Supreme Court of India· 12 August 2026
Can a corporate debtor's total silence in response to an operational creditor's legal notices, followed by disputing the claim only after a Section 9 application is filed, still establish a pre-existing dispute under the Insolvency and Bankruptcy Code, 2016?
SRINIVASA REDDY VELAGALA v. SRAVANTHI INFRATECH PVT. LTD
2026 INSC 835 · CIVIL APPEAL NO. 876 OF 2021
Coram: J. B. Pardiwala; Manoj Misra
Answer
No. Since the dispute must genuinely exist and not be spurious, hypothetical or illusory, the corporate debtor's consistent silence across every legal notice and its raising a defence for the first time in reply to the Section 9 application indicated that no dispute existed before the application was filed.
Headnote
Insolvency and Bankruptcy Code, 2016 — s.9 — s.3(12) — s.5(21) — Operational debt — Pre-existing dispute — Limitation — Effluxion of time — Frustration of contract — Indian Contract Act, 1872 — s.56 —
Insolvency and Bankruptcy Code, 2016 — s.3(12) — "Default" — Continuing cause of action — Limitation Act, 1963 — s.18 — Acknowledgment —
Held: Default under Section 3(12) occurs at a singular point in time when debt becomes due, payable and unpaid, not a continuing cause of action; absent acknowledgment under Section 18, Limitation Act, 1963, legal notices could not reset limitation, and the application was time-barred. (¶72, 82, 100)
Insolvency and Bankruptcy Code, 2016 — s.9 — Effluxion of time — Frustration of contract — Self-induced frustration —
Held further: Effluxion of time describes a contract's natural close, and frustration requires a supervening impossibility, not self-induced frustration arising from a party's own election; neither party having terminated it, the EPC contract continued to subsist. (¶40, 44, 47)
Insolvency and Bankruptcy Code, 2016 — s.5(21) — Operational debt — Pre-existing dispute — Genuineness —
Held further: Amounts under the EPC contract's payment schedule qualified as operational debt, though suspension and demobilization charges remained damages until assessed and crystallized by adjudication; the appellant's total, consistent silence across every legal notice showed no dispute that was spurious, hypothetical or illusory, so no pre-existing dispute barred the claim. (¶54, 60, 64, 93, 96)
Insolvency and Bankruptcy Code, 2016 — s.9 — Appeal allowed — Liberty granted —
Held further: The appeal was allowed and the NCLAT's and NCLT's orders admitting the Section 9 application were set aside; liberty was given to the respondent to approach the appropriate dispute resolution forum under the EPC contract to contest its claims. (¶101, 102)
In the Court's own words
Paragraph 60This Court in Mobilox (supra) further held that the inquiry into whether a dispute already existed between the parties qua the claim amount, it is necessary to ascertain the genuineness of the same. In other words, the dispute whose existence is sought to be evidenced should not be spurious, hypothetical, illusory or misconceived. We also find it apposite to reiterate the observation in Mobilox (supra) that the court’s function is restricted to perceiving the genuineness of the dispute and it cannot travel beyond to make observations as regards the merits of the dispute. The relevant paragraphs in Mobilox (supra) are reproduced below:
Paragraph 63Before we make observations as regards the conduct of the appellant, we find it apposite to clarify that as a general rule, silence cannot be considered to be an indicator of no dispute. However, in the present matter, the appellant’s total and consistent silence across multiple legal notices sent prior to the filing of the Section 9 application is strong evidence to support the respondent’s submission that there was no dispute that in fact existed at the relevant time.
Paragraph 64Further, in our considered view, the fact that the appellant placed its defence for the first time in the reply to the Section 9 application and disputed the respondent’s claims without anchoring such defence in its conduct at the material time indicates that there was no dispute that existed before the Section 9 application, as far as the appellant was concerned. Such conduct, in our opinion, was an afterthought to resist exposure to the insolvency process. Hence, the issue as regards the existence of a prior dispute between the parties must be answered in the negative.
Acts & Sections
s.9 Insolvency and Bankruptcy Code, 2016s.5(21) Insolvency and Bankruptcy Code, 2016s.3(12) Insolvency and Bankruptcy Code, 2016s.8 Insolvency and Bankruptcy Code, 2016s.238A Insolvency and Bankruptcy Code, 2016s.56 Indian Contract Act, 1872Art.137 Limitation Act, 1963s.18 Limitation Act, 1963s.5 Limitation Act, 1963s.7 Insolvency and Bankruptcy Code, 2016One judgment a day. That's the whole habit.
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Also decided in this judgment
Under Section 3(12) of the Insolvency and Bankruptcy Code, 2016, does the mere subsistence of an EPC contract, whose obligations remain unfulfilled, provide the operational creditor a continuing cause of action that keeps its claim within limitation indefinitely?Can legal notices demanding payment, sent by an operational creditor without any written acknowledgment of liability by the corporate debtor, extend the period of limitation under Section 18 of the Limitation Act, 1963 for a Section 9 application under the Insolvency and Bankruptcy Code, 2016?Under the Insolvency and Bankruptcy Code, 2016, where an EPC contract remains suspended for non-payment but neither party invokes the termination clause, does the contract come to a natural close by effluxion of time, and can the suspension amount to frustration of the contract?Under Section 5(21) of the Insolvency and Bankruptcy Code, 2016, do suspension, idling and demobilization charges claimed by an operational creditor qualify as operational debt in a Section 9 application?