Difference Between Set-Off and Counter Claim in CPC

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Order 8 of the law encompasses rules regarding set-off and counter-claims. These rules exist to safeguard the rights and interests of citizens, ensuring that no injustice occurs. The doctrine of set-off and counter-claim is made available under the law to protect these interests further.

What are Set-Off and Counter Claim in CPC?

Set-off in CPC refers to the statutory defence where a defendant can counterbalance the plaintiff’s claim by asserting their claim for a related or ascertained sum. Counterclaim, on the other hand, is a cross-action initiated by the defendant, allowing them to maintain an independent claim against the plaintiff, even if it does not arise from the same transaction.

Definition and Meaning of Set-Off [Rule 6 of Order 8]

Set-off is the mutual cancellation of debts. It is a reciprocal arrangement where two parties acquit each other of their debts. The Code does not explicitly provide the meaning and definition of set-off, but it can be inferred from judicial interpretation.

A claim of set-off arises when one party asserts a claim against another party. It is a counter-claim that partially offsets the original claim. Set-off occurs when two individuals owe each other debts and are extinguished by their reciprocal credits. 

In cases where the plaintiff and the defendant have mutual debts, one debt can be settled against the other. Set-off serves as a defensive plea available to the defendant. Through adjustment, set-off either eliminates or reduces the plaintiff’s claim in a lawsuit for monetary recovery.

In the case of B. Seshaiah v. B. Veerabhadrayya, the Andhra High Court explained the concept of set-off as follows:

Set-off is the process by which the debts of two individuals, who are mutually debtors and creditors to each other, are extinguished by their reciprocal credits.

Essential of set-off

The essential requirements for a defendant to claim a set-off are as follows:

  • The lawsuit must be initiated to recover a specific sum of money.
  • The amount of money being claimed must be determinable and clear.
  • The money being claimed must be legally recoverable.
  • The defendant, or all the defendants, if multiple, must have the right to recover the money.
  • The money must be recoverable from the plaintiff or all the plaintiffs if multiple.
  • The claimed amount must be within the jurisdiction of the court in which the lawsuit is filed.
  • Both parties involved must possess the same character in the defendant’s claim for set-off as in the plaintiff’s lawsuit.

Effect of Set-off

When a defendant asserts a set-off, he assumes the role of a plaintiff regarding the claimed amount. This results in two simultaneous lawsuits: one initiated by the plaintiff against the defendant and another by the defendant against the plaintiff. These lawsuits are heard together and are not assigned separate suit numbers specifically for the set-off claim.

If the plaintiff fails to appear in court, leading to the dismissal of their suit due to default, or if the plaintiff voluntarily withdraws their suit, or if the plaintiff fails to substantiate their claim during the trial resulting in the dismissal of their suit, it does not impact the defendant’s claim for set-off. In such cases, if the defendant can substantiate their claim, a decree may be granted in favour of the defendant.

Counter Claim by Defendant in CPC

Sub-rule (i) of Rule 6-A permits the defendant to present a counter-claim against the plaintiff’s claim, encompassing any right or claim that the defendant may have against the plaintiff. This right or claim can arise before or after the lawsuit’s filing, but it must be asserted before the time designated for the delivery of the defendant’s defence has expired.

A counter-claim serves as a plea available to the defendant to challenge the relief sought by the plaintiff. As per Black’s Judicial Dictionary, a “counter-claim” refers to a claim made by the defendant against the plaintiff in a lawsuit. Hence, in addition to the option of pleading a set-off, the defendant in a civil suit can raise a counter-claim.

A counter-claim is an independent and separate claim from the plaintiff’s, which can be enforced through cross-action. It represents a cause of action in favour of the defendant against the plaintiff. Consequently, a counter-claim constitutes a valid cross-action, and the court can render a final judgment on both the original claim and the counter-claim.

In the case of Ramesh Chand v. Anil Panjwani, the Supreme Court outlined the three modes of pleading or presenting a counter-claim in a civil suit:

  • In the written statement filed under Order 8 Rule 1;
  • By amending the written statement with the court’s permission to include a counter-claim; and
  • In a subsequent pleading under Order 8 Rule 9.

A defendant can file a counter-claim based on a cause of action distinct from the cause of action put forth by the plaintiff. The counter-claim doesn’t need to be limited to a monetary claim or to be of the same nature as the plaintiff’s cause of action. It can be unrelated or unconnected to the original cause of action or matter pleaded by the plaintiff.

For example, in a lawsuit seeking an injunction, a counter-claim for an injunction concerning the same or different property can be raised under Order VIII, Rule 6-C. The plaintiff may object to the counter-claim being decided within the lawsuit and instead request its resolution through an independent suit. 

The plaintiff can apply to exclude the counter-claim at any time before the issues related to the counter-claim are determined. Upon hearing the application, the court has the authority to issue an appropriate order as deemed fit.

When to file a counter-claim?

In the case of Ashok Kumar Kalra vs Wing Cdr, Surender Agnihotr, the court allows the filing of a counter-claim under the following circumstances:

  • The counter-claim can be filed before or after the initiation of the lawsuit.
  • It should be filed before the defendant has submitted their written statement.
  • It should be filed before the time limit set for delivering the defendant’s defence expires.

Generally, the court permits filing a counter-claim after the defendant has submitted their written statement but before the issues are formulated. However, the counter-claim may be allowed in exceptional cases even after the issues are framed. This is done to avoid the commencement of multiple proceedings on the same matter.

Effect of Counter-claim

The counter-claim carries significant implications. Even if the plaintiff’s lawsuit is stayed, discontinued, dismissed, or withdrawn, the counter-claim will be independently assessed on its merits, and the defendant will have the right to obtain a decree based on the counter-claim as stated in their written statement. 

Suppose the plaintiff fails to respond to the counter-claim made by the defendant. In that case, the court may issue an ex parte judgment against the plaintiff regarding the counter-claim or make any other appropriate order.

According to Rule 6-A(4), the counter-claim is treated as a plaint governed by the rules applicable to plaints. Similarly, Rule 6-G specifies that a reply filed in response to a counter-claim is treated as a written statement and is subject to the rules applicable to written statements.

In the leading case of Laxmidas v. Nanabhai, the Supreme Court emphasized that no legal impediment prevents a court from treating a counter-claim as a plaint in a cross-suit. While the Code of Civil Procedure outlines the requirements for a plaint, it does not preclude the court from reasonably interpreting and construing the pleadings. 

Suppose the counter-claim essentially functions as a plaint in a cross-suit, even if it is incorporated into the written statement or attached to it as an annexure. In that case, the court has the authority to consider it as a plaint and grant relief to the defendant as would have been permissible if the pleading had been presented as a plaint. To hold otherwise would elevate a mere defect in the form of pleading into a means of denying justice, contrary to what justice genuinely demands.

What is the Difference Between Set-Off and Counter Claim in CPC?

It is crucial to understand and carefully consider the difference between set-off and counter-claim under CPC, as they may appear similar but have significant differences:

Nature

Set-off is a statutory defence available to the defendant in response to the plaintiff’s action, while a counter-claim is essentially a cross-action initiated by the defendant.

Basis

Set-off must be based on an ascertained sum or arise from the same transaction as the plaintiff’s claim. On the other hand, a counter-claim does not necessarily have to arise from the same transaction.

Purpose

Set-off serves as a statutory defence and is pleaded in the written statement. It acts as a shield for the defendant and cannot be used as an offensive measure. In contrast, a counter-claim does not provide a defence against the plaintiff’s claim. Instead, it empowers the defendant to assert their claim against the plaintiff, similar to an independent action. It serves as a weapon of offence.

Scope

An equitable set-off typically cannot exceed the plaintiff’s claim and is a defensive measure. In contrast, a counter-claim can exceed the plaintiff’s claim as it operates as a cross-action.

According to Rule 6-F of Order 6, if a set-off or counter-claim is established as a defence against the plaintiff’s claim and a balance is found due to the defendant, the court may grant judgment to the party entitled to such balance.

However, it is important to note that in both set-off and counter-claim cases, the defendant’s claims must not exceed the pecuniary limits of the court’s jurisdiction.

Set-offCounterclaim
NatureStatutory defenceCross-action initiated by the defendant
BasisMust be an ascertained sum or arise from the same transaction as the plaintiff’s claimNot required to arise from the same transaction
PurposeDefence against plaintiff’s claimOffensive measure against the plaintiff’s claim
PleadingsPleaded in the written statementTreated as a separate claim
ScopeGenerally cannot exceed the plaintiff’s claimCan exceed the plaintiff’s claim
Jurisdiction limitsClaims must not exceed the court’s pecuniary jurisdiction limitsClaims must not exceed the court’s pecuniary jurisdiction limits

Conclusion

The concepts of set off and counter-claim in the Code of Civil Procedure play significant roles in the legal framework of civil suits. While they may share some similarities, they have distinct characteristics and serve different purposes.

Set-off is a statutory defence available to the defendant, allowing them to counterbalance the plaintiff’s claim by asserting their claim for a related or ascertained sum. It is a shield to mitigate the plaintiff’s claim and must be pleaded in the written statement. Set-off is limited in scope, generally not exceeding the pecuniary limits of the court’s jurisdiction.

On the other hand, a counter-claim is substantially a cross-action initiated by the defendant. It goes beyond defence and allows the defendant to assert an independent claim against the plaintiff, even if it does not arise from the same transaction. A counter-claim is treated as a separate claim and can exceed the plaintiff’s claim in its scope and relief sought. The defendant can file a counter-claim either in the written statement, by amending the written statement with the court’s permission, or in a subsequent pleading.

The court has the authority to adjudicate on both the original and counter-claims. Even if the plaintiff’s suit is stayed, discontinued, dismissed, or withdrawn, the counter-claim will be decided on its merits. If the plaintiff fails to respond to the counter-claim, the court may pronounce an ex parte judgment or make an appropriate order related to the counter-claim.


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