Introduction

• A plaintiff initiates the process of a civil suit by instituting a plaint in civil court bearing the jurisdiction to entertain that suit.
• Moreover, to continue the case and table his side of the story, the defendant must submit a written statement.
• In certain circumstances, the written statement includes a set-off and counterclaim.
• If the defendant has a counterclaim or wants to set off, he must incorporate in the written statement as crossclaims.
• Furthermore, the limitation period to submit a written statement including set-off or counterclaim is 30 days from the filing of the plaint.

Set-off

• When the plaint includes the issue of recovery of debts, set-off can be incorporated into the written statement.
• Set-off is not defined in the Code of Civil Procedure, 1908 (CPC), its gist is borrowed from interpretation in judicial precedents.
  • In the case of recovery of debts if defendant has a reciprocal claim, he can claim through the process of set-off.

Illustration:

A filed a suit against B claiming that he had taken Rs. 50,000 from him and the amount has become due. Now, B has also claimed that A has taken Rs. 20,000 from B and the amount is due as a debt. In such a scenario, both parties are mutually indebted to each other, and they both have to pay off the debts due to each other. Instead of filing a fresh suit altogether, B files a set-off claim along with the written statement in response to the plaint filed by A for those Rs. 20,000 due.

History of Set-off

• The principle of set-off as a crossclaim by the defendant is borrowed from the doctrine of compensation.
• Moreover, the principle of set-off was known as Stoppage in the English Chancery Courts.
  • The English courts adopted this doctrine as a right of the defendant in the year 1729.
  • The adoption of this doctrine was through statutory procedure.
• It was held by Kerala High Court in Sukumaran v. Madhvan (1982) that only suit for recovery of money is eligible for crossclaim in the form of set-off.

Essentials of Set-off

• Defendant has the right to claim.
• The plaint must be for the recovery of debts.
• The debt amount must be definite and mentioned.
• The amount must be of a recoverable nature.
• It must be within the pecuniary limit of the court.
• Both the parties must fill the same character as mentioned in the plaint.

Position of Set-off in CPC, 1908

Order VIII Rule 6 of the CPC states the particulars of the set-off to be given in the written statement. The provision states following ingredients: -

• The defendant may submit a written statement containing the amount as debt to set off at the first hearing of the suit and not afterwards.
• It will be on the same footing as a plaint in a cross-suit. But it will not affect the lien.
• Rules for written statement and claim in the form of set-off are same.

Types of Set-off

There are two types of Set-off as mentioned below: -

• Legal Set-off
  • Order VIII Rule 6(1) CPC discusses the Legal Set-off.
  • The amount must be mentioned for the legal set-off.
  • The amount must be of a recoverable nature.
  • Defendant must pay court fees for the process.
  • The set-off under written statement must be filed within the period of limitation prescribed.
• Equitable Set-off
  • It is present in a vague manner under Order XX Rule 19(3).
  • The doctrine is based on the principle of ‘Equity, Justice and Good Conscience’.
  • It is governed by the English law.
  • It is a claim for an unascertained amount of money.
  • It must arise out of the same transaction or connected with the transaction of money claimed in the petition.
  • In the case of Maharashtra State Farming Corporation Ltd v. Belapur Sugar and Allied Industries Ltd (2004), it was held that the amount claimed must be out of the same transaction and must not be barred by time in the equitable set-off.
  • It is based on the discretion of the court of law.
  • Defendant may or may not pay the court fees.

Counterclaim

• It is enshrined in Order VIII Rule 6A – 6G of the CPC.
• The 27th Law Commision Report of 1964 recommended to set-up a right to file counterclaim in the civil procedure a right for the defendant.
• As an aftermath of the recommendation, CPC (Amendment) Act, 1976 added rules 6B to 6G to the existing act.

Concept of Counterclaim

• It is a claim which is independent in nature or can be separated from the claim of the plaintiff.
• When the cause of action arises against the plaintiff the defendant gets the right to submit that claim along with the written statement.
• It is considered as a plaint by the defendant against the claim of the plaintiff and is dealt with in the same manner as a plaint.
• Furthermore, the plaintiff has an opportunity to file a written statement against the plaint consisting of the counterclaim.
• The Supreme Court held the right to file a counterclaim a statutory right, in Laxmidas v. Nanabhai (1964).
• The Delhi HC in the case of Gastech Process Engineering Pvt. Ltd. v. Saipem (2009) deciphered it as a weapon in the hand of the defendant.

Purpose of Counterclaim

• To stop the multiplicity of suits.
• To save the time of the court of law.
• To make the civil procedure convenient for parties.
• To make the timely trials.

Time of Filing Counterclaim

• A counterclaim can be filed in three situations aligned below: -
• before or after filing the suit,
• before the defendant has delivered his defence,
• before the time limited for delivering his defence, expired.

Modus of Filing Counterclaim

• By amending written statement with the leave of the court and setting up counterclaim;
• By mentioning into the subsequent pleading prescribed under Order 8 Rule 9.

Essentials of Filing Counterclaim

• It must be filed by the defendant.
• It must for an independent or a claim that is separable in nature.
• It must be filed against the plaintiff. It can be filed against co-defendants in some scenarios.
• It must be in respect of any incident that happened before or after the filing of the suit.
• It cannot be filed at the appellate stage before the appellate authority.

Difference Between Counterclaim and Set Off

• Order 8 Rule 6A mentions “Such counterclaim 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 counterclaim" whereas in Set-off, the written statement has same effect as a plaint in cross-suit.
• In Set-off the suit must be for recovery of money and the claim must be for a mutual debt but it is not the case of a counterclaim.
• Set-off is classified into two categories that are legal set-off and equitable set-off whereas there is no such segregation in the case of a counterclaim.
• Set-off must arise out of same transaction but the counterclaim is not required to arise out of same transaction.