Claiming set off contained under Order 8 Rule 6 of Civil procedure Code and Counter Claims mentioned under order 8 Rules 6-A to 6-G of civil Procedure Code.
Set off is reciprocal acquittal of debts. “Set-off” means a claim set up against another. It is a cross-claim which partly offsets the original claim. It is an extinction of debts of which two persons are reciprocally debtors to one another by the credits of which they are reciprocally creditors to one another. Where there are mutual debts between the plaintiff and the defendant, one debt may be settled against the other. It is a plea in defense, available to the defendant. By adjustment, set-off either wipes out or reduces the plaintiff’s claim in a suit for recovery of money.
Where in a suit for recovery of money by the plaintiff, the defendant finds that he has also a claim of some amount against the plaintiff, he can claim a set-off in respect of the said amount. The doctrine of set-off may be defined as “the extinction of debts of which two persons are reciprocally debtors to one another by the credits of which they are reciprocally creditors to one another”.
A plea of set-off is “a plea whereby a defendant acknowledges the justice of the plaintiff’s demand, but sets up another demand of his own, to counterbalance that of the plaintiff; either in whole or in part”. Thus, it is a “reciprocal acquittal of debts between two persons”. The right of a defendant to claim set-off has been recognized under Rule 6. It obviates the necessity of filing a fresh suit by the defendant.
For instance, where ‘X’ files a suit against ‘Y’ for recovery of Rs. 15,000/- but ‘Y’ already holds a decree of Rs. 20,000/- against ‘X’, the defendant ‘Y’ may plead for the set-off of the claim of plaintiff ‘X’.
“Counterclaim” may be defined as “a claim made by the defendant in a against the plaintiff”. It is a claim independent of, and separable from, suit plaintiff’s claim which can be enforced by a cross-action. It is a cause of action in favor of the defendant against the plaintiff.
The defendant must set-up his counter-claim as early as possible because the no counter-claim can be raised after framing of issues and closure evidence.
Counterclaim may be defined as “a claim made by the defendant in a suit against the plaintiff”. Therefore, defendant in a suit may, in addition to his right to plead a set-off , a counterclaim. It may be set up only in respect of a claim for which the defendant can file a separate suit.”.” Thus, a counterclaim is substantially a cross-action.
In a suit for recovery of money, a defendant can stake his claim to any ascertained sum of money-legally recoverable by him from the plaintiff as a set-off against the plaintiff’s demand if :
- the ascertained sum does not exceed the pecuniary jurisdiction of the court; and
- both parties fill the same character as they fill in the plaintiff’s case at the first hearing of the suit, but not afterwards unless permitted by the Court, present a written statement containing the particulars of the debt sought to be set-off.
The written statement shall have the same effect as a plaint in a cross-suit so as to enable the Court to pronounce a final judgment in respect of both the original claim and of the set-off.
Where, the plaintiff institutes a suit for recovery of money against the defendant and the defendant finds that he also has a claim of certain amount against the same plaintiff, he may pray for a set-off in respect of that amount. The term “set-off’ denotes mutual discharge of debts. It is reciprocal satisfaction of the claim of plaintiff and the defendant against each other. In simple words, “set-off’ means that the amount claimed by the plaintiff from defendant is to be satisfied against the amount that the plaintiff owes to the defendant. It is a cross-claim of plaintiff and defendant to be reciprocally discharged. The claim of plaintiff relating to certain money from the defendant may be discharged against the money due to the defendant from the plaintiff.
However, the defendant is entitled to raise the plea of set-off only when following conditions exist :—
- The suit is for recovery of money.—The plea of set-off shall be available to the defendant only in a suit instituted against him for recovery of money. If the suit is not a money-suit, the defendant cannot raise this plea. For instance, in a suit tor dissolution of partnership, the defendant cannot claim set-off because it not a money-suit. But, in a suit for ejectment of tenant on the ground of non-payment of rent, in which arrears of rent have also been claimed, the defendant-tenant may plead set-off. However, in case where ejectment of tenant has been prayed for but amount of unpaid rent is not demanded, the defendant-tenant cannot raise the plea of set-off since it is no more a money-suit. Thus, what is necessary is that one of the reliefs sought in the suit against the defendant must be for recovery of money. In such a suit, the defendant is entitled to raise the plea of set-off.
- The defendant’s claim must be for an ascertained sum of money-‘It means that the amount which the defendant claims against the plaintiff tiff to be set-off must be fixed, definite and known. Such amount may not by the plaintiff but if it is ascertained, then the defendant may plead set-off. For unascertained sums, the plea of set-off is not available to the defendant under Rule 6. However, such unascertained sums may be effectually set-off by consent of parties if the suit is compromised.
- The money must be legally recoverable.—The term ‘legally recoverable” means that the debtor is liable to pay the sum under any law. The defendant shall be entitled to claim set-off in respect of such dues only which the plaintiff is bound to pay under any law. A time-barred debt is not legally recoverable and hence set-off cannot be pleaded for such amount.
- Both plaintiff and defendant must fill the same character as they fill in the plaintiffs claim.—The defendant may plead for set-off only when both the parties i.e., plaintiff and defendant fill may same character as they fill in the suit. It means that the amount in respect of which the defendant pleads set-off must be claimable from plaintiff in the same capacity as in the suit. If the amount payable by the plaintiff to the defendant is in the capacity of a “manager’, but the plaintiff has filed the present suit in his personal capacity, then the defendant cannot raise the plea of set-off in respect of such amount.
- The sum claimed by way of set-off must not exceed the pecuniary limits of the court.—It is necessary that the amount claimed to be set-off by the defendant is within the pecuniary limits of the court in which the suit has been instituted.
Types of Set Off
Set-off is of two kinds viz., legal set-off and equitable set-off. Rule 6 speaks of legal set-off only. In contrast to legal set-off, an equitable set-of, can be claimed for unascertained money but it must arise from the same transaction. For example, where a servant sues his master for recovery of amount of salary, the master can claim set-off for loss sustained by him due to negligence of servant since it arises out of same relationship.
- Legal Set Off
It is apparent from a reading of the above provisions that in order to constitute legal set-off, the following conditions must be fulfilled, viz.,
- The suit must be for recovery of money.
- The defendant must claim an ascertained sum of money. A sum of money due in respect of a disputed transaction cannot constitute an ascertained sum.
- That ascertained sum must be legally recoverable from the plaintiff, i.e., it is not barred by the law of limitation.
- The plaintiff’s claim and the set-off must be claimed in the same character. The amount must be recoverable by the defendant and if there are more than one defendant, then by all the defendants. Again, the amount must be recoverable by the defendant from the plaintiff and if there are more than one plaintiff, then from all the plaintiffs.
- The set-off should be within the pecuniary jurisdiction of the Court.
A suit is brought by a Hindu son as the heir and representative of his father to recover from B certain debt due to the father. B claims to set-off a debt due to him by A’s father. B may do so, for both the parties fill the same character. But the amount due as manager cannot be set-off against a personal liability, for both parties do not fill the same character.
2. Equitable set-off
Court of Equity in England allowed set-off when cross-demands arose out of the same transaction, even if the money claimed by way of set-off was an unascertained sum of money. The Common Law Courts refused to take notice of equitable claims for they were not ascertained sums. The Courts of Equity, however, held that it would be inequitable to drive the defendant to a separate cross-suit and that he might be allowed to plead a set-off though the amount might be unascertained. Such a set-off is called an equitable set-off.
Principles governing equitable set-off
As a result of a series of decisions of the Courts in India, the following propositions of law with regard to equitable set-off emerged:
- A equitable right of set-off exists when both the claim of the plaintiff and that of the defendant arise out of the same transaction.
- The law of equitable set-off applies where the cross-claims, though not arising out of the same transaction, were closely connected together.
- In order that a claim for equitable set-off may arise, it is not sufficient that there are cross-demands; it is further necessary that there should be a connection between them which makes it inequitable to drive the defendant to a separate suit—as when the demands arise out of the same transaction or when there is on each side knowledge of and confidence in one debt discharging the other.
Counter claim may be described as a cause of action accruing to defendant against the plaintiff. However, such cause of action must accrue before filing of written statement by the defendant. As such, the defendant may set-up a counter-claim only in respect of a claim for which the defendant can file an independent suit. However, the defendant must specifically state in his written statement that he is setting-up a counter-claim. Such counter-claim shall not exceed the pecuniary jurisdiction of the court.
One of the pleas open to a defendant to defeat the relief sought by the plaintiff against him is a counterclaim. Counterclaim may be defined as “a claim made by the defendant in a suit against the plaintiff”. Therefore, defendant in a suit may, in addition to his right to plead a set-off, a counterclaim. It may be set up only in respect of a claim for which the defendant can file a separate suit.”.” Thus, a counterclaim is substantially a cross-action.
Object of Counter Claim
Before the Amendment Act of 1976, no counterclaim or set-off could be claimed except in money suits. The Law Commission of India, however, recommended to avoid multiplicity of proceedings, right to the defend-ant to raise a plea of set-off in addition to a counterclaim in the same suit. The provisions relating to counterclaim thus seek to save time of courts, exclude inconvenience to the parties to litigation, decide all disputes between the same parties avoiding unnecessary multiplicity of judicial proceedings and prolong trials. The object appears to be to reduce pendency of cases so that cause of action and cross-claim similar in nature could be clubbed together and disposed of by a common judgment.’ The purpose of the provision enabling filing of a counter-claim is to avoid multiplicity of judicial proceedings, save the Court’s time and exclude the inconvenience to the parties by enabling decision in all disputes between them in the course of the same proceedings. If the counter-claim prolongs the trial, causes delays or complicate the otherwise smooth flow of proceedings, the court would be justified in exercising its discretion not in favour of permitting a belated counter-claim. Usually if the issues have already been framed and the trial has already commenced or concluded, a counter-claim not contained in the original written statement may be refused to be taken on record.
The right to make a counter claim is statutory and a counter claim is not admissible in a case which is admittedly not within the statutory provisions.
Starting time of right to file counter-claim
- A pleading by way of counter-claim runs with the right of filing a written statement and that such right to set up a counter-claim is in addition to the right of pleading a set-off conferred by Rule 6. A set-off has to be pleaded in the written statement The counter-claim must necessarily find its place in the written statement. Once the right of the defendant to file written statement has been lost or the time limited for delivery of the defense has expired, then neither the written statement can be filed as of right nor a counter-claim can be allowed to be raised, for the counter-claim under Rule 6-A must find its place in the written statement.
- The Court has a discretion to permit a written statement being filed belatedly and, therefore, has a discretion also to permit a written statement containing a plea in the nature of set-off or counter-claim being filed belatedly but needless to say such discretion shall be exercised in a reasonable manner keeping in view all the facts and circumstances of the case including the conduct of the defendant, and the fact whether a belated leave of the Court would cause prejudice to the plaintiff or take away a vested right which has accrued to the plaintiff by lapse of time.
- An application for counter claim under Order VIII, Rule 6-A is not exfacie barred after filing of written statement.’ In a suit for declaration of title and possession, defendant sought to the WS filed, subsequently amend claiming recovery of possession, amendment alleged to be necessitated because of tresspass by plaintiff. It was held that subsequent filing of counter claim on basis of tresspass is not tenable. Trespass as cause of action for filing counter claim cannot be said to have arisen prior to filing of WS.
Mode of setting up counter-claim
There are three modes of pleading or setting up a counter-claim in a civil suit :
- First, the written statement filed under Rule 1 may itself contain a counter-claim which in the light of Rule 1 read with Rule 6-A would be a counter-claim against the claim of the plaintiff preferred in exercise of legal right conferred by Rule 6-A.
- Secondly, a counter-claim may be preferred by way of amendment incorporated subject to the leave of the Court in a written statement already filed.
- Thirdly, a counter-claim may be filed by way of a subsequent pleading under Rule 9.
A counterclaim may be set up by a defendant against a plaintiff in respect of cause of action accruing either before or after filing of the suit, provided such claim is not barred by limitation.
Effect of counterclaim such counterclaim has the effect of a cross-suit and the court can pronounce a final judgment both on the original claim and the counterclaim. The counterclaim of the defendant will be treated as a plaint and the plaintiff has a right to file a written statement in answer to the counterclaim of the defendant.
The distinction between set-off and counter-claim may now be noted
- Set-off is a statutory defense to a plaintiff’s action, whereas a counterclaim is substantially a cross-action.
- Set-off must be for an ascertained sum or must arise out of the same transaction as the plaintiff’s claim. A counter-claim need not arise out of the same transaction.
- Set-off is a statutory ground of defense and has to be pleaded in the written statement. It can be sued as a shield and not as a sword. Counter-claim, on the other hand, does not afford any defense to the plaintiff’s claim. It is a weapon of offence which enables the defendant to enforce his claim against the plaintiff as effectually as in an independent action. It is a sort of cross-action.
- If the statute of limitation is pleaded to a defense of set-off, the plaintiff in order to establish his plea has to prove that set-off was barred when the plaintiff commenced the action. It is not enough to prove that it was barred at the time when it was pleaded. In the case of a counter-claim, it is enough for the plaintiff to prove that the counter-claim was barred when it was pleaded.
- An equitable set-off is a claim by the defendant in defense, which generally cannot exceed the plaintiff’s claim. A counter-claim the defendant may, however, exceed the plaintiff’s claim, being in nature of the cross action. Under the provision rule 6-F of Order 6, if in any suit a set off or counter claim is established as a defense against plaintiffs claim and any balance is found due to the defendant as the case may be the court may give judgment to the party entitled to such balance.