28 May 2021 | Steel Authority of India Ltd. v. M/S Jaldhi Overseas PTE Ltd. | Vibhu Bakhru J | 2021 SCC OnLine Del 2642

SAIL withheld payment of an admitted liability (USD 515,739) claiming equitable set-off because it had a claim of damages against Jaldhi in respect of another contract. In an Indian seated international commercial arbitration, the tribunal determined that SAIL was not entitled to apply set-off. Bakhru J upheld the award. He reasoned that equitable set-off:

1. Applied when all cross demands arise out of the same transaction but here there was no connection between the two contracts
2. Is not allowed when a protracted enquiry is needed to determine the sue due. Here, SAIL’s claim of damages under the prior contract was disputed.
3. Was a matter of discretion and not a matter of right.

The court also said that though it examined the merits, there was no requirement to do so.

It also rejected SAIL’s argument that no evidence was led by Jaldhi ruling that the argument could not be run at this stage, and Jaldhi’s claim was based on SAIL’s admission. So, the onus to prove an entitlement to withhold the sum was on SAIL.

Finally applying precedent, the court also upheld grant by the tribunal of 12 % per annum compound interest with quarterly rests. It found that SAIL had not contested the reasonableness of the interest rate before the tribunal. It also rejected the argument that the tribunal should have independently examined it (“… there was no requirement for the Arbitral Tribunal to examine a non-existent issue.”)

Access the judgement here.