Difference between set off and counter claim

Aim – This article focuses to explain the difference between set off and counter claim in Code of Civil Procedure, 1908

In order to run smooth administration every government enacts certain rules and regulations which must be obeyed not only by all the persons who live within territorial boundary of country but also government. There rules and regulations originated from acts of parliament and in legal terminology such rules and regulations are called law. There are two set of laws namely Substantive law and Procedural Law.

The Code of civil procedure is a procedural law. It neither creates any right nor takes away any right. It regulates functioning of civil courts. The Code of civil procedure is divided in two parts:-

• The body code containing 158 sections and
• The rules containing 51 orders in Schedule 1.

The code of civil procedure is procedure designed to facilitate justice and further its ends. It is not a penal enactment for punishment and penalties; not a thing designed to trip people up[1].

Set off (Order VIII, Rule 6] 

Meaning of Set Off

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 defence, available to the defendant. By adjustment, set-off either wipes out or reduces the plaintiff’s claim in a suit for recovery of money.

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 :

(a) the ascertained sum does not exceed the pecuniary jurisdiction of the court; and

(b) 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. (Order VIII, Rule 6).

In a suit for injunction, the counter claim for possession by defendant can be entertained under Order VIII, Rule 6 (A) (1).

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.

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. 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’.

The purpose of set-off is to obviate the necessity of a fresh suit by the defendant. Therefore, the defendant must specifically raise a plea of set-off in his written statement. Such claim must be made after dealing with the allegations and accusations leveled against him in the plaint. The written statement must contain full particulars of the amount claimed by way of set-off and how and when it fell due.

Conditions

However, the defendant is entitled to raise the plea of set-off only when following conditions exist :—

1. 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.

2. 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.

3. 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.

4. 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.

5. 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.

In Jitendra Kumar Khan v. Peerless General Finance & Investment Co. Ltd[2].,’ it was held that under Order VIII, Rule 6, CPC certain conditions precedent are to be satisfied for application of the said Rule. Two primary conditions are that it must be a suit for recovery of money and the amount sought to be set-off must be a certain sum. Apart from the aforesaid parameters there are other parameters to sustain a plea of set-off under this Rule. However, equitable set-off is different from legal set-off; it is independent of the provisions of the Code of Civil Procedure. The plea of equitable set-off is raised not as a matter of right. It is the discretion of the court to entertain and allow such a plea or not. The said discretion has to be exercised in an equitable manner. The concept of equitable set-off is founded on the fundamental principles of equity, justice and good conscience. Equitable set-off exists not only in cases of mutual debits and credits, but also where cross-demands arise out of the same transaction. The mutual debits and credits or cross-demands must have arisen out of the same transaction or to be connected in the nature and circumstances. An equitable set-off is not to be allowed where protracted enquiry is needed for the determination of the sum due.

If the defendant is entitled, he must present the particulars of debt sought to be set-off in his written statement. But it does not mean that the defendant is under any obligation to necessarily raise the plea of set-off. He may as well avoid it. It is the choice of defendant whether to claim a set-off or not. If he opts to claim, he must do it at the first hearing in his written statement. If he prefers not to claim, he may very well waive his right. However, where the defendant omits to claim set-off in his written statement, he cannot subsequently claim it unless permitted by the court. Of course, the defendant may bring independent suit against the plaintiff for recovery of such amount.

The effect of raising the plea of set-off is that the defendant steps into the shoes of plaintiff in respect of amount claimed by him. Thus, there are virtually two suits under the same suit-number viz., a suit by plaintiff again: the defendant for recovery of money and a suit by defendant against the t plaintiff claiming the amount of set-off. Both the suits are tried together. The court pronounces final judgment in respect, both, the original claim and the set-off. The two suits are considered to be independent of each other. Even if the suit instituted by plaintiff is dismissed or is withdrawn, it makes no difference. The claim of defendant for amount of set-off does not go with the suit and the court may pass a decree in favour of defendant in respect of that sum.

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.,

(a) The suit must be for recovery of money.

(b) 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.

(c) That ascertained sum must be legally recoverable from the plaintiff, i.e., it is not barred by the law of limitation.

(d) 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.

(e) The set-off should be within the pecuniary jurisdiction of the Court.

The above provisions further establish that the Court must treat the claim of the defendant exactly as if the defendant had filed a plaint and the Court must pass a decree in favour of the defendant, if his claim is established.’ It is only in a written statement that a plea of set-off can be raised. The rule further confines only to set-off and does not provide for a counter-claim, which is allowed by way of equitable set-off, and is not expressly provided in Rule 6-A of Order VIII, by C.P.C. (Amendment) Act, 1976.

Illustrations

(a) 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.

(b) A bequeaths Rs. 2,000 to B and appoints C his executor and residuary legatee. B dies and D takes out administration to B’s effects. C pays Rs. 1,000 as security for D; then D sues C for the legacy. C cannot set-off the debt of Rs. 1,000 against the legacy, for neither C nor D fills the same character with respect to the legacy as they fill with respect to the payment of Rs. 1,000.

(c) A dies intestate and in debt to B. C takes out administration to A’s effects and B buys part of the effects from C. In a suit for the purchase money by C against B, the latter cannot set-off the debt against the price, for C fills two different characters, one as the vendor to B in which he sues B, and the other as representative to A.

(d) 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 wh1ch he claims to set-off. The amount not being ascertained cannot be set-off

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.

In India, the distinction between legal and equitable set-off remains. The provisions as to legal set-off are contained in Order VIII, Rule 6, C.P.C. The same has now been enlarged by insertion of Rule 6-A with regard to counter-claim by the defendant. So far as equitable set-off is concerned it is provided in Order XX, Rule 19(3), C.P.C., which states that “the provisions of this rule (relating to a decree for set-off or counter-claim and an appeal therefrom) shall apply whether the set-off is admissible under Rule 6 of Order VIII or otherwise.” The provisions of Order VIII, Rule 6, and Rule 6-A are, therefore, not exhaustive because apart from a legal set-off an equitable set-off can be pleaded independently of the specific provision of the Code.

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 :

1. 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.

2. The law of equitable set-off applies where the cross-claims, though not arising out of the same transaction, were closely connected together.

3. 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.

Legal and equitable set-off

The distinction between legal and equitable set-off may now be noted

• In a legal set-off, the amount claimed must be an ascertained sum of money, but in an equitable set-off, the claim must be allowed even with respect to an unascertained sum of money.
• In a legal set-off, the Court is bound to entertain and adjudicate upon the plea when raised. In the case of an equitable set-off, however, it is not obligatory on the Court to adjudicate upon it and the defendant cannot claim it as a matter of right. The Court has the discretion to refuse to take notice of the equitable set-off if the investigation into the equitable claim is likely to result in delay.
• In a legal set-off, it is not necessary that the cross-demands arise out of the same transaction, but an equitable set-off is allowed only when the cross-demands arise out of the same transaction as the plaintiff’s claim.
• In a legal set-off, the amount claimed to be set off must be legally recoverable and not barred by limitation at the date of the suit, but a claim by way of equitable set-off can be allowed even if it is barred at the date of the suit where there is fiduciary relationship between the plaintiff and the defendant.
• If the defendant’s claim is barred at the date of the written statement but not barred at the date of the suit, the defendant can get an equitable set-off to the extent of the plaintiff’s claim only but not for the balance found due to him. In a legal set-off, the whole claim is admissible and the defendant can even get a decree for the balance.

A legal set-off requires a Court-fee because it is a claim that might be established by a separate suit in which a Court-fee would have to be paid. But there is no such fee required in an equitable set-off which is for an amount that may equitably be deducted from the claim of the plaintiff where a Court-fee has been paid on the gross amount.

Counter claim [Order VIII, Rules 6-A to 6-G]

“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 favour of the defendant against the plaintiff.

In addition to pleading a set-off in a suit, the defendant may also set-up a counter-claim. The term “counter-claim” means a claim raised by the defendant against the claim of plaintiff in a suit. It is essentially and substantially a cross-action of the defendant. It 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.

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.

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.

Rule 6-A contemplates counter-claim in any suit. The scheme of the new rule is to permit the defendants to set up counter-claims, which arise between the parties and which are cognizable by the Court where the suit is pending. A defendant in a suit may, in addition to his right of pleading a set-off under Rule 6, also set up—by way of counter-claim against the claim of the plaintiff, any right or claim in respect of a cause of action accruing to the defendant against the plaintiff either before or after the filing of the suit but before the defendant has delivered his defence or before the time limited for his defence has expired, whether such counter-claim is in the nature of f a claim for damages or not : provided that such counter-claim shall not exceed the pecuniary limits of the jurisdiction of the Court. (Order V111, Rule 6-A).

Such counter-claim shall have the same effect as a cross-suit so as to enable the Court to pronounce a final judgment in the same suit, both on the original claim and on the counter-claim. The plaintiff shall be at liberty to file a written statement in answer to the counter-claim of the defendant within such period as may be fixed by the Court. The counter-claim shall be treated as a plaint and governed by the rules applicable to plaints. Order VIII, Rule 6-A (2-4).

Rule 6-B of Order VIII provides that where any defendant seeks to rely upon any ground as supporting a right of counter-claim, he shall, in his written statement, state specifically that he does so by way of counter-claim. That rule does not apply where specifically a counter-claim is raised, but confines itself to a ground mentioned in the written statement as supporting a right to counter-claim.

Before the Amendment Act of 1976, there was no specific provision for counterclaim in the Code. The Supreme Court, however, held the right to make a counterclaim statutory.'” It was held that the court has power to treat the counterclaim as a cross-suit and hear the original suit and counterclaim together if the counterclaim is properly stamped.

In the leading case of Laxmidas v. Nanabhai[3], the Supreme Court observed, “The question has therefore to be considered on principle as to whether there is anything in law—statutory or otherwise—which precludes a court from treating a counterclaim as a plaint in a cross-suit. It is difficult to see any. No doubt, the Code of Civil Procedure prescribes the contents of a plaint and it might very well be that a counterclaim which is to be treated as a cross-suit might not conform to all these requirements but this by itself is not sufficient to deny to the court the power and the jurisdiction to read and construe the pleadings in a reasonable manner. If, for instance, what is really a plaint in a cross-suit is made part of a written statement either by being made an annexure to it or as part and parcel thereof, though described as a counterclaim, there could be no legal Objection to the counter treating the same as a plaint and granting such relief to the defendant as would have been open if the pleading had taken relief of a plaint. To hold otherwise would be to erect what in substance is a mere defect in a form of pleading into an instrument for denying what justice manifestly demands.”, (emphasis supplied)

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.

Nature & scope

By the Amendment Act of 1976, a specific provision has been made for counterclaims by inserting Rules 6-A to 6-G. Under sub-rule (1) of Rule 6-A, the defendant may set up by way of counterclaim against the claim of the plaintiff any right or claim in respect of action accruing to the defendant against the plaintiff either before or after the filing of the suit but before the defendant has delivered his defence or before the time fixed for delivery of his defence has expired. Such counterclaim, however, should not exceed the pecuniary limits of the jurisdiction of the court. In other words, by laying the counterclaim, pecuniary jurisdiction of the court cannot be ousted and the power to try the suit already entertained cannot be taken away by accepting the counterclaim beyond its pecuniary jurisdiction.

When A has a claim of any land against B and brings an action to enforce that claim, and B has a cross-claim of any kind against A which by the law he is entitled to raise and have disposed of in the action brought by , then B is said to have a right of counterclaim. Similarly, in a suit for injunction, a counterclaim for possession can be allowed.

In Rohit Singh v. State of Bihar[4],’ there was no counter-claim in terms of VIII, Rule 6-A. The trial court never formally treated the written statement as the counter-claim. The so-called counter-claim was entertained after the issues were framed and the evidence was closed. It was directed not against the plaintiff but only against the co-defendants. The supreme court held that a counter-claim, no doubt, could be filed even after the written statement is filed, but that does not mean that a counter-claim can be raised after the issues are framed and the evidence is closed. The counter-claim cannot be raised after framing of issues and closure of evidence. The court further held that the counter-claim is also not maintainable if directed solely against the co-defendants. It has to be directed against the plaintiff, though incidentally or along with it, it may also claim relief against co-defendants. Hence, the so-called counter-claim was not maintainable. The trial court erred in granting decree in favour of Defendants 3 to 17 on ground of default of co-defendants in filing answer to it.

In Ramchandra Sakharam Mahajan v. DamodarTrimbakTanksale[5],` the Supreme Court remanded the suit to trial court for decision afresh. The defendants had not appealed against the rejection of their counter-claim, therefore, the remand of the suit for decision afresh would not entitle defendants to pursue their counter-claim afresh. It was held that since the defendants have not pursued their counter-claim, the rejection of their counter-claim would stand confirmed and it would not be necessary for trial court to consider the .counter-claim afresh.

The counter-claim is treated as a plaint. Hence, the plaintiff is entitled to file a written statement to answer the counter-claim of the defendant. If, the plaintiff prefers not to reply, the court may pronounce judgment against him in respect of such counter-claim. If, the plaintiff contends that the claim raised by defendant by way of counter-claim ought to be raised in an independent suit, he may accordingly apply to the court before settlement of issues.

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 defence 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. Tresspass as cause of action for filing counter claim cannot be said to have arisen prior to filing of WS.

Similarly in Rohit Singh v. State of Bihar,’ it was held that counter claim cannot be raised after issues are framed and evidence is closed, further, counter-claim directed solely against co-defendants cannot be maintained. Court cannot proceed and grant decree in favour of said co-defendants only on basis that no answer has been filed to their counter-claim by other defendants.

A counter claim was filed claiming damages for wrongful detention of goods by locking room in her possession, 5 years after alleged locking of room. Defendant filing counter claim had knowledge of detention of goods right from first day. It was held that counter claim was barred, even if not Art. 91 but residuary article of Limitation Act is applied. Merely because in another suit inventory of goods in said room was prepared that would not give rise to fresh cause of action for respondent. Suit for damages for wrongful detention of goods is based on different footing vis-a-vis a continuing wrong. Thus, limitation would run from time when property is wrongfully taken.

In Mahendra Jung Rana v. Pan Singh Negi, it was observed that the cause of action for the counter-claim should accrue to the defendant either before or after the filing of the suit but before the defendant has delivered his defence or before the time for delivering his defence has expired. The limitation of time is clearly in respect of the cause of action on which the counter-claim is usually made in the written statement. The provision would u workable if it is so construed as to provide a time limit for filing because inter-claim. Since the counter-claim can, in law, validly be filed as part a court  written statement, the limitation of time that it should be filed before of the defendant has delivered his defence would make it unworkable. That it the would go to suggest that the limitation of time is in respect of the also wo  of the cause of action for the counter-claim and not for its actually being raised in the suit.

A defendant can file counter-claim in respect of a cause of action which is independent of cause of action averred by the plaintiff. It need not confine to money claim or to cause of action of the same nature as of the plaintiff or be related to or be connected with the original cause of action or matter pleaded by the plaintiff. In a suit for injunction, counter claim for injunction in respect of the same or different property can be made under Order VIII. Rule 6-C.

The plaintiff may object to disposal of the claim by way of counter-claim by pleading for its disposal by an independent suit. and he may, at any time before issues are settled in relation to the counter-claim apply to the Court for an order that such counter-claim may be excluded. and the Court may, on the hearing of such application, make such order as it thinks fit. (Order VIII, Rule 6-C).

If the plaintiff makes default in putting in a reply to the counter-claim made by the defendant, the Court may pronounce judgment against the plaintiff in relation to the counter-claim made against him, or make such order in relation to the counter-claim as it thinks fit. (Order VIII, Rule 6-E).

Where in any suit a set-off or counter-claim is established as a defence against the plaintiff’s claim, and any balance is found due to the plaintiff or defendant, as the case may be, the Court may give judgment to the party entitled to such balance. The rules relating to a written statement by a defendant shall apply to a written statement filed in answer to a counter-claim. (Order VIII, Rules 6-F and 6-G).

When an application for permission to sue for counter-claim in forma pauperis is filed, the Court is bound to consider that application and dispose it of according to law.

Mode of setting up counter-claim

There are three modes of pleading or setting up a counter-claim in a civil suit :

(1) 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.

(2) 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.

(3) Thirdly, a counter-claim may be filed by way of a subsequent pleading under Rule 9.

In the latter two cases the counter-claim though referable to Rule 6.A cannot be brought on record as of right but shall be governed by the discretion vesting in the Court, either under Order VI, Rule 17 of the CPC if sought to be introduced by way of amendment, or, subject to exercise of discretion conferred on the Court under Order VIII, Rule 9 of the CPC sought to be placed on record by way of subsequent pleading.

The purpose of the provision enabling filing of a counter-claim is to avoid multiplicity of judicial proceedings and save upon the Court’s time as also to exclude the inconvenience to the parties by enabling claims and counter-claims, that is, all disputes between the same parties being decided in the course of the same proceedings. If the consequence of permitting a counter-claim either by way of amendment or by way of subsequent pleading would be prolonging of the trial, complicating the otherwise smooth flow of proceedings or causing a delay in the progress of the suit by forcing a retreat on the steps already taken by the Court, the Court would be justified in exercising its discretion not in favour of permitting a belated counter-claim. The framers of the law never intended the pleading by way of counter-claim being utilized as an instrument for forcing upon a re-opening of the trial or pushing back the progress of proceeding. Generally speaking, a counter-claim not contained in the original written statement may be refused to be taken on record if the issues have already been framed and the case set down for trial, and more so when the trial has already commenced. But certainly a counter-claim is not entertainable when there is no written statement on record.”

Who may file counterclaim?

Normally, it is the defendant who may file a counterclaim against the plaintiff. But incidentally and along with the plaintiff, the defendant may also claim relief against the co-defendants in the suit. But a counterclaim solely against co-defendants is not maintainable.

When counterclaim may be set up?

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 effect of the counterclaim is that even if the suit of the plaintiff is stayed, discontinued, dismissed or withdrawn, the counterclaim will be decided on merits and the defendant will have a right to get a decree for a counterclaim as claimed in the written statement. If the plaintiff does not file any reply to the counterclaim made by the defendant, the court may pronounce the judgment against the plaintiff in relation to the counterclaim made against him or make such order in relation to the counterclaim as it thinks fit.268 The counterclaim shall be treated as a plaint and will be governed by the rules applicable to plaints. Similarly, a reply filed in answer to a counterclaim shall be treated as a written statement and governed by rules applicable to written statements.

Set Off & Counter Claim

The distinction between set-off and counter-claim may now be noted :

• Set-off is a statutory defence 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 defence 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 defence 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 defence 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 defence, 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 defence 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.

Frequently Asked Questions

1. Describe counter-claim and the mode for setting up a counter claim?

“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 favour of the defendant against the plaintiff.

By the Amendment Act of 1976, a specific provision has been made for counterclaims by inserting Rules 6-A to 6-G.

There are three modes of pleading or setting up a counter-claim in a civil suit:

(1) 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.

(2) 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.

(3) Thirdly, a counter-claim may be filed by way of a subsequent pleading under Rule 9.

2. Define set-off under CPC, 1908.

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. It is a plea in defence, available to the defendant. By adjustment, set-off either wipes out or reduces the plaintiff’s claim in a suit for recovery of money. 

3. Differentiate between set off and counter claim.

The distinction between set-off and counter-claim may now be noted :

• Set-off is a statutory defence 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 defence 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 defence 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.
• If the statute of limitation is pleaded to a defence 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. 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.

4. What are the principle 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:

1. 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.

2. The law of equitable set-off applies where the cross-claims, though not arising out of the same transaction, were closely connected together.

3. 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.

5. Differentiate between legal set-off and equitable set-off?

The distinction between legal and equitable set-off is as follows-

• In a legal set-off, the amount claimed must be an ascertained sum of money, but in an equitable set-off, the claim must be allowed even with respect to an unascertained sum of money.
• In a legal set-off, the Court is bound to entertain and adjudicate upon the plea when raised. In the case of an equitable set-off, however, it is not obligatory on the Court to adjudicate upon it and the defendant cannot claim it as a matter of right.
• In a legal set-off, it is not necessary that the cross-demands arise out of the same transaction, but an equitable set-off is allowed only when the cross-demands arise out of the same transaction as the plaintiff’s claim.
• In a legal set-off, the amount claimed to be set off must be legally recoverable and not barred by limitation at the date of the suit, but a claim by way of equitable set-off can be allowed even if it is barred at the date of the suit where there is fiduciary relationship between the plaintiff and the defendant.
• If the defendant’s claim is barred at the date of the written statement but not barred at the date of the suit, the defendant can get an equitable set-off to the extent of the plaintiff’s claim only but not for the balance found due to him. In a legal set-off, the whole claim is admissible and the defendant can even get a decree for the balance.

 Edited by – Sakshi Agarwal

Quality Check – Ankita Jha

Approved & Published by –  Sakshi Raje

Reference:

[1] Sangram Singh v. Election Tribunal, Kotah AIR 1955 SC 425

[2] (2013) 8 SCC 769.

[3]  AIR 1964 SC 11

[4](2006) 12 SCC 734

[5] AIR 2007 SC 10