TaxTMI 
TaxTMI 
2026 (8) TMI 1315
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....ode, 2016 (hereinafter referred to as "IBC"), which provides that no legal proceedings in respect of any debt may be initiated or continued during the subsistence of an interim moratorium. It is further stated that the plaint fails to disclose any cause of action within the meaning of Order VII Rule 11(a) of CPC; and is also vexatious and without merit. 2. It is stated by defendant No. 2 that the plaintiff company had filed Company Petition bearing No. C.P. (IB) 206 of 2025 before the Hon'ble National Company Law Tribunal, Chandigarh Bench, against defendant no. 3, who is the principal borrower, for an alleged default amount of Rs. 15,23,73,367/-. Simultaneously, plaintiff had invoked Personal Guarantee of defendant no. 1 by issuing a demand notice dated 30.05.2025. However, plaintiff did not invoke PG by defendant No. 2, being fully aware that an interim moratorium was already subsisting in respect of defendant No. 2, and consequently, no proceedings could have been initiated against the defendant No. 2. 3. It is stated that, in order to safeguard the interests of the Debenture Holders of the defendant no. 3, the plaintiff proceeded to file the present suit seeking injun....
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....terim moratorium granted in favour of the defendant No. 2 for the reason that the plaintiff filed the application under Section 95 of the IBC against defendant No. 2 on 10.08.2024, and the amendment was brought into force w.e.f. 26.05.2026. He also submitted that even the Resolution Professional (hereinafter referred to as "the RP"), was appointed on 20.02.2025. He informed that the suit was filed on 28.07.2025, which is much after the interim moratorium was deemed in favour of defendant No. 2. 4.3. Learned counsel would forcefully contend that the amendment is prospective and not retrospective, and thus, would not divest the defendant No. 2 of the interim moratorium deemed in his favour with effect from 10.08.2024, when the plaintiff filed its application under Section 95 of the IBC against defendant No. 2. Referring to the Amending Act, he emphatically urged that there is neither any express nor even an implied suggestion that the amendment brought, was retrospective in operation. He emphasised that the amendment was neither clarificatory nor procedural in nature to have an automatic retrospective application. He would also contend that once a vested right has been confe....
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....ight with the PG to CD that moratorium would be deemed by mere filing of an application under Section 94 of the IBC. He clarified that the plaintiff had preferred an application under Section 95 IBC, which permits creditors to file an application under Section 95 of the IBC. He would further submit as under: 5.1. Referring to the provisions of Section 96 of the IBC, learned counsel would forcefully submit that the reliance of defendant No. 2 upon the said provision to contend that legislature has conferred interim protection to PG to CD by way of interim moratorium, and created a vested right, is misplaced. He would contend that rather than a right being conferred upon the PGs to CD, the provisions of Section 9 of the IBC deprived the creditor to sue such PGs to CD. Explaining the scheme of IBC, he would contend that the provisions of Section 96 fall within Part - III, which creates an exception and suspends the rights of the creditors from suing the PGs or the PGs to CD. Thus, by way of the amendment, the Legislature has merely reopened the right of the creditors to sue PG to CD, which was kept suspended in the interregnum, as an interim moratorium. Thus, what the legisla....
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....re is no express retrospectivity to those. Therefore, he would submit that the interim moratorium which prevented the plaintiff from suing the PG to CD, that is, the defendant nos. 1 and 2, is removed, and the suit would be maintainable. He also relied upon the judgement in Dilip B. Jiwrajka v. Union of India, (2024) 5 SCC 435. REJOINDER OF THE DEFENDANT NO. 2: 6. In rejoinder, Mr Joneja, learned counsel for defendant No. 2 would submit that the expression "an application is filed" occurring in sub-section (4) of Section 96 of IBC, has to be necessarily read prospectively, as on the date of coming into force of the amendment and not pending applications. He would contend that once it is clear that the amendment is not retrospective, it cannot have any application to pending cases. It is stated that the Legislature in the provisions of Section 96, IBC had specifically conferred a vested right on the PGs, and PGs to CD, of interim moratorium as and when an application is filed either under Sections 94 or 95 of the IBC, which vested right cannot be taken away by legislation, unless made expressly retrospective. Learned counsel also emphasised that having regard to the fact that ....
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....pital Financial Services (supra), where, while considering an application under Section 9 of the Arbitration and Conciliation Act, 1996, the principle propounded in Vineeta Sharma (supra) was applied. The relevant paragraphs of the judgement of the Bombay high Court is extracted hereunder: "11. Having heard the parties and having examined the record and the provisions of law with their assistance, in my opinion, the phrase "where an application is filed" would bring within its sweep anything that is filed and is pending with the Adjudicating Authority as of that date. If the intention had been to bring within the sweep of Section 96(4) only filings made after the introduction of the provision, the legislature would have consciously used language to that effect. Equally, while it is arguable that the legislature has not used clarificatory language in the provision to indicate that it covers applications already filed and to be filed, in my opinion, this provision would squarely fit within the ambit of a retroactive application. The reading of the words "is filed" as including those that have been filed and are pending, will not give retrospective effect, but will have prosp....
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....e of law is applied to an act or transaction in the process of completion.... The foundation of these concepts is the distinction between completed and pending transactions......" T.C. Hartley, Foundations of European Community Law, p. 129 (1981)." 12. The Supreme Court in State Bank's Staff Union (supra) has further clarified the nature of "retroactivity" into (i) "true retroactivity" where the new rule of law is applied to an act or transaction which was completed before the rule was promulgated; and (ii) "quasi retroactivity" when the new rule or act is applied to act of transaction which is still in the process of completion, in other words, pending. This construction and interpretation appears to have a direct bearing on the present facts. 13. Finally, the decision of the Supreme Court in SEBI vs. Rajkumar Nagpal (supra), after examining and analysing the above judgements, held in para 102 of its judgement as under: "102. Many decisions of this Court define "retroactivity" to mean laws which destroy or impair vested rights. In real terms, this is the definition of "retrospectivity" or "true retroactivity". "Quasi-retroactivity" or simply "retroactivity" on the o....
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....moratorium period - (i) any legal action or proceeding pending in respect of any debt shall be deemed to have been stayed; and (ii) the creditors of the debtor shall not initiate any legal action or proceedings in respect of any debt. (2) Where the application has been made in relation to a firm, the interim moratorium under sub-section (1) shall operate against all the partners of the firm as on the date of the application. (3) The provisions of sub-section (1) shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator. 47.3 Reasons/Justification given by the Ministry for the proposed provisions: The interim moratorium under section 96 provides that upon the filing of an application, all legal actions or proceedings pending in respect of the concerned debt shall remain stayed, and creditors shall not initiate any legal action or proceeding in respect of such debt. The Adjudicating Authority (AA) has, on occasion, expressed concerns regarding the misuse of initiation of the individual insolvency resolution process by personal guarantors to take a....
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....ct of such debt. Concerns have been expressed regarding the misuse of initiation of the individual insolvency resolution process (IIRP)by PGs to take advantage of the interim moratorium. To remove any perverse incentives to initiate IIRP, the proposed amendment seeks to dispense with the concept of interim moratorium for the insolvency of PG to CD. Hence, the provision in the Insolvency and Bankruptcy Code (Amendment) Bill, 2025 may be retained without any change. (ii) Additionally, Part III currently applies to personal guarantors, who may or may not be MSMEs. Hence, the provision in the Insolvency and Bankruptcy Code (Amendment) Bill, 2025 may be retained without any change. (iii) It is clarified that the proposed Amendment Bill restricts the interim moratorium protection for personal guarantors, thereby creating a level playing field for PGs and their creditors to seek appropriate remedies outside the IBC before the insolvency resolution or bankruptcy process is initiated. Hence, no changes required. to the Insolvency and Bankruptcy Code (Amendment) Bill, 2025 are required. 47.5.2 Regarding the issue of removal of Interim moratorium, the secretary, Min....
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....he Committee, having considered detail submissions of the Ministry and IBBI, underscore that removing this unnecessary pre-admission shield is essential. The Committee observe that the law, consistent with SARFAESI Act and Supreme Court judgements, treats the borrower and the guarantor on the same footing upon default, and the proposed amendment does not deprive personal guarantors of the right to seek insolvency resolution or bankruptcy under Part III of the Code. In view of the above, and recognising the need to curb strategic filings and strengthen the integrity of the insolvency process, the Committee find the proposed amendment under Clause 47 to be appropriate and recommend its acceptance in its present form." 16. The recommendation brooks no ambiguity. It is apparent that the amendment, by insertion of sub-section (4) to Section 96 of the IBC, was brought in only to rectify the "mischief" and the misuse/abuse of the sub-sections (1) to (3) of Section 96 of IBC. By way of the amendment, it was sought to ensure that the provisions of Section 96 would not apply where an application to initiate an Insolvency Resolution Process in respect of a PG to CD is filed by the creditor....
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....e mind of this Court that the provisions of sub-section (4) of Section 96 of IBC by way of the amendment dated 06.04.2026, are "retroactive", even though the Amending Act did not expressly state so. If that be so, then the import, purport and impact of such retroactive legislation would amount to "quasi retroactivity" and would be applicable to pending applications. It is not denied in the present case that the defendant No. 2 is the PG to the CD (defendant no. 3). It is also admitted that the application under Section 95 of the IBC has been filed by the plaintiff (creditor) and is still pending adjudication before the National Company Law Tribunal. Thus, as a sequitor, the provisions of sub-section (4) of Section 96 of IBC shall apply to the pending application of the plaintiff, and the interim moratorium enjoyed hitherto before by the defendant No. 2 (PG to CD), would be deemed to have been vacated. 21. Clearly, this Court is not called upon to consider whether the defendant No. 2 is deprived of the interim moratorium enjoyed by it, and rather, is only to consider as to whether the present suit is barred under the principles of Order VII Rule 11 CPC on the anvil of the said pr....