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Introduction
The Hon’ble Supreme Court’s decision in Ujaas Energy Ltd. v. West Bengal Power Development Corporation Ltd., Civil Appeal No. 3619 of 2026, decided on 20 March 2026, is an important pronouncement at the intersection of Insolvency Law and Arbitration.
Factual Background
West Bengal Power Development Corporation Limited (“WBPDCL”) had floated an e-tender on 15 February 2017 for manufacture, procurement, installation and related works for grid-connected rooftop solar PV power plants at various locations in West Bengal. Ujaas Energy Ltd., an MSME engaged in supply, installation and commissioning of solar PV power plants, successfully participated in the bid process and was issued a Letter of Award dated 12 May 2017.
More than three years later, on 17 September 2020, Ujaas Energy was admitted into Corporate Insolvency Resolution Process under the Insolvency and Bankruptcy Code, 2016. There were disputes between the parties concerning performance of the contract, and through the Resolution Professional, Ujaas invoked the arbitration clause by notice dated 31 December 2021. A statement of claim was filed on 17 January 2023, and WBPDCL filed its statement of defence and counterclaim on 18 April and 12 May 2023 respectively.
A crucial factual feature was that WBPDCL had not pursued or filed its claim before the Resolution Professional during CIRP, though the claim later surfaced by way of counterclaim in the arbitral proceedings. The Court identified this as the core factual circumstance around which the controversy arose.
The National Company Law Tribunal, Indore, approved the resolution plan on 13 October 2023, thereby concluding the CIRP. Before approval of the plan, Ujaas had filed an application under Section 16 of the Arbitration and Conciliation Act, 1996 contending that the arbitral tribunal lacked jurisdiction to entertain the counterclaim in view of the moratorium under Section 14 of the IBC. The tribunal rejected that application on 22 December 2023 and decided to proceed with both the claim and the counterclaim. Thereafter, on 10 January 2024, Ujaas filed an application under Section 31(6) of the Arbitration and Conciliation Act seeking dismissal of the counterclaim on the ground that, upon approval of the resolution plan, all claims not forming part of the plan stood extinguished. The arbitral tribunal accepted that position by an interim arbitral award dated 30 April 2024 and rejected the counterclaim.
WBPDCL challenged the interim award under Section 34 of the Arbitration and Conciliation Act. A learned Single Judge of the Calcutta High Court dismissed the challenge on 21 August 2024. However, on appeal, the Division Bench set aside the judgment and directed continuation of the arbitral proceedings, while observing that the tribunal could decide the status of the counterclaim at the time of the final award. It was this Division Bench judgment that was carried in appeal to the Hon’ble Supreme Court by Ujaas Energy.
Legal Issue
The Hon’ble Supreme Court narrowed the controversy to a single principal issue: whether WBPDCL ought to be allowed to raise a plea of set-off before the arbitral tribunal, notwithstanding extinguishment of its counterclaim due to failure to lodge that claim before the Resolution Professional during CIRP and prior to approval of the resolution plan. The broader legal framework implicated Section 31(1) of the IBC concerning the binding effect of an approved resolution plan, the extinguishment of claims not forming part of the plan, the “clean slate” principle, and the distinction between a substantive counterclaim seeking affirmative relief and a defensive plea of set-off.
Statutory Framework and Legal Principles
The Court relied centrally on Section 31(1) of the IBC, which provides that once the Adjudicating Authority is satisfied that the resolution plan approved by the Committee of Creditors meets the requirements of Section 30(2), it shall approve the plan and that plan becomes binding on the corporate debtor, employees, members, creditors, governmental authorities, guarantors and other stakeholders involved in the resolution plan. The Court held that the language of Section 31(1) is clear and attaches finality to the resolution plan, with the consequence that claims not included in the plan stand extinguished in line with the object of resolution under the IBC.
The Court expressly relied upon Ghanashyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd.1, where the Hon’ble Supreme Court had reiterated that once a resolution plan is duly approved, all claims not forming part of it stand extinguished, and no person can continue or initiate proceedings in respect of such claims. The Court accepted this principle and agreed with the appellant that, on the date of approval of the resolution plan, all claims not forming part of the plan stood extinguished.
At the same time, the Court considered the definition of “claim” under Section 3(6) of the IBC, which includes a right to payment and a right to remedy for breach of contract if such breach gives rise to a right to payment. The Court observed that this broad definition encompassed WBPDCL’s underlying monetary assertion, which, if not lodged and included in the resolution plan, would ordinarily stand extinguished.
The Court then turned to the language of paragraph 12.4.1 of the approved resolution plan. That paragraph stated, in substance, that other than payments/settlements under the resolution plan, no other payments or settlements of any kind would have to be made in respect of any claims against the company, whether or not filed or admitted by the Resolution Professional, and that all such claims, including counterclaims under any pending arbitration proceedings, together with related proceedings, would stand irrevocably and unconditionally abated, discharged, settled and extinguished. The Court held, however, that while this clause clearly barred claims for payment or settlement, including counterclaims, it did not expressly bar a plea of set-off being raised as a defense in pending arbitral proceedings.
Contentions of the Appellant
On behalf of Ujaas Energy, it was argued that because WBPDCL had failed to raise its claim before the Resolution Professional within the prescribed time, it could not subsequently assert the same by way of counterclaim in the arbitration. It was submitted that once the resolution plan stood approved, all claims not forming part of that plan stood extinguished, and allowing the respondent to revive its claim by way of counterclaim would defeat the clean slate principle that underpins the CIRP framework. According to the appellant, the resolution plan represents the culmination of the CIRP; after approval by the Committee of Creditors and the Adjudicating Authority, the CIRP concludes and extinguishes all non-included claims against the corporate debtor as of that date.
The appellant therefore maintained that both the arbitral tribunal and the Single Judge had correctly held that after approval of the resolution plan, the respondent could not maintain any counterclaim in respect of a claim that had not been submitted to the Resolution Professional before approval.
Contentions of the Respondent
WBPDCL initially supported the reasoning of the Division Bench and argued that the clean slate principle should not be applied so rigidly as to defeat the rights of genuine litigants. Before the Hon’ble Supreme Court, however, the respondent refined its stand and submitted that if the respondent’s counterclaim could not be allowed to proceed independently and would otherwise be barred because the claim had not been lodged before the resolution plan was approved, the respondent should at the very least be permitted to raise a plea of set-off as an adjustment against the appellant’s claim, should Ujaas ultimately succeed before the Tribunal.
The thrust of the respondent’s argument was not that it should secure independent enforcement or affirmative recovery, but that it should not be placed in a position where it had to pay the appellant without the tribunal taking into account amounts allegedly owed by the appellant to the respondent under the same contractual relationship.
Findings and Analysis of the Hon’ble Supreme Court
The Hon’ble Supreme Court first reaffirmed the legal position that on approval of a resolution plan by the Adjudicating Authority, all claims not forming part of the plan stand extinguished. It accepted the appellant’s submission that WBPDCL could not seek affirmative relief before the tribunal based on a claim raised only by way of counterclaim and not included in the resolution plan. The Court made it clear that the respondent’s counterclaim, in so far as it sought an independent decree or award, was extinguished and could not survive post-resolution.
However, the Court then examined whether the respondent could nevertheless invoke the same underlying factual and monetary assertion as a defensive set-off. Three features particularly weighed with the Court: first, that the respondent had raised its counterclaim before approval of the resolution plan; second, that the Resolution Professional was aware of the counterclaim but it was still not made part of the plan; and third, that the resolution plan barred future payments or settlements in respect of non-raised claims but did not in terms forbid a defensive set-off. These circumstances led the Court to consider whether a limited indulgence in favour of the respondent was warranted.
The Court focused closely on paragraph 12.4.1 of the resolution plan and held that, by its express wording, it barred claims for payment or settlement, including counterclaims, but did not expressly or impliedly exclude the plea of set-off as a defense. In the Court’s view, an intention to exclude defensive set-off could not ordinarily be inferred unless specifically provided. The Court therefore distinguished between asserting a barred claim to obtain money and relying upon the same facts defensively to reduce or negate the appellant’s own monetary claim.
On that basis, the Court held that WBPDCL, though not entitled independently to pursue its claim by way of counterclaim after approval of the resolution plan, ought to be permitted to raise a plea of set-off at least by way of defense. The Court therefore departed from both the Single Judge and the Division Bench and fashioned a middle course.
The Court carefully limited the scope of this defense. It clarified that WBPDCL would not derive any positive or affirmative relief on the basis of the set-off. The respondent could rely on the plea only to defend itself against the appellant’s claim and only to the extent necessary to prevent Ujaas from succeeding in whole or in part. If the amount reflected in the extinguished counterclaim was found to exceed the amount awarded to Ujaas, the surplus would not be recoverable by WBPDCL. Conversely, if an amount remained payable to Ujaas after adjustment, the appellant could recover that balance. Further, if the arbitration proceedings initiated by Ujaas were withdrawn, WBPDCL’s counterclaim would also fail because it was being permitted only for the limited purpose of defence.
The Court also observed that its judgment was confined to the specific wording of paragraph 12.4.1 of the resolution plan and to the facts of the present case. It distinguished the earlier decision in Bharti Airtel Ltd. v. Aircel Ltd. & Dishnet Wireless Ltd. (Resolution Professional)2, noting that the ratio there was not directly applicable because that decision dealt with the aspect of set-off at the time of the CIRP, whereas the present case concerned set-off in the context of the resolution plan that had ultimately been approved.
Final Ruling
The Hon’ble Supreme Court modified the impugned order of the Division Bench and partly allowed the appeal. It held that WBPDCL’s substantive counterclaim, not being part of the approved resolution plan, stood extinguished and could not be pursued for any affirmative or independent relief. However, WBPDCL was permitted to raise a limited plea of set-off by way of defense in the arbitration against Ujaas Energy’s claim. The Court also clarified the consequences of such defensive set-off: no surplus recovery for WBPDCL, recovery by Ujaas only of any balance remaining after adjustment, and failure of the respondent’s plea if the appellant’s arbitral proceedings were withdrawn.
Ending Observation
The judgment in Ujaas Energy is significant because it preserves the finality and binding effect of an approved resolution plan under Section 31 of the IBC, while recognising that not every defensive use of an extinguished claim is automatically barred. The Hon’ble Supreme Court’s interpretive exercise turned substantially on the exact wording of the resolution plan, especially paragraph 12.4.1, and it is therefore a reminder that the drafting of resolution plans can have decisive consequences in subsequent litigation and arbitration. The decision does not dilute the clean slate principle; rather, it clarifies that where the plan bars payment and settlement claims but is silent on purely defensive set-off, a Tribunal may permit such set-off only to reduce or defeat the corporate debtor’s claim and not to confer any independent monetary benefit on the respondent.
Footnotes
1. (2024) 19 SCC 374
2. (2024) 4 SCC 668
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