Supreme Court Quashes IBC Proceedings Over Time-Barred EPC Dues

The Supreme Court has set aside the admission of an insolvency application founded on unpaid dues under an engineering, procurement and construction (EPC) contract, holding that the claim was time-barred and that the mere subsistence of the contract could not keep the limitation period running. The judgment in Srinivasa Reddy Velagala v. Sravanthi Infratech Pvt. Ltd., Civil Appeal No. 876 of 2021, 2026 INSC 835, dated 12 August 2026 was delivered by a bench of Justice J.B. Pardiwala (author) and Justice Manoj Misra.

The ruling separates two ideas that are often run together in long-running projects: the life of the contract and the life of a particular debt under it. A contract may remain alive for years, but each unpaid amount has its own date of default, and limitation is counted from that date.

The EPC contract and the claim

The second and third milestones (together 10%, ₹82.7 crore) were unpaid. The fourth milestone, 70% of the contract value (₹578.9 crore), was claimed on a bill submitted on 13 July 2011 and resubmitted on 3 January 2012; it was acknowledged but not paid.

Four issues, and how the Court answered them

Was the contract frustrated?

No. Neither party had terminated the EPC contract and obligations were still incomplete, so the Court held that "the EPC contract continued to subsist". The suspension flowed from breach, which is self-induced frustration and does not attract section 56 of the Indian Contract Act, 1872.

Were the amounts operational debt?

Partly. Amounts due under the payment schedule were consideration for the works and qualified as operational debt under section 5(21) of the Insolvency and Bankruptcy Code, 2016 (IBC). Suspension, idling and demobilisation charges were damages that need adjudication and crystallisation by a competent forum, so they were not operational debt.

Was there a pre-existing dispute?

No. Applying Mobilox Innovations Pvt. Ltd. v. Kirusa Software (P) Ltd., the Court noted the "consistent and total silence over a period of seven years" in response to several legal notices. Defences raised for the first time in the reply to the section 9 application were treated as an afterthought.

Was the application within limitation?

No, and this decided the appeal. Section 3(12) of the IBC defines default as non-payment of a debt, in whole or part, when it has become due and payable. The Court held that default occurs on the date of actual non-payment and that a default "provides cause of action on the date when the default occurs and cannot serve as a continuing cause of action" (para 72). At para 73 it held: "The mere subsistence of the EPC contract will not give continuing cause of action in respect of the defaulted amount."

The liability was last acknowledged on 5 January 2012 and 3 February 2012. Under Article 137 of the Limitation Act, 1963, the three-year period therefore ran out by 5 January 2015 and 3 February 2015. The section 9 application came only on 12 October 2018. Legal notices sent after limitation expired could not restart the clock without a fresh acknowledgment under section 18 of the Limitation Act. Relying on Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries (P) Ltd., the Court repeated that the IBC is not meant to give a new lease of life to time-barred debts.

Final order

The Court allowed the appeal and set aside both the NCLAT judgment of 1 February 2021 and the NCLT order admitting the section 9 application. The operational creditor was given liberty to approach the dispute resolution forum provided in the EPC contract. The Registry was directed to send copies of the judgment to the NCLAT and all NCLT benches.

What this means for creditors, debtors and advisers

• Test limitation claim by claim. Each milestone or invoice has its own due date. Showing that the project contract is still alive does not keep an old default within time.
• Acknowledgments matter, notices do not. Only a written acknowledgment made within the limitation period extends it under section 18. Demand letters sent after expiry do not help.
• Keep damages out of section 9. Suspension, idling and demobilisation charges are damages until crystallised; they cannot found an insolvency application as operational debt.
• Silence can still hurt the debtor. Although the debtor won on limitation, years of not replying to notices defeated its pre-existing dispute defence.

For finance teams on long EPC and infrastructure contracts, the practical step is to maintain a receivable-level chronology: bill dates, due dates, part-payments and dated acknowledgments. A balance carried in the books does not answer whether it can still be enforced through the IBC.

Updated on 27 September 2026: added the case name, citation, bench, contract timeline, all four issues decided and the final order, verified against the Supreme Court judgment.