This article is written by Vishwajeet Singh Shekhawat, pursuing a Certificate Course in Advanced Civil Litigation: Practice, Procedure and Drafting from LawSikho.

Introduction

The Code of Civil Procedure, 1908 (hereinafter, as CPC) under Order VIII provides for rules regarding a Written Statement, set off and a counterclaim, although interestingly neither of the terms are defined in the CPC. However, all the above referred terms under Order VIII concern themselves with the pleadings of the defendant. A Written Statement can be further simplified to mean the reply to the plaint of the plaintiff. A set off on the other hand can be defined as the reduction or discharge of a party’s debt or claim by an assertion of another claim arising out of another transaction or cause of action against the other party. Similarly, a counterclaim is an independent claim raised by the defendant against the plaintiff in his pleading, which is based on a separate and independent cause of action.

This article will restrict itself to the concept of set off as provided under Order VIII Rule 6 of CPC; elaborating in detail about the concept, the types and the various legal requirements. Although for a better understanding of the readers, the author would attempt to differentiate between a set off and a Counterclaim.  

Meaning of set off

The concept of set off, as stated hereinbefore, is a claim set up against the plaintiff which has the effect of reduction or discharge of a party’s debt or claim. In other words, it is a cross-claim which partly offsets the original claim. Where there are mutual debts between the plaintiff and the defendant, one debt maybe settled against the other. It is a plea which is available to the defendant for his defence in a suit instituted by the plaintiff.

In B. Seshaiah v. B. Veerabhadrayya, the Andhra High Court expressed the concept 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”. The same doctrine as provided under Order VIII Rule 6 of CPC allows the defendant to settle the reciprocal claims against the plaintiff without the need for filing a different suit. This helps in settling the reciprocal claims of the plaintiff and defendant in the same suit.

Legal requirements under Order VIII Rule 6

Under Order VIII Rule 6, the provision of set off has been reproduced hereinafter;

6. Where in a suit for the recovery of money the defendant claims to set off against the plaintiff’s demand any ascertained sum of money legally recoverable by him from the plaintiff, not exceeding the pecuniary limits of the jurisdiction of the Court, and both parties fill the same characters they fill the plaintiff’s suit, the defendant may, 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.

Therefore, in order for a defendant to take the plea of set off against the plaintiff, a number of conditions are to be satisfied which are as follows: 

• The suit filed by the plaintiff must be for the purposes of recovery of money. 
• The money to be recovered must of a sum which is ascertainable. 
• The same sum must be legally recoverable by the defendant from the plaintiff. 
• The sum legally recoverable must not exceed the pecuniary jurisdiction of the court in which the suit by the plaintiff against the defendant is filed. 
• Both the parties, i.e., the defendant and the plaintiff must fill the same character as they fill in the plaintiff’s suit.

Types of set off

The law recognizes two types of set off, among which only one is expressly provided under Order VIII Rule 6 CPC, which is generally termed as a legal set off. The legal requirements as to a set off has been discussed and elaborated upon hereinbefore. Apart from that a set off cannot travel beyond the scope and the limit of the suit under which it is filed. It cannot bring out something which is entirely new and not present in the original petition. It is an independent cause of action for the defendant and, both the petitioner’s and the defendant’s claims are adjusted in favour of the person whose amount is greater.    

The set off under CPC is not exhaustive in its application and the rules of equity provides for another type of set off available to the courts which is commonly known as equitable set off. The concept of equitable set off is used by the courts in cases where the legal set off is not available, as the case doesn’t fall or fulfills the legal requirements as per order VIII Rule 6. Alternatively, in addition to legal set off, equitable set off, as allowed by the courts of equity in England, may be claimed by the defendant in respect of even an unascertained sum of money, provided that both the cross demands arise out of one and the same transaction or are so connected, in the nature and circumstances, that they can be looked upon as parts of one transaction. Therefore, in order to avoid filing of a different suit in that scenario, the equitable set off can be granted. However, it is important to note that unlike a legal set off which is available to the defendant under the provisions of CPC, the application of equitable set off lies solely at the discretion of the court and is not available to the defendant as a matter of right.

Let’s understand both the types of set off with the help of illustrations:

Legal set off—

A sues B for compensation on account of trespass. B holds a promissory note for Rs. 1000 from A and claims to set off that amount against any sum that A may recover in the suit. B may do so. As soon as A recovers, both sums are definite pecuniary demands.

In this scenario, a set off can be claimed since all the requirements under Order VIII Rule 6 (as stated hereinbefore) for a set off are fulfilled.  

Equitable set off—

A sues B to recover Rs. 50,000 under a contract, B can claim set off towards damages sustained by him due to breach of the same contract by A. 

In this case, the damages claimed by way of set off are not fully covered by Rule 6 Order VIII since the set off claimed is not an ascertained sum of money. Therefore, the court has the discretion to allow the same depending upon the facts of the matter.

Effect of set off

In a case where set off is claimed by the defendant in a suit instituted by the plaintiff, the written statement filed by the defendant works as and has the same effect as that of a plaint in a different suit. This written statement effectively acts as a cross suit against the plaintiff although the requirement for filing a separate suit is not there. In other words, the court has two suits in a case where set off is claimed, but the same are tried together as a single suit and no separate suit number lies for the same. The same is also stated under clause (2) of Rule 6 Order VIII, CPC.

Where the plaintiff does not appear and his suit is dismissed for default, or he withdraws his suit, or he fails to substantiate his claim at the trial and his suit is dismissed, it does not affect the claim for a set off by the defendant and a decree may be passed in favour of the defendant if he is able to prove his claim.

Set off and counterclaim

The counterclaim is provided under Rule 6-A of Order VIII, wherein the defendant has the right in a suit instituted by the plaintiff to set-up any right or claim against the plaintiff, in the same suit in respect of any cause of action accruing to the defendant against the plaintiff either before or after the filing of the suit but before the time limited for delivering his defence has expired.

Keeping in view both the provision under Order VIII, the major differences between the two can be summarized as follows:

1. Set off is available as a form of statutory defence in a case, whereas counter claim in essence is similar to a cross suit founded upon a cause of action accruing based on the same facts or otherwise. The counterclaim can also be said to be weapon of offence 
2. The legal requirement for a claim of set off is strict and includes only claim for an ascertained amount of money which must arise from the same transaction in a money suit; whereas the same is not the case in a counterclaim and it doesn’t necessarily have to be based on the same transaction.
3. The claim of set off must be an ascertained sum which must be recoverable legally at the date of the filing of the suit, whereas in a counterclaim the same should be recoverable at the date of the written statement.

Conclusion

The provision of Rule 6 Order VIII provides for a plea of defence in the form of a set off which can be claimed by the defendant as a matter of right upon fulfillment of the legal requirements as provided thereunder. The courts have also elaborated upon the concept and clarified certain aspects in relation to the application of set off. An example of the same will be of the applicability of court-fee on a set off claim. In M/S. Anand Enterprises v Syndicate Bank, the question was pertaining to the applicability of court fee on a set off. The Karnataka High Court stated the position in respect to the issue by observing that a written statement should be treated as a plaint in so far as the set off claim is concerned, and the same portion will attract court fee. The courts have applied the principle of set off as it effectively helps the parties and the judicial system in disposing of matters arising between the same parties in a single suit, thereby saving the time and efforts of the courts as well as of the parties by eliminating multiplicity of proceedings. 

References

1. https://www.merriam-webster.com/legal/set off
2. Union of India v. Karam Chand Thapar and Bros. (Coal Sales) Ltd., (2004) 3 SCC 504. 
3. B. Seshaiah v. B. Veerabhadrayya, AIR 1972 AP 134 (FB)
4. Bhupender Narain v Bahadur Singh, AIR 1952 SC 201
5. Illustration (e) Order VIII Rule 6 CPC, 1908
6. Harishchandra Dwarkadas Cloth Market v Firm Mulridhar Chironjilal, AIR 1957 MB 53
7. Dayaram v Jokhuram, AIR 1960 MP 393
8. M/S. Anand Enterprises v Syndicate Bank, AIR 1990 Kant 175

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