A company breaches a contract with you. You claim damages. Can you file an insolvency petition before the NCLT to recover those damages as an "operational debt"? The Hon'ble Supreme Court has said no — and in doing so has addressed a growing misuse of the Insolvency and Bankruptcy Code as a recovery mechanism for ordinary civil claims.

What the Court Held

Claims for damages arising from breach of contract cannot be treated as "operational debt" under Section 9 of the IBC unless those damages have first been assessed and crystallized by a competent court or arbitral tribunal. Unliquidated damages — damages whose quantum has not been adjudicated — are not a debt that can be recovered through insolvency proceedings.

The NCLT and NCLAT are not forums for determining disputes about the quantum of damages. Their role is to resolve insolvency, not to adjudicate commercial disputes. Filing an insolvency petition to pressure a party into settling a disputed damages claim is an abuse of the IBC.

What Is "Operational Debt" Under IBC?

An operational debt is a claim for goods or services supplied, or a debt arising from employment — essentially a liquidated claim for a sum that is due and payable. Damages from breach of contract, unless previously adjudicated and reduced to a specific sum by a court or arbitrator, do not qualify as operational debt because the amount is disputed and uncrystallized.

The Practical Implication

If you have a damages claim arising from a breach of contract, you must first obtain a decree or arbitral award crystallizing the exact amount before using that claim as the basis for insolvency proceedings. Filing directly at the NCLT on the basis of a disputed damages claim will not succeed — and will likely be dismissed with costs.

Practical Guidance

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If you are owed money under a contract and the amount is not disputed — file an insolvency petition once the payment falls due and is not made within the statutory period.

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If the claim is for damages — file a civil suit or invoke arbitration first. Get a decree or award crystallizing the amount. Only then can that crystallized amount form the basis of an operational debt under IBC.

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If you are facing a NCLT petition where the claimed debt is actually disputed damages from a breach of contract — raise this as a preliminary objection. The petition is not maintainable on such a claim.

Case Reference
Srinivasa Reddy Velagala v. Sravanthi Infratech Pvt. Ltd. | Hon'ble Justice J.B. Pardiwala & Hon'ble Justice Manoj Misra | August 12, 2026 | Hon'ble Supreme Court of India

Frequently Asked Questions

Questions people commonly search on this topic

Can breach of contract damages be recovered through NCLT insolvency proceedings? +
Not unless the damages have been adjudicated and crystallized by a competent court or arbitral tribunal. The Supreme Court has held that uncrystallized damages from a breach of contract are not 'operational debt' under the IBC. The NCLT is not a forum for determining the quantum of disputed damages.
What is operational debt under IBC Section 9? +
Operational debt is a claim arising from the provision of goods or services, employment, or certain other categories of claims, that is due and payable. Disputed damages from breach of contract whose quantum has not been adjudicated do not qualify as operational debt.
What should I do before filing an IBC petition for breach of contract damages? +
You must first obtain a court decree or arbitral award determining the exact amount of damages owed. Once this amount is crystallized by adjudication, it becomes a debt that can form the basis of insolvency proceedings before the NCLT.
Can NCLT decide the quantum of contract damages? +
No. The Supreme Court has held that NCLT and NCLAT are not appropriate forums for the determination of disputes about the amount of damages. Their function is insolvency resolution, not commercial dispute adjudication.