INTERIM MORATORIUM DECLARED IN PERSONAL GUARANTOR CASES

Moratorium

In the process of corporate insolvency resolution process, once the Adjudicating Authority admitted the application filed by financial creditors under Section 7 of the Code or filed by Operational Creditor under Section 9 of the Code or filed by the Corporate applicant itself under Section 10 of the Code, the Adjudicating Authority shall declare moratorium under Section 14 of the Code. Moratorium refers to the legal prohibition on certain actions against the corporate debtor after commencement of corporate insolvency resolution process. During the moratorium period the following actions are prohibited-

• Institution or continuation of suits and proceedings against the corporate debtor;
• Execution of judgments, decrees or orders of the Court/Tribunals against the corporate debtor;
• Transfer, encumbrance, alienation or disposal of assets of the corporate debtor;
• Foreclosure, recovery or enforcement of security interests including action under the SARFAESI Act;
• Recovery of property by owners or lessors occupied by the Corporate Debtor.

Interim Moratorium

Interim Moratorium is a temporary legal protection period during which certain actions against a debtor are stayed until a final decision as to the admission of the application is decided.

Section 94 of the Code provides for initiation of insolvency resolution process by the Personal Guarantor either personally or through a resolution professional, to the Adjudicating Authority for initiating the insolvency resolution process, by submitting an application. Section 95(1) of the Code provides that A creditor may apply either by himself, or jointly with other creditors, or through a resolution professional to the Adjudicating Authority for initiating an insolvency resolution process under this section by submitting an application.

Section 96 of the Code provides that when an application is filed under section 94 or section 95, an interim-moratorium shall commence on the date of the application in relation to all the debts and shall cease to have effect on the date of admission of such application. This interim moratorium is automatic when the application under Section 94/95 is filed before the Adjudicating Authority. During the interim moratorium period any legal action or proceeding pending in respect of any debt shall be deemed to have been stayed and the creditors of the debtor shall not initiate any legal action or proceedings in respect of any debt.

The Code requires the NCLT to appoint a Resolution Professional to examine the application filed by the Personal Guarantor under Section 94 or the application filed by the Financial Creditor under Section 95. The Resolution Professional shall examine the application filed by the Personal Guarantor or Financial Creditor. If required he may call for any document/information from the personal guarantor/financial creditor. After collecting the documents/information the Resolution Professional shall prepare a report and submit the same before the NCLT within 10 days from the date of his appointment. The said limitation of 10 days is now increased to 21 days vide Insolvency and Bankruptcy Code (Amendment) Act, 2026 which came into effect from 26.05.2026.  

The Adjudicating Authority shall within 14 days from the date of submission of the report by the Resolution Professional, recommending the NCLT to admit/reject the application filed under Section 94/Section 95 of the Code.

Section 101 of the Code provides that when the application is admitted under section 100, a moratorium shall commence in relation to all the debts and shall cease to have effect at the end of the period of 180 days beginning with the date of admission of the application or on the date the Adjudicating Authority passes an order on the repayment plan under section 114, whichever is earlier.

Thus, the interim moratorium will be effectful from the date of filing of the application to the date of admission of the application on which is concluded by the NCLT on the report filed by the Resolution Professional recommending the NCLT to admit the application. If the application is rejected then interim moratorium will cease to be in effect.           

The objects for interim moratorium by the Code is to-

• Protect the corporate debtor from multiple recovery actions;
• Maintain the status quo while in the insolvency application is examined;
• Ensure an orderly insolvency resolution process.

The interim moratorium is intended to operate in respect of the debt, restraining recovery actions concerning that debt, rather than granting a blanket protection in every matter involving the debtor. The statute imposes restrictions on proceedings under Section 14 and section 96 of the Code, being moratorium and interim moratorium respectively. A stay order in a civil case is court created order where as moratorium is statute created.

In M/s. Kapole Advertising Agency, Through Proprietor, and others Versus Standard Chartered Bank and others. - 2026 (4) TMI 1517 - BOMBAY HIGH COURT, the petitioners failed to repay the loan taken from the respondent bank. Therefore, the bank invoked the provisions of Sectio 13(2) of the SARFAESI Act. Notice was issued on 24.03.2023. The bank took the symbolic possession of the properties on 27.06.2023 under Section 13(4) of SARFAESI. The bank moved an application before the Magistrate and took possession of the properties on 08.04.2025 under section14 of SARFAESI. Later one person, claimed to be a financial creditor of the petitioner No. 2 filed an application before NCLT under Section 95 of the Code for the initiation of Insolvency Resolution Process. On 15.07.2025, the petitioners filed Securitisation Application No.411 of 2025 to challenge the steps taken by the respondent No. 1 – bank. Before DRT. Opposing this petition, amongst other grounds, it was claimed that interim moratorium has been triggered.

In the meanwhile, the NCLT admitted the application filed by respondent No.2 under Section 95 of the Code on 04.11.2025. The NCLT appointed a Resolution Professional to carry out the insolvency resolution process. The interim moratorium has commenced from 04.11.2025 i.e., the date of admission of the application. But the same has not been considered by DRT.

The High Court observed that that the impugned order of DRT rejecting the interim applications filed by the petitioners on the ground no intimation was received on the filing of application before NCLT. Even sale notice and public notices issued with regard to the auction sale of the secured assets were not made known to the respondents. The High Court analysed the Sections 95 and 96 of the Code. When an application is filed under Section 94 or Section 95 of the Code, the interim moratorium is commencing on the date of filing the application. The DRT did not verify the said factors.  The DRT was expected to have examined the details with regard to filing of the petition before the NCLT and as to whether the interim moratorium was triggered or not.

The interim moratorium commences on e-filing of the applications i.e. uploading of the document prior to any scrutiny, there is a possibility that parties who have had their applications declined due to failure to comply with the notices and timelines. In such cases, the aggrieved persons have a remedy under Rule 63 of the NCLT Rules to prefer an appeal within the period stipulated. Any application which had earlier been dismissed and is refiled without resorting to the due process under law, ought not to be considered valid and shall not be considered as ‘filed’ for the purposes of Section 96 Code.

The High Court also analysed the Standard Operating Procedure framed by NCLT in entirety. The High Court found it clearthat mere filing of a petition under Section 94 or 95 of the Code before the NCLT, does not trigger interim moratorium under Section 96 thereof and that the interim moratorium is triggered only after the petition is registered and the procedural rigmarole provided under the directions of this Court as well as the aforementioned SOP, is properly undertaken.  Therefore, the High Court ruled that the interim moratorium shall not be commenced from the date of filing of the application under Section 94 or 95 and only on the registration of the same by authorities.

The above said case law brought a shift from its original enactment. According to this judgment interim moratorium shall have effect only after the registration of the case before the Adjudicating Authority.

Present position

The Government recently amended the Code. The amendment excludes personal guarantors to corporate debtors from the automatic interim moratorium under Section 96 of the Code. Because of this amendment, the banks and financial institutions can continue enforcement action unless a specific order is obtained from the Adjudicating Authority. This prevents the misuse of Section 96 merely to delay the recovery proceedings.