Supreme Court Upholds IBC ‘Clean Slate’, Bars Counter-claims but Permits Set-Off Defence in Ujaas Energy Arbitration [Read Order]
The Court clarified that where the respondent’s claim is found to be greater than the amount awarded to the appellant, the excess cannot be recovered
In a significant ruling, the Supreme Court partly allowed an appeal, holding that while counterclaims not filed during insolvency proceedings stand extinguished under the Insolvency and Bankruptcy Code (IBC), a limited set-off defence may still be raised in arbitration.
The dispute arose from a 2017 rooftop solar project contract awarded to Ujaas by the West Bengal Power Development Corporation. Following insolvency proceedings initiated against Ujaas in 2020, the company’s resolution plan was approved in October 2023. During arbitration, the respondent sought to press a counterclaim that had not been filed before the Resolution Professional during the Corporate Insolvency Resolution Process (CIRP).
The Arbitral Tribunal rejected the counterclaim, citing the “clean slate” principle under Section 31(1) of the IBC, which extinguishes all claims not included in the resolution plan. A Single Judge of the Calcutta High Court upheld this view, but the Division Bench later directed the Tribunal to continue proceedings, prompting Ujaas to appeal to the Supreme Court.
The appellant, Ujaas Energy Ltd., contended that since the respondent failed to lodge its claim before the Resolution Professional during the Corporate Insolvency Resolution Process (CIRP), it could not later revive the same as a counterclaim in arbitration. Counsel argued that once a resolution plan is approved under Section 31(1) of the Insolvency and Bankruptcy Code (IBC), all claims not included in it stand extinguished, giving the corporate debtor a “clean slate.”
On the other hand, the respondent argued that while the “clean slate” principle under the IBC extinguishes claims not included in the resolution plan, it should not be applied so rigidly that it unfairly deprives genuine litigants of their rights.
After considering the matters The apex court clarified that while affirmative relief through counterclaims is barred, fairness requires permitting a set-off defence.
Justice Dipankar Datta observed that: “In our opinion, the abovementioned clause of the resolution plan does not expressly, or even impliedly, exclude the plea of set-off as a defence; the same merely bars any claim for the purpose of payment or settlement. Since such defensive use has not been expressly provided and, in our view, is also not expressly covered, an intention to exclude it would ordinarily be inferred by application of the maxim expressio unius est exclusio alterius.”
The Court clarified that where the respondent’s claim is found to be greater than the amount awarded to the appellant, the excess cannot be recovered. The set‑off defence would operate only in a limited manner—solely to reduce or neutralize the appellant’s claim, without conferring any independent right of recovery on the respondent.
Accordingly, the Supreme Court modified the Division Bench’s orderand the appeal was partly allowed
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