Operational Creditor Who Took 99.28% Haircut Can Claim Set-Off Against Resolution Applicant's Arbitration Claim: Supreme Court

The appellant engaged the respondent in 2018 to build an office building under a Rs 133.68 crore contract containing an arbitration clause. The respondent was admitted into CIRP on 11.12.2019, after which the appellant terminated the contract (paras 3, 13). The appellant's Rs 12.26 crore claim was settled at 0.72% under a resolution plan submitted by the erstwhile promoters, eligible because the debtor was an MSME, and approved by the NCLT on 05.04.2022 (para 4). The respondent, now run by the same promoters as successful resolution applicant, invoked arbitration on 13.03.2023 over the same contract; the Karnataka High Court appointed an arbitrator under Section 11, leaving the clean slate question to the tribunal (paras 4-5, 11).

The clean slate principle under Section 31(1) IBC, reinforced by the new Section 31(6), is too well entrenched to be revisited, and an arbitral tribunal cannot depart from it; the High Court was wrong to leave its application to the arbitrator (paras 14, 19). A successful resolution applicant may still pursue the corporate debtor's claims against its debtors, and the arbitration was invoked within limitation once the moratorium was excluded (paras 13, 19). The return of the erstwhile promoters as resolution applicant, permitted for an MSME, did not change the law (paras 13-14). But the promoters took part in the CIRP and knew of the appellant's claim through the information memorandum; by offering 0.72%, they are deemed to have accepted the whole claim (paras 17-18, 23). The resolution professional never listed the counterclaim, and both claims arise from the same contract (para 23). Following Ujaas Energy, where a counterclaim left out of the resolution plan was allowed for set-off alone, the Court held that those circumstances applied with more force here (paras 20-24).