Supreme Court Refines ‘Clean Slate’ Doctrine: Allows Defensive Set-Off of Extinguished Claims Under IBC
By Communication Committee Posted On : April 24, 2026
The Supreme Court in Ujaas Energy Ltd. v. West Bengal Power Development Corporation Ltd. [(2026) ibclaw.in 127 SC], has refined the scope of the “clean slate” principle under the Insolvency and Bankruptcy Code (IBC), introducing a nuanced distinction between extinguished claims and their limited defensive use. The case arose in the context of claims not lodged during the Corporate Insolvency Resolution Process (CIRP) and their treatment in subsequent arbitral proceedings. The Court held that while claims not submitted during CIRP stand extinguished and cannot be enforced as independent causes of action, such claims may still be invoked as a “defensive set-off.” It clarified that a creditor may rely on such extinguished claims only to reduce or neutralise the liability claimed by the corporate debtor, without resulting in any affirmative recovery against the debtor. Refining the “clean slate” principle, the Court emphasised that while a resolution plan extinguishes past liabilities to enable a fresh start for the successful resolution applicant, it does not preclude the use of underlying facts as a defence. This ensures that a corporate debtor cannot enforce claims in full while preventing counterparties from raising legitimate contractual defences arising from the same transaction.