Cpc 4th Sem.docx

DR. RAM MANOHAR LOHIA NATIONAL LAW UNIVERSITY 2016-17

CODE OF CIVIL PROCEDURE PROJECT ON:

SET-OFF AND COUNTERCLAIM

SUBMITTED TO:

SUBMITTED BY:

Dr. RADHE SHYAM PRASAD

VIPIN KUMAR VERMA

Asst. Professor (LAW)

ROLL NUMBER – 168

RMLNLU

SECTION – B AMIT SINGH , R.N -12 SECTION -A IV SEMESTER

ACKNOWLEDGEMENT

I express my gratitude and deep regards to my teacher Dr. RADHE SHYAM PRASAD for giving me such a challenging topic and also for his exemplary guidance, monitoring and constant encouragement throughout the course of this thesis. I also take this opportunity to express a deep sense of gratitude to my seniors in the college for their cordial support, valuable information and guidance, which helped me in completing this task through various stages. I am obliged to the staff members of the Madhu Limaye Library, for the timely and valuable information provided by them in their respective fields. I am grateful for their cooperation during the period of my assignment. Lastly, I thank almighty, my family and friends for their constant encouragement without which this assignment would not have been possible.

Amit singh Vipin kumar verma 4th Semester,

CONTENTS INTRODUCTION ............................................................................................................1 SET-OFF.......................................................................................................................1 Conditions necessary for the application of this rule .............................................2 1. Suit must be for recovery of money ..............................................................3 2. Amount claimed must be ascertained ...........................................................3 3. Amount claimed must be legally recoverable ...............................................3 4. Separate debt cannot be set-off against a joint and several debt ...................4 5. Amount claimed to be set-off should not exceed the pecuniary limits .........5 6. Parties must fill same character as in the plaint ............................................5 Equitable set-off ......................................................................................................6 COUNTERCLAIM ..........................................................................................................8 1. Limitation for Counterclaim..........................................................................9 2. Exclusion of Counterclaim ............................................................................9 3. Effect of discontinuance of the suit ...............................................................9 4. Default of plaintiff to reply to counterclaim ...............................................10 5. Relief to defendant when counterclaim succeeds .......................................10 6. Rules relating to written statement apply ....................................................11 SIMILARITIES IN SET-OFF AND COUNTERCLAIM ........................................................12 DISTINCTION BETWEEN SET-OFF AND COUNTERCLAIM ..............................................13 CONCLUSION .............................................................................................................14 BIBLIOGRAPHY ..........................................................................................................15

INTRODUCTION

Set off is a plea in defence which by adjustment is able to wipe off or reduce the claim of the plaintiff. Rule 6 of Order 8 deals with set-off. In other words, it can be said to be a combination of a defence and a counterclaim, i.e. defence to the extent of the plaintiff’s claim and a claim by then defendant in the suit itself for the balance. The doctrine of set off allows the defendant to put his own claim against the plaintiff before the court. Technically, a set-off can be defined as a discharge of reciprocal obligations to the extent of the smaller obligation. An example would be where A files a suit against B for a sum of Rs. 5,000/-. B takes the defence that A owes him Rs. 3,000/-. In this case, it would not be prudent to have B pay Rs. 5,000/- to A in and subsequently have A pay B Rs. 3,000/-. In order to avoid multiplicity of proceeding and for ease of settlement, B can ask for setting off of Rs. 3,000/- of A’s claim and pay only the remaining sum of Rs. 2,000/-. Counterclaims are treated as plaint in a cross suit. Counterclaims are a claim brought against the plaintiff by the defendant in a lawsuit. It is typically filed as a part of the defendant’s answer to the original claim made by then plaintiff. Counterclaim can contain a variety of material ranging from accusation of fraudulent activity to claims which would preempt any attempt at suit. In the Currimbhoy & Co v. Creet1, the court held that in general understanding, counterclaim is not provided for under the Civil Procedure Code. However, Order 8, Rule 6 read with Order 20 rule 19 does permit what in essence can be considered a counterclaim of a specific kind, i.e. where it is made for an ascertained amount exceeding the claim by the plaintiff in his suit for recovery of money. The scope of this study is to understand the meaning and statutory scope of set-off and counterclaim as under Order 8 Rule 6-6G. There appear to be certain commonalities and differences in the two. These features are sought to be studied and highlighted in this study.

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(1932) ILR 60 Cal 980

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Set-Off

SET-OFF

A set-off is a kind of counter claim that operates as a defence to a claim. The doctrine of set-off allows the defendant to put his own claim against the plaintiff before the court under certain circumstances. Technically, a set-off can be defined as a discharge of reciprocal obligations to the extent of the smaller obligation. In the case of Jayanti Lal v. Abdul Aziz2, the Supreme Court defined set-off as an extinction of debts of which two persons are reciprocally debtors to one another. By claiming set-off, the defendant is spared from filing a separate suit against the plaintiff. Thus it eases the burden of the court by reducing the number of suits before it. The provision for set-off is contained in O 8 r 6. The important features of set off are: 1. The suit must be of recovery of money. Example - A sues B for 20,000/-. B cannot set off the claim for damages for breach of contract for specific performance. 2. The sum of money must be ascertained. See Illustration c, d, e. 3. The sum claimed must be legally recoverable. For example, winnings in a wager cannot be claimed in a set off. 4. The sum claimed must be recoverable by all the defendants against the plaintiff if there are more than one defendant. 5. The sum claimed must be recoverable from all the plaintiffs by the defendant if there are more than one plaintiff. 6. In the defendant's claim for set off, both the parties must fill in the same character as they fill in the plaintiff's suit.

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AIR 1956 SC 2825

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Conditions Necessary for Set-Off

Conditions necessary for the application of this rule

A defendant has the right to claim set-off under this rule if the following conditions are satisfied1. The suit is for the recovery of money 2. The amount claimed to be set off must be i.

An ascertained sum of money

ii.

Legally recoverable amount

iii.

The right of recovery of the said amount must lie with the defendant or defendants

iv.

The amount must be recoverable form the plaintiff or all the plaintiffs. Thus, where suit is by agent of the plaintiff, there cannot be a claim for set-off as the amount is due from the principle, who is not the plaintiff.

v.

Within the limits of the pecuniary jurisdiction of the court in which the suit is brought.

3. The parties must, in the defendants claim for set-off fill the same character as they fill in the plaintiff’s suit. The plea of set-off has to be raised specifically in the written statement and in response to which the plaintiff is required to file a written statement. Article I in Schedule I of Court Fees Act 1870 provides that written statement pleading set-off to be levied with court fee. According to O 8 r 6(2) of the Code of Civil Procedure, the written statement claiming set-off is treated as a plaint in a cross-suit.

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Conditions Necessary for Set-Off 1. Suit must be for recovery of money

The rule of set-off is applicable only where the suit is for recovery of money. Other cases have dealt in detail on whether different claims amount to claim for recovery of money.3 Some of the examples include holding that a suit for accounts on dissolution of a partnership was a suit of recovery of money and a plea for sat-off may be raised by the defendant in the same.4 2. Amount claimed must be ascertained

‘Ascertained sum’ does not refer to a sum admitted by the plaintiff. It is used to mean the opposite of unliquidated damages. For example, where the defendant claims set-off on the ground that the plaintiff was negligent, there cannot be a set-off as the amount claimed is not ascertained. Since the plea for set-off is for a certain sum, court fee is paid for that sum.

3. Amount claimed must be legally recoverable

The amount claimed must be legally recoverable and the claim must not be barred by limitation. Where the defendant’s claim is lesser in quantum as compared to the claim of the plaintiff and the defendant seeks that his debt be set-off against the claim of the plaintiff, the date for determining if period of limitation has passed is the date of the filing of the suit. On the other hand, if the defendant makes a claim in excess of the claim of the plaintiff, i.e. he claims a sum

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Manohar Lal v. Madan Lal AIR 1965 Punj 190 Ramjivan v. Chand Mal (1888) ILR 10 All 587

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Conditions Necessary for Set-Off of money as a result of the “set-off”, the date for determining if period of limitation has lapsed would be the date of filing of the written statement.5 In case the claim of the defendant is barred by limitation, a claim can still be made under equitable set-off right of the defendant. For example in mortgage suits, in taking account of mortgage, sums are allowed to be set-off even if barred by limitation. In the case of Vyravan v. Srimath (1916) ILR 39 Mad 939, the court held that “an exception to the rule that a time-barred claim cannot be pleaded as equitable set-off exists where there is a fiduciary relation between the parties such as trust and there is accountability. This exception has been extended to mortgage claims as there is accountability between the parties.

4. Separate debt cannot be set-off against a joint and several debt

Where the plaintiff has a claim against two defendants jointly and severally for a sum of money, one of the defendants cannot claim for a set-off against a sum of money that the plaintiff owes to him alone, as it is a separate debt. In case this was permitted, there would be confusion relating to the fixing of liability of the court. Only where the claims are all form the same transaction or that can be classified to belong to the same transaction. On this principle, it has been observed that in a suit by the company against its directors, an individual director cannot be entitled to setoff the amount due to him alone from the company. So in a suit by A against B for the recovery of debt due from, B cannot claim set-off of a debt due by A jointly to him and C. Thus, joint and separate debts cannot be set-off against each other.6

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Hareendra v. Somendra AIR 1942 Cal 559 Kapil v. Ramnihar AIR 1949 Nag 193

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Conditions Necessary for Set-Off 5. Amount claimed to be set-off should not exceed the pecuniary limits

One of the riders of the jurisdiction of the court before which a plea for set-off or counterclaim is made is that only such court can entertain the plea as would have had the power to do so had it been the subject matter of a separate suit. The valuation of a set-off for the purpose of jurisdiction must be taken as relating to the entire amount pleaded as set-off, and without any portion of the plaintiff’s claim admitted by the defendant. For example, if A sues B for recovery of Rs. 1,000/- and B claims to set-off a sum of Rs. 2,500/and claims for Rs. 1,500/- after giving credit to A for the sum of Rs. 1,000/- admitted as being due by B to A, then a court like the Presidency Small Causes Court cannot try the claim for set off as the limit of its pecuniary jurisdiction is Rs. 2,000/-7

6. Parties must fill same character as in the plaint

Where the parties do not fill the same character as in the plaintiff’s suit, the claim for set-off may not be triable. Where a suit is brought by a Hindu son as the heir and representative of his father to recover a debt by another to the father, B brings a claim for set-off for a debt owed to him by the father, B may do so since the parties fill the same character as in the plaintiff’s suit. Where however, there were two accounts between the same parties, and a suit is filed on one of them, a set off cannot be claimed on the amount due to the defendant on the other account.8

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Bojendra v. Budge Budge Jute Mill Co. (1893) 20 Cal 527 Amar Nath v. Produce Exchange Corporation Ltd AIR 1963 Punj 479

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Equitable Set-Off

Equitable set-off

There however, are cases where the defendant is allowed a set-off even when the sum of money is unascertained which comes in damages. An equitable set-off may also be in respect of an ascertained sum of money. The essence of such claim is that there must be some connection between the plaintiff’s claim for recovery of money and the defendant’s claim for a set-off, which makes it inequitable to drive the defendant to a separate suit, especially when the claims are arising out of the same transaction and the knowledge regarding the debt exist for both the parties. Thus, the principle cases dealt are those where the cross demands arise out of the same transaction, or their connection ends them the character of a single prolonged transaction. Where this is the case, even if the amount is unascertained, it would be unequitable to drive the defendant to another suit to present his claims. Hence it is permitted in certain jurisdictions and is known as equitable set-off and are allowed by courts of equity as against legal set-off. The present rule is concerned with legal set-off only. However, the defendants general right to plead set-off whether legal or equitable covers such situations. This exists as a right and does not find mention in the procedure. In fact, Order 20 r 19(3) recognizes equitable set-off. The leading case on this subject is Clark v. Ruthanaveloo9, where it was held that in a suit for account, the defendant can claim equitable set-off on payment of court fee. However where the crossdemands relate to different transactions, there can be no equitable set-off, as no right to set-off exists. An equitable demand must in any case be a cross-claim for a liquidated amount ascertainable on the date of the leadings and not merely on the date of the decree. Another way of claiming set-off is by agreement, but this is permissible only to the extent covered by its terms. This was held in the case of Bhupendra Narain v. Bahadur Singh AIR 1952 SC 251.

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(1865) 2 Mad HC 296

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Equitable Set-Off The differences between legal set-off and equitable set-off are laid down under:

Legal Set Off Sum must be ascertained.

Equitable Set Off Sum need not be ascertained.

Claim need not originate from the same Claim transaction.

must

origination

from

the

same

transaction.

Legal set off can be claimed as a right by the Equitable set off cannot be claimed as a right but defendant and the court is bound to adjudicate by court's discretion. upon the claim. Court fee must be paid on set off amount.

No court fee is required.

The amount must not be time barred.

The amount may be time barred. However, if the defendant's claim is time barred, he can claim only as much amount as is given in the plaintiff's claim.

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Counterclaim

COUNTERCLAIM

Though the Code did not originally provide for counterclaims, there was nothing to prevent a court from treating the counterclaim as a plaint in a cross-suit, and hearing the two suits together, provided that the requisite court fee has been paid. In the case of a counterclaim, the amount must be legally recoverable on the date of filing the written statement. It has been held by the Supreme Court that the right to make a counterclaim is statutory and inadmissible if it does not fall within the purview of O 8 r 6. There is a difference between an adjustment and a setoff/counterclaim. Whereas, an adjustment takes place before the suit, a set-off is an adjustment after and as a result of the suit. The effect of rule 6A is from the point of view of pleading to assimilate a counter-claim with a plaint in a suit and is therefore governed by the same rules of pleading as a plaint. A counterclaim is substantially a cross-action, not merely a defence to the plaintiff's claim. It must be of such a nature that the court would have jurisdiction to entertain it as a separate action. The rights granted to the defendants to set up counter claim are not only limited for the claim put forth by the plaintiff in a suit itself, and even the cause of action need not be the same; there is nothing in Order VIII, Rule 6 or 6A, CPC restricting the nature of relief which the defendants might seek in the counter claim1. The essence of a counter claim is that defendant should have an independent cause of action in the nature of a cross action and not merely a defence to the plaintiff's claim2. Where the defendant pays into court the full amount of plaintiff's claim but denies liability to a portion thereof, the plea cannot be agitated in the suit. The crucial date for determining when the plaint in a cross suit should be treated as having been filed is not the date when the conversion is ordered, but the date on which the written statement, containing the counter claim is filed.

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Counterclaim 1. Limitation for Counterclaim

Order VIII, rules 6A to 6G may not prescribe any period of limitation for filing of a counterclaim, but in view of Order 8, rule A (4), read with Order VII, Rule 11(d) and S. 3(2) (b) of the Limitation Act, it can be said that there is a time limit for filing a counter-claim and the time limit is what is prescribed by the law of limitation in relation to that particular counter-claim. If it appears from the statements made in the application wherein the counter-claim is set up that it is barred by the law of limitation, the counter claim would be liable to rejection.10 Counter Claim at appellate stage: an appellate authority has no power to entertain counterclaim made for the first time at the appellate stage.11

2. Exclusion of Counterclaim

There is no jurisdiction to exclude a counter claim merely on the ground that in the circumstances security cannot be ordered to be given by the defendants, though it has been ordered against plaintiffs. The fact that the defendant cannot bring an independent action is not a sufficient ground for refusing to strike out a counter claim. In a suit for injunction, the defendant can plead counter-claim for injunction in respect of the same suit property or a different property based on a different cause of action is maintainable.12

3.

Effect of discontinuance of the suit

This rule illustrates the principle that a counter-claim is to be treated as a cross action, and is not affected by anything which relates solely to the plaintiff's claim. Thus, where the plaintiff 10

Oriental Ceramic Products Pvt. Ltd. v. Calcutta Municipal Corpoaration Cal AIR 2000 Cal 17 Ram Swaroop v. Mandir Thakran Kalyan Rai AIR 2002 HP 27 12 Jag Mohan Chawla v. Dera Radha Swami Satsang AIR 1996 SC 2222 11

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Counterclaim discontinues action the counter-claim has been served, he cannot prevent the defendant from enforcing against him the causes of action contained in the counter-claim. So if an action is dismissed being frivolous, the counter claim is not affected and the defendant may be granted the relief which he seeks thereby. In a suit for eviction even if landlord wants to discontinue the suit or get it stayed or dismissed the counter claim by the tenant in respect of rent can nevertheless be proceeded with.13

4. Default of plaintiff to reply to counterclaim

Though the failure of the plaintiff to file a written statement in answer to the counter-claim of the defendant will make the provisions of Order 8, Rule 5(2) applicable enabling the court to treat the allegations in the counter-claim as admitted and pronounce judgment on that basis as per provisions of r 6G below, this specific provision has empowered the court also to make snap decision against the plaintiff for failure to file written statement to the counter-claim of the defendant. In view of the rival claim of cruelty and desertion against each other, the refusal to grant divorce on the mere ground of not filing reply to the counter claim by the non-petitioner was not held improper.14

5. Relief to defendant when counterclaim succeeds

Since order 8, rule 6(2) read with order 20, rule 19 confers power on the court to adjudicate upon the claim to set-off made by the defendant and to pass a decree in his favour in case the balance turns in his favour, reference to a set-off also in this rule seems to have been unnecessarily made.

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Bhim v. Laxmi AIR 1982 P&H 155 Rajneesh v. Savita AIR 2003 Raj 280

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Counterclaim 6. Rules relating to written statement apply

The effect of rule 6G is, from the point of view of pleading, to assimilate a written statement filed by the plaintiff in answer to a counter-claim with a written statement by a defendant to plaintiff's claim, and written statement in answer to a counter-claim is therefore governed by the same rules of pleading as a written statement by the defendant.

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Similarities Between Set-Off and Counterclaim

SIMILARITIES IN SET-OFF AND COUNTERCLAIM

At some point, the concepts of set off and counterclaim seem to overlap. The points of similarity between the two are set out in the following paragraphs. Set off and counterclaim and the net amount claimed as a result should not exceed the pecuniary limit of the jurisdiction of the court. This is easily discernible from the scheme of the provisions itself as both set-off and counterclaim aim to reduce or nullify the defendant’s liability. In effect this is not to be beyond the claim made by the plaintiff. But even if it does exceed the said claim amount, it must not exceed the limit of the pecuniary jurisdiction of the court. As is evident, both set-off and counterclaim are pleaded in the written statement, subject to the law governing the court permits such plea being raised by the defendant in the written statement. Different jurisdictions have different laws on whether such claims may be made in the written statement. However, set-off and counterclaims are found only in the written statement. In fact if a claim for set-off or a counterclaim is made in the written statement, the plaintiff is expected to file a written statement in response to it. The purpose, as mentioned of a set-off claim or a counterclaim is to prevent multiplicity of proceedings involving the same parties. However, sometimes even after it is raised, the court if it feels necessary may direct for a set-off or a counterclaim to be tried separately. Moreover, if the defendant has claims that may be pleaded in a set-off or a counterclaim, it cannot be forced upon the defendant to plead them in such manner. He may, if he so pleases bring an independent action for the same claims. The dismissal or withdrawal of the suit does not debar the trial of a set-off or a counterclaim and it may be followed by a decree against the defendants. Where the counterclaim filed does not satisfy the jurisdictional limits of the court where the suit has been instituted, the counterclaim is still admissible as it is held that the plaintiff himself submitted to the jurisdiction of the court. Similarly, set-off can be claimed in respect of a transaction outside the territorial jurisdiction of the court. 12

Distinction Between Set-Off and Counterclaim

DISTINCTION BETWEEN SET-OFF AND COUNTERCLAIM

The distinction between set-off and counter-claim may now be noted: (1) Set-off must be for an ascertained sum or must arise out of the same transaction as the plaintiffs’ claims; a counter-claim, however, need not arise out of the same transaction. (2) Set-off is a statutory ground of defence and is to be pleaded in the written statement. Counterclaim, on the other hand, is a weapon of offence enabling a defendant to enforce his claim against the plaintiff as effectively as in an independent action. It is a sort of cross-action. A setoff, on the other hand, can be used as a shield and not as a sword. (3) In the case of set-off the plaintiff in order to establish his plea or limitation has to prove that the set-off was barred when the plaintiff commenced his action. In a counter-claim the plaintiff has to prove that it was barred when it was pleaded. (4) An equitable set-off is a claim by the defendant in defence which generally cannot exceed the plaintiffs claim. A counter-claim by the defendant may, however, exceed the plaintiffs claim being in the nature of a cross-action. Under the provisions of R. 6-E of O. VIII, if in any suit a set-off or counter-claim is established as a defence against the 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.

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CONCLUSION

Rules 6A to 6G are new and confer in addition to a right of set off under Rule 6, a statutory right to file a counter claim. Before their addition in Order VIII, a set off and counter claim were stringent unless they fell within the limited compass of Rule 6. A reading of rules 6A to 6G of the Civil Procedure Code makes it clear that the counter claim has to be treated as a cross-suit and it has to be tried along with the original claim and all the rules of pleading apply to counterclaim. The scope has now widened and covers the cases of an equitable set off where the defendant's claim made in the set off was larger than the plaintiff's claim and courts in view of Order 20, rule 19 allowed a counter claim for the balance amount as a cross suit, such procedure was admitted only where the claim was in plaint. The new rules now confer a statutory right to a defendant to set up a counter claim. The wide words in which Rule 6A is couched shows that it can be brought in respect of any claim that could be the subject of an independent suit. Unless otherwise restricted, a counter claim for divorce is also be maintainable in proceedings for grants of maintenance under Section 18 of the Hindu Adoption and Maintenance Act 1956. Similarly in a suit for judicial separation by the wife, the husband can have a counter claim of divorce on any grounds stated in Section 13 of the Hindu Marriage Act 195512. The effect of a counter claim is to place the plaintiff in a position of a defendant who must defend himself and put in a reply thereto or suffer judgment in relation to the counter claim. Since a counter claim is an independent suit allowed to be heard together with a plaintiff's suit to enable the Court to pronounce one judgment, it would appear that where there are several coplaintiff's, a counter claim would be allowable either against all of them or some of them only. Since a counter claim is in its nature a cross suit, a defendant seeking to aim himself of a counter claim must set out all the material facts on which he relies in support thereof with the same particularity as he would as a plaintiff in an independent suit. In essence, set-off is a form of defence while counter claim is substantially a cross suit.

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BIBLIOGRAPHY

The following sources have been referred to for research on this project paper: 1. Cases and materials on Code of Civil Procedure by Suranjan Chakraverti, Bholeshwar Nath, Justice M.L. Singhal. 2. Code of Civil Procedure by Y.P. Bhagat 3. The Code of Civil Procedure, Seventeenth Ed. By B.M. Prasad Vol. 2 4. http://www.shareyouressays.com/111575/set-off-and-counter-claim-india-answered 5. https://www.nls.ac.in/lib/bareacts/civil/cpc/cpco8.html 6. http://www.judis.nic.in/supremecourt/imgs1.aspx?filename=40653 7. http://www.mondaq.com/india/x/227654/Corporate+Commercial+Law/Counter+Claim+ Rules+6A+6G+An+Overview 8. http://delhihighcourt.nic.in/writereaddata/upload/courtrules/courtrulefile_7vp2yezq.pdf

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