UJAAS ENERGY LTD. vs. WEST BENGAL POWER DEVELOPMENT CORPORATION LTD. — Supreme Court judgment on set-off

UJAAS ENERGY LTD. vs. WEST BENGAL POWER DEVELOPMENT CORPORATION LTD. — Supreme Court judgment on set-off

Meta: UJAAS ENERGY LTD. vs. WEST BENGAL POWER DEVELOPMENT CORPORATION LTD.: dispute on set-off after approval of resolution plan; Court allowed defensive set-off, appeal partly allowed.

INTRODUCTION

UJAAS ENERGY LTD. vs. WEST BENGAL POWER DEVELOPMENT CORPORATION LTD. is a Supreme Court judgment concerning whether a respondent may raise a plea of set-off in arbitration proceedings after a resolution plan approved under the Insolvency and Bankruptcy Code extinguished claims not included in the plan. The Court held that the respondent’s counterclaim stood extinguished but permitted the respondent to raise set-off defensively only; no affirmative relief on the basis of that counterclaim was allowed.

QUICK FACT BOX

Court: Supreme Court of India

Citation: 2026 INSC 268

Date of judgment: March 20, 2026

Bench: Dipankar Datta, J.; Augustine George Masih, J.

Petitioners: Ujaas Energy Ltd.

Respondents: West Bengal Power Development Corporation Ltd.

Originating SLP: SLP (CIVIL) NO. 29651 OF 2024

Outcome: Appeal partly allowed; respondent permitted to raise set-off defensively

BACKGROUND OF THE CASE

Parties involved: The appellant is Ujaas Energy Ltd. The respondent is West Bengal Power Development Corporation Ltd.

Events leading to litigation (chronological): Respondent floated an e-tender on 15th February, 2017. Appellant received a Letter of Award dated 12th May, 2017. Appellant entered CIRP on 17th September, 2020. Arbitration was invoked by the appellant by notice dated 31st December, 2021; statement of claim filed 17th January, 2023; respondent filed statement of defence and a counterclaim on 18th April and 12th May, 2023. NCLT, Indore approved a resolution plan on 13th October, 2023, concluding the CIRP. Appellant filed an application under Section 31(6) of the Arbitration and Conciliation Act on 10th January, 2024 seeking dismissal of the counterclaim. Tribunal rejected the counterclaim by an interim award dated 30th April, 2024. Respondent challenged the interim award under Section 34 and a Single Judge dismissed that challenge on 21st August, 2024. Division Bench of the High Court set aside the Single Judge order and directed continuation of arbitral proceedings. The appellant appealed to the Supreme Court.

Lower court outcome: Division Bench of the Calcutta High Court set aside the Single Judge’s order and directed the Tribunal to continue arbitral proceedings.

LEGAL ISSUE BEFORE THE SUPREME COURT

The main question before the Court was: whether the respondent ought to be allowed to raise the plea of set-off before the Tribunal, having regard to extinguishment of the respondent’s counterclaim for its failure to raise such claim before the Resolution Professional during the CIRP and prior to approval of the resolution plan?

SUPREME COURT ANALYSIS

The Court observed that Section 31(1) of the Insolvency and Bankruptcy Code makes an approved resolution plan binding and that claims not part of the resolution plan stand extinguished on approval.

The Court referred to established principle that claims not included in an approved resolution plan are extinguished and cannot be pursued post-approval.

The Court quoted Paragraph 12.4.1 of the resolution plan, which states that other than payments/settlements under the resolution plan, no other payments or settlements will have to be made and that claims including counterclaims under pending arbitration proceedings shall stand abated, discharged, settled and extinguished in perpetuity on the NCLAT Approval Date.

The Court held that paragraph 12.4.1 bars claims for payment or settlement but, on its wording, does not expressly bar the plea of set-off being raised as a defence in pending arbitral proceedings.

The Court found that the respondent’s counterclaim did not form part of the resolution plan and therefore stood extinguished; however, given that the counterclaim had been filed before approval and the Resolution Professional was aware of it but did not include it in the plan, the Court permitted a limited remedy.

The Court held that the respondent may raise the plea of set-off only as a defence in the arbitration proceedings and may not obtain any positive or affirmative relief on that basis.

Clarifications provided by the Court: (a) if the respondent’s counterclaim amount exceeds the amount awarded to the appellant, the surplus shall not be recoverable by the respondent; (b) if any amount remains payable to the appellant after adjustment, it shall be recoverable by the appellant and the Tribunal may order accordingly; (c) if the appellant withdraws the arbitration proceedings, the respondent’s counterclaim shall fail as it is permitted only for limited defensive purposes.

The Court stated that this conclusion was limited to the terms of paragraph 12.4.1 of the resolution plan and the facts of the present case.

FINAL VERDICT

The impugned order of the Division Bench was modified.

The appeal was partly allowed on the terms recorded in the judgment.

The respondent’s counterclaim, not being part of the resolution plan, stands extinguished and the respondent is not entitled to pursue affirmative relief based on that counterclaim.

The respondent is permitted to raise the plea of set-off only as a defence in the arbitration proceedings and may not derive any positive relief from it.

Specific directions: surplus amount (if counterclaim exceeds award) shall not be recoverable by the respondent; amounts remaining payable to the appellant after adjustment shall be recoverable; if arbitration is withdrawn, the counterclaim fails.

Parties shall bear their own costs.

WHY THIS JUDGMENT MATTERS

The judgment does not explicitly state broader implications.

CONCLUSION

The Supreme Court in UJAAS ENERGY LTD. vs. WEST BENGAL POWER DEVELOPMENT CORPORATION LTD. held that claims not included in an approved resolution plan are extinguished, but under the plan’s wording the respondent may raise set-off defensively in pending arbitration proceedings. The appeal was partly allowed and the Division Bench order modified.