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Here is what you need to know about set off, equitable set off, and counter claim

June 20, 2021
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This article is written by Ravi Tiwari pursuing Certificate Course in Advanced Civil Litigation: Practice, Procedure and Drafting from LawSikho.

Introduction

This article is related to set off, equitable set off, and counter claim. Order VIII Rule 6 and Order VIII Rule 6A are inserted in the Code of Civil Procedure, 1908, to provide an opportunity to the defendant to plead for his due amount which is accrued from the plaintiff.

As a general rule, the plaintiff is deemed as the main aggrieved party and is provided with many opportunities to plead for his grievances before the court but no such remedy was available for the defendant in earlier periods. But due to change in the course of the judicial system and with the advent of the concept of “equity”, the defendant is also given an opportunity to file his claim before the court. 

The concept of set off, counter claim has not developed overnight, this concept has been developed with help of Judicial Interpretation. This article will provide complete details about set off and counter claim and provide relevant case laws.

History the law of set off

The law of set off has a long history. It was borrowed from the Civil law doctrine of compensation. The English Chancery Courts adopted the equitable doctrine of set off, which was then known as Stoppage. The common law courts in England adopted the defense of set off in 1729 by way of statute.

Meaning and definition of set off

  1. The meaning and the definition of set off are not given in the Civil Procedure Code and are deciphered from the Judicial Interpretation.
  2. In simple language, set off is a cross claim against the claim of the plaintiff.

In Cool All Corporation vs. Miss. Jane A. Vaz, in this case, the plaintiff contended that the defendant had borrowed money from the plaintiff for financial assistance which amounted to Rs 1,40,000 at @ 18% p.a interest rate. On the other hand, the defendant contended that the plaintiff had approached him to execute certain work for the plaintiff. The works entrusted to the defendant were of electrification, water supply(plumbing), and sanitary works.

The Hon’ble High Court of Karnataka held that it would not be a fit case of set off as pleaded by the defendant. This was actually a case of adjustment of the value of work affected by them, with a counter claim for the alleged balance of the amount due to them from the plaintiff.

Further, the Hon’ble High Court of Karnataka, in this case, defined and held that; 

  1. The set off and counterclaim is not defined in the Civil Procedure Code, both these words are construed by Judicial Interpretation. Both these words are derived from “Equity”.

For example; A sues B on a bill of exchange for Rs 500. B holds a judgment against A for Rs. 1,000. The two claims being both definite, pecuniary demands may be set off.

2. The set off is called a cross claim (not as a counter claim)

In Union of India vs Karan Chand Thapar and Bros. (Coal Sales) Ltd. And Ors, the Hon’ble Supreme Court of India held that the concept of set off is defined in Black’s Law Dictionary which defines as debtor’s right to reduce the amount of a debt by any sum the creditor owes to the debtor or the counterbalancing sum owed by the creditor, which means that the cross claims or the claim which the debtor had against the creditor will reduce the amount of debt as well as sum of the creditor.

Bare Act provision and essential elements

Reading of Order VIII Rule 6 of the code of civil procedure, 1908, gives conditions or essential elements which are intrinsic for considering whether it is set off or not are as follows:

At the outset, Order VIII Rule 6 states that “Where in a suit for recovery of money the defendant claims to set off against the plaintiff’s demand”, which clearly states that set off is done only in cases of “recovery of money” not in any other cases.

The “other cases” here refer to cases regarding possession, title, or injunction in civil cases. In these cases, the court will not allow for the set-off.

In Sukumaran vs Madhavan, the Hon’ble High Court of Kerala had stated that the set off is done in recovery of money cases and not any other cases. For “any other cases” the court will allow for the counter claim including recovery of money.

  1. The plaintiff, in this case, contended that the defendant has trespassed the plaintiff’s property and asked for the temporary injunction to restrain the defendant from trespass in the scheduled property or disputed property, and the defendant in this case filed counter claim, claiming that the plaintiff has trespassed the scheduled property or disputed property and also tried to temper the fences of the disputed property. The defendant, in this case, claimed possession as well as title in the disputed property.
  2. The High Court of Kerala, in this case, held that this case is considered as “counter claim” and the relief sought by the defendant is valid and acceptable.

The word “ascertain” means “definite” or “make certain” or “fix”, which means that the amount claimed by the defendant must have a certain value or certain value. The amount must have been fixed between the parties.

For example; A sues B on a bill of exchange, B alleges that A has wrongfully neglected to insure B’s goods and is liable to him in compensation which he claims to set off. The amount not being ascertained cannot be set off.

In Sudhir Kumar Dey vs Union of India, the Hon’ble High Court of Judicature at Calcutta held that Order XX Rule 19(1) provides that where the defendant has been allowed to set off against the claim of the plaintiff, the decree shall state what amount is due to the plaintiff and what amount is due to the defendant, and shall be for the recovery of any sum which appears to be due to either party.

The suit instituted by the defendant shall not exceed the pecuniary limits of the jurisdiction of the court, which means if a court authorises to hear the case up to Rs. 2,00,000 and the suit instituted for the recovery of amount is Rs. 3,00,000 then the Court has no authority to entertain such suit for adjudication. 

In Dev Dutt vs Janta Timber Traders, the Timber trader, in this case, had given timber value Rs. 17,000 to the Dev Dutt, but Dev Dutt contented that the timber trader had to pay damages of Rs. 2,37,060 for the breach of contract done by the Timber Trader. The trial court, in this case, held that the amount claimed by Dev Dutt is beyond the pecuniary limits of the Court.

The parties in the suit fill the same character as in the original suit. Both parties should be recovering the due amount from each other, and no other person who is not party to the suit shall claim for set off in the suit instituted by the plaintiff except provided by the plaintiff in his suit or with the permission of the court. 

Effects of set off: In Order VIII Rule 6(2) The written statement filed by the defendant shall be considered as plaint in a cross suit which will help the court to reach final judgment. The rules relating to written statements will apply to such a set off which means that the rules present in the Order VIII of the written statement will be applicable to such written statements filed by the defendant against the plaintiff’s claim.

Types of set off

There are more than two types of set off but we are discussing only two types of set off and these two types of set off are discussed by the courts in different cases.

There are two types of set off:

  1. Legal set off
  2. Equitable set off

1. Legal set off

  1. The legal set off is provided in the Order VIII Rule 6(1) of the Code of Civil Procedure, 1908, and all the essential elements present in the Rule 6(1) will requisite conditions for claiming legal set off. 
  2. The legal set off is provided in the case where the amount is ascertained.
  3. The legal set off shall be pleaded by the defendant within the limitation period.
  4. The defendant has to pay court fees in the legal set off.

In Jyanti Lal vs Abdul Aziz, this case is related to the recovery of rent amount from the petitioner and the petitioner wants to recover the amount paid for the repair of the house, the Hon’ble Court held that legal set off can be claimed only under Order VIII Rule 6(1) of the Code of the Civil Procedure, 1908.

2. Equitable Set off

  1. The concept of equitable set off comes from “equity, justice, good conscience”. The equitable set off is not provided in the Code of Civil Procedure, 1908.
  2. It is an independent provision.
  3. The equitable set off is given at the discretion of the court.
  4. The plea raised by the defendant is not a matter of right of the defendant but it is a matter of discretion of the court.
  5. In equitable set off court fees may or may not be paid.

Difference between legal set off and equitable set off

Particulars

Legal Set off

Equitable Set off

Concept

The concept of legal set off is provided in Order VIII Rule 6(1) under Code of Civil Procedure, 1908.

The concept of equitable set off is provided under “equity, justice, good conscience”.

Legal aspect

The legal set off shall be claimed as a matter of right. 

The equitable set off is granted on the facts and circumstances and on the discretion of the court.

Recovery of money

In the legal set off the amount which is recovered is ascertained and within the pecuniary jurisdiction of the court.

In the equitable set off the amount which is recovered must be ascertained and the case is admitted at the discretion of the court.

Court fees 

In legal set off the court fees are to be paid by the defendant.

In the equitable set off the court fees may not be paid by the defendant and it depends on different facts and circumstances of the case.

Limitation period

It is within the limitation period.

The claim for equitable set off is accepted beyond the limitation period, it is at the discretion of the court.

In Jitender Kumar vs The Peerless General Finance and Investment Company Limited and Ors, the Hon’ble Supreme Court of India held that the difference between legal set off and equitable set off is that legal set off is a legal right whereas the equitable set off is granted on the discretion of the court. The Hon’ble Supreme Court of India in this case provided the difference between the legal set off and equitable set off in the Judgment.

In this case, the Hon’ble Supreme Court of India held that the application moved by the defendant for amendment of the written statement is valid and also is a part of the same transaction. The court further held that the claim contended by the defendant is “equitable set off”. 

In M/s Lakshmichand and Balchand vs State of Andhra Pradesh, the appellant had entered into two contracts with the government of the State of Andhra Pradesh, for the construction of the road but due to certain reasons, the work could not be started. As a result of such delay, the cost for construction surged, and the appellant asked the government for the escalated amount but the government outrightly rejected the demand. 

The Hon’ble Supreme Court ruled that when a claim is found on the doctrine of equitable set off, all cross demand should be in nature and circumstances that they can be looked upon as a part one transaction. In this case, the court set aside the claim of the appellant stating that the claim presented by the defendant did not arise from the same transaction.

Counter claim (Order VIII Rule 6(A) to Rule 6(G))

Concept of counter claim

The counter claim was inserted in the Code of Civil Procedure by the amendment made in 1976, the concept of counter claim is inserted to reduce the multiplicity of suits filed by the parties.

In Gurbachan Singh vs Bhag Singh, the Hon’ble Supreme Court of India recognised the concept of counter claim was introduced in 1976. The Law Commission of India had recommended the counter claim to avoid multiplicity of the proceedings.

  1. To be more lucid, a counter claim in nothing but a wider version of set off, counter claim that can be used in various cases related to possession in the property, title in the property, injunction or election cases, and other civil cases.
  2. Counter claim is considered as a cross suit by the defendant against the plaintiff’s claim.
  3. The counter claim shall be treated as a plaint and governed by the rules applicable to plaint which means that the rules which are present in the Order VII of the Code of Civil Procedure, 1908, will be applicable to the written statement filed by the defendant. 

In Manikchand Fulchand Katariya vs Lalchand Harakchand Katariya, the case was related to the title, possession, and rights of the defendant as well as the title and possession of the plaintiff in the disputed property. The property was given to the defendant after partition.

The Bombay High Court held that the counter claim under Order 8 Rule 6A is not limited to money suit only and by way of counter claim a decree of possession in favour of the defendant in a suit filed by the plaintiff for injunction can legally be tenable.

The Hon’ble Bombay High Court had dismissed the contention of the Plaintiff and stated that the disputed property shall remain in possession of the defendant.

In Rajkaran vs Ramraj & Ors. The Hon’ble Allahabad High Court held that counter claim cannot be allowed to be set up once cause of action wholly or in part accrues after the defendant has delivered his defence or before the time limited for delivering defence is expired. Part of the cause of action accrued after filing of written statement counter claim cannot be set off.

In Oriental Ceramic Product Pvt. Ltd. Vs. Calcutta Municipal Corporation, The Calcutta High Court held that defendants have not cared to disclose any reason whatsoever as to why they did not make counter claim when they filed the written statement or even before the issues were settled or before the evidence of the plaintiff was closed. The court questioned as to why they had to wait so long before putting forward this counter claim. The court clarified that if at this stage, the defendant petitioner’s counter claim would be accepted, it is obvious that the plaintiff would be taken by surprise and would be seriously prejudiced in defending the counter claim.

Difference between set off and counter claim 

Particulars

Set off

Counter claim

Legal Provision 

The set off is provided under Order VIII Rule 6 of the Code of Civil Procedure, 1908.

Counter claim is provided under Order VIII Rule 6A to Rule 6G of the code of civil procedure, 1908.

Object 

The object of set off is to give an opportunity to the defendant to set up his claim for recovery of money from the plaintiff’s claim.

The object of the counter claim is to avoid multiplicity of proceedings.

Claim

The set off can be claimed in the recovery of money suits only.

The counter claim can be claimed in all other suits such as title, possession, or in the injunction.

Scope

It has a narrow scope or is related to money. 

It has a wider scope.

Genesis

The origin of the set off is from “equity”.

The counter claim is a part of set off and has a wider scope.

Rule’s applicability

Set off the rules relating to written statements will be followed.

In counter claim rules relating to plaint will follow.

Conclusion

From the above discussion, we come to the conclusion that the provision related to set off and counter off under Order VIII Rule 6 and Order VIII Rule 6A to Rule 6G, is a shield as well as a sword against the plaintiff’s claim. The article has provided a picture of the different scenarios in which set off, equitable set off, and counter claim can be used. While set off is a statutory defense, counter claim is like a cross-action, and an equitable set off is a defendant’s claim.

The courts have played a great role in bringing clarity to the difference between these three and how and when they can be claimed depending on the facts and circumstances of the case. For instance, in a suit by the bank, when the defendant filed for a counter claim as there was a delay in sanctioning the loan by the bank due to which he had suffered losses; the court cleared that such a claim of the defendant was not a counter claim but an equitable set off. This was held in the case of M/s Anand Enterprises (Bangalore) v. Syndicate Bank. Therefore, the provisions related to set off and counter claim should be understood from how they have been interpreted in different circumstances by the judiciary.

References


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