Operational debt under a continuing EPC contract can support insolvency where limitation has not expired and the agreement remains un-terminated.

An application under Section 9 of the Insolvency and Bankruptcy Code, 2016 was examined against limitation and the nature of the underlying EPC claim. The continuing contractual relationship, suspension of work for non-payment, correspondence between the parties, and absence of termination supported the view that the debt remained subsisting and that limitation under Article 137, as applied through Section 238A, did not bar the application. The claim was also treated as operational debt because it arose from supply of goods and services under the EPC arrangement. The plea that the contract had been frustrated by efflux of time failed, and the insolvency application was sustained.

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Issues: (i) Whether the application under Section 9 of the Insolvency and Bankruptcy Code, 2016 was barred by limitation. (ii) Whether the claim constituted an operational debt and the contract stood frustrated by efflux of time.

Issue (i): Whether the application under Section 9 of the Insolvency and Bankruptcy Code, 2016 was barred by limitation.

Analysis: The limitation plea was examined in the light of the continuing nature of the EPC contract, the correspondence between the parties, the suspension notice, and the absence of termination by either side. The debt was treated as subsisting and the default as arising from an ongoing contractual relationship, attracting limitation principles under Article 137 of the Limitation Act, 1963 as applied through Section 238A of the Insolvency and Bankruptcy Code, 2016.

Conclusion: The application was not barred by limitation.

Issue (ii): Whether the claim constituted an operational debt and the contract stood frustrated by efflux of time.

Analysis: The claim arose from supply of goods and services under an EPC arrangement and therefore fell within the statutory definition of operational debt. The contention of frustration by efflux of time was rejected because the contract contained termination mechanisms, the work had merely been suspended for non-payment, and the agreement continued to subsist without termination. The demand notice was also unanswered, and no pre-notice dispute was shown.

Conclusion: The claim constituted an operational debt and the plea of frustration by efflux of time failed.

Final Conclusion: The admission of the insolvency application was sustained and the challenge to initiation of corporate insolvency resolution process failed in entirety.

Ratio Decidendi: Where a contractual claim arises from an un-terminated and continuing supply or EPC contract, non-payment can constitute operational debt and the insolvency application will not be barred by limitation merely because the original contract date is old.

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