In a significant ruling clarifying the scope of the “clean slate” principle under insolvency law, the Supreme Court held that while claims not included in a resolution plan stand extinguished, a limited right to raise set-off as a defence may still survive in arbitration proceedings.
The judgment came in a dispute between Ujaas Energy Ltd. and West Bengal Power Development Corporation Ltd., where the Court partly allowed the appeal.
Background of the Case
The dispute traces back to a 2017 contract for setting up rooftop solar power projects in West Bengal. Ujaas Energy Ltd., an MSME, secured the project but later entered the Corporate Insolvency Resolution Process (CIRP) in 2020 under the Insolvency and Bankruptcy Code (IBC).
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During arbitration proceedings initiated in 2021, the respondent corporation filed a counterclaim. However, this claim had not been submitted before the Resolution Professional during the CIRP.
In October 2023, the resolution plan for Ujaas Energy was approved by the National Company Law Tribunal (NCLT), effectively concluding the CIRP.
The core issue arose when the arbitral tribunal rejected the respondent’s counterclaim through an interim award, citing that claims not part of the resolution plan stand extinguished.
While a Single Judge of the Calcutta High Court upheld this view, a Division Bench later reversed it, directing continuation of arbitration and allowing reconsideration of the counterclaim.
This led Ujaas Energy Ltd. to approach the Supreme Court.
The bench, led by Justice Dipankar Datta & Justice A.G. Masih, examined the legal effect of an approved resolution plan under Section 31 of the IBC.
“The terms of the resolution plan are binding and attach finality. Claims not forming part of the plan stand extinguished,” the Court observed.
Reaffirming earlier precedents, the Court emphasized that once a resolution plan is approved, it creates a “clean slate,” wiping out past claims not included in it.
However, the Court also carefully distinguished between a claim seeking recovery and a defensive plea like set-off.
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On this aspect, the Court took a nuanced approach.
It noted that although the respondent’s counterclaim could not survive independently after the resolution plan approval, the wording of the plan did not expressly bar a plea of set-off as a defence.
“The clause merely bars claims for payment or settlement. It does not expressly exclude the plea of set-off as a defence,” the bench noted.
The Court also considered that the counterclaim had been raised before the arbitral tribunal prior to approval of the resolution plan, and that the resolution professional was aware of it.
Allowing the appeal in part, the Supreme Court held:
- The respondent cannot pursue its counterclaim as an independent claim after approval of the resolution plan.
- However, it may raise the plea of set-off strictly as a defence in arbitration proceedings.
- No affirmative relief or recovery can be granted to the respondent on the basis of such defence.
- Any surplus amount in favour of the respondent after adjustment will not be recoverable.
- If any amount remains payable to the appellant after such adjustment, it can be awarded accordingly.
The Court accordingly modified the High Court’s Division Bench order and directed that arbitration may proceed with this limited scope.
Case Title: Ujaas Energy Ltd. v. West Bengal Power Development Corporation Ltd.
Case Number: Civil Appeal arising out of SLP (C) No. 29651 of 2024
Judges: Justice Dipankar Datta & Justice Augustine George Masih
Decision Date: March 20, 2026
