The Supreme Court ruled that uncrystallized damages arising from breach of contract do not qualify as 'operational debt' under Section 9 of the Insolvency and Bankruptcy Code. A claim becomes operational debt only when it is a definite, ascertained amount owed for goods or services actually supplied. Unliquidated damages—those still to be assessed or disputed—lack the certainty required. This ruling prevents creditors from misusing IBC insolvency proceedings as a recovery tool for unresolved contractual damage claims.

The IBC defines 'operational debt' under Section 5(21) as a claim in respect of provision of goods, services, employment, or dues payable under law—essentially amounts that are ascertained and due. Section 9 allows operational creditors to initiate Corporate Insolvency Resolution Process (CIRP) when such debt is unpaid.

The Supreme Court's ruling draws a critical distinction between a liquidated claim (a certain, quantified amount) and unliquidated damages (an unassessed compensation claim arising from breach). When a party breaches a contract, the aggrieved party's right to damages exists in principle, but until those damages are adjudicated or agreed upon—i.e., 'crystallised'—they are not a fixed debt. They remain contingent and disputed.

The Court held that treating such claims as operational debt would allow any party in a contractual dispute to weaponise the IBC—filing insolvency applications not to genuinely recover an ascertained debt but to pressure the counterparty. This is prohibited by the IBC's architecture.

For CLAT PG, this ruling tests the intersection of Contract Law (breach, damages) and Commercial Law (IBC definitions). The examiner typically tests whether aspirants can distinguish a 'debt' from a 'damages claim', and whether they understand that only crystallised, undisputed claims can trigger IBC proceedings. The underlying doctrine: a cause of action in damages is not the same as a recoverable debt until quantified.