IBC Cannot Revive Time-Barred Debts, Supreme Court Rules

The Supreme Court has held that proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC) cannot be used to revive a debt that is already barred by limitation, and that limitation does not stay alive merely because the underlying contract continues to subsist. In Srinivasa Reddy Velagala v. Sravanthi Infratech Pvt. Ltd., 2026 INSC 835, decided on 12 August 2026 in Civil Appeal No. 876 of 2021, a Bench of Justice J. B. Pardiwala and Justice Manoj Misra set aside the admission of an operational creditor's Section 9 application and left the creditor to pursue arbitration under the contract.

The dispute

The case arose from a Letter of Award dated 24 December 2010 for an Rs 827 crore EPC contract, followed by an EPC agreement dated 9 February 2011 for a 225 MW power station at Bikkavolu, to be completed in 14 months. The payment schedule was tied to milestones: a 10% initial advance of Rs 82.7 crore, 5% on equipment ordering, 5% on release of advances, 70% (Rs 578.9 crore) under the billing break-up and 5% instalments on commissioning.

Against the Rs 82.7 crore advance, only Rs 50.15 crore was paid. The contractor issued a notice of suspension on 30 July 2011 for non-payment of Rs 32.55 crore. The billing break-up submitted on 13 July 2011 was acknowledged on 3 January 2012. Legal notices followed on 25 July 2014, 16 September 2014 and 15 July 2015. A statutory demand notice under Section 8 of the IBC was sent on 2 July 2018, claiming Rs 1,292.13 crore, and the Section 9 application was filed on 12 October 2018. The NCLT admitted it on 13 December 2019 and the NCLAT affirmed the admission on 1 February 2021.

What the Court held

IBC is not a revival mechanism

Relying on its earlier ruling in Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries (P) Ltd., (2020) 15 SCC 1, the Court repeated that the intention of the IBC is not to give a new lease of life to debts which are time-barred. Section 238A of the IBC applies the Limitation Act, 1963 to proceedings before the Adjudicating Authority, and an application under Section 9 must be filed within three years under Article 137 from the date the right to apply accrues.

Default occurs at a single point in time

Under Section 3(12) of the IBC, default means non-payment of a debt that has become due and payable. The Court held that such a default gives a cause of action on the date it occurs and cannot serve as a continuing cause of action: an unpaid debt may cause continuous damage, but it does not cause continuing legal injury. Each payment milestone therefore produced its own default date.

A subsisting contract does not keep limitation alive

The creditor's case rested on the EPC contract still being on foot. The Court rejected that approach. It found that the claims crystallised on 5 January 2012 and 3 February 2012, when the corporate debtor acknowledged liability, and that the creditor should have acted within three years of those dates. Since the default had occurred more than three years before the application was filed, the application was clearly time-barred.

Legal notices do not extend limitation

Section 18 of the Limitation Act gives a fresh period only where the party against whom the claim stands acknowledges liability in writing before the period expires. Citing Asset Reconstruction Co. (India) Ltd. v. Bishal Jaiswal, (2021) 6 SCC 366, the Court said an acknowledgment must relate to a present subsisting liability. The debtor's silence in reply to the 2014 and 2015 legal notices was not an acknowledgment, so the notices could not restart the clock.

Other issues

The Court answered the question whether the contract was frustrated by efflux of time in the negative, held that the claimed amounts were operational debt only in part, and found that a pre-existing dispute did not bar the application. Limitation alone decided the appeal.

The outcome

The appeal was allowed. The NCLAT judgment of 1 February 2021 and the NCLT order admitting the Section 9 application were set aside. The creditor was given liberty to approach the arbitral forum named in the EPC contract. The Court directed the Registry to send copies of the judgment to all Benches of the NCLT.

What creditors and debtors should do now

• Creditors: before a Section 8 notice or Section 9 filing, identify the specific invoice or milestone relied on, the date it fell due, and any written acknowledgment by the debtor within the limitation period. A contract that has not been terminated is not an answer to limitation.
• Corporate debtors: test an insolvency demand on its timeline as well as its amount. Map each claim to its due date and check whether any written acknowledgment was given within three years.
• Finance teams: an amount carried forward in the books is not the same as a claim that can still be enforced. Ageing reviews should flag receivables approaching three years from default for legal action or a documented acknowledgment.
• Boards and resolution professionals: keep contracts, invoices, acknowledgments, notices and correspondence so that the chronology can be reconstructed if limitation is challenged.

The ruling does not make every claim under a long-running contract time-barred. It rejects the assumption that the contract's existence keeps limitation open; the answer depends on the particular obligation, its due date and any valid acknowledgment.

Updated on 27 September 2026: identified the judgment (2026 INSC 835, Civil Appeal No. 876 of 2021, dated 12 August 2026), added the facts, dates, amounts, holdings on Sections 3(12) and 238A of the IBC and Section 18 of the Limitation Act, the final order, and a link to the Supreme Court's judgment.