Supreme Court of India· 12 August 2026

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?

SRINIVASA REDDY VELAGALA v. SRAVANTHI INFRATECH PVT. LTD

2026 INSC 835 · CIVIL APPEAL NO. 876 OF 2021
Coram: J. B. Pardiwala; Manoj Misra

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Answer

No. Only the amounts payable under the payment schedule for goods and services actually supplied qualify as operational debt; suspension, idling and demobilization charges are in the nature of damages that cannot be treated as operational debt unless assessed and crystallized by adjudication.

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 51A bare textual reading of the provision indicates that any amount that accrues to an operational creditor on account of the goods and services provided by it to an operational creditor would be treated as operational debt. There is no doubt that the EPC contract is a works contract which involves procurement of goods as well as construction of the natural gas facility. Therefore, all payments that the parties agreed to pay upon completion of the stages of the works as mentioned in the payment schedule to the EPC contract, can be categorized as operational debt once they become payable.

Paragraph 52Insofar as the amount claimed under the heads of suspension and demobilization charges is concerned, there is no gainsaying that the same would be in the nature of damages. It is a settled position of law that damages, whether liquidated or unliquidated, cannot be treated as operational debt unless and until they are assessed and crystallized by way of adjudication by a court of competent jurisdiction. We say so because the NCLT and NCLAT are not the appropriate fora for determination of disputes. Their functions and powers are for the purpose of ensuring survival of a particular company and alternatively, to ensure maximization of repayment capabilities in the event of liquidation.

Paragraph 54However, the amounts required to be paid by the appellant to the respondent as per the EPC contract and the payment schedule thereto, qualify as operational debt as they were supposed to be fulfilled as a consideration for the works undertaken by the respondent in terms of the EPC contract.

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, 2016

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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?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?

Plain-language answer prepared by the LexStreak Editorial Desk — verify against the judgment. Source: Supreme Court of India. Corrections