The personal guarantor’s interim moratorium has gone: sections 96(4) and 124(4), and what the IBBI circular leaves open
The automatic stay that followed an insolvency filing by or against a personal guarantor stopped operating on 26 May 2026, including in applications that had been pending for years. The Insolvency and Bankruptcy Board put that on record on 21 September. For lenders it reopens closed files; for guarantors it removes the reason most of those filings were made.
What the circular records
Circular No. IBBI/II/106/2026 dated 21 September 2026, issued under Section 196 of the Insolvency and Bankruptcy Code, 2016 to all registered insolvency professionals, recognised insolvency professional entities and registered insolvency professional agencies, communicates two High Court judgments on the reach of sub-section (4) of Section 96. Both hold that the provision operates on applications that were already pending. The circular carries the same position across to Section 124.
The underlying change came from the Insolvency and Bankruptcy Code (Amendment) Act, 2026, which inserted sub-section (4) into Sections 96 and 124 to provide that the interim moratorium shall not apply in respect of a personal guarantor to a corporate debtor. The inserted sub-sections were brought into force with effect from 26 May 2026. Two dates therefore travel with this point and should not be conflated in pleadings: 6 April 2026 is the Amendment Act, and 26 May 2026 is the commencement of these sub-sections and the date from which the moratorium stopped.
Section 96 sits in the insolvency resolution chapter for individuals and firms, and Section 124 in the bankruptcy chapter that follows it. Amending only the first would have left the protection to reappear at the next stage, which is why the pairing matters.
| Item | Position |
|---|---|
| Circular | IBBI Circular No. IBBI/II/106/2026 dated 21 September 2026, issued under Section 196 of the Code |
| Statutory basis | Sections 96(4) and 124(4), inserted by the Insolvency and Bankruptcy Code (Amendment) Act, 2026, in force from 26 May 2026 |
| Effect | The interim moratorium does not apply in respect of a personal guarantor to a corporate debtor. Filing no longer produces an automatic stay |
| Pending applications | Covered. The moratorium ceased to operate on 26 May 2026 even where the application under Section 94 or Section 95 had been filed years earlier |
| Bombay High Court | Tata Capital Financial Services Limited v. Neel Motors LLP, Commercial Arbitration Petition No. 620 of 2021, judgment dated 24 July 2026: the words “where an application is filed” reach applications already filed and pending; the provision is retroactive with prospective effect from commencement |
| Delhi High Court | IDBI Trusteeship Services Ltd. v. Manish Jain, CS(COMM) 800/2025, judgment dated 19 August 2026: the provision is retroactive although the Amendment Act does not say so, an effect the Court described as quasi retroactivity |
| Not affected | The maintainability of the Section 94 or Section 95 application itself; the moratorium that commences on admission under Section 101; the corporate debtor’s own moratorium in its resolution process |
| Not addressed | Limitation, and the treatment of the period during which the interim moratorium operated |
| Compliance | No form, filing, fee or deadline. The circular communicates a legal position rather than imposing an obligation |
Why the retroactivity question was the whole question
Under Section 96 the interim moratorium began the moment an application was filed, before any examination of merits, and ran until the application was admitted. Where admission took years, as it routinely did, the stay became the outcome rather than a step in the process. That is why a filing under Section 94 by a guarantor, or the pendency of a creditor’s own Section 95 application, came to be used defensively: it parked the creditor’s suit, arbitration, enforcement notice and recovery proceedings while the tribunal worked through its list.
Removing the interim moratorium prospectively would have changed the incentive for new filings and left the existing stock untouched. The contested question was therefore whether guarantors with applications already in the pipeline kept a stay that had been operating for months or years. Both Courts answered no.
What the Courts held
The Bombay High Court, construing the phrase “where an application is filed”, held that it captures anything filed and pending before the Adjudicating Authority on the relevant date; had the legislature meant to confine the carve-out to later filings, it would have said so. The Court classified the provision as retroactive rather than retrospective: reading it to cover pending applications gives it prospective operation from the date it took force, without unwinding anything done earlier. On the facts, the moratorium that had operated in respect of the guarantor respondents until 25 May 2026 ceased from 26 May 2026, and the arbitration petition before the Court was not barred by the moratorium under the Code.
The Delhi High Court arrived at the same place through the Supreme Court’s doctrine on retroactive legislation, concluding that the sub-section operates retroactively even though the Amendment Act contains no express statement to that effect, and that it reaches pending applications.
One authority sits outside the circular and should be cited with it in Maharashtra. On 18 September 2026, three days before the circular, a Division Bench of the Bombay High Court decided a batch of writ petitions by secured creditors, led by Indian Bank v. Shabbir Abbas Patel, Writ Petition No. 2819 of 2026, to the same effect: an interim moratorium cannot survive 26 May 2026 merely because the Section 94 or Section 95 application happened to be filed before that date. The circular relies on the earlier single-judge judgment, and within Maharashtra the Division Bench decision is the stronger authority.
What the circular does not decide
Four boundaries are worth marking, because the circular is narrower than the headline.
It does not touch maintainability. The Section 94 or Section 95 application continues before the Adjudicating Authority; what has gone is the stay that used to accompany it. It says nothing about the moratorium that commences under Section 101 once an application is admitted, and the Bombay High Court’s reference to Section 96(1) “and related provisions” is not elaborated, so positions taken now should be capable of surviving both a narrow and a wide reading of that phrase. It does not affect the corporate debtor’s own moratorium in its resolution process, which is a separate mechanism. And it does not deal with limitation, which is the practical gap: the Code’s express exclusion of a moratorium period from the computation of limitation is framed around the corporate insolvency provisions, and how the period from filing to 26 May 2026 is to be treated for a revived proceeding against a guarantor is left to be argued in each matter.
| Parameter | Up to 25 May 2026 | From 26 May 2026 |
|---|---|---|
| Governing provision | Sections 96(1) and 124(1) | Sections 96(4) and 124(4) |
| Effect of filing | Automatic interim moratorium on filing | No interim moratorium for a personal guarantor to a corporate debtor |
| Application pending on the cut-off | Stay continued | Stay ceased on 26 May 2026 |
| Creditor’s suit, arbitration or enforcement | Treated as barred while the stay subsisted | Not barred by Section 96, subject to any other order or bar |
| The insolvency application itself | Pending | Still pending; only the stay has gone |
The four-month gap
A cessation date of 26 May sitting inside a circular dated 21 September means roughly four months during which most matters were conducted on the old assumption. Status reports, adjournment applications, board notes, provisioning assessments and advice to clients written in that window may describe a stay that had already ended. Correcting the record is as much a file management exercise as a legal one, and it should be done before an opponent does it for you.
What it means in practice
For lenders. Every account where a guarantor’s filing produced a stay is worth reopening. Measures under the SARFAESI Act, 2002, applications and execution before a Debts Recovery Tribunal, invocation under the deed of guarantee, civil suits and arbitrations on the guarantee were all commonly held up; Section 96 no longer bars them in respect of a personal guarantor to a corporate debtor. Both reported judgments arose from exactly that situation. Whether a specific proceeding can be revived still turns on the orders in that file and on limitation.
For guarantors. A pending application no longer holds the position, and creditor action should be expected to resume. Defences on the merits of the underlying claim are untouched; the automatic procedural shelter is what has gone. Where a filing was made principally to obtain the stay, its continued pendency should be reassessed against its cost and its disclosure consequences.
For promoter groups. Where a promoter stood as personal guarantor, the group’s exposure map has changed. A resolution strategy built on the assumption that the guarantor would be insulated while the corporate process ran needs revisiting, since the guarantor can now be pursued in parallel. That sits alongside the settled position that approval of a resolution plan for the corporate debtor does not by itself discharge the guarantor.
The ANSV take
This is the correction of an incentive, not merely a procedural amendment. For several years the most valuable feature of the personal guarantor route was that filing bought time, and tribunal delay converted a temporary stay into the substance of the outcome. Removing the automatic moratorium takes away the reason a good many of those applications were made. The likely consequence is fewer defensive filings under Section 94 and a faster path for creditors to the guarantee itself.
For matters in Maharashtra, the practical point is one the circular does not make. It relies on a single-judge judgment, while a Division Bench decided a batch of creditors’ writ petitions to the same effect on 18 September 2026. That decision should be cited alongside, because it is the higher authority in this jurisdiction and it answers the same question.
The unresolved item is limitation. A creditor reviving a suit or a recovery proceeding that sat idle for three years will face the argument that time ran throughout, and the Code’s exclusion machinery is not drafted with a Part III interim moratorium in mind. That question, rather than the cessation itself, is where the next round of litigation will come from, and a lender deciding which files to revive should take the limitation view first and the merits view second.
Checklist
- List every matter in which an interim moratorium under Section 96 or Section 124 was being treated as operative, and fix each one’s position as at 26 May 2026.
- Identify suits, arbitrations, DRT proceedings and enforcement steps that were adjourned, withdrawn or never commenced because of the stay.
- Take a limitation view on each before applying to revive or list, since the exclusion of the stay period is not addressed by the circular.
- In Maharashtra, cite the Division Bench decision of 18 September 2026 alongside the single-judge judgment the circular carries.
- Correct status notes, progress reports and client advisories issued between 26 May and the date of the circular that describe the moratorium as subsisting.
- Re-examine any standstill, forbearance or settlement negotiated on the footing that the guarantor was protected.
- For promoter guarantors, reassess whether a pending application is still worth maintaining, and what its pendency discloses.
- Brief boards and credit committees on the changed exposure, and revisit provisioning where a recovery was treated as stayed indefinitely.
- Keep positions on Section 101 and on the phrase “and related provisions” open, since neither has been settled.
References
- IBBI Circular No. IBBI/II/106/2026 dated 21 September 2026, Cessation of Interim Moratorium in respect of personal guarantors to corporate debtors – Judgements of Hon’ble High Courts, issued under Section 196 of the Code.
- Insolvency and Bankruptcy Code (Amendment) Act, 2026, inserting sub-section (4) in Sections 96 and 124, in force from 26 May 2026.
- Tata Capital Financial Services Limited v. Neel Motors LLP, Commercial Arbitration Petition No. 620 of 2021 (Bombay High Court, 24 July 2026).
- IDBI Trusteeship Services Ltd. v. Manish Jain, CS(COMM) 800/2025 (Delhi High Court, 19 August 2026).
- Indian Bank v. Shabbir Abbas Patel, Writ Petition No. 2819 of 2026 and connected matters (Bombay High Court, Division Bench, 18 September 2026).
- Insolvency and Bankruptcy Code, 2016, Sections 94, 95, 96, 101, 124 and 196; Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.