Set-off in arbitration survives resolution plan extinction only as a defence, not as a basis for affirmative recovery.

Approval of a resolution plan under the Insolvency and Bankruptcy Code extinguishes claims not included in the plan, and no affirmative recovery can be pursued on such claims. The Court held, however, that where the plan bars payments or settlements but does not expressly exclude defensive adjustment, a plea of set-off may still be raised in pending arbitral proceedings. The distinction drawn was between an extinguished claim seeking positive monetary relief and a defensive set-off used only to resist or reduce the other side's claim. Express wording in the plan was treated as decisive, and the extinguishment principle was preserved for all recoverable claims outside the plan.

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Issues: Whether, where a resolution plan approved under the Insolvency and Bankruptcy Code, 2016 extinguishes claims not included in the plan, the party whose claim was not admitted may nevertheless raise a plea of set-off in pending arbitral proceedings.

Analysis: The Court examined the effect of approval of a resolution plan under Section 31(1) of the Insolvency and Bankruptcy Code, 2016 and the definition of "claim" under Section 3(6) of the Insolvency and Bankruptcy Code, 2016, noting that claims not included in an approved resolution plan stand extinguished. The language of the resolution plan paragraph barring "payments/settlements" for claims not part of the plan was considered alongside the procedural history showing that the counterclaim had been filed in arbitration prior to approval of the resolution plan but was not included in the plan. The Court analysed whether the plan's bar on payments and settlements should be read as also barring the defensive plea of set-off. Applying principles of strict construction of resolution plan terms and the maxim expressio unius est exclusio alterius, the Court found that the clause expressly bars affirmative claims for payment or settlement but does not expressly or impliedly exclude raising set-off as a defensive plea in pending proceedings. The Court balanced the extinguishment principle and the binding effect of the approved plan against equitable considerations arising from the facts that the counterclaim was on record before approval and that the Resolution Professional was aware of it, and concluded that limited equitable relief in the form of permitting set-off as a defence is appropriate while preserving the extinguishment principle for affirmative relief.

Conclusion: Counterclaims or claims not included in an approved resolution plan stand extinguished and no affirmative relief may be pursued; however, a plea of set-off may be raised only as a defensive plea in pending arbitral proceedings and may not result in any positive or recoverable amount in favour of the claimant beyond adjustment against the claimant's claim.

Ratio Decidendi: On approval of a resolution plan under Section 31(1) of the Insolvency and Bankruptcy Code, 2016, claims not included in the plan are extinguished; nevertheless, where the plan's language bars payments or settlements but does not expressly exclude defensive set-off, a limited right to raise set-off as a defence in pending proceedings may be permitted, subject to the condition that no affirmative monetary recovery shall be allowed on that basis.

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