IBBI circular clarifies the end of the interim moratorium for personal guarantors

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IBBI circular: Guarantor moratorium

Highlights

The Insolvency and Bankruptcy Code (Amendment) Act, 2026 ended the interim moratorium for personal guarantors from May 26, 2026, by adding sub-section (4) to Sections 96 and 124.
Both the Bombay High Court and the Delhi High Court clarified that the IBC amendment also applies to all applications pending as of May 26, 2026.
According to the circular, personal guarantors will not receive interim protection in debt recovery proceedings after May 26, 2026, providing greater procedural clarity.

This article was translated from the original. Read the original version by our correspondent here.

Regulatory clarity following High Court rulings

As stated by the Insolvency and Bankruptcy Board of India in its circular, the Insolvency and Bankruptcy Code (Amendment) Act, 2026 added sub-section (4) to Sections 96 and 124 of the IBC, 2016, following which the interim moratorium in respect of a personal guarantor to a corporate debtor no longer applies from May 26, 2026.

In its July 24, 2026 ruling in Tata Capital Financial Services Limited v. Neel Motors LLP and others, the Bombay High Court held that the expression “where an application is filed” also includes applications that had been filed and were pending as of that date. The court also held that the moratorium effective until May 25, 2026 ceased from May 26, 2026, and therefore a petition filed under the IBC should not be considered barred by the moratorium.

Subsequently, in its August 19, 2026 ruling in IDBI Trusteeship Services Ltd. v. Manish Jain and Ors., the Delhi High Court held that sub-section (4) added to Section 96 is “retroactive” in nature. According to the court, even though the Amendment Act does not expressly state this, its effect extends to pending cases.

Impact on debt recovery and insolvency proceedings

According to the circular, the interim moratorium under Section 96 and the related Section 124 is deemed to have ceased from May 26, 2026, in respect of a personal guarantor to a corporate debtor if the application was pending before the adjudicating authority on that date. This provides greater procedural clarity for creditors and recovery proceedings.

This position is particularly significant in cases where personal guarantors had claimed interim protection based on pending IBC applications. Regulatory and judicial interpretations now point in the same direction: the effect of the amendment is not limited to future filings but also applies to applications pending as of May 26, 2026.

Our previous report mentioned the IBBI consultation paper that proposed changes to the insolvency resolution process rules for personal guarantors to corporate debtors. The proposals aimed to strengthen transparency and creditor protection by clarifying voting arrangements, the identification and reporting of suspicious/avoidance transactions, asset valuation, and records of creditor discussions.

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