Supreme Court Permits Extinguished Counter Claim To Be Raised As Plea Of Set-Off By Way Of Defence In Arbitral Proceedings

The civil appeal before the Apex Court was filed at the instance of a corporate debtor challenging a judgment of the Calcutta High Court whereby the order of a Single Judge spurning a challenge to an interim award of an Arbitral Tribunal laid by a public sector undertaking was set aside.

The Division Bench of Justice Dipankar Datta and Justice Augustine George Masih held, “Upon a cumulative consideration of all relevant factors, we hold that the respondent, although not entitled to independently pursue its claim by way of counterclaim post approval of the resolution plan, ought to be permitted to raise the plea of set-off at least by way of defence. It is ordered accordingly.”

Senior Advocate Abhijeet Sinha represented the Appellant, while AOR Kunal Mimani represented the Respondent.

Factual Background

The Respondent floated an e-tender for the manufacture, procurement, installation, etc. of grid-connected rooftop solar PV power plants at various locations in West Bengal. The Appellant, which is an MSME engaged in the business of supply, installation and commissioning of solar PV power plants, successfully participated in the bid process, whereupon a Letter of Award (LOA) was issued in its favour. More than three years later, the appellant was admitted into the Corporate Insolvency Resolution Process under the Insolvency and Bankruptcy Code, 2016. Due to certain disputes relating to the performance of the contract, the appellant, through the resolution professional, invoked the arbitration clause.

A statement of claim was filed, and the respondent filed its statement of defence as well as a counterclaim. The claim raised in the counterclaim was never pursued/filed before the Resolution Professional during the CIRP but was previously raised in the course of the proceedings before the Tribunal. The NCLT accepted the resolution plan, thereby concluding the CIRP. Prior to the approval, the appellant had filed an application under Section 16 of the Arbitration and Conciliation Act, 1996, contending that the Tribunal did not have jurisdiction to take up the counterclaim in view of the moratorium under Section 14 of the IBC. The Tribunal turned down the said application and decided to proceed with the statement of claim as well as the counterclaim.

The appellant filed an application under Section 31(6) of the A&C Act seeking dismissal of the counterclaim on the ground that all claims against the appellant had been extinguished by virtue of approval of the resolution plan. The Tribunal allowed the appellant’s application and rejected the counterclaim. A Single Judge of the High Court dismissed the respondent’s challenge. In appeal, the Division Bench directed the Tribunal to continue the arbitral proceedings. It was clarified that it was open to the Tribunal to decide upon the status of the counterclaim while passing the award. Aggrieved thereby, the appellant approached the Apex Court.

Arguments

It was the case of the appellant that since the respondent 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 proceedings, as the claim stood barred upon approval of the resolution plan.

Reasoning

Affirming that the CIRP is a time-bound, creditor-driven statutory mechanism incorporated under the IBC to resolve the corporate distress of a corporate debtor as a going concern, the Bench explained that as per Section 31(1), the plan’s terms are binding, as they stand, and it attaches finality to the resolution plan. Terms of the plan are to be read strictly, given the binding nature and extinguishment of claims not part of it, which aligns with the resolution objective of the IBC, it noted.

The Bench found that the respondent had raised its counterclaim before the approval of the resolution plan, the Resolution Professional was aware of the said counterclaim, yet, the same was not made part of the resolution plan, and the resolution plan barred all future “payments/ settlements” in respect of claims which were not raised before it.

“Given that non-inclusion of a claim in the resolution plan results in its extinguishment, it is only logical to conclude that any claim which is not expressly included in the resolution plan, and which is not expressly barred as per such plan, cannot be inferred to have been included therein”, it held while also adding, “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.”

Thus, holding that the respondent ought to be permitted to raise the plea of set-off at least by way of defence, the Bench clarified that the respondent shall not derive any positive or affirmative relief based on the said defence and may only defend itself against the claim raised by the appellant. “In other words, the respondent may rely upon the same in defence, to the extent necessary to prevent the appellant from succeeding in the arbitration proceedings either entirely or in part”, it ordered.

Partly allowing the appeal, the Bench held that in the event the amount claimed in the counterclaim of the respondent, or any part of it, is found to be due and payable to the respondent by the appellant and such amount exceeds the amount awarded to the appellant, the surplus amount shall not be recoverable by the respondent.

Cause Title: Ujaas Energy Ltd. v. West Bengal Power Development Corporation Ltd. (Neutral Citation: 2026 INSC 268)

Appearance

Appellant: Senior Advocate Abhijeet Sinha, Advocate Himanshu Satija, AOR Neha Mehta Satija, Advocate Harshit Khanduja

Respondent: AOR Kunal Mimani

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