Delhi High Court holds IBC amendment excluding personal guarantors from interim moratorium is retroactive

The Delhi High Court has delivered a landmark ruling on the application of the Insolvency and Bankruptcy Code (Amendment) Act, 2026, holding that the newly inserted Section 96(4) of the IBC is retroactive in nature and applies to pending insolvency applications. Justice Tushar Rao Gedela, presiding over a commercial suit, rejected the plea of a personal guarantor who sought to block recovery proceedings by invoking the interim moratorium protection that existed before the amendment.

The Case: IDBI Trusteeship vs. Personal Guarantors

The dispute arose from a suit filed by IDBI Trusteeship Services Limited against Mr. Manish Jain and other personal guarantors of a corporate debtor. IDBI Trusteeship had filed an application under Section 95 of the IBC against the personal guarantors on August 10, 2024, to initiate insolvency resolution. Simultaneously, it invoked personal guarantees and later filed a civil suit on July 28, 2025, seeking injunctive relief to protect the interests of debenture holders.

The defendant No.2, a personal guarantor, argued that the suit was barred by the interim moratorium under Section 96 of the IBC, which comes into effect automatically upon filing of a Section 95 application. He contended that the amendment inserting Section 96(4)—which excludes personal guarantors to corporate debtors from this moratorium—was prospective and could not remove the protection that had already accrued when the Section 95 application was filed in August 2024.

Arguments: Clash over Retrospective vs. Retroactive

Defendant’s stance: Mr. Rajat Joneja, counsel for the personal guarantor, argued that the amendment dated April 6, 2026, and effective from May 26, 2026, was not retrospective. He emphasized that no express or implied language in the Amending Act suggested it would divest vested rights that had already crystallized. He cited the Supreme Court judgments in Hitendra Vishnu Thakur v. State of Maharashtra and Govind Das v. ITO to support the principle that statutes are presumed prospective unless manifestly intended otherwise.

Plaintiff’s counter: Mr. Pranjit Bhattacharya, representing IDBI Trusteeship, contended that the amendment did not confer any vested right on personal guarantors. Instead, it removed a temporary shield that had been misused to obstruct legitimate recovery. He argued that the amendment was “retroactive” in nature—applicable to pending proceedings—and relied on the doctrine propounded in Vineeta Sharma v. Rakesh Sharma , which distinguishes between “retrospective” and “retroactive” legislation.

Legal Analysis: The Doctrine of Retroactivity

The court meticulously examined the Supreme Court’s jurisprudence on retroactive legislation. It highlighted the distinction between “true retroactivity”—which applies to completed transactions—and “quasi-retroactivity,” which applies to acts or transactions still underway. The court noted that in State Bank’s Staff Union (Madras Circle) v. Union of India , the Supreme Court had explained that retroactive laws apply where the status or character of a thing or situation arose prior to the passage of the law, but the law operates in futuro.

Applying this framework, the court held that the insertion of Section 96(4) was intended to rectify the “mischief” of misuse of interim moratorium by personal guarantors. The amendment did not retroactively strip away a completed protection; it merely altered the legal framework for ongoing proceedings. The term “is filed” in the new sub-section includes applications that have been filed and are pending as of the effective date of the amendment.

Key Observations from the Judgment

Justice Tushar Rao Gedela made several critical observations:

“The Committee having noted the misuse and abuse of the provisions in Section 96 of the IBC clearly accepted the proposal and recommended the amendment to Section 96 by addition and insertion of sub-section (4) solely to rectify and remove the 'abuse'.”

“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.”

The court also noted that the legislature had been acutely aware of the abuse when enacting the amendment. It quoted from the Select Committee Report, which stated 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.”

The Final Decision

The Delhi High Court rejected the personal guarantor’s application under Order VII Rule 11 of the Code of Civil Procedure, which sought dismissal of IDBI Trusteeship’s suit. It held that the suit was maintainable because the interim moratorium enjoyed by the personal guarantor stood vacated by the retroactive operation of Section 96(4). The court further clarified that the amendment does not render Section 96 otiose for personal guarantors who are not guarantors to corporate debtors (PGs per se), as the provision may still be brought into force for them in future.

The case was set for further hearing on November 2, 2026. This ruling sends a strong signal to personal guarantors who have been using the interim moratorium as a shield to delay recovery, reinforcing the principle that the IBC is meant to facilitate, not obstruct, legitimate debt recovery.