This article is authored by Naresh Chheda, Founding Partner at Avyaan Legal and Sakina Electricwala, Principal Associate at Avyaan Legal.
The Bombay High Court has recently clarified the scope of the interim moratorium under Section 96 of the Insolvency and Bankruptcy Code, 2016 (IBC) in the context of arbitration proceedings.
In Nav Munjal Co-operative Housing Society Ltd. v. Saranga Anil Agarwal, decided on 25 August 2026, the Court held that the interim moratorium under Section 96 does not prevent the continuation of a petition filed under Section 34 of the Arbitration and Conciliation Act, 1996, where the proceedings are not in respect of a debt of the person undergoing insolvency proceedings.
The decision is significant as it clarifies that a Section 96 moratorium is not a blanket stay on every legal proceeding involving an individual or personal guarantor.
Background of the case
The dispute arose between Nav Munjal Co-operative Housing Society Ltd. and Saranga Anil Agarwal, proprietor of M/s Rockline Construction Company.
The parties had entered into a Development Agreement in 2006, followed by a Supplementary Development Agreement in 2012, for redevelopment of the Society’s property. The redevelopment project was subsequently stalled, and the Society terminated the Development Agreement in July 2014.
The dispute went to arbitration. On 25 May 2017, the arbitral tribunal held that the Development Agreement remained valid and subsisting. It granted specific performance in favour of the Developer, along with ₹10 crore as compensation and ₹50 lakh towards costs. The Society’s counterclaim was also rejected.
The Society challenged the award under Section 34 of the Arbitration and Conciliation Act. The petition had been admitted in 2018 and remained pending.
During the pendency of the Section 34 proceedings, personal insolvency proceedings were initiated against the Developer under Section 95 of the IBC, in her capacity as a personal guarantor. This triggered the interim moratorium under Section 96.
The Developer argued that the Section 96 moratorium prevented the High Court from continuing with the Section 34 petition.
The Bombay High Court was therefore required to determine whether the pending challenge to the arbitral award was covered by the moratorium.
What does Section 96 provide?
Section 96 provides for an interim moratorium when an application under Section 94 or Section 95 of the IBC is filed.
During this period, any pending legal action or proceeding “in respect of any debt” is deemed to be stayed. Creditors are also prohibited from initiating legal proceedings in respect of any debt.
The expression “in respect of any debt” was therefore central to the Court’s analysis.
Under Section 3(11) of the IBC, “debt” means a liability or obligation in respect of a claim due from any person. Section 3(6), in turn, defines a “claim” primarily in terms of a right to payment, including a right to a remedy for breach of contract where that breach gives rise to a right to payment.
The question was whether the Section 34 petition concerned such a debt of the Developer.
Section 34 proceedings do not amount to proceedings in respect of the Developer’s debt
The Court answered this question in the negative. It first considered the nature of Section 34 proceedings. A Section 34 court does not sit as an appellate court over the arbitral tribunal. Its role is limited to examining whether the arbitral award can be allowed to stand or whether it should be set aside within the grounds permitted by Section 34.
This distinction was important because the High Court could not simply substitute its own decision for that of the arbitral tribunal.
The Court then examined the nature of the award in the present case.
The award had primarily recognised the Developer’s contractual right to have the Development Agreement specifically performed. According to the Court, the Developer was not the debtor of the Society. Instead, she had a contractual right that had been held enforceable through specific performance.
If the Society’s Section 34 petition succeeded, the result would not be that the Society became a creditor of the Developer. Rather, the Developer would lose the contractual right recognised under the award.
Therefore, allowing the Section 34 proceedings to continue would not disturb the debt structure of the Developer that the Section 96 moratorium was intended to protect.
What about the compensation awarded under the arbitral award?
The arbitral award also granted ₹10 crore as compensation and ₹50 lakh towards costs.
The Court considered whether these monetary components changed the position.
It held that the compensation and costs were incidental to the specific relief granted under the award. If the specific performance portion of the award was set aside, the related compensation and costs would also be affected.
More importantly, the Section 34 court could not use the proceedings to impose a new payment obligation on the Developer.
Accordingly, the Court held that continuation of the Section 34 proceedings would not result in a liability being imposed upon the Developer. It therefore could not be treated as a proceeding in respect of a debt for the purposes of Section 96.
The Court also considered the counterclaim
The Society had also challenged the rejection of its counterclaim.
The Court held that even on this aspect, the Section 34 proceedings were not barred by the moratorium.
If the findings relating to the counterclaim were set aside, the Section 34 court could not itself allow the counterclaim and impose a payment obligation upon the Developer. The parties would essentially be taken back to the position where the arbitration agreement remained available for fresh adjudication.
Therefore, the Section 34 proceedings would still not create a debt or liability payable by the Developer.
Developer’s interest was treated as an asset
Another important part of the judgment was the Court’s observation that the Development Agreement had created an interest in the Society’s land.
The Court viewed this interest as an asset rather than a liability of the Developer.
In that context, the Section 34 proceedings could be seen as concerning the Developer’s asserted contractual interest in the property, rather than a proceeding seeking to enforce a debt against her.
The Court observed that staying the Section 34 proceedings would not necessarily protect the Developer from any liability. It would simply delay the determination of whether the Developer’s claimed interest in the property could continue to stand.
Reliance on the Supreme Court’s decision
The Bombay High Court also considered the Supreme Court’s decision in Saranga Anilkumar Aggarwal v. Bhavesh Dhirajlal Sheth, reported as 2025 (4) SCC 629.
In that case, the Supreme Court had emphasised the difference between the moratorium applicable to corporate debtors under Section 14 and the interim moratorium applicable to individuals and personal guarantors under Section 96.
The Supreme Court observed that Section 96 is narrower in scope because it stays only legal actions or proceedings in respect of any debt.
The Bombay High Court found this distinction relevant to the case before it. The Court noted that Section 96 should not be treated as imposing a blanket stay on every proceeding involving a person undergoing insolvency proceedings.
The ruling
Ultimately, the Bombay High Court held that the continuation of the Section 34 petition was not prohibited by the interim moratorium under Section 96 of the IBC.
The Court therefore permitted the Section 34 proceedings to continue.
Importantly, the Court did not decide the merits of the Society’s challenge to the arbitral award in this judgment. It only decided the preliminary question of whether the IBC moratorium prevented the Section 34 petition from proceeding.
Why the judgment matters
The judgment provides an important clarification on the interaction between personal insolvency proceedings and arbitration.
Section 96 does not automatically stop every legal proceeding against an individual or personal guarantor. The nature of the proceeding and the relief involved must be examined to determine whether it is actually a proceeding “in respect of any debt”.
In the present case, the Section 34 petition concerned the validity of an arbitral award granting specific performance of a Development Agreement. The High Court found that allowing the petition to proceed would not create or enforce a debt against the Developer.
The decision therefore reinforces that the Section 96 moratorium is limited in scope and cannot be applied mechanically to every proceeding involving an individual undergoing insolvency proceedings.
For parties involved in arbitration disputes with personal guarantors or individuals undergoing insolvency proceedings, the judgment highlights the need to examine the actual nature of the claim and the consequences of the proceedings before invoking the Section 96 moratorium.
