IBBI Clarifies End of Interim Moratorium for Personal Guarantors, Allowing Lenders to Continue with Proceedings

The interim moratorium that temporarily protected personal guarantors from legal action by lenders ended on May 26 this year, including in cases that were already pending, the Insolvency and Bankruptcy Board of India (IBBI) said. The move means that personal guarantors can no longer use the moratorium as a shield against recovery proceedings while their insolvency applications are pending before the National Company Law Tribunal (NCLT). It also gives powers to lenders to continue with proceedings against personal guarantors that were earlier kept in abeyance because of the moratorium. The board has issued clarification after the Bombay and Delhi High Courts ruled that the 2026 amendment to the insolvency and bankruptcy code (IBC) that removed the moratorium for personal guarantors also applies to pending applications. The circular covers applications filed under Section 95 of the IBC against personal guarantors that were filed before May 26 – when the amended provision came into force – but not yet disposed of by the NCLT . “It may be noted that the interim moratorium under section 96 (and, correspondingly, section 124) of the Code, in respect of a personal guarantor to a corporate debtor, has ceased to operate with effect from 26th May, 2026 in respect of applications pending before adjudicating authority as on that date,” the circular said. The change is significant for individuals who have personally guaranteed corporate borrowings, including promoters and directors. Earlier, filing an insolvency application under Section 95 could trigger an interim moratorium, temporarily restricting lenders from taking certain legal action against the guarantor. “Section 96(4) is a newly-inserted section in the IBC which is intended to stop personal guarantors from using insolvency proceedings as an immediate shield against recovery. Previously, the filing of such application could pause legal action by lenders. The amendment removes that automatic protection from May, including in pending cases,” said Srinivasa Rao, senior partner and leader (risk advisory services) at Nangia Global. “The immediate beneficiaries are going to be banks, NBFCs , debenture trustees and other lenders. In practical terms, a personal guarantee will now carry greater enforcement risk while the guarantor’s insolvency application is still being considered,” Rao said. The circular will cover pending cases such as Tata Capital Financial Services versus Neel Motors LLP, where Section 95 applications against three individual guarantors were filed in June 2022, and IDBI Trusteeship Services versus Manish Jain, where the insolvency application against the personal guarantor was already pending. In both cases, the interim moratorium ceased to apply from May 26 – in line with the amended IBC provisions. Experts said that the IBBI circular also gives insolvency professionals (IPs) clarity in handling such cases. It allows them to proceed on the basis that the moratorium no longer applies, including where a guarantor raises the earlier protection to oppose or delay action by the lenders. “This development is particularly relevant where a personal guarantor continues to rely on the earlier moratorium to oppose or delay proceedings by creditors. For IPs, it will empower them to proceed with such cases and not allow a guarantor to use the moratorium as a ground to delay proceedings,” Devendra Mehta, fellow, INSOL International said. The latest circular follows the regulator’s earlier proposal to strengthen safeguards in personal guarantor insolvency by giving creditors better protection, including by stopping related parties from voting, valuing guarantors’ assets and checking transactions that could reduce recovery.