Bombay HC Clarifies 2026 IBC Amendment: Section 96(4) Extends to Pending Personal Insolvency Proceedings

Aadrikaa Legal Services (ALS)- Law I Litigation I Arbitration

Date: 19.09.2026

Bombay HC Clarifies 2026 IBC Amendment: Section 96(4) Extends to Pending Personal Insolvency Proceedings

In a significant ruling concerning personal guarantors, secured creditors and recovery proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC), the Bombay High Court has held that the newly introduced Section 96(4) of the IBC operates retroactively and therefore applies even to applications under Sections 94 and 95 that were already pending when the amendment came into force on May 26, 2026.

The Division Bench of Justice Manish Pitale and Justice Shreeram V. Shirsat delivered the judgment on September 18, 2026, in a batch of petitions led by Indian Bank v. Shabbir Abbas Patel & Ors., Writ Petition No. 2819 of 2026. The judgment bears neutral citation 2026:BHC-OS:20542-DB.

The ruling has potentially wide implications for banks, financial institutions and other creditors facing recovery obstacles because of interim moratoriums triggered by personal insolvency applications against guarantors.

The Central Question Before the Bombay High Court

• The core issue was whether Section 96(4), introduced into the IBC with effect from May 26, 2026, applies only to fresh applications filed after that date or whether it also affects applications already filed and pending.
• The Court framed the issue specifically as whether the amendment operates retroactively, so that the exclusion introduced by Section 96(4) applies to pending personal-guarantor insolvency proceedings as well.
• This question arose because, before the amendment, filing an application under Sections 94 or 95 could trigger an interim moratorium under Section 96, affecting legal actions or proceedings concerning debts.
• The petitioning creditors argued that the amendment was introduced to address misuse of this mechanism and must therefore apply to pending cases. The opposing parties contended that the amendment was prospective and could affect only applications filed after May 26, 2026.

Why Section 96 Was Amended

• A major part of the creditors’ case concerned what they described as the misuse of the interim moratorium by debtors and personal guarantors.
• The petitioners relied upon the report of the Select Committee on the IBC (Amendment) Bill, 2025, contending that stakeholders, including members of the NCLT, had highlighted misuse of Sections 94, 95 and 96 by debtors to obstruct legitimate creditor action.
• Reliance was also placed on the Bombay High Court’s earlier decision in Rozina Firoz Hajiani v. Union of India, where the Court had taken judicial notice of concerns surrounding misuse of the interim moratorium.
• The creditors consequently argued that restricting the amendment only to future applications would allow the very problem sought to be remedied to continue in all applications that happened to be pending on May 26.

Creditors Argue Amendment Is Curative and Retroactive

• The banks and financial institutions argued that the amendment was remedial or curative in nature.
• They relied upon Supreme Court authorities dealing with retrospective and retroactive operation of statutory amendments, including BCCI v. Kochi Cricket Pvt. Ltd., (2018) 6 SCC 287, and M. Rajendran v. KPK Oils and Proteins India Pvt. Ltd., (2026) 3 SCC 505.
• It was also argued that the interim moratorium was not a vested right of the debtor or guarantor. Decisions including Vineeta Sharma v. Rakesh Sharma, (2020) 9 SCC 1 and SEBI v. Rajkumar Nagpal, (2023) 8 SCC 274 were relied upon while explaining the concept of retroactive operation.

Personal Guarantors Oppose Retroactive Application

• The contesting respondents argued that the normal presumption is that legislation operates prospectively unless retrospective operation is expressly stated or follows by necessary implication.
• They emphasised the wording of Section 96(4), particularly the expression “shall not apply where an application is filed”, contending that it points towards prospective application from May 26, 2026.
• The respondents further argued that an interim moratorium provides a debtor with significant statutory protection from creditor action and that this protection should not be taken away in already pending proceedings.
• Reliance was placed, among other authorities, on Rakesh Bhanot v. Gurdas Agro Pvt. Ltd., (2025) 6 SCC 781, concerning the importance of the interim moratorium under Section 96.

Bombay High Court: Amendment Is Retroactive

• After examining the statutory language, legislative background, object of the amendment and principles governing retroactive legislation, the Division Bench rejected the argument that Section 96(4) could operate only against applications filed after May 26, 2026.
• The Court held that the amendment “must operate retroactively” and consequently applies not merely to proceedings initiated on or after May 26, 2026, but also to proceedings already pending on that date.
• The Court reasoned that the purpose of the amendment—to address the identified misuse of the interim moratorium—would be fully achieved only by applying the new provision to pending proceedings as well.
• It also concluded that the respondents did not possess a vested right to the interim moratorium during the procedural stage governed by Sections 94 to 99 of the IBC.

Section 96(4) Applies Even to Pending Sections 94 and 95 Proceedings

• The Court ultimately answered the central question in categorical terms.
• It held that Section 96(4), introduced with effect from May 26, 2026, applies retroactively and therefore extends to pending proceedings. Although the amendment operates from May 26, 2026 onwards, its effect extends to proceedings under Sections 94 and 95 that were already pending on that date.
• The Division Bench also agreed with the approach previously adopted by a Single Judge of the Bombay High Court in Tata Capital Financial Services Ltd. v. Neel Motors LLP & Ors., as well as the Delhi High Court’s order in IDBI Trusteeship Services Ltd. v. Manish Jain & Ors.
• This ruling therefore settles, at least for the batch before the Bombay High Court, the dispute over whether pre-amendment personal-guarantor applications can continue to enjoy the earlier Section 96 interim-moratorium protection after May 26, 2026.

Indian Bank’s Case: DRT Restraint Set Aside

• The consequences of this interpretation were directly applied in Indian Bank v. Shabbir Abbas Patel.
• Indian Bank had challenged orders dated October 3, 2024 and March 13, 2026 passed by DRT-I, Mumbai, restraining the Bank from proceeding with an auction. The restraint was linked to the interim moratorium arising from personal insolvency proceedings.
• An earlier Section 95 petition had been dismissed by the NCLT on February 18, 2026. The respondents, however, relied upon a subsequent Section 95 petition filed on February 19, 2026 and registered on May 6, 2026.
• Applying its interpretation of the amended law, the High Court held that even the interim moratorium triggered by the subsequent Section 95 proceeding ceased to operate from May 26, 2026.

Court Finds Repeated Insolvency Proceedings Highlighted the Mischief

• The Division Bench considered the facts of the Indian Bank matter to illustrate the problem that the legislative amendment sought to address.
• The Court observed that allowing the interim moratorium to continue because of the subsequent Section 95 petition would be contrary to the legal position after the amendment and would permit repeated reliance on insolvency proceedings to obstruct creditor action.
• Accordingly, Writ Petition No. 2819 of 2026 filed by Indian Bank was allowed.

Auction and Sale Certificate Upheld

• The High Court granted substantial relief to Indian Bank.
• The DRT-I orders dated October 3, 2024 and March 13, 2026 were quashed and set aside, resulting in the restraint on the Bank ceasing to operate.
• The Court further held that the Bank’s action in confirming the sale pursuant to the auction conducted on September 30, 2024, as well as issuance of the sale certificate dated February 25, 2026 and its registration on February 27, 2026, were validly taken in the circumstances.
• The Court Commissioner was permitted to proceed in accordance with law for taking possession of the secured asset. The police authorities were directed to provide appropriate protection and assistance so that possession could be obtained and handed over to the Bank for delivery to the auction purchaser.
• The underlying Securitisation Application No. 115 of 2024 was directed to be decided expeditiously by DRT-I, Mumbai.

Other Banks and Financial Institutions Also Before the Court

• The judgment did not concern Indian Bank alone. It disposed of a batch of petitions involving several secured creditors and financial institutions, including RBL Bank Ltd., Godrej Finance Ltd., Asset Reconstruction Company (India) Ltd. and Apna Sahakari Bank Ltd.
• In the ARCIL matter, for example, the Court held that the pending Section 95 petition did not prevent the DRAT from hearing the creditors’ appeals, because Section 96(4) meant that the interim moratorium was no longer operating after May 26, 2026.
• The judgment therefore has significance beyond the facts of a single borrower-creditor dispute.

Significance for Banks and Secured Creditors

• The ruling is important for secured-creditor enforcement because the Court has clarified that the May 2026 amendment cannot be avoided merely because a personal insolvency application was filed before the amendment took effect.
• Where Section 96(4) applies to a personal guarantor to a corporate debtor, a pending Section 94 or Section 95 application cannot continue to provide the earlier interim-moratorium protection merely on the basis of its pre-May 26 filing date.
• This can have direct consequences for SARFAESI proceedings, DRT/DRAT proceedings, auctions, recovery proceedings and possession of secured assets where creditors had previously faced objections founded upon Section 96.
• The judgment, however, does not eliminate every remedy available to personal guarantors or decide the merits of their insolvency applications. Its central holding concerns the effect of Section 96(4) on the interim moratorium from May 26, 2026.

Key Legal Principle

The principle emerging from the judgment can be stated as follows:

• Section 96(4) of the Insolvency and Bankruptcy Code, introduced with effect from May 26, 2026, operates retroactively. Therefore, its effect extends to applications under Sections 94 and 95 that were already pending on May 26, 2026, and the excluded interim-moratorium protection cannot continue merely because the personal insolvency proceeding was instituted before the amendment.
• This interpretation, according to the Bombay High Court, gives effect to the legislative object of preventing misuse of the interim moratorium while not taking away any vested right, because no such vested right exists in the Section 96 interim moratorium during the procedural stage of Sections 94 to 99.

Key Takeaway

The Bombay High Court’s ruling substantially clarifies the effect of the 2026 amendment to Section 96 of the IBC. A personal guarantor cannot claim continuation of the earlier Section 96 interim moratorium after May 26, 2026 merely because the Section 94 or 95 proceeding was filed before that date.

For Indian Bank, this meant the DRT restraint was set aside, the relevant auction and sale certificate were sustained, and steps for obtaining physical possession of the secured asset were permitted to proceed.

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Source: Bombay High Court

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