Recently, the Bombay High Court in the case of Tata Capital Financial Services Limited v. Neel Motors LLP & Ors., held that the amendment introducing Section 96(4) of the Insolvency and Bankruptcy Code, 2016 (“IBC”) applies to insolvency applications filed before that date which remain pending. The Court consequently held that the interim moratorium under Section 96 ceased to operate against the personal guarantors from 26 May 2026, enabling Tata Capital to pursue limited interim relief under Section 9 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”).

FACTS:

1. The Petitioner, Tata Capital Financial Services Limited (“Tata Capital”) extended financial assistance to Respondent No. 1, Neel Motors LLP, under a Channel Finance Agreement. Respondent Nos. 2 to 4 were individual guarantors and partners of Neel Motors LLP, while Respondent No. 5 was a separate LLP acting as guarantor. The Letters of Guarantee contained arbitration clauses with Mumbai as the seat.
2. In 2021, Tata Capital filed a petition under Section 9 of the Arbitration Act seeking interim protection. Approximately one month prior to filing the Section 9 petition, Tata Capital had initiated Corporate Insolvency Resolution Process (“CIRP”) against Neel Motors under the IBC. The CIRP ultimately failed and Neel Motors was ordered to be liquidated by the NCLT, Mumbai, on 1 April 2022.
3. Thereafter, in June 2022, Tata Capital initiated insolvency proceedings under Section 95 of the IBC against Respondent Nos. 2, 3 and 4, who were the individual guarantors (“Guarantors”). The filing of the Section 95 applications triggered the interim moratorium under Section 96, stalling the Section 9 petition.
4. The legal position changed with the insertion of Section 96(4) into the IBC which came into force on 26 May 2026. The amendment provided that Section 96 would not apply where an application was filed for initiating an insolvency resolution process in respect of a personal guarantor to a corporate debtor.
5. Relying upon the amendment, Tata Capital sought consideration of its pending Section 9 petition. The principal issue before the Court was whether Section 96(4) could apply to Section 95 applications which had been filed before 26 May 2026 but continued to remain pending on the date of the amendment.

Tata Capital’s Case
Tata Capital contended that, in view of the newly inserted Section 96(4), the moratorium under   Section 96 no longer operated against the individual guarantors and the expression “where an application is filed” was sufficiently broad to include pending applications. It further relied upon the legislative purpose behind the amendment, that it was intended to “remove any perverse incentives” associated with the initiation of individual insolvency proceedings. Considering the considerable delay since filing of the Section 9 petition, Tata Capital only sought disclosure of the guarantors’ assets and an injunction restraining them from selling, transferring, alienating, encumbering or otherwise dealing with such assets pending arbitration.

Guarantor’s Case
The guarantors opposed the application, contending that such an interpretation would give the amendment retrospective effect. They submitted that the expression “where an application is filed” covers only applications filed after 26 May 2026 and could not extend to applications which had already been filed. Any other interpretation, according to the guarantors, would retrospectively alter the legal consequences attached to the pending proceedings.

They further argued that although insolvency proceedings are not strictly recovery proceedings, both the insolvency and arbitration proceedings were directed towards recovery of the same debt and Tata Capital should therefore not be permitted to pursue both simultaneously

Court’s Finding
The Hon’ble Court held that the expression “where an application is filed” in Section 96(4) encompasses applications which had already been filed and continued to remain pending before the adjudicating authority. Had the legislature intended to restrict the provision only to applications filed after 26 May 2026, it could have expressly used language to that effect. The Court distinguished between retrospective and retroactive operation, relying upon the Supreme Court’s decision in Securities and Exchange Board of India v. Rajkumar Nagpal, the Court observed that a provision is retrospective when it operates backwards and impairs vested rights, whereas a retroactive provision operates prospectively on a character or status originating in the past. The existence of antecedent facts does not, by itself, make its application retrospective.

Accordingly, the moratorium under Section 96 operated against Respondent Nos. 2 to 4 until 25 May 2026 but ceased from 26 May 2026 when Section 96(4) came into force. The pending Section 9 petition was therefore no longer barred by the IBC moratorium. The Court further acknowledged the possibility of a conflict of interest where the creditor initiating insolvency proceedings may also be pursuing claims against the individual guarantor. However, it held that such considerations could not override the express statutory language, particularly when Section 96(4) was agnostic as to the identity of the person who initiated the Section 95 proceedings.

MHCO Comment
Pending proceedings can be affected by a new provision without the provision necessarily being retrospective. The decisive factor is whether the provision changes completed past rights or operates prospectively upon an existing/pending legal status. Section 96(4) therefore lifted the Section 96 moratorium prospectively from 26 May 2026 even in respect of Section 95 applications filed prior to the amendment coming into force.

By:

• Mr. Bhushan Shah, Partner
• Ms. Neha Lakshman, Associate Partner

This update was released on 21 Aug 2026.

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or contact@mhcolaw.com for any assistance.

Legal Update Team
MANSUKHLAL HIRALAL & COMPANY
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