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"8. In regard to the claim to adjustment on the second count the position is more controversial. The claim is founded in the doctrine of equitable set off, but we do not find evidence before us to bring the case within the operation of the doctrine. It is not a case where cross demands arise out of the same transaction or the demands are so connected in their nature and circumstances that they can be looked upon as part of the transaction. Nor can assistance be derived from Clause 71. The benefit of that provision can be claimed only if the amount sought to be retained is an ascertained sum, an amount which can be readily adjusted against the amount payable under the other contract. Here, the amount sought to be adjusted has yet to be determined as a liability against the contractor. It has been disputed by the appellant. Accordingly, Clause 71 cannot be invoked."

13.4 As to what is the difference between the legal set off and equitable set off, we may profitably refer to paras 24 and 25 of the Full Bench decision of the Andhra Pradesh High Court in Bhoganadham Seshaiah case AIR 1972 AP 134 (FB) which was referred to by the Supreme Court as well:

"24. The distinction between the two has, however, to be borne in mind. The difference between the legal set off and an equitable set off is that while in the former case, the court is bound to entertain and adjudicate upon the plea when raised, the defence of equitable set off cannot be claimed as a matter of right, but the court has a discretion to adjudicate upon it in the same suit of execution proceedings or to order it to be dealt with in a separate suit or execution proceedings.
25. From what is discussed above, it would be plain that equitable set off, can be claimed in a case where cross-demands arise out of the same transaction as well as in cases where the cross-demands may not arise out of the same transaction, but they are so connected in the nature or circumstances that it would be inequitable to allow one party to execute his decree driving the other party to separate proceedings of execution. No hard and fast rules can be laid down, nor is it desirable to do so as to in what circumstances in such cases, equitable set off can be permitted. The granting of equitable set off rests in the discretion of the court. This discretion is a judicial discretion and we conceive that the dominant feature of judicial discretions that it has to be exercised accordingly to settled rules rather than individual fluctuating and unsettled opinion. Thus where a court thinks that investigation into the claim of equitable set off will cause great delay, it may refuse to allow it or may order the enquiry to proceed on such terms as it thinks fit."

15. We, however, think that the claim of set off is under the terms of condition 19 of the licence of Tata Teleservices regarding Maharashtra circle ; and it has nothing to do with the 'migration package'. Moreover, 'migration package' is separate for each licence with respect to the service area to which licence pertained.

16. Since it is the claim of set off, it is for the Union of India to show as to how such a claim is sustainable. Let us see the sequence of events. In terms of the invitation to tender, Tata Teleservices submitted EMBG which was valid for six months and was extendible for a further period of six months. It is stated that by mutual agreement EMGB was extended till 21.3.1999. Under the terms of Clause 11 of the tender documents bank guarantee could be enforced 'in case the bidder does not abide by his bid for the service area'. Assuming that there was such a breach where Tata Teleservices did not abide by its bid, the bank guarantee could have been enforced and the earnest money forfeited. This Union of India did not do during the validity of the bank guarantee period ; and it lost its right to enforce the same after the period of bank guarantee had expired. Union of India became remediless. Only if it could be said that the bank guarantee which was to be kept valid for agreed period was made invalid by certain act attributed to Tata Teleservices, then Union of India could claim the amount of bank guarantee in any separate proceedings, even if the bank guarantee could not be enforced. The claim in the present case for the right to enforcement of bank guarantee is stated to have arisen because after Tata Teleservices gave unconditional acceptance of letter of intent, it was bound to sign the licence agreement of Karnataka circle, and in default, the case fell within Clause 11 of the tender documents resulting in right to enforce of EMBG. We have not been shown any clause in the tender document which provides that letter of intent would form part of the bid by the licensee and non-compliance with LoI would tantamount to not abiding by the terms of the bid. Moreover, there has not been any unconditional acceptance of the letter of intent. It is also pleaded by Mr. Vaidyanathan that after the bid was made, substantial changes were made in the terms of tender to which Tata Teleservices was not bound and was within its right not to accept the altered terms. There has not been any satisfactory reply to this by the Union of India. Since the demand of Rs. 50 crores though ascertained, is a disputed one, Union of India could not appropriate the same exercising its right of set-off. Even plea of equitable set off is not available, inasmuch as, as noted above, licence for each telecom circle is separate and separate EMBG had been given. The decision of the Supreme Court in the case of Jasraj Inder Singh v. Hemraj Multanchand (1977) 2 SCC 155 rather supports the case of Tata Teleservices.