In Srinivasa Reddy Velagala v. Sravanthi Infratech Pvt. Ltd., the Supreme Court has closed off an argument that operational creditors had increasingly relied on to keep stale claims alive under the Insolvency and Bankruptcy Code, 2016 — that so long as the underlying commercial contract was never formally terminated, a claim arising from it never really goes time-barred. A Bench of Justice J.B. Pardiwala and Justice Manoj Misra rejected that reasoning, holding that default under a contract occurs at a single, identifiable point in time, and that the contract's continued subsistence does not, by itself, revive or keep alive a claim that has already fallen outside the three-year limitation period.
The dispute arose out of an EPC contract worth roughly ₹827 crore for setting up a 225 MW gas-based power station in Andhra Pradesh, awarded to Sravanthi Infratech Pvt. Ltd. for completion within 14 months. Disputes over payment followed, and the Corporate Debtor's side maintained that the contractor's claims had crystallised as far back as 2012. Sravanthi Infratech nonetheless filed a Section 9 application seeking to initiate the Corporate Insolvency Resolution Process only in 2018 — well outside the three-year limitation period ordinarily applicable from 2012. Before the NCLAT, the contractor had succeeded on the footing that since neither party had terminated the EPC contract, the contract still subsisted and the claim therefore remained within limitation. Justice Manoj Misra, writing for the Bench, disagreed.
The Court's central holding was twofold. First, an unliquidated claim for damages arising out of an alleged breach of contract does not automatically qualify as "operational debt" capable of triggering Section 9 proceedings — it must first be crystallised, typically through adjudication by a court or other competent forum, before it can found an insolvency application. Second, and more significantly for limitation purposes, the Court held that a default occurs at a specific, ascertainable point in time; the mere fact that the parties' underlying contract has not been terminated does not create a rolling or continuing cause of action that keeps resetting the limitation clock. Since Sravanthi Infratech's claim had crystallised in 2012 and the Section 9 application was filed only in 2018, the application was barred by limitation, and the Court set aside the NCLAT's contrary finding.
For operational creditors under construction and EPC contracts in particular, the ruling is a pointed reminder that the IBC is a resolution mechanism, not an alternative route to revive debt recovery claims that ordinary civil law limitation has already extinguished. Waiting out a payment dispute in the hope that an un-terminated contract preserves the claim indefinitely is no longer a viable strategy — creditors need to track limitation from the date a claim actually crystallises and move promptly, whether through civil suit, arbitration, or a timely Section 9 application, rather than assuming the insolvency route stays open by default.