Section 124: Effect of Application under the Insolvency and Bankruptcy Code 2016
Section 124 of the Insolvency and Bankruptcy Code, 2016 (IBC) deals with the legal effect of filing a bankruptcy application under Sections 122 or 123, including the interim moratorium that ordinarily follows the filing of such an application.
Text of Section 124 - Effect of application
124. Effect of application.
(1) When an application is filed under sections 122 or 123,-
(a) an interim-moratorium shall commence on the date of the making of the application on all actions against the properties of the debtor in respect of his debts and such moratorium shall cease to have effect on the bankruptcy commencement date; and
(b) during the interim-moratorium period-
(i) any pending legal action or legal proceeding against any property of the debtor in respect of any of his debts shall be deemed to have been stayed;
(ii) the creditors of the debtor shall not be entitled to initiate any legal action or legal proceedings against any property of the debtor in respect of any of his debts.
(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 making of the application.
(3) The provisions of this section shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.
(4) The provisions of this section shall not apply where an application is filed for initiating a bankruptcy process in respect of a personal guarantor to a corporate debtor.
Meaning and effect of Section 124
Section 124 forms part of Chapter IV of Part III of the IBC, which concerns bankruptcy orders for individuals and partnership firms. The section describes the immediate consequence of filing a bankruptcy application under Section 122 by a debtor or under Section 123 by a creditor.
| Provision | Effect |
|---|---|
| Section 124(1)(a) | An interim moratorium ordinarily starts from the making of the bankruptcy application and continues until the bankruptcy commencement date. |
| Section 124(1)(b) | Specified pending proceedings against the debtor's property in respect of debts are stayed, and creditors cannot initiate such proceedings during the interim-moratorium period. |
| Section 124(2) | For an application relating to a firm, the interim moratorium operates against all partners of the firm as on the application date. |
| Section 124(3) | The Central Government may, in consultation with a financial sector regulator, notify transactions to which Section 124 will not apply. |
| Section 124(4) | Section 124 does not apply to a bankruptcy application concerning a personal guarantor to a corporate debtor. |
Key legal terms
Interim moratorium
For Section 124, the interim moratorium is the statutory protection described in sub-section (1). It begins on the making of an application under Section 122 or 123 and, subject to the statutory exceptions, stays specified actions against the debtor's property in respect of debts until the bankruptcy commencement date.
Bankruptcy commencement date
Under Section 79(6) of the IBC, the "bankruptcy commencement date" means the date on which a bankruptcy order is passed by the Adjudicating Authority under Section 126.
Personal guarantor to a corporate debtor
The IBC separately addresses personal guarantors to corporate debtors. Following the 2026 amendment, Section 124 itself does not apply where the bankruptcy application is for a personal guarantor to a corporate debtor. This exception is stated expressly in Section 124(4).
2026 amendment to Section 124
The Insolvency and Bankruptcy Code (Amendment) Act, 2026 inserted sub-section (4) into Section 124. The amendment removes bankruptcy applications concerning personal guarantors to corporate debtors from the operation of Section 124. The relevant amendment was brought into force from 26 May 2026.
Readers dealing with personal guarantor proceedings should therefore check the current statutory framework, applicable rules and regulations, and recent judicial or regulatory developments rather than relying on the pre-amendment position.
Related provisions
Section 124 should be read with Section 121 - Application for bankruptcy, Section 122 - Application by debtor, Section 123 - Application by creditor, Section 125 - Appointment of insolvency professional as bankruptcy trustee, and Section 126 - Bankruptcy order.