Supreme Court Holds Counterclaims Not Filed in CIRP Are Extinguished but Set-Off May Be Allowed as Defence in Arbitration

Case Name: Ujaas Energy Ltd. v. West Bengal Power Development Corporation Ltd.
Citation: 2026 INSC 268
Date of Judgment/Order: 20 March 2026
Bench: Hon’ble Mr. Justice Dipankar Datta; Hon’ble Mr. Justice Augustine George Masih

Held: The Supreme Court held that claims not submitted during the Corporate Insolvency Resolution Process and not forming part of the approved resolution plan stand extinguished and cannot be pursued as counterclaims; however, such claims may still be permitted to be raised as a limited defence by way of set-off in arbitration proceedings, without entitling the claimant to any affirmative relief.

Summary: The dispute arose from a contract for installation of solar PV plants where arbitration was invoked after the corporate debtor underwent CIRP and a resolution plan was approved. The respondent had raised a counterclaim before the arbitral tribunal but had failed to submit such claim before the Resolution Professional during CIRP. The arbitral tribunal rejected the counterclaim through an interim award under Section 31(6), which was upheld by the Single Judge but reversed by the Division Bench of the High Court. Before the Supreme Court, the primary issue was whether such a counterclaim could survive post approval of the resolution plan and whether a plea of set-off could be raised. The Court reaffirmed the “clean slate” principle under Section 31 of the Insolvency and Bankruptcy Code, holding that all claims not included in the resolution plan stand extinguished. However, upon examining the terms of the resolution plan and the definition of “claim” under the IBC, the Court found that while affirmative recovery is barred, the plan did not expressly exclude defensive pleas such as set-off. The Court thus carved out a narrow equitable exception permitting use of extinguished claims defensively to resist the claimant’s demand, without allowing independent enforcement.

Decision: The Supreme Court partly allowed the appeal, modified the High Court’s order, and held that while the respondent’s counterclaim stands extinguished and cannot be pursued for recovery, it may raise a plea of set-off as a defence in arbitration; it further clarified that no affirmative relief or recovery beyond adjustment would be permitted, and disposed of the matter with parties bearing their own costs.