By Manav Pamnani.
Manav Pamnani is a Research Scholar at the Milon K. Banerji Arbitration Centre.
Recently, the Supreme Court (“SC”) in its decision dated March 20, 2026, in Ujaas Energy v. West Bengal Power Development Corporation Limited (“WBPDCL”) held that an extinguished counter claim can be raised as a plea of set-off by way of defence in arbitral proceedings even after a resolution plan has been approved. This case involved a public sector power company (WBPDCL) that had floated a tender in 2017 under which Ujaas Energy was granted the contract. Ujaas subsequently went into the Corporate Insolvency Resolution Process (“CIRP”) under the Insolvency and Bankruptcy Code (“IBC”). Despite the applicable moratorium, WBPDCL continued proceedings and invoked arbitration in December 2021. When the parties filed their claims in 2023, WBPDCL’s counterclaim included certain unpaid amounts. In October 2023, the National Company Law Tribunal (“NCLT”) approved Ujaas Energy’s resolution plan. WBPDCL’s claims were not included in that plan. On April 30, 2024, the arbitral tribunal issued an interim award dismissing WBPDCL’s counterclaim on the ground that, by virtue of the approved resolution plan (“clean slate” principle which ensures that a successful resolution applicant takes over a company free from all prior liabilities, debts, and legal claims), any claims not included in the plan stood extinguished. WBPDCL challenged this interim award in the Calcutta High Court, wherein a Single Judge upheld the dismissal. However, on appeal, a Division Bench in September 2024 allowed WBPDCL to continue arbitration. Ujaas then appealed to the SC.
The main issue before the SC was whether, after a resolution plan is approved under the IBC, WBPDCL could still pursue or enforce its claim, not included in the resolution plan, against Ujaas in arbitration. In particular, the question was whether WBPDCL could press its counterclaim or otherwise assert it in some form, or if the “clean slate” rule completely barred any such claim.
The Court unanimously held that once a resolution plan is approved under Section 31 of the IBC, any claim not forming part of that plan cannot be enforced as a separate claim in arbitration. Therefore, WBPDCL was not entitled to an independent counterclaim or affirmative relief on its claim after the approval of the resolution plan. However, the SC drew a crucial distinction. It allowed WBPDCL to use its claim in defence by way of a set-off. The SC held that even though WBPDCL is not entitled to independently pursue its claim by way of a separate counterclaim post approval of the resolution plan, it ought to be permitted to raise the plea of set-off at least by way of defence. This implied that WBPDCL could not obtain any money from Ujaas, but it could use its claim to reduce or defeat Ujaas’s own claims in arbitration.
The SC based its conclusion on the terms of the approved resolution plan and the well-accepted underlying principles of the IBC. It noted that Section 31 of the IBC makes the terms of the resolution plan binding on all parties and that a plan ordinarily extinguishes claims not included in it, reflecting the “clean slate” principle. In discussing this point, the SC relied upon the Ghanashyam Mishra & Sons Limited v. Edelweiss Asset Reconstruction Company Limited case which upheld this position. In the present case, the resolution plan expressly barred WBPDCL from seeking payment of its claim, since it was omitted. Therefore, WBPDCL could not obtain affirmative relief through a separate claim.
However, the Court observed that nowhere in the plan or the IBC as a whole was a set-off expressly forbidden. The plan’s language barred claims for the purpose of payment or settlement but did not explicitly exclude set-off as a defence. The SC therefore applied the expressio unius est exclusio alterius principle which means that the express mention of one thing excludes all others. Consequently, the SC inferred that WBPDCL should be allowed to use the claim defensively. In practical terms, this means that WBPDCL can raise its claim as a defence to reduce or extinguish Ujaas’s recovery, but only to the extent necessary. The SC emphasised that WBPDCL should not derive any positive or affirmative relief on that basis. For example, if WBPDCL’s claim exceeds what Ujaas is awarded, WBPDCL cannot pocket the difference. It can only avoid having to pay that amount itself. Therefore, the SC was clear that the set-off defence is limited to balancing accounts and not creating any new entitlement. The SC also noted that these conclusions were fact-specific and based on the plan’s exact terms and in no way changed or altered the settled rule that the approval of a resolution plan extinguishes omitted claims.
This decision is a major development that surfaces at the intersection between the Indian insolvency regime and arbitration law. It confirms that the IBC’s “clean slate” doctrine generally prevents enforcing claims that arise post the approval of the resolution plan. However, it introduces an important caveat that honest creditors may still invoke set-off as a defence in arbitration even if their claim was omitted by the resolution plan. By allowing WBPDCL to raise its claim as a defence, the SC struck a balance between the IBC’s overarching objectives of fostering the finality of claims and facilitating a fresh start for the debtor, and the need for fairness and equity by admitting genuine set-off defences. The SC clearly stipulated that refusing even a defensive use of the claim by strictly upholding the “clean slate” principle would unfairly defeat the rights of genuine litigants.
In terms of benefits to the stakeholders, this ruling provides concrete guidance. It clearly establishes that after a resolution plan is approved, creditors whose claims were excluded may not secure awards for those claims, but they can defend themselves using those claims. Going forward, in future arbitrations involving insolvent companies, parties should ideally carefully draft or review resolution plans to see if set-off defences are preserved or barred.
The decision implies that courts and tribunals should interpret IBC plans strictly. This means that if the resolution plan does not expressly forbid set-off, it will be allowed. Therefore, alternatively, in this case, if the resolution plan had barred set-off as well, it most likely would not have been permitted by the SC. The decision also reinforces that arbitration tribunals should not automatically invalidate proceedings or awards solely on the basis of existence of a moratorium under IBC and the “clean slate” doctrine applies only to affirmative claims and not to set-off as a defence.
Through this decision, the SC has reaffirmed the primacy of the resolution plan’s terms while preserving an equitable remedy through accepting genuine set-off defences. The SC itself emphasised that a resolution plan under Section 31 is the culmination of the CIRP and ordinarily excludes new claims. However, in the present case, equity demanded that WBPDCL be allowed to offset its dues in defence. This nuanced ruling will largely shape how insolvent parties and arbitrators handle counterclaims and defences in the future and will likely ensure that arbitration remains a viable forum for resolving disputes even in the shadow of insolvency.
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