Supreme Court Allows Limited Set‑Off Defence in Arbitration Post‑Resolution Plan Approval under IBC

Supreme Court Clarifies Set‑Off Rights After Resolution Plan Approval The Supreme Court ruled that while claims omitted from an approved IBC resolution plan are extinguished, a debtor can still raise a limited plea of set‑off in arbitral proceedings, provided no affirmative recovery is claimed. Key Developments Bench of Justice Dipankar Datta and Justice Augustine George Masih partially allowed the appeal of Ujaas Energy Ltd. against West Bengal Power Development Corporation Ltd. . The Court distinguished between pursuing a claim and using it defensively; it permitted set‑off as a defence but barred any independent counter‑claim. If the arbitration is withdrawn, the defensive set‑off claim also collapses. The judgment is limited to the specific terms of the resolution plan and does not overrule earlier rulings on set‑off during the CIRP . Important Facts The dispute originated from a 2017 contract for installing grid‑connected rooftop solar plants in West Bengal. Ujaas Energy , an MSME, entered the CIRP in September 2020 . During arbitration, the respondent PSU raised a counter‑claim that was never presented to the Resolution Professional before the plan’s approval. The NCLT approved the resolution plan in October 2023 . Section 31(1) was invoked by the appellant, arguing that all non‑plan claims were dead. The arbitral tribunal initially accepted this view, but the Calcutta High Court Division Bench reversed it, ordering full adjudication of the counter‑claim. UPSC Relevance This judgment illustrates the interaction between insolvency law and arbitration, a recurring theme in GS2: Polity . Understanding the distinction between extinguished claims and defensive set‑off is crucial for questions on corporate restructuring, dispute resolution mechanisms, and the limits of statutory remedies. It also highlights the role of the NCLT and the Supreme Court in interpreting the IBC, a key piece of legislation for India’s financial stability (GS3: Economy). Way Forward Legislators may consider expressly clarifying the status of defensive set‑off in resolution plans to avoid divergent judicial interpretations. Arbitrators should scrutinise whether a set‑off plea is purely defensive and ensure no affirmative recovery is granted. Companies undergoing CIRP must disclose all pending claims to the Resolution Professional before plan approval to preserve defensive rights. Thus, while the IBC extinguishes excluded claims post‑plan approval, the Supreme Court preserves a narrow defensive tool—set‑off—ensuring that parties can protect themselves without undermining the finality of the resolution plan.