This article is written by Jasmeet Kaur pursuing Diploma in Technology Law, Fintech Regulations and Technology Contracts,

and has been edited by Shashwat Kaushik.

This article has been published by Sneha Mahawar.​​ 

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Introduction

Plaintiff is the aggrieved party who files suit to claim relief from the court and to accomplish the same, numerous rights and opportunities are granted to the plaintiff but does the defendant only have a right to defend his suit? What if he himself is an aggrieved party? It is a well-established principle that one should come to the court with clean hands. So, here the provisions of Set-off and Counter claim comes into picture which are enlisted under Order VIII Rule 6 and Order VIII Rule 6A respectively where even the defendant has the right to sue the plaintiff if he is also aggrieved in the same suit. With the advent of Equity, these provisions were added by the legislature.

History of set-off

The doctrine of set-off was first implemented by English Courts in 1729 with the advent of equity so that compensation would be provided to defendants as well. 

Meaning of set-off

Suppose A and B are two parties to the suit. A filed a suit against B for a bill of exchange for Rs. 2000. B, who was holding a promissory note for Rs. 1000 from A claims to set off that amount. This amount can be set off.

So, set-off is the legal recovery of a sum that is pending towards the defendant by the plaintiff, and the former claims that amount to be set-off in the suit itself. Here both parties are debtors to each other. It was introduced so that even the defendant can discharge his part of the amount. In a literal way, there is no sense in paying an amount to the plaintiff only to recover it back. It will increase the burden on the judiciary since more suits will be filed in the court. Furthermore, it is pertinent to note that there is no legal definition expressly provided under CPC, and it is interpreted through various judgments.

The Supreme Court in Union of India v. Karan Chand Thapar and Bros. (Coal Sales) Ltd. and Ors., held that Black’s Law Dictionary defines the concept of set-off as the right of a debtor to reduce his part of the debt by the amount which the creditor owes  to him.

Although, the claim must fulfil some conditions to set off the amount which are listed as follows:

  • The suit should be for the recovery of money
  • The amount shall be legally recoverable
  • Amount receivable should be ascertained
  • Pecuniary limits of the jurisdiction of the court should not be exceeded
  • Same character should be filled by both the parties 
  • The character should be such as filled in the plaintiff’s suit
  • Set-off should be related to the case

Herein, it is clear that the amount will be recoverable only if it fulfils the conditions given under Rule 6 of Order VIII, Civil Procedure Code.

For instance, X sues Y for breach of contract, but Y contends that it is due to neglect by X and wants to set-off the loss caused due to such negligence. Since the amount here is not ascertained, it cannot be set-off. The Hon’ble High Court of Kerala in the case of Sukumaran v. Madhavan, held that set-off can be done in monetary matters only, and for other cases, the defendant may opt for counter claim.

Also, it is to be noted that the plea of set-off should be filed at the first hearing of the suit, and if it is to be filed after the first hearing, prior approval of the court is required.

Types of Set-off

There are two types of set-offs as recognised by law. These are:

  • Legal Set-off and,
  • Equitable Set-off

Legal Set-off:

Legal Set-off is recognised in law under Rule 6(1) of Order VIII and should satisfy the conditions mentioned thereunder taking into account the limitation period.

Let’s understand it with the first example, ‘A and B are two parties to the suit. A filed a suit against B for a bill of exchange for Rs. 2000. B, who was holding a promissory note for Rs. 1000 from A claims to set off that amount. 

Herein, the conditions of Rule 6(1) of Order VIII are complied with so B can get the amount to be set-off.

Equitable Set-off:

The provision for Equitable Set-off is not expressly provided under CPC and is grounded on equity, justice, and good conscience. It is not a matter of right and can be granted by the court at its discretion.

Let’s understand it with the second example,’ X sues Y for breach of contract, but Y contends that it is due to neglect by X and wants to set off the loss caused due to negligence on the part of X. Since the amount here is not ascertained, the conditions of Rule 6(1) are not satisfied, therefore, the amount can only be set-off at the discretion of the court and not as a matter of right.

Effect of Set-off

The effect of set-off has been given under Rule 6(2) of Order VIII, CPC, where it is expressly stated that the effect of the written statement to set-off is the same as that of a plaint in a cross-suit.

Furthermore, no distinct suit number would lie for a suit related to set-off. Both the original suit as well as suit related to the set-off will be treated as a single suit.

M&A

Meaning of Counter Claim:

The rules of counter-claim are given from Rule 6A-6G of Order VIII, CPC which were inserted by the 1976 amendment which came into effect from 1st February 1977 according to which the defendant has the option to file a claim against the plaintiff in addition to suit of set-off. 

The Delhi High Court in Gastech Process Engineering (India) Pvt. Ltd. v. Saipem, observed that counter claim is like a weapon used by a defendant to present his defence as well as to avoid filing multiple suits. 

However, it is significant to note that counter claim should be within the pecuniary limits of the jurisdiction of the court and the plaintiff have the right to file a written statement to answer the counter claim of the defendant and when the defendant files a written statement, he must mention therein the grounds he has quoted in counter claim.

Effect of Counter Claim

The effect of counter claim should be the same as that of a cross-suit and will be treated as a plaint. In the case of Manikchand Fulchand Katariya v. Lalchand Harakchand Katariya, it was held that through counter claim decree for possession can be in favour of the defendant as it is not only limited to money suits.

Unlike set-off, if the suit of the plaintiff is discontinued, dismissed or stayed, then counter claim will also not be processed.

When Counter Claim can be excluded

As per Rule 6C, If the plaintiff contends that the suit should be treated as an independent suit and not as a counter claim, he may apply to the court for the same at any time before issues are settled and it will be upon the discretion of court to pass such an order or not.

Plaintiff’s default in replying to counter claim

If the plaintiff makes a default in replying to the counter claim, the court can pass an order against him in respect of counter claim or can file any other order as it deems fit (Rule 6E).

Relief granted to defendant on success of suit of counter claim:

If the judgement is passed in the favour of the defendant, the plaintiff will be liable to pay balance to the defendant (Rule 6F).

Difference between Set-off and Counter Claim

Set-offCounter Claim
Provision for set-off has been given under Rule 6(1) of Order 8.Provision for counter claim has been given under Rule 6(1) of Order 8.
Here both parties are reciprocally debtors and creditors to each other i.e. even if plaintiff has instituted the suit for recovery of money, the defendant also has right to set-off the amount which is payable to him by plaintiff.It is like a cross-action, which is filed separately in the same proceeding.
It acts as a defence to the action of the plaintiff.It does not act as a defence, rather it is a cross- action i.e., a distinct suit.
Set-off can be filed from the same transaction and that amount should be ascertainable.It is not necessary for a counter claim to emerge from the same transaction.
It should be pleaded in a written statement.It acts as a separate action which is as effective as a plaint.
Set-offs are of 2 types- Legal and Equitable set-off.Counter Claim is not divided into any types.

Relevant Case Laws

Hulas Rai Baij Nath v. Firm K.B Bass and Co. AIR 1963 All 368.:

In this case was filed by the respondent firm to seek rendition of accounts by claiming Rs. 2100 in the plaint against the appellant (who was their commission agent) because their accounts were not settled since 1941. The court dismissed this appeal and held that in the cases of rendition of accounts plaintiff should not be compelled to proceed at such a stage in the suit in which the respondent has applied for withdrawal like in the present suit. Furthermore, the court also held that nothing in the facts lead to set-off or counter claim as no provision has been shown which could lead to the same. Costs were awarded to the appellant.

Subaida Ebrahim v. Moosa C. and ors, (2022):

In this case, the appeal was filed under section 104 and Order XLIII of CPC, in order to challenge the order preferred in the favour of decree-holder in the dispute related to distribution of property. The 1st respondent could appropriate the balance sale price which was Rs. 2,85,433 that was deposited by the appellant, so the appellant contended there is no alleged fraud or irregularity, therefore order of sale should not be set aside. The High Court of Kerala ruled that in case of separate decree-holders, claim cannot be set-off by one of them.  

M/S. A.G. Enviro Infra Projects v. M/S. J.S. Enviro Services Pvt. Ltd., (2023): 

In this case, the petitioner under Section 34 of Arbitration and Conciliation Act, 1996 filed a petition for setting aside the final award and to allow the counter claim raised against respondent for charging an excess amount of Rs. 4,14,42,192 with 18% rate of interest whereas the respondent company contended for passing of an award of Rs. 2,00,00,00 for the loss of goodwill. Since the matter has been decided by the Arbitrator first, the prominent question there was- does the Arbitrator fail to decide the counter claim and can the court decide the same. Hon’ble Delhi High Court held that the court could modify the award but the extent should be limited. 

Conclusion

It can be concluded that set-off and counter claim acts as a  shield and a sword respectively.here set-off acts like a shield which acquaints the defendant with a statutory right to set off the amount pending towards him by the plaintiff, counter claim acts like a sword in the form of cross-action.

Reference

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