Why the IBC Is Not a Remedy for Sleeping Creditors: Limitation Lessons from Srinivasa Reddy

The Supreme Court's verdict in Srinivasa Reddy Velagala v. Sravanthi Infratech Pvt. Ltd., decided on 12th August 2026, closes a door that many operational creditors had been quietly leaning on.

The Question That Mattered

For years, operational creditors facing long-pending unpaid dues under continuing contracts have asked the same question: if the contract is still alive, can the IBC limitation clock be paused? The Supreme Court has now answered with finality, in the negative.

The dispute arose from an EPC contract valued at Rs. 827 crores for setting up a 225 MW gas-based combined cycle power station at Bikkavolu, East Godavari District, Andhra Pradesh. The contractor achieved the first three milestones but received only Rs. 50.15 crore against Rs. 165.4 crore due. Works were suspended in July 2011. The contract was never formally terminated. Legal notices followed in 2014 and 2015; a statutory demand notice under Section 8 of the IBC came in July 2018; the Section 9 application was filed in October 2018.

The NCLT admitted the application. The NCLAT upheld the admission. The Supreme Court reversed.

What the Court Decided on Limitation

1. Default is a One-Time Event

The Court reaffirmed that "default" under Section 3(12) of the IBC occurs at a singular point in time when the debt becomes due and payable and is not paid. An unpaid debt may cause continuing commercial damage, but it does not cause continuing legal injury. The right to apply under Section 9 accrues on that date, and limitation begins to run from that date.

2. A Subsisting Contract Does Not Extend Limitation

The contractor's central argument was that because the EPC contract had never been terminated, it had a continuing cause of action. The Court rejected this outright. The subsistence of a contract does not extend the limitation period for an insolvency application beyond the statutory three years under Article 137 of the Limitation Act, 1963.

3. Legal Notices Do Not Reset the Clock

The contractor relied on its own legal noticesto argue that limitation had been revived. The Court held that the benefit of fresh limitation under Section 18 of the Limitation Act is available only where the party against whom the claim is made acknowledges liability in writing before the prescribed period expires. Mere service of a demand notice by the creditor does not revive a time-barred claim.

4. Each Invoice Carries Its Own Limitation

Drawing on Next Education India v. K12 Techno Services, the Court reiterated that where claims arise from multiple invoices, each invoice generates its own date of default. The Adjudicating Authority must consider only those invoices whose default falls within three years preceding the application.

What This Means in Practice

A subsisting but unperformed contract no longer extends IBC limitation. The Court has made it clear that default is a one-time event, and the right to apply under Section 9 accrues on the date the debt becomes due and payable. Suspension of work is not the same as termination, but it also does not keep the limitation clock alive. Legal notices sent by the creditor do not reset limitation unless the debtor acknowledges liability in writing before the prescribed period expires. Damages in the nature of suspension, idling, or demobilization charges cannot be claimed as operational debt unless they have been crystallized by a court or arbitral tribunal. And finally, the IBC is not a recovery mechanism for stale claims; it is a resolution framework, and time-barred debts cannot be revived through it.

While holding the above, the Supreme Court did not shut all doors on the contractor. It acknowledged that in EPC contracts, right to sue may accrue when the final bill is being reconciled or the works are being finally tested, even though the initial cause of action may have arisen at the time of intermediate payments. The Court thus gave liberty to the creditor to approach the appropriate dispute resolution forum as provided in the contract to contest the claims.