Difference Between Set-Off and Counter Claim in CPC | Criminal Law for Judiciary Exams PDF Download

Set-Off and Counter-Claim in Civil Procedure Code

Order 8 of the Civil Procedure Code contains provisions related to set-off and counter-claims. These provisions are designed to ensure fairness and prevent injustice by allowing parties to assert their rights effectively.

• Set-Off: Set-off in the Civil Procedure Code allows a defendant to counterbalance the plaintiff’s claim by asserting a claim for a related or ascertained sum. For example, if A sues B for Rs. 1,000, and B proves that A owes him Rs. 800, B can use set-off to reduce the amount he owes to Rs. 200.
• Counter-Claim: Contrary to set-off, a counter-claim is a separate claim initiated by the defendant against the plaintiff. This claim can be unrelated to the plaintiff’s claim and can arise from a different transaction. For instance, if A sues B for breach of contract, B can file a counter-claim against A for damages due to a separate incident.

It is important to understand these concepts under the Civil Procedure Code to navigate legal proceedings effectively and protect one's interests.

Understanding Set-Off

• Set-off involves the mutual cancellation of debts between two parties, essentially clearing each other's obligations.
• Although not explicitly defined in the legal Code, set-off is commonly understood through judicial interpretations.
• It arises when one party makes a claim against another, effectively offsetting part of the original claim.
• In situations where both the plaintiff and defendant owe each other money, one debt can be used to settle the other.

Function of Set-Off

• Set-off functions as a defensive mechanism that a defendant can use to reduce or eliminate the plaintiff's claim in a lawsuit.
• It is a legal right allowing parties to balance their mutual debts through reciprocal credits.

Explanation with an Example

• For instance, if Person A owes $100 to Person B, and Person B owes $70 to Person A, set-off allows them to settle their debts by deducting the smaller amount from the larger one.

Legal Precedent on Set-Off

• The Andhra High Court, in the case of B. Seshaiah v. B. Veerabhadrayya, clarified that set-off extinguishes debts between individuals who are both debtors and creditors to each other.

Understanding the Key Aspects of Set-Off

A defendant can claim a set-off under specific conditions, which include:

• The lawsuit must aim to recover a definite sum of money.
• The sum being claimed must be clear and determinable.
• The money sought must be legally recoverable by the defendant.
• The defendant or defendants (if more than one) must hold the right to claim the money.
• The money should be recoverable from the plaintiff or plaintiffs (if multiple).
• The claimed amount must fall within the jurisdiction of the court where the lawsuit is filed.
• Both parties must share the same status in the defendant's claim for set-off as in the plaintiff's lawsuit.

Let's delve deeper into each requirement with some examples:

Lawsuit Initiation

• The legal action should be commenced to retrieve a specific sum of money owed by the plaintiff.
• Example: If Company A sues Company B for $10,000 owed under a contract, Company B can counterclaim for a set-off if they are owed $7,000 by Company A.

Clarity of Claimed Amount

• The amount being claimed must be explicit and easily quantifiable.
• Example: If an individual sues for damages worth $5,000, the defendant can set off if they can prove they are owed $3,000 from the plaintiff.

Legal Recoverability

• The money sought by the defendant must be recoverable according to the law.
• Example: A company cannot claim a set-off for an illegal transaction or an amount not legally owed to them.

Rights of the Defendant

• The defendant or defendants involved must have the legal right to claim the money.
• Example: If a landlord sues a tenant for unpaid rent, the tenant can set off if they have overpaid rent in previous months.

By meeting these essential criteria, a defendant can validly claim a set-off in a legal proceeding.

Effect of Set-off

• When a defendant asserts a set-off, they take on the role of a plaintiff for the claimed amount.
• This leads to two simultaneous lawsuits: one initiated by the original 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 original plaintiff doesn't appear in court, resulting in their suit being dismissed due to default, voluntarily withdraws their suit, or fails to prove their claim during the trial, it does not affect the defendant's claim for set-off.
• In such situations, if the defendant can prove their claim, a decree may be granted in favor of the defendant.

Counter Claim by Defendant in Civil Procedure Code (CPC)

• Rule 6-A in the CPC allows the defendant to raise a counter-claim against the plaintiff, asserting any right or claim they have against the plaintiff. This counter-claim can arise before or after the lawsuit is filed but must be presented before the specified time for submitting the defendant's defense lapses.
• A counter-claim is a plea used by the defendant to contest the relief sought by the plaintiff. It is defined as a claim made by the defendant against the plaintiff in a lawsuit, distinct from a set-off. This gives the defendant the opportunity to present their own claim in response.
• Distinct from the plaintiff's claim, a counter-claim is an independent legal action that the defendant can enforce through cross-action. It represents a cause of action in favor of the defendant against the plaintiff, allowing the court to make a final judgment on both claims.
• In the case of Ramesh Chand v. Anil Panjwani, the Supreme Court outlined three ways to present a counter-claim in a civil suit:
  • In the initial written statement under Order 8 Rule 1;
  • By amending the written statement with court permission to include a counter-claim; and
  • In a subsequent pleading under Order 8 Rule 9.
• A defendant has the right to file a counter-claim based on a different cause of action than the plaintiff's. It is not necessary for the counter-claim to mirror the nature of the plaintiff's claim and can even be unrelated to the original matter brought up by the plaintiff.
• For instance, in a scenario where the plaintiff seeks an injunction, the defendant can counter-claim for an injunction related to the same or different property under Order VIII, Rule 6-C. The plaintiff can contest the counter-claim being resolved within the ongoing lawsuit and request a separate legal proceeding for it instead.
• The plaintiff retains the option to exclude the counter-claim before its issues are determined. The court can then decide on the application and issue appropriate orders accordingly.

Effect of Counter-claim

• The counter-claim holds significant implications even if the plaintiff's lawsuit is halted, terminated, dismissed, or retracted. It will be evaluated independently based on its merits.
• If the plaintiff neglects to address the counter-claim brought forth by the defendant, the court could issue a judgment in favor of the defendant without the plaintiff's input.
• As per Rule 6-A(4), the counter-claim is considered akin to a plaint and is subject to the same regulations that govern plaints.
• Similarly, Rule 6-G specifies that a response to a counter-claim is regarded as a written statement and is governed by the rules applicable to written statements.
• In a pivotal case, Laxmidas v. Nanabhai, the Supreme Court highlighted that a counter-claim can be treated as a plaint in a cross-suit without legal hindrance.
• Even if the counter-claim is part of the written statement or attached to it, the court has the authority to treat it as a plaint and provide relief to the defendant as if it were originally presented as a plaint.
• This approach ensures that justice is not compromised due to technicalities in the pleading format, aligning with the core principles of delivering fair outcomes.

Understanding Set-Off and Counter-Claim in CPC

• Nature: Set-off is a defense available to the defendant in response to the plaintiff's claim, while a counter-claim is an action initiated by the defendant.
• Basis: Set-off must be based on a known sum or stem from the same transaction as the plaintiff's claim. In contrast, a counter-claim does not have to be related to the same transaction.
• Purpose: Set-off acts as a defense, included in the written statement, shielding the defendant. On the other hand, a counter-claim is an offensive measure, allowing the defendant to assert their claim against the plaintiff.
• Scope: An equitable set-off generally cannot exceed the plaintiff's claim and is defensive, while a counter-claim can surpass the plaintiff's claim since it functions as a cross-action.
• Legal Application: Rule 6-F of Order 6 states that if a set-off or counter-claim is established as a defense and a balance is in favor of the defendant, the court may grant judgment to that party. However, both claims should not surpass the court's jurisdictional limits.

Conclusion

• In conclusion, the legal concepts of set-off and counter-claim within the Code of Civil Procedure hold significant roles in the landscape of civil suits. While sharing certain similarities, these concepts exhibit distinct characteristics and serve different purposes.
• Set-off acts as a statutory defence for the defendant, enabling them to offset the plaintiff's claim by asserting their own claim for a related or ascertained sum. It functions as a protective measure to mitigate the plaintiff's claim and must be raised in the written statement. Set-off is typically confined in scope and generally does not exceed the pecuniary limits of the court's jurisdiction.
• In contrast, a counter-claim represents a substantial cross-action initiated by the defendant. Going beyond a mere defence, it empowers the defendant to assert an independent claim against the plaintiff, even if unrelated to the original transaction. Treated as a distinct claim, a counter-claim has the potential to surpass the scope and relief sought in the plaintiff's claim. The defendant can introduce a counter-claim in the written statement, through amendment with the court's permission, or in a subsequent pleading.
• The court holds the authority to adjudicate on both the original and counter-claims. Even if the plaintiff's suit undergoes a stay, discontinuation, dismissal, or withdrawal, the counter-claim remains subject to a decision on its merits. In the event of the plaintiff's failure to respond to the counter-claim, the court may issue an ex parte judgment or make an appropriate order related to the counter-claim.