Srinivasa Reddy Velagala v. Sravanthi Infratech Pvt Ltd
The right to apply under section 9 of the Insolvency and Bankruptcy Code accrues on the date of default when the debt becomes due and payable, and a default is a single event so the continuance of a contract provides no continuing cause of action; each invoice or instalment has its own date of default; limitation is extended only by a written acknowledgment under section 18 of the Limitation Act made before expiry, so demand and legal notices do not reset it; and the code is not meant to revive time-barred debts, so an application without condonation of delay should not have been admitted.
By CA Nikhil Gupta · Reviewed against the retained judgment 2026-10-08
Sravanthi Infratech claimed Rs. 1292,13,35,000/- as operational debt under a 2011 EPC contract for a 225 MW gas power station, whose works it had suspended in 2011 for non-payment. The Supreme Court held that its section 9 petition of 2018 was out of time and that the claim for suspension and idling charges is damages, not debt.
What happened
After an international competitive bid, a Letter of Award of 24 December 2010 for Rs. 827 crore and an EPC contract of 9 February 2011 were issued for a power station at Bikkavolu, East Godavari, to be built in 14 months, with arbitration for disputes and a payment schedule of 10 per cent advance, 5 per cent on ordering major equipment, 70 per cent on billing break-up and others. Only Rs. 50.15 crore was paid out of Rs. 82.7 crore advance, and the contractor gave a notice of suspension on 30 July 2011, stopped work and demobilised by November 2011 without any party terminating the contract under Article 14.1 or 14.2. The corporate debtor acknowledged the work and billing break-up in a letter of 5 January 2012 to the Central Electricity Authority and on 3 February 2012. Legal notices followed in 2014 and 2015, one quantifying Rs. 1210.78 crore on 25 July 2014, and a demand notice under section 8 dated 2 July 2018 claimed Rs. 1292,13,35,000/-, with the section 9 application filed on 12 October 2018 and admitted by the NCLT on 13 December 2019. The NCLAT affirmed on 1 February 2021, holding that the EPC contract subsisted as a continuing contract. The appellant argued that the debt was time-barred, that the contract was frustrated and that a dispute pre-existed, relying on Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries, Sabarmati Gas v. Shah Alloys and Mobilox Innovations v. Kirusa Software.
Questions before the court
- Was the operational creditor's section 9 application barred by limitation, was part of the claim an operational debt, and was there a pre-existing dispute?
Why the court ruled this way
The EPC contract was suspended but never terminated under Clause 14, no time was of the essence, and frustration under section 56 of the Contract Act cannot be self-induced, so the contract subsisted (paragraphs 37 to 55, 89 to 91). Payments under the payment schedule for the work are operational debt but suspension, idling and demobilisation charges arise from alleged breach and are damages, which are not debt until assessed by a court (paragraphs 56 to 58, 92 and 93). On pre-existing dispute under Mobilox, the debtor's total silence for seven years over several legal notices and the demand notice is strong evidence that no dispute existed and the defence was an afterthought (paragraphs 59 to 64, 94 to 96). On limitation, section 238A applies the Limitation Act and the right to apply accrues on default under section 3(12), which happens once; so the default of 15 February 2011 and 13 July 2011, acknowledged on 5 January 2012 and 3 February 2012, expired on three years from those dates (paragraphs 65 to 73). Next Education India v. K12 Techno Services requires each invoice to be considered separately, and legal notices without acknowledgment do not reset limitation, while the continuing nature of an EPC contract relevant to civil suits or arbitration does not extend limitation under the Code (paragraphs 74 to 88, 97 to 100).
Controlling point
Default occurred over three years before the application, so it was time-barred, and the NCLT should not have admitted it without condoning the delay.
Order and next steps
The NCLAT's judgment and the NCLT's order were set aside, the appeal allowed, liberty was given to the respondent to approach the dispute forum under the EPC contract, and the Registry to forward a copy of the judgment to the NCLAT for all NCLTs.
Practical implications
An operational creditor should file a section 9 application within three years of each default or from a written acknowledgment, and cannot rely on a subsisting contract or on later demand notices to extend time.
Limits of this ruling
- The Court limited its limitation holding to the insolvency application, noted that in EPC contracts a fresh right to sue may arise for civil or arbitral claims on final reconciliation, and did not decide the merits of the contractor's claim, which it left to the dispute forum.
Law and judgment source
- Insolvency and Bankruptcy Code, 2016, sections 3(12), 5(21), 8, 9 and 238A
- Limitation Act, 1963, sections 5, 18 and Article 137
- Indian Contract Act, 1872, section 56
- Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, Form 3
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Source checked: 2026-10-08 · Judgment paragraphs: paragraphs 1-104 · Later case history: not verified. Verify appeals, stays and subsequent orders before reliance.
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