The Bombay High Court has held that the amendment introducing sub-section (4) to Section 96 of the Insolvency and Bankruptcy Code, 2016 (IBC), with effect from May 26, 2026, operates retroactively and applies even to insolvency proceedings that were already pending on the date of the amendment.

The Bench of Justice Manish Pitale and Justice Shreeram V. Shirsat has observed that  once the interim moratorium is unavailable by operation of amended Section 96(4), a creditor cannot be prevented from proceeding merely on the ground that such moratorium continues.

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The principal question before the Court was whether Section 96(4), introduced by the 2026 amendment, would apply only to applications filed after May 26, 2026, or would also govern applications under Sections 94 and 95 of the IBC that were already pending when the amendment came into force.

Section 96 of the IBC provides for an interim moratorium upon filing of an application under Section 94 or Section 95 for initiation of insolvency resolution proceedings concerning a personal guarantor.

The controversy arose following the insertion of Section 96(4) with effect from May 26, 2026. The amended provision excludes cases where an application under Sections 94 or 95 is filed in respect of a personal guarantor to a corporate debtor.

The central issue was therefore whether the amendment would merely operate prospectively in respect of fresh applications filed after May 26, 2026, or whether it would also affect interim moratoriums that had already been triggered in pending proceedings.

The petitioners, principally creditors and financial institutions, argued that the amendment should operate retroactively. According to them, the amendment was introduced to address misuse of the interim moratorium mechanism and should consequently apply to proceedings that remained pending when the amendment came into force.

The respondents, on the other hand, argued that the amendment could not take away the protection of an interim moratorium that had already arisen upon filing of applications under Sections 94 and 95.

The creditors argued that the legislative amendment was intended to cure what had been identified as misuse of the interim moratorium under Section 96.

According to the submissions recorded by the Court, the Select Committee and other stakeholders had identified instances where the mechanism was allegedly being used to frustrate legitimate recovery proceedings initiated by creditors.

The petitioners therefore relied upon the mischief rule of statutory interpretation, contending that the amendment should be interpreted in a manner that advances its legislative purpose.

They argued that if Section 96(4) were applied only to applications filed after May 26, 2026, the alleged mischief would continue in cases where proceedings were already pending, thereby defeating the purpose of the legislative intervention.

The petitioners also contended that the interim moratorium under Section 96 was procedural in character and did not create a vested right that could prevent the operation of the amended provision.

The respondents argued that the amendment was prospective and could not affect pending applications.

They relied upon the general principle that legislation is presumed to operate prospectively unless retrospective or retroactive operation is expressly provided or follows by necessary implication.

Particular emphasis was placed on the wording of Section 96(4), especially the expression “is filed”. According to the respondents, the language indicated that the provision was intended to apply to applications filed after the amendment came into force.

The respondents further argued that the interim moratorium was an accrued protection available to a personal guarantor immediately upon filing of an application under Sections 94 or 95. Applying the amendment to pending proceedings, they contended, would effectively remove an existing protection and therefore could not be done without clear legislative language.

It was also argued that the IBC contains several provisions where Parliament has expressly indicated retrospective or retroactive operation when that was intended. Since Section 96(4) contained no such express language, the provision should be treated as prospective.

The Division Bench examined the distinction between retrospective and retroactive operation of legislation.

The Court considered several Supreme Court decisions dealing with amendments affecting pending proceedings and explained that a provision can operate prospectively from the date of its enactment while nevertheless having a retroactive effect on an existing or continuing proceeding.

The Bench referred to the distinction between a completed transaction and a transaction that remains pending or incomplete.

The Court noted that a law may be prospective in force but retroactive in operation when it applies to a continuing proceeding or to a situation whose legal consequences remain ongoing after the amendment comes into force.

The Bench also considered Supreme Court authorities including Vineeta Sharma v. Rakesh Sharma, SEBI v. Rajkumar Nagpal and M. Rajendran v. KPK Oils and Proteins India Pvt. Ltd. while examining the principles governing retroactive operation.

After considering the rival submissions, the Bombay High Court rejected the contention that Section 96(4) could apply only to applications filed after May 26, 2026.

The Court held that the amendment operates retroactively.

Importantly, the Bench clarified that although the amendment came into force on May 26, 2026 and therefore operates from that date, its effect extends to proceedings that were already pending on that date.

The Court expressly answered the question of law in favour of retroactive application of the amendment.

It held that Section 96(4), introduced with effect from May 26, 2026, operates retroactively; the provision applies even to pending proceedings under Sections 94 and 95 of the IBC; interim moratorium protection under the pre-amendment regime cannot continue in circumstances covered by the amended Section 96(4); and the amendment operates from May 26, 2026, rather than retrospectively altering events that had already occurred before that date.

The Bench also agreed with the view taken by a Single Judge of the Bombay High Court in Tata Capital Financial Services Ltd. v. Neel Motors LLP and the Delhi High Court decision in IDBI Trusteeship Services Ltd. v. Manish Jain & Ors., which had taken the view that the amendment could operate retroactively.

While applying its interpretation to the individual petitions, the Court examined cases where successive proceedings under Section 95 had the effect of triggering or continuing interim moratorium protection.

The Bench observed that the legislative amendment was specifically aimed at addressing the mischief associated with misuse of the interim moratorium mechanism.

The Court therefore held that the amended provision could not be rendered ineffective merely because an application had been filed before May 26, 2026.

In one of the matters, the Court noted that repeated Section 95 petitions had been filed in circumstances which, according to the Court, demonstrated the very mischief that the amendment was intended to cure.

The Bombay High Court quashed and set aside the impugned orders dated October 3, 2024 and March 13, 2026.

As a consequence, the restraining order issued by the Debt Recovery Tribunal ceased to operate.

The Court also held that, in view of an earlier order of the NCLT dated February 18, 2026 dismissing the company petition, the interim moratorium had ceased to operate and the DRT ought not to have continued the restraining order through its subsequent order dated March 13, 2026.

The Court further applied its interpretation of Section 96(4) to the pending proceedings and held that the respondents could not rely upon the interim moratorium to resist recovery action.

The Bench dealt with applications involving secured assets and recovery proceedings. Where the interim moratorium had ceased to operate, the Court held that orders passed by competent Magistrates under Section 14 of the SARFAESI Act for taking physical possession of secured assets could be executed, provided there was no other legal impediment or restraining order from a competent tribunal.

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