Set-off and counterclaim: An analysis (2023)

This Article relates to the set-off and counterclaim doctrines provided for in the Code of Civil Procedure (hereinafter referred to as the CPC). Order VIII, Rule 6 of the CPC provides for set-off and Rule 6A for counterclaims. These two rules were inserted into the CPC to provide a mechanism for the defendant to present his side of the claim in the same lawsuit brought by the plaintiff.

In a civil lawsuit, the plaintiff is considered the main injured party and is given many opportunities to present his grievances in court, but this type of remedy was not available to the defendants in the past and the defendants had to file another lawsuit for his claim. But with the advent of the term "equity" and due to changes in the legal system over time, defendants have been permitted to assert their claim in plaintiff's claim as a set-off and counterclaim.

history of offsetting

As the English and Roman procedures developed, both systems developed a reasonable view that a man should not be compelled to pay one moment what is due to him the next. Roman law referred to the cancellation of the counterclaim as compensation.[1] Similarly, in English common law, set-off for the purpose of settling mutual independent counterclaims was apparently considered to be legally precluded when it was held in the case of Sir William Darcy in 1677.[2]

Set-off only gained a foothold in English law through bankruptcy proceedings. The Provisional Bankruptcy Act of 4 Anne, c. 17, sec. 11, where a "mutual credit" had been granted between the bankrupt and a person who was his debtor, the latter should not be compelled to pay more than the balance appearing due upon an adjustment of the account. This law was followed by others which made various legislative amendments which are now embodied in the English Bankruptcy Act 1898. But equitable jurisdiction over set-off in bankruptcy cases was exercised by the Court of Chancery long before the provision was enacted into law.[3] In India, the concept has been introduced into the Code of Civil Procedure.

Set-off [Rule 6 of Regulation 8]

Meaning and definition of offsetting
Put simply, offsetting is a mutual acquittal. The meaning and definition of set-off is not provided for in the Code and can be deciphered from court interpretation.

The set-off claim is a claim asserted against another. It is a counterclaim that partially offsets the original claim. It is the extinguishing of debts of which two persons are mutually indebted, by the credits of which they are mutually creditors. If there are mutual debts between the plaintiff and the defendant, one debt can be offset against the other. It is a defense available to the defendant. By adjusting, the set-off either eliminates or reduces the claimant's entitlement in a money recovery action.

ImB. Seshaiah v. B. Veerabhadrayya[4] the Andhra High Court expressed the concept as follows:
The extinguishing of debts of which two persons are mutual debtors by the credits of which they are mutual creditors.

The doctrine provides that in a claim for recovery of money from the plaintiff, the defendant establishes that it also has a claim against the plaintiff for a specified amount; in the amount of this amount, he can demand a set-off. A defense of set-off is "a defense by which a defendant acknowledges the merits of the plaintiff's claim but raises another claim of its own to offset, in whole or in part, that of the plaintiff". It is a mutual acquittal of guilt between two people. A defendant's right to request set-off was recognized under Rule 6. It avoids the need for the defendant to file a new lawsuit.[5]

The term "offset" refers to the mutual discharge of debt. It is a mutual satisfaction of the claim of the plaintiff and the defendant against each other. In simple terms, "offsetting" means the amount claimed by the plaintiff from the defendant is to be satisfied with the amount that the plaintiff owes the defendant.

For example, if 'X' files a claim against 'Y' for Rs. 15,000/- but 'Y' already holds a decree for Rs Demand claim of plaintiff "X".

Effect of offsetting

If a defendant asserts the set-off, he will be placed in the same position as a plaintiff as to the amount claimed from him. There are two lawsuits, one by the plaintiff against the defendant and the other by the defendant against the plaintiff; and they are tried together. A separate color number will not be assigned when offsetting. If the plaintiff fails to appear and his action is dismissed by default, or he withdraws his action, or fails to establish his claim at trial and his action is dismissed, this shall not affect the defendant's right of set-off and a judgment may be entered in the defendant's favour, if he can prove his claim.

Statutory requirements of Rule 6 of Order VIII

A defendant may seek set-off if the following conditions are met:

1. The lawsuit must be for the purpose of recovering money;
2. The amount of money must be established;
3. The amount of money must be legally collectible;
4. It must be recoverable from the accused, or all of the accused if there is more than one;
5. It must be recoverable by the claimant or claimants if there is more than one;
6. It must not exceed the financial jurisdiction of the court in which the action is brought;
7. Both parties must be of the same character in the defendant's claim for set-off as in the plaintiff's claim.

Example: A leaves Rs. 2000 to B and appoints C as his executor and legatee. B dies and D takes over administration of B's ​​effects. C pays Rs 1000 as a surety to D; then D sued C for the inheritance. C cannot set off the debt of Rs 1000 against the legacy as neither C nor D have the same character in relation to the legacy as in relation to the payment of Rs 1000.

types of offsetting

The law recognizes two types of set-off, namely:

1. Statutory offsetting and
2. Fair Settlement.

Order 8 Rule 6 addresses statutory set-off, but that provision is not exhaustive and does not take away the power of the court to allow such an adjustment independently of Rule 6 of Order 8. The other adjustment can be described as a "just set -off".

Rule 6 deals only with statutory set-off. Fair set-off has been allowed by the common law courts in England. Legal set-off can only be made in respect of established funds only. Rule 6 is not exhaustive and set-off may be granted in respect of an undetermined amount of money.

The concept of just set-off comes from "equity, justice, good conscience". Fair set-off is not provided for in the 1908 Code of Civil Procedure. Fair set-off is at the discretion of the court. The objection raised by the defendant is not a question of the defendant's right, but a question of the discretion of the court.

Although a distinction was made between the two, in Jitendra Kumar Khan & Ors v The Peerless General Finance & Investment Company Limited and ors[6] the Supreme Court ruled that legal set-off and equitable set-off are that legal group-off is a legal one right, while equitable set-off is granted at the discretion of the court.

Counterclaim (Rules 6-A-6-G)

background
Prior to the 1976 Amendment Act, there was no specific provision in the Code for counterclaims. The 1976 Amendment Act made a specific provision for counterclaims by inserting Rules 6-A through 6-G. But before this change, in 1964, the Supreme Court in the case ofLaxmidas vs. Nanabhai,[7]retained the right to pursue the counterclaim in court. It has been determined that if the counterclaim is properly stamped, the court has authority to treat the counterclaim as a counterclaim and to hear the original claim and counterclaim together.

doctrine explained

Under sub-rule (i) of Rule 6-A, the defendant may, as a counterclaim against the claimant's claim, assert any right or claim in respect of any claim the defendant may have against the claimant either before or after the claim has been filed, but before expiration the time limit set for the defence.

A counterclaim is one of the causes of action available to a defendant to defeat the relief sought against the plaintiff. According to Black's Judicial Dictionary[8], "counterclaim" can be defined as "a claim made by the defendant in a proceeding against the plaintiff". Therefore, in a proceeding, a defendant may bring a counterclaim in addition to his right to claim set-off.[9] It is a claim that is separate and separate from the plaintiff's claim and is enforceable by a cross-claim. This is a lawsuit in favor of the defendant against the plaintiff. Thus, a counterclaim is actually a counterclaim, and the court can make a final judgment on both the original claim and the counterclaim.

In case ofRamesh Chand v. Anil Panjwani,[10] the Supreme Court established the defenses for the counterclaim. In a civil suit, there are three types of pleading or counterclaim:

1. In the written statement filed under Order 8 Rule 1;
2. By changing the written statement with the approval of the court and filing a counterclaim; and
3. In a subsequent submission under Order 8 Rule 9.

A defendant may bring a counterclaim relating to a cause of action that is separate from the cause of action asserted by the plaintiff. It need not be limited to a monetary claim or cause of action of the same nature as that of the plaintiff or related to or related to the original cause of action or matter alleged by the plaintiff.

For example, an action for an injunction may include a counterclaim for an injunction relating to the same or another property under Order VIII, Rule 6-C. The plaintiff may contest the disposition of the claim by counterclaim by pleading its disposition in an independent action, and may apply to the court for an order to that effect at any time prior to the resolution of any dispute relating to the counterclaim, such counterclaims may be barred. And the court, in hearing such a motion, may make such order as it sees fit.[11]

purpose of teaching
The purpose of the provision enabling the filing of a counterclaim is to avoid a multitude of court proceedings and save time of the court, as well as eliminate the inconvenience to the parties by allowing claims and counterclaims, that is, all disputes between the same parties in the be decided in the same way.

If the admission of a counterclaim by amendment or subsequent pleading would result in a lengthening of the trial, an impediment to the otherwise smooth course of the proceedings, or a delay in the progress of the proceedings by forcing the proceedings to be withdrawn, steps already taken by the Court, the Court would be entitled to exercise its discretion not to exercise in favor of a late counterclaim.

Beginning of Right to Bring Counterclaims

A plea by way of counterclaim expires with the right to file a written statement, and this right to file a counterclaim is in addition to the right to assert set-off conferred by Rule 6. A set-off must be asserted in writing. The counterclaim must be in writing.

If the defendant's right to file a plea has expired or the time limit for defense has expired, then the plea may not be made of its own accord, nor may a counterclaim be made, since the counterclaim under Rule 6-A must have its place in the written statement.

effect of the counterclaim

The effect of the counterclaim is that even if the plaintiff's claim is stayed, dismissed, dismissed or withdrawn, the counterclaim will be decided on its merits and the defendant will have the right to obtain an injunction over a counterclaim as set out in the written statement is claimed . If the Claimant does not file a response to the counterclaim filed by the Defendant, the court may enter ex parte judgment against the Claimant with respect to the counterclaim filed against him or make such an order with respect to the counterclaim as appropriate [ 12] Under Rule 6-A(4), the counterclaim is treated as a claim and subject to the rules applicable to claims. Likewise, under Rule 6-G, a reply to a counterclaim is treated as a written statement and is subject to the rules applicable to written statements.

In the leading case ofLaxmidas vs. Nanabhai,[13] The Supreme Court found that
“A fundamental question to be considered is whether there are any statutory or other statutory provisions that prevent a court from treating a counterclaim as a claim within a counterclaim. It's hard to see. The Code of Civil Procedure dictates the content of a claim and it may well be that a counterclaim to be treated as a counterclaim does not meet all of these requirements, but that alone is not sufficient to enable the court to Power to Deny and Jurisdiction to Reasonably Read and Construe the Submissions.

For example, if an actual claim in a counterclaim is part of a written statement, either as an appendix or as part thereof, even though it is called a counterclaim, no legal objection could be raised to the rebuttal of the same as a claim and granting relief to the defendant who would have been open if the brief had exonerated a lawsuit. To claim otherwise would be to turn what is essentially a mere deficiency in a form of pleading into an instrument for denying what justice plainly demands.”

Set-off and counterclaim: distinction

The distinction between the two is very important as they look similar in nature, but it is not and the difference between the two is very important and must be carefully considered:

• Set-off is a legal defense against a claimant's claim, while a counterclaim is essentially a counterclaim.

The set-off must be for an established amount or arise in the same transaction as the claimant's claim. A counterclaim does not have to come from the same transaction.

Set-off is a legal objection and must be asserted in the written statement. It can be sued as a shield and not a sword. The counterclaim, on the other hand, offers no defense against the plaintiff's allegation. It is an offensive weapon that enables the defendant to assert his claim against the plaintiff just as effectively as in an independent action. It's kind of a cross act. [14]

A fair set-off is a defense defendant's claim, which generally cannot exceed the plaintiff's claim. However, a counterclaim by the defendant may surpass the plaintiff's claim because it is consistent with the nature of the counterclaim. If a claim establishes a set-off or counterclaim as a defense against the claimant's claim and establishes an equalization due to the defendant, the court may enter judgment under provision 6-F of Order 6 on the party entitled to that balance has.

However, in both cases of set-off and counterclaim, the defendant's claims may not exceed the financial limits of the jurisdiction of the court.

Endnotes:

1. The Development of set-off, by William H. Loyd, available at: https://www.jstor.org/stable/pdf/3313138.pdf
2. 2 Freimann 28 (1677)
3. above at 1
4. AIR 1972 AP 134
5. Taken from the civil case of C.K. Takwani Eighth Edition, 2019.
6. Civil Appeal No. 6784 OF 2013
7. AIR 1964 SC11
8. Ed. 1999 on p. 348.
9. Rule 6-A(1) of Order VIII of the Code of Civil Procedure
10. (2003) 7 SCC 350 on p. 367
11. Order VIII, Rule 6-C
12. Rule 6-E of Order 8.
13. AIR 1964 SC11
14. ibid; see also AZ mode Farroq vs. State Govt., AIR 1984 Ker 126 (FB).

Suggested articles:

1. Set-off and counterclaim in accordance with the Code of Civil Procedure 1908
2. Claim, written declaration, set-off and counterclaim under the Civil Procedure Code 1908
3. Preparation of additional documents at the stage of cross-examination