Bombay HC allows Tata Capital to pursue arbitration against personal guarantors after IBC moratorium ends

The Bombay High Court has allowed Tata Capital to pursue arbitration proceedings and seek protection of assets against the personal guarantors of a borrower, holding that an amendment to the Insolvency and Bankruptcy Code (IBC) has ended the automatic interim moratorium for personal guarantors with effect from May 26, 2026.

The ruling, delivered on July 24 by Justice Somasekhar Sundaresan, could have wider implications for lenders seeking recovery from personal guarantors while insolvency proceedings are pending against them.

The case involved Tata Capital Financial Services, now known as Tata Capital Ltd, and Neel Motors LLP, along with its individual partners and another LLP that had stood as guarantors. Tata Capital had extended financial assistance to Neel Motors under a channel finance agreement, with the other respondents providing guarantees.

Tata Capital had initiated corporate insolvency resolution proceedings (CIRP) against Neel Motors, which subsequently went into liquidation after the CIRP failed. It also filed insolvency applications under Section 95 of the IBC against three individual guarantors in June 2022. Under the then applicable Section 96, filing such an application triggered an interim moratorium, preventing continuation of proceedings against the individuals.

Amendment changes position for personal guarantors

The key issue before the court was the impact of the amendment to Section 96 of the IBC. A new sub-section, Section 96(4), was brought into force on May 26, 2026. It provides that the provisions of Section 96 would not apply where an application is filed to initiate insolvency resolution proceedings against a personal guarantor to a corporate debtor.

The respondents argued that the amendment could not apply to insolvency applications filed before May 26, 2026, as doing so would give it retrospective effect.

The High Court rejected this interpretation. It held that the expression “where an application is filed” includes applications that had already been filed and remained pending before the adjudicating authority when the amendment came into force.

According to the court, applying the amended provision to such pending applications is not retrospective. Instead, it is a prospective application of the new law to a situation that continued to exist after May 26, 2026.

The court consequently held that the moratorium under Section 96, insofar as it applied to the three personal guarantors, ceased to operate from May 26, 2026. The arbitration petition was therefore no longer barred by the IBC moratorium.

Lenders get room to pursue recovery

The ruling provides lenders with greater scope to pursue parallel remedies against personal guarantors once the Section 96 moratorium is no longer applicable.

The court noted that while insolvency proceedings against a personal guarantor and recovery proceedings by a creditor may both ultimately seek recovery, the amended Section 96 is not dependent on who initiated the insolvency application.

In the present case, Tata Capital sought limited interim protection — disclosure of the guarantors’ movable and immovable assets and an injunction preventing them from selling, transferring, disposing of or encumbering those assets pending arbitration.

The court granted these reliefs and disposed of the petition, allowing the parties to take steps to commence arbitration.

The court also made clear that the relief was limited to protecting assets pending arbitration and did not amount to a final determination of the underlying claims.

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