Court rules that the 2026 amendment to Section 96 of the Insolvency and Bankruptcy Code applies retroactively, impacting pending cases and allowing suits against personal guarantors of corporate debtors.
In a significant ruling, the Delhi High Court has held that the recent amendment to Section 96 of the Insolvency and Bankruptcy Code (IBC), 2016, which was introduced through the Insolvency and Bankruptcy Code (Amendment) Act, 2026, operates retroactively. This decision effectively removes the interim moratorium previously granted to personal guarantors of corporate debtors, thereby allowing legal proceedings against them in pending cases.
The judgment was delivered by Justice Tushar Rao Gedela in the case of IDBI Trusteeship Services Limited v. Manish Jain and Others. The court was tasked with determining whether the amendment, which inserted sub-section (4) to Section 96 of the IBC, should be applied to ongoing cases, thereby impacting the interim moratorium that barred suits against personal guarantors.
The court's decision follows the principles laid down by the Supreme Court in Vineeta Sharma v. Rakesh Sharma, which clarified the concept of "retroactivity" in legislative amendments. The Delhi High Court concluded that the amendment was intended to rectify the misuse and abuse of interim moratorium provisions by personal guarantors who sought to delay legitimate recovery proceedings.
Justice Gedela emphasized that the amendment, although not explicitly stated to be retrospective, was "retroactive" in nature. This means it applies to acts or transactions still underway at the time of the amendment, thereby affecting pending cases. The court noted that the legislative intent was clear in addressing the misuse of interim moratoriums, as highlighted by concerns from the Adjudicating Authority and insolvency practitioners.
The judgment also referenced a similar ruling by the Bombay High Court in Tata Capital Financial Services Limited vs. Neel Motors LLP, which applied the doctrine of retroactivity to amendments impacting pending proceedings.
With this ruling, the Delhi High Court has set a precedent for the application of the amended Section 96(4) of the IBC, reinforcing the integrity of the insolvency process by allowing creditors to pursue legal actions against personal guarantors without the hindrance of an interim moratorium.
The case will continue to be heard, with the next hearing scheduled for November 2, 2026.
Bottom Line :
The amendment to Section 96 of the Insolvency and Bankruptcy Code, 2016, by insertion of sub-section (4) through the Insolvency and Bankruptcy Code (Amendment) Act, 2026, is retroactive in nature and applies to pending cases, thereby removing the interim moratorium previously granted to personal guarantors of corporate debtors.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 - Sections 96 and 95; Civil Procedure Code, 1908 - Order VII Rule 11
IDBI Trusteeship Services Limited v. Manish Jain, (Delhi) : Law Finder Doc id # 2964172
