The Insolvency and Bankruptcy Code (Amendment) Act, 2026 was passed by both Houses of Parliament as part of the legislative process for strengthening the insolvency framework. The Bill was first approved by the Lok Sabha, followed by its passage in the Rajya Sabha, after which it received the assent of the President on 6 April 2026 and came into force. The Insolvency and Bankruptcy Code (Amendment) Act, 2026 aims to speed up insolvency resolution, strengthen creditor control, and improve efficiency in the insolvency framework.
The Insolvency and Bankruptcy Code (Amendment) Act, 2026 introduces significant refinements to the insolvency framework, with a notable clarification to Section 14, which governs the moratorium during the Corporate Insolvency Resolution Process (CIRP). The amendment primarily addresses ambiguities surrounding the applicability of the moratorium in the context of guarantors and sureties, thereby ensuring uniformity in interpretation and preventing circumvention through contractual mechanisms.
To this end, an Explanation has been inserted to Section 14(3)(b), which reads as follows:
“Explanation.—For the removal of doubts, it is hereby clarified that the provisions of sub-section (1) shall also apply where the surety seeks to initiate or continue any action or proceedings against the corporate debtor pursuant to a contract of guarantee.”
This clarification unequivocally establishes that the moratorium under Section 14(1) extends to proceedings initiated by a surety or guarantor against the corporate debtor. In effect, guarantors are precluded from enforcing subrogation rights or seeking recovery from the corporate debtor during the subsistence of the moratorium, even where such rights arise under contractual arrangements.
Position prior to the 2026 Amendment
Before this amendment, Section 14 imposed a moratorium prohibiting:
- the institution or continuation of suits or proceedings against the corporate debtor,
- enforcement of security interests, and
- recovery of property by owners or lessors.
However, the provision did not expressly clarify whether a guarantor or surety could initiate proceedings against the corporate debtor based on rights arising under a contract of guarantee. This legislative silence resulted in divergent judicial interpretations and uncertainty in practice, with some stakeholders attempting to bypass the moratorium through contractual enforcement.
Position after the Amendment
The 2026 amendment resolves this ambiguity by:
- expressly extending the moratorium to actions initiated by sureties or guarantors,
- preventing contractual arrangements from being used to circumvent the statutory bar, and
- prohibiting parallel or indirect recovery actions during the CIRP.
Further, the amendment reinforces the principle that CIRP is a collective, in rem process, where individual enforcement actions, whether direct or derivative, must yield to the overarching objective of resolution.
Illustration: Impact of Amendment to Section 14 (Moratorium and Guarantors)
Before the 2026 Amendment
Suppose ABC Pvt. Ltd. avails a loan of ₹10 crore from a bank. Mr. X acts as a personal guarantor for the loan. Subsequently, CIRP is initiated against ABC Pvt. Ltd., and a moratorium under Section 14 comes into effect.
During the moratorium:
- The bank cannot initiate or continue proceedings against ABC Pvt. Ltd.
- However, ambiguity existed regarding the rights of the guarantor
Now assume:
- The bank recovers ₹2 crore from Mr. X (guarantor)
- Mr. X, exercising his subrogation rights, files a recovery suit against ABC Pvt. Ltd. to recover the same amount
Due to lack of clarity in law:
- Some interpretations allowed such action by the guarantor
- This led to parallel proceedings, defeating the purpose of moratorium
After the 2026 Amendment
In the same scenario:
- CIRP is initiated against ABC Pvt. Ltd. and moratorium is in force
- The bank may still proceed against Mr. X (guarantor), as allowed under law
- However, if Mr. X pays any amount to the bank, he cannot initiate or continue any recovery proceedings against ABC Pvt. Ltd. during the moratorium period
Effect of the Amendment:
- The moratorium now clearly bars even guarantors from proceeding against the corporate debtor
- Mr. X must wait until the completion of CIRP to enforce his subrogation rights
- No indirect or contractual recovery route is permitted during moratorium
The amendment ensures that:
- All claims against the corporate debtor are channelled through the CIRP process only
- Guarantors cannot create parallel litigation
- The integrity and collective nature of insolvency resolution is preserved
Conclusion: The clarification to Section 14 strengthens the moratorium framework by closing a critical interpretational gap. By restricting guarantors from initiating or continuing proceedings against the corporate debtor during CIRP, the amendment ensures procedural discipline, protects the integrity of the resolution process, and aligns with the Code’s objective of maximising value through an orderly and collective mechanism.
Decriminalization of Violations of Moratorium under the IBC (Amendment) Act, 2026
Under the erstwhile framework, Section 74 of the Insolvency and Bankruptcy Code, 2016 provided for criminal liability in cases of contravention of the moratorium under Section 14 or violation of an approved resolution plan. The provision imposed stringent consequences, including imprisonment and monetary fines, on corporate debtors, their officers, creditors, and other concerned persons for knowing and wilful violations.
Position prior to the 2026 Amendment (Section 74)
Section 74 prescribed the following punishments:
- Contravention by Corporate Debtor/Officers [Section 74(1)]
Imprisonment ranging from 3 to 5 years, or fine between ₹1 lakh to ₹3 lakh, or both. - Contravention by Creditor [Section 74(2)]
Imprisonment ranging from 1 to 5 years, or fine between ₹1 lakh to ₹1 crore, or both. - Violation of Approved Resolution Plan [Section 74(3)]
Imprisonment ranging from 1 to 5 years, or fine between ₹1 lakh to ₹1 crore, or both.
While these provisions ensured strict enforcement, they were often viewed as overly penal and criminal in nature, particularly in commercial and procedural contexts arising during CIRP.
It is pertinent to note that Section 74 of the Code stands omitted pursuant to the Insolvency and Bankruptcy Code (Amendment) Act, 2026, and has been replaced by the newly inserted Section 67B, which reads as under:
“67B. (1) Where a corporate debtor or any of its officer contravenes the provisions of section 14, the Adjudicating Authority may, on an application made by the Board or the Central Government or any person authorised by the Central Government in this behalf, as the case may be, impose penalty upon the officer, who committed or authorised or permitted such contravention, which shall not be less than one lakh rupees, but may extend to two crore rupees.
(2) Where any creditor contravenes the provisions of section 14, the Adjudicating Authority may, on an application made by the Board or the Central Government or any person authorised by the Central Government in this behalf, as the case may be, impose penalty upon any person who authorised or permitted such contravention by a creditor, which shall not be less than one lakh rupees, but may extend to two crore rupees.
(3) Where a corporate debtor, any of its officers or creditors or any person on whom the approved resolution plan is binding under section 31, contravenes any of the terms of such resolution plan or abets such contravention, the Adjudicating Authority may, on an application made by the Board or the Central Government or any person authorised by the Central Government in this behalf, as the case may be, impose penalty upon such corporate debtor, officer, creditor or person, which shall not be less than one lakh rupees, but may extend to one crore rupees or twenty per cent. of the amount to be distributed under the resolution plan, whichever is higher.
Position after the 2026 Amendment – Introduction of Civil Penalty Regime (Section 67B)
The Insolvency and Bankruptcy Code (Amendment) Act, 2026 has brought a significant shift by omitting Section 74 and introducing a new Section 67B, thereby decriminalising violations of the moratorium and resolution plan.
Under the new regime, imprisonment has been removed, and a system of monetary penalties adjudicated by the Adjudicating Authority (NCLT) has been introduced.
Key features of Section 67B:
- Contravention by Corporate Debtor/Officers [Section 67B(1)]
The Adjudicating Authority may impose a penalty ranging from ₹1 lakh to ₹2 crore on officers responsible for the violation. - Contravention by Creditor [Section 67B(2)]
Persons authorising or permitting such contravention may be penalised between ₹1 lakh to ₹2 crore. - Violation of Resolution Plan [Section 67B(3)]
A penalty may be imposed ranging from ₹1 lakh to ₹1 crore, or 20% of the amount to be distributed under the resolution plan, whichever is higher.
Such penalties may be imposed upon an application made by the Insolvency and Bankruptcy Board of India (IBBI), the Central Government, or any authorised person.
Impact of the Amendment
The shift from criminal sanctions to civil penalties reflects a policy move towards rationalisation and ease of doing business, while still ensuring compliance. The amendment:
- Eliminates the risk of criminal prosecution for procedural or commercial breaches
- Introduces a proportionate and deterrent penalty framework
- Empowers the Adjudicating Authority to ensure faster and more effective enforcement
- Aligns insolvency law with its core objective of resolution over punishment
Conclusion: The substitution of Section 74 with Section 67B marks a significant evolution in the IBC framework. By decriminalising violations of the moratorium and resolution plan, the amendment strikes a balance between strict compliance and commercial practicality, ensuring that enforcement remains robust without being unduly punitive.
Illustration: Decriminalization of Violation of Moratorium (Section 74 vs Section 67B)
Before the 2026 Amendment (Section 74 – Criminal Liability)
Suppose XYZ Ltd. is undergoing CIRP and a moratorium under Section 14 is in force.
- Despite the moratorium, a director of XYZ Ltd. authorises the sale of certain company assets to repay a particular creditor.
- This act amounts to a violation of the moratorium.
Legal Consequence (Earlier Law):
- The concerned officer could face criminal prosecution
- Punishment included:
- Imprisonment of 3 to 5 years, and/or
- Fine ranging from ₹1 lakh to ₹3 lakh
Similarly, if a creditor initiated recovery proceedings during the moratorium:
- The persons responsible could face imprisonment (1–5 years) and heavy fines
Result: Even procedural or commercial violations exposed parties to serious criminal consequences, leading to fear and litigation.
After the 2026 Amendment (Section 67B – Civil Penalty Regime)
In the same scenario:
- XYZ Ltd. is under CIRP and moratorium is in force
- A director still authorises sale of assets in violation of Section 14
Legal Consequence (Amended Law):
- No imprisonment
- The Adjudicating Authority (NCLT), upon application, may impose:
- Monetary penalty on the officer (₹1 lakh up to ₹2 crore)
If a creditor violates the moratorium:
- The authorised person may be penalised up to ₹2 crore
If there is a breach of the approved resolution plan:
- Penalty may extend to ₹1 crore or 20% of the distributable amount, whichever is higher
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