Undisputed Claims Can't Be Set-Off Against Unliquidated Damages That Are Not Ascertained - Bombay High Court

02/07/2022, 17:12 Undisputed Claims Can't Be Set-Off Against Unliquidated Damages That Are Not Ascertained: Bombay High
tained: Bombay High Court
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Undisputed Claims Can't Be Set-Off Against

Unliquidated Damages That Are Not
Ascertained: Bombay High Court
LIVELAW NEWS NETWORK 27 June 2022 10:15 AM
https://www.livelaw.in/news-updates/bombay-high-court-set-off-undisputed-claims-unliquidated-damages-202391 1/17
02/07/2022, 17:12 Undisputed Claims Can't Be Set-Off Against Unliquidated Damages That Are Not Ascertained: Bombay High Court
The Bombay High Court recently has observed that set-off of unliquidated damages
that are not ascertained or admitted against an undisputed claim is not tenable.
Single judge G.S. KULKARNI reiterated that a Section 9 Court would not be unduly
bound by procedural law contained in the Code of Civil Procedure, 1908, the underlying
principle being to make arbitration an effective form of dispute resolution; and that a
performance bank guarantee ("PBG") cannot be invoked contrary to the provision for
its invocation in the PBG itself.
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And Liabilities: NCLT Mumbai
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Ocean Sparkle Limited ("petitioner") and Oil and Natural Gas Corporation Ltd. ("ONGC")
entered into an agreement dated June 14, 2018. Pursuant to the agreement the
petitioner had chartered its vessel, 'OSL Glory' to ONGC for a period of three years,
commencing from March 20, 2018 at 12.18 hours. The parties agreed that the
agreement would stand completed unless automatically extended for a period not
exceeding 30 days under the same rates to the satisfaction of ONGC.
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DGP's...
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On September 1, 2019 the petitioner's vessel (whilst on ONGC charter) collided with
ONGC unmanned platform 'RS-21'. The surveyor appointed by the P&I Club of the
petitioner stated in its preliminary report that the prevailing repair rate of an offshore
contractor and the repair estimates were in the range of USD 30,000. However, ONGC
claimed an amount of USD 616,490 towards compensation. The petitioner denied any
negligence and wilful misconduct. On February 18, 2021 the petitioner and ONGC
extended the agreement from March 20, 2021 to April 19, 2021. Upon completion of
the extended period, the vessel of the petitioner stood de-hired by ONGC at 8.48 hours
and was returned to the petitioner.
Also Read - Karnataka High Court Monthly Digest: June 2022 [Citations 180 - 239]
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ONGC withheld payment of petitioner's invoices for March and April, 2021. The
petitioner had issued a PBG of respondent no. 2, bank. The PBG was a security to seek
performance of the agreement, and as provided under Clause (5) of such PBG, it was
to remain in force during the period that was taken for performance of the contract.
The petitioner at the request of ONGC had extended the PBG from time to time and
last of such extension was up to June 6, 2022. The petitioner contended that there is
likelihood that ONGC may invoke the PBG to appropriate the amounts under it towards
the alleged damages suffered by it.
Also Read - Extended Period Of Limitation Can Be Invoked Only When 'Suppression
Of Facts' Is Wilful To Evade Tax :CESTAT
The petitioner initiated the present proceedings under section 9 of the Arbitration &
Conciliation Act, 1996 ("the Act"). The petitioner contended that once the amounts
under the invoices are undisputed, such amounts either need to be paid to the
petitioner by the respondent or they need to be deposited in this Court pending the
arbitral proceedings. ONGC contended that the bank guarantee shall remain in force
during the period of performance and till all claims of ONGC are satisfied. It submitted
that Clause 10 of the agreement in question itself grants ONGC an unconditional
option to invoke the same in respect of any amount due from the petitioner, and for
which the bank guarantee was unconditionally extended by the petitioner till June,
2022. The petitioner is estopped from contending that the said bank guarantee cannot
be invoked on account of its own conduct.
The Court noted that firstly, although the incident had taken place on September 1,
2019 and the probable loss suffered by ONGC could be almost immediately known or
ascertained soon after the incident, ONGC for the first time almost after 16 months
from the date of the incident by its letter dated December 17, 2020 made a claim
against the petitioner. Secondly, ONGC continued with the charter of the petitioner's
vessel subsequent to September 1, 2019 and honoured the invoices as raised by the
petitioner for the period of September 2019 to March 2020. Such contractual conduct
of ONGC makes it quite clear that ONGC never had any grievance regarding
performance of the agreement by the petitioner. Thirdly, it is not in dispute that till the
expiry of the contract period ONGC utilized the petitioner's vessel. This being the case,
the Court found no justification for ONGC to withhold payment of invoice amounts
payable to the petitioner.
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With respect to invocation of PBG, the Court noted that clause (5) of the PBG provides
that the guarantee of the bank shall remain in force during the period that is taken for
the performance of the contract, namely the agreement period from 20 March 2018 till
18 March 2021 and the extended period. The court referred to Hindustan Construction
Co. Ltd. vs. State of Bihar & Ors., (1999)8 SCC 436 and Larsen and Toubro Ltd. vs.
Allahabad Bank & Ors., (2016 SCC OnLine Bom 5311) while stating that, it is a settled
principle of law that the invocation of a PBG will have to be in accordance with the
terms of the PBG or the invocation itself would be bad.
The Court held that any claim for unliquidated damages that need to be determined
through evidence cannot be set-off against admitted and undisputed claims.
Moreover, the Court also reiterated that PBGs are dependent upon their own terms for
invocation and cannot be invoked contrary to the agreed terms. Consequently, with the
end of the Agreement term, the PBG need not be extended, neither can it be invoked to
set-off unliquidated damages.
Case Title : Ocean Sparkle Limited. V Oil and Natural Gas Corporation Ltd. And anr
Click Here To Read/Download Judgment
TAGS BOMBAY HIGH COURT JUSTICE G.S. KULKARNI SET-OFF DAMAGES
SECTION 9 OF THE ARBITRATION AND CONCILIATION ACT
OIL AND NATURAL GAS CORPORATION LTD (ONGC)
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Undisputed Claims Can't Be Set-Off Against Unliquidated Damages That Are Not Ascertained - Bombay High Court

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02/07/2022, 17:12 Undisputed Claims Can't Be Set-Off Against Unliquidated Damages That Are Not Ascertained: Bombay High

tained: Bombay High Court

TOP STORIES NEWS UPDATES COLUMNS INTERVIEWS FOREIGN/INTERNATIONAL

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Home / News Updates / Undisputed Claims...

Undisputed Claims Can't Be Set-Off Against

its invocation in the PBG itself.

And Liabilities: NCLT Mumbai

exceeding 30 days under the same rates to the satisfaction of ONGC.

Also Read - Does Police's Failure To Communicate Full Criminal Antecedents Of

Accused Amounts To Misconduct, Interference With Justice? MP High Court Seeks

and was returned to the petitioner.

the alleged damages suffered by it.

Of Facts' Is Wilful To Evade Tax :CESTAT

that Clause 10 of the agreement in question itself grants ONGC an unconditional

be invoked on account of its own conduct.

payable to the petitioner.

Laws & 20000+

terms of the PBG or the invocation itself would be bad.

through evidence cannot be set-off against admitted and undisputed claims.

set-off unliquidated damages.

Click Here To Read/Download Judgment

TAGS BOMBAY HIGH COURT JUSTICE G.S. KULKARNI SET-OFF DAMAGES

SECTION 9 OF THE ARBITRATION AND CONCILIATION ACT

OIL AND NATURAL GAS CORPORATION LTD (ONGC)

SIMILAR POSTS + VIEW MORE

Sale Of Corporate Karnataka High Court

Debtor As A 'Going Monthly Digest: June

Concern' Includes Both 2022 [Citations 180 -

Fee Paid For Client

Is A Statement Recorded U/S Court Monthly

JUST ENTER YOUR EMAIL FOR THE

Enter Your Email

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3 Does Police's Failure To Communicate Full Criminal Antecedents Of Accused

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