The Supreme Court has clarified that non-inclusion of a claim in the resolution plan results in its extinguishment, and 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.
The Court held that the West Bengal Power Development Corporation (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. Further, the respondent shall not derive any positive or affirmative relief on the basis of the said defence and may only defend itself against the claim raised by the appellant to the extent necessary to prevent the appellant from succeeding in the arbitration proceedings either entirely or in part.
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, added the Court.
Conversely, the Court clarified that if any amount remains payable to the appellant after adjustment of the respondent’s defence plea, the same shall be recoverable by the appellant and the Tribunal may order accordingly. If the arbitration proceedings initiated by the appellant are withdrawn, the counterclaim of the respondent shall also fail, as the same is permitted only for the limited purpose of defence.
On the extinguishment of claims and the ‘clean slate’ principle, a Two-Judge Bench comprising Justice Dipankar Datta and Justice Augustine George Masih observed that Section 31(1) of the IBC provides that the terms of an approved resolution plan are binding and attach finality to the plan. The terms 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.
Relying on the precedent set in Ghanashyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. [(2021) 9 SCC 657], the Bench observed that on the date of approval of the resolution plan by the adjudicating authority, all claims which are not a part of the resolution plan shall stand extinguished, and no person will be entitled to initiate or continue any proceedings in respect to a claim which is not part of the resolution plan. The Bench added that the respondent cannot seek any affirmative relief from the Tribunal because the respondent’s claim, raised by way of counterclaim before the Tribunal, does not find a place in the resolution plan and hence stands extinguished.
On the Interpretation of the resolution plan and the plea of set-off, the Bench noted three specific aspects: first, the respondent raised its counterclaim prior to the approval of the resolution plan; second, the Resolution Professional was aware of the counterclaim, yet it was not made part of the resolution plan; and third, the resolution plan bars all future “payments/settlements” in respect of claims which were not raised before it.
The Bench emphasised that Paragraph 12.4.1 of the resolution plan explicitly states that no other payments or settlements will have to be made in respect of claims against the Company, and all such claims, including counterclaims under pending arbitration proceedings, stand irrevocably and unconditionally abated, discharged, settled, and extinguished in perpetuity. Thus, going by the exact words employed in Paragraph 12.4.1 of the plan, it does not appear to bar a plea of set-off being raised as a ‘defence’ in any pending arbitral proceedings, although claims for any “payment” or “settlement”, including a counterclaim, not included therein are specifically not recoverable.
Lastly, the Bench clarified that the clause of the resolution plan does not expressly, or even impliedly, exclude the plea of set-off as a defence. Since such defensive use has not been expressly provided and is not expressly covered, an intention to exclude it would ordinarily be inferred by application of the maxim expressio unius est exclusio alterius.
Briefly, Ujaas Energy Ltd (respondent) floated an e-tender on 15th February, 2017, for the manufacture, procurement, installation, etc., of a grid-connected rooftop solar PV power plant at various locations in West Bengal. The appellant, an MSME, successfully participated in the bid process, and a Letter of Award (LOA) dated 12th May, 2017, was issued in its favour. On 17th September, 2020, the appellant was admitted into the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC).
Due to disputes relating to the performance of the contract, the appellant, through the resolution professional, invoked the arbitration clause via a notice dated 31st December, 2021, and filed a statement of claim on 17th January, 2023. The respondent filed its statement of defence and a counterclaim on 18th April and 12th May, 2023, respectively. The claim raised in the counterclaim was never pursued or filed before the Resolution Professional during the CIRP but was priorly raised in the course of the proceedings before the Arbitral Tribunal.
The National Company Law Tribunal (NCLT), Indore, accepted the resolution plan on 13th October, 2023, thereby concluding the CIRP. However, prior to the approval of the resolution plan, the appellant filed an application under Section 16 of the Arbitration and Conciliation Act, 1996 (A&C Act), 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 on 22nd December, 2023.
On 10th January, 2024, 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 the approval of the resolution plan. On 30th April, 2024, the Tribunal allowed the appellant’s application under Section 31(6) of the A&C Act and rejected the counterclaim via an interim arbitral award.
The respondent challenged the interim award under Section 34 of the A&C Act, which a Single Judge of the High Court at Calcutta dismissed via a judgment and order dated 21st August, 2024. The respondent challenged the Single Judge’s order before the Division Bench of the High Court, which set aside the order and directed the Tribunal to continue the arbitral proceedings, clarifying that it was open to the Tribunal to decide upon the status of the counterclaim while passing the award.
Case Distinguished:
Bharti Airtel Ltd. v. Aircel Ltd. & Dishnet Wireless Ltd. (Resolution Professional) – (2024) 4 SCC 668
Case Relied On:
Ghanashyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. – (2021) 9 SCC 657
Appearances:
Senior Advocate Abhijeet Sinha, AOR Neha Mehta Satija, along with Advocates Himanshu Satija and Harshit Khanduja, for the Appellant
AOR Kunal Mimani, for the Respondent
