6 June, 2022

Pending invocation of an Indian arbitration, Court orders the Respondent to deposit in court the amounts admitted but withheld by the Respondent under undisputed invoices.

In a notable ruling in the case of Ocean Sparkle Limited v. ONGC, the Bombay High Court addressed a matter under Section 9 of the Arbitration and Conciliation Act 1996 ("the Act"), rejecting ONGC's withholding of acknowledged amounts under uncontested invoices and instructing it to deposit the entire sum in Court. Additionally, the Court barred ONGC from invoking a Performance Bank Guarantee ("PBG").

The core issue revolved around ONGC's acknowledgment of its liability to make payments under Invoices yet attempting to withhold these amounts to offset damages allegedly incurred due to a collision between the Petitioner's vessel OSL GLORY and ONGC's unmanned platform. ONGC also pressured the Petitioner to renew the Bank Guarantee to cover its purported damages claim.

The Court's decision against ONGC's arguments can be summarized as follows:

• ONGC's claim for damages resulting from the collision constituted unliquidated damages, requiring proof under Sections 73 and 74 of the Contract Act before the Arbitral Tribunal. Hence, ONGC couldn't justify withholding amounts based solely on this claim.
• Under Section 9 of the Act, the Court has broad discretion to grant comprehensive interim relief, not bound by strict provisions of the Civil Procedure Code. Therefore, directing deposit of undisputed amounts in Court during arbitration proceedings falls within its purview.
• ONGC lacked entitlement to invoke the PBG since the contract was fully executed, as per the terms of the PBG itself, which terminated upon contract completion.
• While judicial intervention in bank guarantee enforcement is generally limited, exceptions apply in cases of egregious fraud or special equities causing irretrievable harm or injustice. Invocation of a bank guarantee must adhere to guarantee terms, failing which the invocation is invalid.

This judgment provides relief to shipowners facing unjustifiable withholding of undisputed amounts under claims akin to unliquidated damages. It notably clarifies that PBGs cannot be invoked once contracts are fully performed.

Our founder and associates successfully appeared on behalf of the Plaintiff, Ocean Sparkle Limited before the Hon’ble Bombay High Court.