Ujaas Energy Ltdv.West Bengal Power Development Corporation Ltd

Synopsis

This judgment addresses a nuanced conflict between the Insolvency and Bankruptcy Code, 2016 (IBC) and the Arbitration and Conciliation Act, 1996. The core question was whether a party, whose counterclaim in arbitration was filed before the approval of a resolution plan but was not submitted to the Resolution Professional during the Corporate Insolvency Resolution Process (CIRP), could nevertheless raise that claim as a plea of set-off in defence after the resolution plan was approved. The Supreme Court held that while the counterclaim for affirmative relief stands extinguished under the "clean slate" principle of the IBC, a plea of set-off may be permitted as a defence if the terms of the resolution plan do not expressly bar such defensive use. The Court carefully distinguished between seeking affirmative relief (which is barred) and using a claim defensively to reduce or nullify the other party’s claim (which may be permitted, depending on the specific terms of the resolution plan).

2. Basic Information of the Judgment

Case Title: Ujaas Energy Ltd. vs. West Bengal Power Development Corporation Ltd.

Civil Appeal No.: Arising out of SLP (Civil) No. 29651 of 2024 (converted to Civil Appeal No. of 2026)

Bench/Coram: Justice Dipankar Datta and another learned judge (the judgment is authored by Justice Dipankar Datta)

Judgment Author: Justice Dipankar Datta

Date of Decision: March 20, 2026

Citation: 2026 INSC 268

Appeal From: Judgment and order dated 02.09.2024 of the Division Bench of the Calcutta High Court in an intra-court appeal, which had set aside a Single Judge’s order upholding an interim arbitral award.

3. Legal Framework

This judgment involves the interplay between two major statutes: the Insolvency and Bankruptcy Code, 2016, and the Arbitration and Conciliation Act, 1996.

A. Key Provisions of Law:

• Insolvency and Bankruptcy Code, 2016 (IBC):
  Section 3(6): Defines "claim" broadly to include a right to payment (whether reduced to judgment, disputed, secured or unsecured) and a right to remedy for breach of contract that gives rise to a right to payment.
  Section 14: Provides for a moratorium on legal proceedings against the corporate debtor during CIRP.
  Section 31(1): Mandates that once a resolution plan is approved by the Adjudicating Authority (NCLT), it becomes binding on all stakeholders, including the corporate debtor, its employees, members, creditors, and other stakeholders. This provision gives statutory force to the "clean slate" principle.

• Arbitration and Conciliation Act, 1996 (A&C Act):
  Section 16: Empowers the arbitral tribunal to rule on its own jurisdiction, including on any objections to the existence or validity of the arbitration agreement.
  Section 31(6): Deals with the form and contents of an arbitral award, including interim awards.

B. Related Precedents (Discussed in the Judgment):

• Ghanashyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. (2021) 9 SCC 657: This landmark decision of a three‑Judge Bench (authored by the then Chief Justice) firmly established the "clean slate" principle. It held that once a resolution plan is approved under Section 31(1) IBC, all claims that are not part of the resolution plan stand frozen and are extinguished, and the plan is binding on all stakeholders.

• Bharti Airtel Ltd. v. Aircel Ltd. & Dishnet Wireless Ltd. (Resolution Professional) (2023) : This case dealt with the aspect of set‑off during the CIRP itself. The Supreme Court distinguished it, holding that the issue in the present case was not about set‑off during the CIRP, but about the permissibility of set‑off as a defence after the approval of the resolution plan, based on the specific terms of the plan.

4. Relevant Facts of the Case

1. Contract and Disputes: The respondent (West Bengal Power Development Corporation Ltd.) floated an e-tender in February 2017 for solar PV power plants. The appellant (Ujaas Energy Ltd.), an MSME, was awarded the contract via a Letter of Award (LOA) dated 12.05.2017. Disputes arose concerning performance of the contract.

2. CIRP Commencement: On 17.09.2020, the appellant was admitted into Corporate Insolvency Resolution Process (CIRP) under the IBC.

3. Arbitration Proceedings: The appellant, through its Resolution Professional (RP), invoked the arbitration clause on 31.12.2021. The respondent filed its statement of defence and a counterclaim on 18.04.2023 and 12.05.2023, respectively.

4. Counterclaim Not Submitted to RP: Crucially, the respondent did not submit its counterclaim to the Resolution Professional during the CIRP. It was only raised in the arbitration proceedings.

5. Resolution Plan Approved: On 13.10.2023, the National Company Law Tribunal (NCLT), Indore, approved the resolution plan, concluding the CIRP.

6. Objection to Counterclaim: Prior to the approval of the plan, the appellant had objected to the counterclaim on the ground of moratorium (Section 14 IBC). The Tribunal rejected that objection on 22.12.2023, deciding to proceed with both the claim and counterclaim.

7. Interim Award Rejecting Counterclaim: On 10.01.2024, the appellant filed an application under Section 31(6) of the A&C Act seeking dismissal of the counterclaim on the ground that all claims against the corporate debtor stood extinguished upon approval of the resolution plan. The Tribunal allowed this application on 30.04.2024, rejecting the counterclaim.

8. High Court Proceedings: The respondent challenged the interim award under Section 34 of the A&C Act before a Single Judge of the Calcutta High Court, who dismissed the challenge on 21.08.2024. The respondent then filed an intra-court appeal before a Division Bench, which on 02.09.2024 set aside the Single Judge’s order and directed the Tribunal to continue the proceedings, including considering the counterclaim.

9. Appeal to Supreme Court: The appellant appealed to the Supreme Court.

5. Issues Identified by the Supreme Court

The sole issue framed by the Supreme Court was:

Whether the respondent ought to be allowed to raise the plea of set‑off before the Arbitral Tribunal, having regard to the extinguishment of the respondent’s counterclaim for its failure to raise such claim before the Resolution Professional during the CIRP and prior to approval of the resolution plan?

6. Ratio Decidendi (The Reasoning and Decision of the Court)

The Supreme Court partly allowed the appeal, modifying the High Court’s order. The reasoning is as follows:

• Binding Nature of Resolution Plan: Relying on Section 31(1) IBC and the principle laid down in Ghanashyam Mishra & Sons, the Court held that once a resolution plan is approved, it is binding on all stakeholders. All claims that are not part of the resolution plan stand extinguished. Since the respondent’s counterclaim was not included in the resolution plan, it could not be pursued for any affirmative relief (i.e., to recover money from the appellant). The Court agreed with the appellant that the respondent could not seek independent enforcement of its counterclaim.

• Distinction Between Affirmative Relief and Defensive Set‑off: However, the Court noted a critical distinction. The respondent’s senior counsel wisely shifted his argument: instead of seeking to recover on the counterclaim, he argued that the respondent should at least be permitted to raise the plea of set‑off as a defence against the appellant’s claim. The Court accepted this limited proposition.

• Interpretation of the Resolution Plan: The Court meticulously examined the specific clause of the resolution plan (paragraph 12.4.1). The clause stated that no other "payments/settlements" would be made in respect of any claims against the company, and that all claims, including counterclaims in pending arbitration proceedings, "shall stand irrevocably and unconditionally abated, discharged, settled and extinguished in perpetuity."

• Application of Expressio Unius: The Court applied the maxim expressio unius est exclusio alterius (the express mention of one thing excludes others). It reasoned that the clause only barred claims for the purpose of payment or settlement. It did not expressly, or even impliedly, bar a plea of set‑off as a defence. Since the clause was silent on defensive use, an intention to exclude such defensive use could not be inferred. The defensive use was therefore permissible.

• Final Order: The Court held that the respondent could not independently pursue its counterclaim for affirmative relief. However, it was permitted to raise the plea of set‑off as a defence against the appellant’s claim in the arbitration proceedings. The Court clarified that:
  The respondent would derive no positive or affirmative relief (i.e., cannot recover any surplus amount if its claim exceeds the appellant’s claim).
  If the appellant’s claim is withdrawn, the counterclaim/defence also fails.
  If the appellant’s claim is successful, any amount due to the appellant after adjusting the respondent’s defence would be recoverable.

• Distinction from Bharti Airtel: The Court distinguished Bharti Airtel Ltd. v. Aircel Ltd., noting that the earlier case dealt with set‑off during the CIRP, whereas the present case concerned set‑off as a defence after the resolution plan was approved, with the plan’s specific terms being determinative.

7. New Legal Principles Established / Reiterated

This judgment carves out a nuanced exception to the "clean slate" principle and provides important clarifications:

1. Set‑off as Defence Not Automatically Barred: The judgment establishes that the approval of a resolution plan under Section 31 IBC does not automatically bar a plea of set‑off raised as a defence in pending proceedings. Whether such a plea is permissible depends on the specific wording of the resolution plan. If the plan bars only "payments" or "settlements" but does not expressly bar defensive set‑off, the plea may be allowed.

2. Distinction Between Claim and Defence: The Court clarified that the IBC’s extinguishment of claims (under Section 31 and Ghanashyam Mishra) applies to claims that seek affirmative relief – i.e., the recovery of money or property. A party cannot be permitted to gain from a claim not submitted to the RP. However, the same claim may be used defensively to prevent being mulcted with a liability. This distinction is crucial for ensuring fairness in commercial disputes.

3. Primacy of Resolution Plan Terms: The judgment reiterates that the terms of the resolution plan are paramount. The "clean slate" principle is given effect through the plan, but the plan itself may contain exceptions. Courts will interpret the plan according to its plain language, applying the maxim expressio unius to determine the scope of the bar.

4. Equitable Consideration: The Court subtly introduced an equitable element by noting that the Resolution Professional was aware of the counterclaim (since it was filed before the plan was approved) yet did not include it in the plan. While not decisive, this factor influenced the Court to permit a limited indulgence in favour of the respondent.

8. The Court’s Analysis and Examination of Concepts

• Interplay Between IBC and A&C Act: The Court harmoniously interpreted the two statutes. It recognized that while the IBC seeks to give the corporate debtor a "clean slate" by extinguishing past claims, this objective cannot be allowed to become a tool of oppression. A party should not be forced to pay a claim to which it has a valid defence that was not considered simply because the defence arose from a claim not lodged with the RP.

• Meaning of "Claim" under IBC: The Court relied on the broad definition of "claim" in Section 3(6) IBC, which includes both a right to payment and a right to remedy for breach. It held that the respondent’s counterclaim was indeed a "claim." However, the permissibility of using that claim defensively was not a question of whether it was a claim, but whether the resolution plan barred such defensive use.

• Application of Expressio Unius: The Court skillfully applied this rule of interpretation to the resolution plan. It contrasted the clause’s specific mention of "payments/settlements" and "counterclaims" being "abated, discharged, settled and extinguished" with the absence of any mention of "set‑off as a defence." This led to the conclusion that the plan did not intend to bar the latter.

• Limiting the Relief: The Court was careful to ensure that its decision did not undermine the IBC’s objective. By explicitly stating that the respondent cannot recover any surplus and that the set‑off is purely defensive, the Court prevented the respondent from gaining an advantage it would not have had if it had submitted its claim to the RP. The respondent is merely allowed to defend itself, not to profit from its omission.

9. Critical Analysis of the Judgment

This judgment is a fine example of judicial pragmatism, balancing the strict statutory framework of the IBC with the need for fairness in ongoing arbitration proceedings.

• Strength – Nuanced Approach: The Court’s nuanced approach is its greatest strength. Instead of a rigid application of the "clean slate" principle, it carved out a limited exception based on the specific wording of the resolution plan and the distinction between affirmative and defensive relief. This prevents unjust enrichment of a corporate debtor that might otherwise succeed in arbitration based on a claim that is itself offset by a valid defence that was not considered due to a technical omission by the other party.

• Protecting the IBC’s Objective: The judgment is not a dilution of the IBC. The respondent is not allowed to recover any money. It is only allowed to defend itself. The "clean slate" for the corporate debtor remains intact because no new liability is created; the corporate debtor’s liability under its claim is merely reduced by a liability it already owed to the respondent. This is a fair and logical outcome.

• Practical Implications: This judgment will have significant implications for arbitration proceedings involving corporate debtors under CIRP. It clarifies that a party who fails to lodge a claim with the RP is not entirely without remedy. They can still raise that claim as a defence in pending proceedings, provided the resolution plan does not expressly bar such defensive use. This may reduce litigation and encourage parties to reach settlements.

• Potential Critique – Over‑Reliance on Plan Language: One could argue that the outcome is highly dependent on the specific wording of the resolution plan. This creates uncertainty, as parties cannot predict with certainty whether a defence will be permitted without seeing the plan. However, this is inevitable given that the plan is a contract between the parties and the corporate debtor. The Court’s role is to interpret, not to rewrite, the plan.

• Limiting Principle: The Court’s careful distinction between defence and affirmative relief ensures that this judgment does not open the floodgates for unsubmitted claims to be revived. The respondent’s claim is dead for all positive purposes; it can only be used as a shield, not as a sword.

10. Final Outcome

The Supreme Court partly allowed the appeal. It modified the impugned order of the Division Bench of the Calcutta High Court. The Court held:

• The respondent cannot independently pursue its counterclaim for affirmative relief (i.e., cannot seek payment of its dues), as that claim stands extinguished upon approval of the resolution plan.

• However, the respondent is permitted to raise the plea of set‑off as a defence in the arbitration proceedings against the appellant’s claim, to the extent necessary to defend itself.

• The respondent shall not derive any positive or affirmative relief from such defence. If the respondent’s claim exceeds the appellant’s claim, the surplus is not recoverable.

• The judgment is based on the specific terms of the resolution plan (paragraph 12.4.1) and is limited to the facts and circumstances of this case.

11. (MCQs)

1. Under Section 31(1) of the Insolvency and Bankruptcy Code, 2016, an approved resolution plan is binding on which of the following?
a) Only the corporate debtor and its creditors.
b) Only the Committee of Creditors.
c) The corporate debtor, its employees, members, creditors, guarantors, and other stakeholders.
d) Only the Resolution Professional and the Adjudicating Authority.

2. In this judgment, the Supreme Court allowed the respondent to raise a plea of set‑off as a defence because:?
a) The respondent had filed its counterclaim before the approval of the resolution plan.
b) The resolution plan did not expressly bar the defensive use of set‑off.
c) The Resolution Professional had specifically included the counterclaim in the resolution plan.
d) The respondent was a public sector undertaking.

3. Which of the following best describes the "clean slate" principle under the IBC?
a) All claims against the corporate debtor are automatically waived upon initiation of CIRP.
b) Once a resolution plan is approved, all claims not included in the plan are extinguished and the corporate debtor is not liable for them.
c) The corporate debtor’s past directors are absolved of all liability.
d) The corporate debtor can choose which creditors to pay after approval of the plan.

4. What was the key limitation imposed by the Supreme Court on the respondent’s right to raise set‑off as a defence?
a) The respondent could only raise set‑off if the appellant agreed.
b) The respondent could only raise set‑off if the amount was less than ₹10 lakhs.
c) The respondent could not derive any positive or affirmative relief; the set‑off was purely defensive.
d) The respondent could only raise set‑off after the conclusion of the CIRP.