The approval of a resolution plan under the Insolvency and Bankruptcy Code, 2016 (Code) is intended to provide the successful resolution applicant with a clean slate, free from past liabilities not provided for under the plan. Under this principle, commonly referred to as the ‘clean slate doctrine’, claims against the corporate debtor that do not form part of the approved resolution plan stand extinguished and cannot subsequently be enforced. This includes claims arising from contractual disputes involving the corporate debtor. However, a question arises when the corporate debtor seeks to recover its own contractual dues from a counterparty whose claim against it has been extinguished. Can the counterparty still rely on that claim to reduce the amount payable to the corporate debtor, even though it can no longer recover the amount independently? The Supreme Court’s decisions in Ujaas Energy1 and Modern Asset2 address this question by examining the distinction between enforcing an extinguished claim and relying on it as a defence.
Section 31(1) of the Code makes an approved resolution plan binding on the corporate debtor and relevant stakeholders. Section 31(6), introduced by the 2026 Amendment to the Code, expressly addresses extinguishment of prior claims unless otherwise provided in the plan, and prohibits proceedings based on those claims.
The importance of finality of a resolution plan is evident in RPS Infrastructure Ltd v. Mukul Kumar,3 where a creditor sought to introduce a belated claim after the Committee of Creditors had approved the plan. The Supreme Court held that the pendency of approval before the adjudicating authority did not justify reopening the process to admit a belated claim, as doing so would undermine the finality of resolution. While RPS Infrastructure concerned the belated submission of a claim, participation in the Corporate Insolvency Resolution Process (CIRP) does not itself preserve a right to recovery beyond the approved plan. This distinction emerged in Electrosteel Steel Ltd v. Ispat Carrier (P) Ltd,4 where the claim had been submitted and partly admitted, but was assigned a nil payment under the approved resolution plan. The arbitral award subsequently made in favour of Ispat Carrier could not be enforced against Electrosteel, as the underlying claim had already been extinguished under the approved resolution plan.
The significance of the claim’s treatment under the approved plan was also examined in Tata Steel Ltd v. Varsha,5 where the question was whether assigning a nominal value of Re 1 preserved a claim pending adjudication. Reading the plan as a whole, the Court found no express provision protecting such claims from extinguishment. As such, the nominal valuation did not preserve a right to pursue recovery after approval of the plan. Therefore, neither submission nor recognition of a claim in CIRP necessarily preserves an enforceable entitlement after resolution. A different question arises where the creditor seeks no payment but relies on its claim solely to resist recovery by the corporate debtor.
In Ujaas Energy,6 the corporate debtor was pursuing arbitration against a party that had raised a counterclaim in those proceedings but had not submitted its claim during CIRP. The Supreme Court accepted that the claim stood extinguished under the approved resolution plan and could no longer provide a basis for seeking payment from the corporate debtor. The Court nevertheless considered whether the counterclaim could be examined solely to determine the amount recoverable by the corporate debtor in the arbitration. In addressing this question, the plan’s prohibition on claims for payment or settlement was distinguished from the use of a claim as a defence.
While the counterclaim had been asserted before approval of the plan and was known to the resolution professional, the Court observed that these circumstances were not decisive in support of a claim against the corporate debtor and merely supported consideration of limited defensive relief. Accordingly, the counterclaim was to be adjudicated only to reduce or defeat the corporate debtor’s demand. If the counterclaim exceeded that demand, the counterparty could not recover the excess. Conversely, any balance remaining in the corporate debtor’s favour would be recoverable. The counterclaim also depended on the continuation of the debtor’s arbitration: if the debtor withdrew its claim, the counterparty could not pursue the counterclaim independently. The Court, however, expressly confined this relief to the facts of the case and the terms of the plan before it.
Unlike Ujaas, where the counterclaim had not been submitted during CIRP, the case of Modern Asset7 concerned a creditor that had submitted its claim against the corporate debtor. The creditor's claim arose from a construction contract, under which the corporate debtor also claimed that amounts were owed to it. During CIRP, the creditor submitted a claim of approximately INR 12.26 crore, but the approved resolution plan provided for payment of only 0.72% of that amount, resulting in a haircut of 99.28%. Notably, the successful resolution applicants were the corporate debtor's erstwhile promoters. When the corporate debtor subsequently sought to pursue its contractual claims through arbitration, the creditor sought to rely on its own claim by way of set-off.
The Supreme Court permitted such set-off, placing particular emphasis on the fact that the competing claims arose from the same contract and that the erstwhile promoters had themselves proposed the resolution plan. The Court reasoned that, by providing for payment of 0.72% of the creditor's claim, the successful resolution applicants had effectively accepted the claim in its entirety, while limiting the amount payable under the plan. It therefore allowed the creditor to set off its entire accepted claim against any amount found payable to the corporate debtor in arbitration, notwithstanding the haircut imposed under the resolution plan. However, this was strictly a defensive remedy: the creditor could reduce or extinguish the corporate debtor's recovery but could not obtain an award for any amount exceeding it.
The fact that the erstwhile promoters returned as resolution applicants did not, however, deprive the corporate debtor of the protection afforded by the approved resolution plan. In MBL Infrastructure,8 the Delhi High Court clarified that the clean slate doctrine applies irrespective of whether the corporate debtor is taken over by new investors or its existing promoters. The binding effect of the resolution plan attaches to the corporate debtor as a juristic entity, rather than to the identity of its management. Accordingly, the promoters' return in Modern Asset must be distinguished from the question of whether the corporate debtor continues to enjoy protection against past liabilities.
Read together, Ujaas and Modern Asset indicate that the submission of a claim during CIRP is not, by itself, determinative of the availability of defensive set-off. In Ujaas, the Court relied on the terms of the resolution plan, which did not prohibit the use of an extinguished claim as a defence. The resolution professional's knowledge of the pending counterclaim was also considered, although such knowledge does not prevent extinguishment under an approved plan, as clarified in Electrosteel.9 In Modern Asset, the Court placed weight on the acceptance of the creditor's underlying claim and the fact that both claims arose from the same contract. The decisions therefore recognise a limited scope for defensive set-off, without establishing a general entitlement to such relief after resolution.
Notably, the Supreme Court in Ujaas also addressed its earlier decision in Bharti Airtel,10 which considered the availability of set-off during CIRP as opposed to after approval of the resolution plan. In Bharti Airtel, the Court rejected a general right to set-off, since allowing creditors to adjust their dues against amounts payable to the corporate debtor could reduce the assets available to other creditors. It nevertheless recognised limited exceptions, including where the competing claims arose from closely connected transactions. In Ujaas, however, the Court distinguished Bharti Airtel on the ground that the dispute concerned set-off after approval of the resolution plan. At that stage, the question was whether an extinguished claim could be relied upon as a defence against recovery pursued by the corporate debtor, rather than whether a creditor could obtain an adjustment during CIRP. The distinction is significant because the restrictions governing set-off during CIRP do not necessarily determine the availability of defensive relief after approval of a resolution plan.
While Ujaas and Modern Asset provide important guidance on the availability of defensive set-off after resolution, they do not lay down a comprehensive test for its application, leaving uncertainty as to the circumstances in which such relief may be permitted. At the same time, these decisions have practical implications for stakeholders under the Code. Resolution applicants should account for outstanding contractual disputes and possible defensive set-offs when valuing the corporate debtor’s receivables, rather than assuming that extinguishment of a counterparty’s claim guarantees full recovery. The terms of the resolution plan also warrant careful consideration, particularly where contractual claims or counterclaims remain pending. Creditors, meanwhile, should continue to submit their claims during CIRP, since the possibility of defensive set-off does not preserve a right to independent recovery. Ultimately, while the approved resolution plan determines the enforceability of past liabilities, it may not conclusively determine the amount recoverable by the corporate debtor from its counterparties.
Footnotes
1 Ujaas Energy Ltd v. West Bengal Power Development Corporation Ltd, 2026 SCC OnLine SC 453.
2 Modern Asset v. KNK Construction (P) Ltd, 2026 SCC OnLine SC 2088.
3 RPS Infrastructure Ltd v. Mukul Kumar, (2023) 10 SCC 718, p. 23-24.
4 Electrosteel Steel Ltd v. Ispat Carrier (P) Ltd, (2025) 7 SCC 773, p. 6 & 71-74.
5 Tata Steel Ltd v. Varsha, (2026) 8 SCC 13, p. 58 & 62.
6 Ujaas Energy Ltd v. West Bengal Power Development Corporation Ltd, 2026 SCC OnLine SC 453, p. 13, 16-17, 23 & 25-26.
7 Modern Asset v. KNK Construction (P) Ltd, 2026 SCC OnLine SC 2088, paras 4 and 23.
8 MBL Infrastructure Ltd v. Pradeep Colonisers & Suppliers (P) Ltd, 2026 SCC OnLine Del 2900, para 53
9 Electrosteel Steel Ltd v. Ispat Carrier (P) Ltd, (2025) 7 SCC 773, p. 6 & 71-74.
10 Bharti Airtel Ltd v. Aircel Ltd & Dishnet Wireless Ltd (Resolution Professional), (2024) 4 SCC 668, p. 40 & 46-50.
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