimate recovery proceedings, a major loophole confirmed by NCLT
members to be responsible for significant value erosion. The Committee,
having considered detail submissions of the Ministry and IBBI, underscore
that removing this unnecessary pre-admission shield is essential. The
Committee observe that the law, consistent with SARFAESI Act and
Supreme Court judgements, treats the borrower and the guarantor on the
same footing upon default, and the proposed amendment does not deprive
personal guarantors of the right to seek insolvency resolution or bankruptcy
under Part III of the Code. In view of the above, and recognising the need to
curb strategic filings and strengthen the integrity of the insolvency process,
the Committee find the proposed amendment under Clause 47 to be
appropriate and recommend its acceptance in its present form.”
16. The recommendation brooks no ambiguity. It is apparent that the
amendment, by insertion of sub-section (4) to Section 96 of the IBC, was
brought in only to rectify the “mischief” and the misuse/abuse of the sub-
sections (1) to (3) of Section 96 of IBC. By way of the amendment, it was
sought to ensure that the provisions of Section 96 would not apply where an
application to initiate an Insolvency Resolution Process in respect of a PG to
CD is filed by the creditor or the debtor itself.
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17. It is significant to note that the Committee was sensitive and acutely
aware of the fact that though such interim protection is critical to the
resolution process, yet some other important and critical issues which have
arisen in practise, have not been addressed. After having heard and considered
the issues and concerns of various stakeholders including the Ministry of
Corporate Affairs which voiced its concern and stated that the removal of
interim moratorium for PG is primarily intended to prevent misuse, the
Committee formed an opinion that “.....this amendment is aimed at addressing
a persistent concern flagged by the Adjudicating Authority and the insolvency
practitioners namely, the misuse of interim moratorium by personal
guarantors who file applications solely to obstruct or delay legitimate
recovery proceedings, a major loophole confirmed by NCLT members to be
responsible for significant value erosion”. And that, “The Committee, having
considered detailed submissions of the Ministry and IBBI, underscore that
removing this unnecessary pre-admission shield is essential”. Consequently,
the amendment to Section 96 by addition and insertion of sub-section (4) was
recommended in terms of Clause 47 of the IBC Bill, 2025.
18. Aptly, this Court is of the considered opinion that the Committee
having noted the misuse and abuse of the provisions in Section 96 of the IBC
clearly accepted the proposal in Clause 47 of the aforesaid Bill and
recommended the amendment to Section 96 by addition and insertion of sub-
section (4) solely to rectify and remove the “abuse”, even if not the “mischief”
that was being caused, and noted with great alacrity by the stakeholders, and
appreciated by the Committee.
19. Learned single Judge of the Bombay High Court in Tata Capital
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Financial (supra) having examined the aforenoted judgements of the
Supreme Court read the words “is filed” occurring in sub-section (4) to mean
even those which were filed prior in time but are still pending adjudication as
on 26.05.2026, when the amendments were brought into force. This view, and
the view taken by this Court are well aligned.
20. Apropos the above, read conjointly, the aforesaid amendment to Section
96 of IBC by addition and insertion of sub-section (4), and the principles of
“retroactive” legislation laid down by the Supreme Court, leave no doubt in
the mind of this Court that the provisions of sub-section (4) of Section 96 of
IBC by way of the amendment dated 06.04.2026, are “retroactive”, even
though the Amending Act did not expressly state so. If that be so, then the
import, purport and impact of such retroactive legislation would amount to
“quasi retroactivity” and would be applicable to pending applications. It is not
denied in the present case that the defendant no.2 is the PG to the CD
(defendant no.3). It is also admitted that the application under Section 95 of
the IBC has been filed by the plaintiff (creditor) and is still pending
adjudication before the National Company Law Tribunal. Thus, as a sequitor,
the provisions of sub-section (4) of Section 96 of IBC shall apply to the
pending application of the plaintiff, and the interim moratorium enjoyed
hitherto before by the defendant no.2 (PG to CD), would be deemed to have
been vacated.
21. Clearly, this Court is not called upon to consider whether the defendant
no.2 is deprived of the interim moratorium enjoyed by it, and rather, is only to
consider as to whether the present suit is barred under the principles of Order
VII Rule 11 CPC on the anvil of the said proscription.
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22. Now, that this Court has arrived at the conclusion that the provisions of
Section 96(4) of the IBC are applicable to the application filed by the plaintiff
under Section 95 of IBC, by deeming fiction the interim protection of
moratorium and the bar against the plaintiff instituting a suit against the
defendant no.2 (PG to CD), stands removed by retroactive operation of law.
23. A lot many arguments were raised surrounding the effect of Section 96
of IBC being made partially applicable to only the PG to CD and not to PG
per se, as per the Principal Act. It was stated that when Section 96 was
brought into force, though Part-III of the Principal Act concerned itself with
providing interim moratorium to both PG, and PG to CD, however, was
brought into effect qua PG to CD only, and if the interpretation of the effect of
amendment is taken in the manner suggested by the plaintiff, then the
provision itself would be rendered otiose.
24. This apprehension is unfounded. By way of the amendment, the
Legislature, being conscious of the misuse and abuse of the provisions of
Section 96 of the Principal Act, taking the aid of the Report of the Committee
referred to above, inserted sub-section (4) to Section 96 of IBC. Possibly, the
Legislature could have omitted Section 96 altogether. However, it cannot be
overlooked that the Principal Act vide Section 96 of IBC also proposed to
grant protection to PG by way of interim moratorium, as and when it was
deemed fit and expedient. This construction is apparent from the fact that in
the Principal Act, the Legislature had expressly stated that different dates may
be appointed for different provisions of the Act, and any reference in such
provision to the commencement of the Act should be construed as a reference
to the coming into force of that provision. Therefore, it is amply clear that
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Section 96 may still be made applicable to PGs in futuro. Thus, merely for the
reason that one part of Section 96 is made redundant or unworkable, would
not, to the mind of this Court, ipso facto, render the provision otiose.
25. Thus, so far as the question of law raised by the defendant no.2 is
concerned, it is answered in favour of the plaintiff.
26. So far as the application under Order VII Rule 11, CPC on the
objections on cause of action is concerned, learned counsel for the defendant
no.2 had fairly stated that the same need not be delved into by this Court at
this stage and may be left to be considered and examined at an appropriate
stage. On that, this Court is not examining the said issue on facts.
27. Ab supra, the application under Order VII Rule 11 CPC, is bereft of any
legal or foundational objections, and is unmerited, unpersuasive, and thus,
rejected.
28. In view of the above, the application stands disposed of.
CS(COMM) 800/2025, I.A. 18917/2025, I.A. 18918/2025, I.A. 18921/2025,
O.A. 59/2026, I.A. 10831/2026, I.A. 10898/2026 & I.A. 10935/2026
29. List on 02.11.2026.
TUSHAR RAO GEDELA
(JUDGE)
AUGUST 19, 2026
rl
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Disclaimer: Educational and research material only; not legal, tax, investment or professional advice. Verify the controlling court record, statutory version, jurisdiction and subsequent history.