The Bombay High Court held that sub-section (4) of Section 96 of the Insolvency and Bankruptcy Code, 2016, introduced by amendment effective May 26, 2026, applies retroactively to pending insolvency proceedings initiated under Sections 94 or 95 of the IBC. The court determined that the amendment, aimed at curbing misuse of interim moratorium by personal guarantors, must apply to proceedings already filed to effectively address the legislative mischief, overriding arguments that the provision operates prospectively only.
Background & Facts
The Dispute
The petitioners (secured creditors including Indian Bank, RBL Bank, Godrej Finance Limited, Asset Reconstruction Co. India Limited, and Apna Sahakari Bank Limited) challenged orders passed by Debts Recovery Tribunals (DRTs) that restrained them from proceeding with secured asset realization based on interim moratorium triggered under Section 96 of the Insolvency and Bankruptcy Code, 2016 (IBC). The respondents (borrowers/guarantors including Shabbir Abbas Patel, Veer Gurjar Aluminium Industries, Ashok Rajkumar Gupta, and others) had filed applications under Sections 94 or 95 of the IBC, triggering interim moratorium that stalled creditor recovery proceedings. The core controversy centered on whether sub-section (4) of Section 96 of the IBC, introduced by the Insolvency and Bankruptcy Code (Amendment) Act, 2026 effective May 26, 2026, which excludes personal guarantors to corporate debtors from interim moratorium protection, applies retroactively to pending proceedings.
Key Facts
- The Insolvency and Bankruptcy Code (Amendment) Act, 2026 introduced sub-section (4) to Section 96 of the IBC, effective from May 26, 2026
- Sub-section (4) states: "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."
- In WP No. 2819/2026 (Indian Bank vs. Shabbir Abbas Patel), the petitioner bank challenged DRT-I Mumbai orders dated October 3, 2024 and March 13, 2026 restraining auction proceedings
- A subsequent company petition under Section 95 of the IBC was filed against respondent No.1 on February 19, 2026 and registered with NCLT on May 6, 2026
- In WP No. 3374/2026 (Godrej Finance Limited vs. Ashok Rajkumar Gupta), the petitioner challenged a DRT Pune order dated March 9, 2026 allowing restoration of possession
- Respondents filed a Special Leave Petition before the Supreme Court which was disposed of on June 18, 2026
- On July 1, 2026, respondents filed another petition under Section 95 of the IBC against respondents 3 and 4 before NCLT, four days prior to the date fixed for taking physical possession
- In WP Nos. 7587, 7598, and 7600/2026 (Apna Sahakari Bank Ltd. & anr. vs. various respondents), the petitioner bank challenged DRT Pune orders restraining it from accepting 75% balance amount from auction purchasers and issuing sale certificates
- The petitioner bank had filed a petition under Section 95 of the IBC against mortgagors/guarantors on October 1, 2022, which was suppressed by respondents throughout proceedings
- In Writ Petition (L) Nos. 22742 and 24045/2026 (RBL Bank Limited vs. State of Maharashtra & Ors.), the petitioner sought directions for Court Commissioner to take physical possession of secured assets (a flat in Borivali East and a row-house in Chembur East)
- Respondents resisted these petitions on the ground that petitions under Section 95 of the IBC had been filed triggering interim moratorium
Procedural History
- October 3, 2024: DRT-I Mumbai passed order restraining Indian Bank from auction proceedings (WP No. 2819/2026)
- March 13, 2026: DRT-I Mumbai continued the earlier restraining order (WP No. 2819/2026)
- February 18, 2026: NCLT Mumbai dismissed company petition filed under Section 95 of the IBC (WP No. 2819/2026)
- February 19, 2026: Subsequent company petition filed under Section 95 of the IBC against respondent No.1 (WP No. 2819/2026)
- May 6, 2026: Said petition registered with NCLT (WP No. 2819/2026)
- March 9, 2026: DRT Pune passed order allowing restoration of possession (WP No. 3374/2026)
- March 13, 2026: This Court granted interim stay of the impugned order (WP No. 3374/2026)
- June 18, 2026: Supreme Court issued notice in Special Leave Petition and granted stay of the order of this Court (WP No. 3374/2026)
- July 1, 2026: Respondents filed petition under Section 95 of the IBC against respondents 3 and 4 before NCLT (WP No. 3374/2026)
- March 30, 2026: Said petition eventually registered with NCLT (WP No. 3374/2026)
- October 1, 2022: Petitioner bank filed petition under Section 95 of the IBC against mortgagors/guarantors (WP Nos. 7587, 7598, 7600/2026)
- September 18, 2026: Judgment pronounced in all consolidated writ petitions
The Parties' Positions
Petitioners (Creditors): Contended that sub-section (4) of Section 96 of the IBC applies retroactively to pending proceedings, arguing that:
- The amendment was introduced to address mischief of rampant misuse of interim moratorium
- Interim moratorium under Section 96 is procedural in nature and does not create vested rights
- Reliance was placed on Supreme Court judgments in BCCI Vs. Kochi Cricket Private Limited, SEBI Vs. Rajkumar Nagpal, and Tata Capital Financial Services Limited Vs. Neel Motors LLP
- The Mischief Rule/Heydon's Rule of interpretation supports retroactive application to suppress the mischief
Respondents (Borrowers/Guarantors): Contended that sub-section (4) of Section 96 of the IBC applies only prospectively, arguing that:
- The provision uses present tense "is filed" indicating prospective application only
- Interim moratorium constitutes a vested/substantive right that cannot be taken away retrospectively
- Reliance was placed on presumption against retrospective operation of statutes
- Arguments were made that the amendment does not fall into categories of provisions known to operate retrospectively
- Reliance was placed on judgments discussing retrospectivity (Vijaya Kumari Vs. Union of India, Ambootia Tea Exports, etc.)
Relief Sought
Petitioners sought:
- Quashing of impugned orders restraining secured asset realization
- Declaration that interim moratorium does not operate due to retroactive application of sub-section (4) of Section 96 of IBC
- Direction to proceed with secured asset recovery proceedings in accordance with law
- Specific directions for Court Commissioner to take physical possession of secured assets
- Expeditious disposal of securitisation applications by DRTs
The Legal Issue
The central question was whether sub-section (4) of Section 96 of the Insolvency and Bankruptcy Code, 2016, introduced by the Insolvency and Bankruptcy Code (Amendment) Act, 2026 with effect from May 26, 2026, which excludes personal guarantors to corporate debtors from interim moratorium protection, applies retroactively to pending insolvency proceedings initiated under Sections 94 or 95 of the IBC, or whether it operates prospectively only to applications filed after the amendment came into force.
Arguments Presented
For the Appellant/Petitioner
The petitioners (secured creditors) argued that sub-section (4) of Section 96 of the IBC applies retroactively to pending proceedings. They emphasized that the amendment was introduced to address the mischief of rampant misuse of interim moratorium by personal guarantors who file applications under Sections 94 or 95 solely to trigger moratorium and stall creditor recovery proceedings. Relying on the Mischief Rule/Heydon's Rule of interpretation, they contended that the remedy must be applied to suppress the mischief, which would be frustrated if limited to prospective application. They cited Supreme Court judgments in BCCI Vs. Kochi Cricket Private Limited (where the Court held an amendment applied to pending proceedings despite not expressly providing so), SEBI Vs. Rajkumar Nagpal (holding a circular has retroactive application), and Tata Capital Financial Services Limited Vs. Neel Motors LLP (where a learned Single Judge of this Court held the amendment applies to pending proceedings). They argued that interim moratorium under Section 96 is procedural in nature and does not create vested rights, referencing judgments that held such moratorium is a transitory arrangement during insolvency resolution process. They further contended that the respondents' conduct in suppressing filing of Section 95 petitions until interim applications were filed demonstrated mischievous intent to abuse the process.
For the Respondent/State
The respondents (borrowers/guarantors) argued that sub-section (4) of Section 96 of the IBC applies only prospectively to applications filed after May 26, 2026. They emphasized the plain language of the provision using present tense "is filed," contending this demonstrates prospective application only. They relied on the presumption against retrospective operation of statutes unless expressly or by necessary implication providing for retrospective operation. They argued that interim moratorium under Section 96 constitutes a vested or substantive right that cannot be taken away retrospectively, citing judgments such as Hitendra Vishnu Thakur & Ors. Vs. State of Maharashtra & Ors., M. Rajendran and others Vs. KPK Oils and Proteins India Private Limited, and Commissioner of Income Tax (Central)-I, New Delhi Vs. Vatika Township Private Limited. They contended that the amendment does not fall into any of the four categories of provisions known to operate retrospectively (clarificatory/declaratory provisions, provisions expressly stating retrospective operation, provisions replacing existing provisions with explanations for retrospective operation, or provisions notified with anterior effective date). They further argued that applying the amendment retrospectively would take away the benefit of extension of limitation period under Section 179(3) of the IBC for creditors.
The Court's Analysis
The Court began by framing the core debate: whether the introduction of sub-section (4) in Section 96 of the IBC by way of amendment operates prospectively or retroactively. It noted that the petitioners (creditors) asserted the amendment should operate retroactively, bringing the concept of 'retroactive' application into focus.
The Court then examined the distinction between 'retroactive' and 'retrospective' application of statutes, referencing Supreme Court jurisprudence. It observed that 'retroactivity' is a term used to cover at least two distinct concepts: (1) "true retroactivity" - application of a new rule to an act completed before the rule was promulgated; and (2) "quasi-retroactivity" - application of a new rule to an act or transaction still in the process of completion. The foundation of these concepts is the distinction between completed and pending transactions.
The Court examined the nature of interim moratorium under Section 96 of the IBC. It noted that Section 96 triggers upon filing of applications under Sections 94 or 95, staying legal actions and preventing creditors from initiating proceedings. Crucially, the Court found that the process between Sections 94 to 99 of the IBC is purely procedural in nature and has not reached completion - the adjudicating authority has not yet passed an order admitting or rejecting the application under Section 100. Therefore, there is no question of the interim moratorium giving rise to a 'vested right' in debtors, as held in BCCI Vs. Kochi Cricket Private Limited.
The Court then considered the purpose of the amendment, referencing the Select Committee report on the IBC (Amendment) Bill, 2025. It found that the very purpose of introducing sub-section (4) was to address the mischief of rampant and deliberate misuse of interim moratorium triggered by filing applications under Sections 94 and/or 95 of the IBC merely to obstruct or delay legitimate recovery proceedings. Judicial notice had been taken of such gross misuse by courts, including in Bank of Baroda vs. Union of India and Kapole Advertising Agency & Ors. vs. Standard Chartered Bank & Ors.
Applying the Mischief Rule/Heydon's Rule of interpretation, the Court held that the resolve of the legislature for remedying the mischief must be given its full effect. The Courts must interpret such amendments to add life and force to the cure and remedy, rather than adopt an interpretation that fails to take forward the cure and remedy in its true spirit. The Court found that the Mischief Rule applies to the facts of the present case, advancing the proposition that sub-section (4) to Section 96 of the IBC must apply retroactively to pending proceedings. Applying the same only prospectively would frustrate the very object of the amendment, as mischievously filed applications would continue to enjoy moratorium protection.
The Court specifically rejected the respondents' argument that the use of present tense "is filed" necessitates prospective application only. It found that a proper and even literal reading of the provision, in the backdrop in which it has been inserted, clearly demonstrates that the words 'is filed' necessarily include applications/proceedings under Sections 94 or 95 of the IBC that were pending on the date the amendment came into effect. The Court noted that if the legislature intended prospective application only, it would have used words such as 'to be filed' or similar phrases.
The Court also rejected the respondents' categorization argument, finding no substance in the contention that since the subject amendment is neither clarificatory nor declaratory, it must be applied prospectively. It held that a plain reading of sub-section (4) added by way of amendment shows that it must apply retroactively. The Court emphasized the fundamental difference between retrospectivity (applying to completed transactions, often impairing vested rights) and retroactivity (applying to pending transactions based on antecedent events).
Finally, the Court held that the whole purpose of introducing the amendment to address the mischief must be satisfied in the fullest by applying it to pending proceedings also, in larger public interest. It noted that respondents do not have a 'vested right' under Section 96 of the IBC during the procedural realm between Sections 94 to 99, and therefore cannot claim the amendment should apply only prospectively.
The Court agreed with the findings of the learned Single Judge of this Court in Tata Capital Financial Services Limited Vs. Neel Motors LLP and the learned Single Judge of the Delhi High Court in IDBI Trusteeship Services Limited Vs. Manish Jain and others, holding that sub-section (4) of Section 96 of the IBC applies retroactively and hence, even to pending proceedings.
The Verdict
The petitioners (secured creditors) succeeded in their contention that sub-section (4) of Section 96 of the Insolvency and Bankruptcy Code, 2016 applies retroactively. The Court held that the interim moratorium under Section 96 of the IBC ceased to operate with effect from May 26, 2026 for pending proceedings initiated under Sections 94 or 95 of the IBC. Consequently, the impugned orders dated October 3, 2024 and March 13, 2026 in WP No. 2819/2026 were quashed and set aside; the order dated March 9, 2026 in WP No. 3374/2026 was set aside; and the impugned orders in WP Nos. 7587, 7598, and 7600/2026 were quashed and set aside. The Court Commissioner was directed to take physical possession of secured assets within four weeks, and securitisation applications were to be decided expeditiously by the DRTs in accordance with law.
What This Means For Similar Cases
Retroactive Application of Remedial Statutes
The judgment establishes that remedial statutes aimed at curbing procedural abuse do not require express language to apply retroactively to pending proceedings. When a statutory amendment addresses mischief in an ongoing process (like the insolvency resolution process under the IBC), courts will apply the Mischief Rule/Heydon's Rule to give effect to the legislative purpose. Practitioners should argue that amendments targeting procedural loopholes apply to pending proceedings unless the statute expressly limits application to future cases.
No Vested Right in Interim Moratorium
The judgment clarifies that interim moratorium under Section 96 of the IBC does not confer a vested or substantive right on debtors. As the moratorium is a purely procedural mechanism triggered during the insolvency resolution process (before adjudication under Section 100), it cannot be characterized as a right that survives retrospective application of amendments. Creditors seeking to realize secured assets should not be deterred by interim moratorium claims where applications under Sections 94 or 95 were filed prior to an amendment restricting such protection.
Mischief Rule Trumps Plain Language in Context
The Court rejected the respondents' reliance on the plain present tense language ("is filed") as determinative of prospective application only. When statutory language is ambiguous or when applying plain text would frustrate legislative purpose, courts will consider the mischief sought to be addressed. In cases involving amendments to curb abuse of procedural mechanisms, the Mischief Rule/Heydon's Rule will prevail over strict textual interpretation to ensure the remedy addresses the problem in its entirety, including pending proceedings.
