Set-off is a statutory defence under Order VIII R.6 whereby a defendant in a money suit claims an adjustment of a money debt owed to him by the plaintiff. Counterclaim under Order VIII R.6A is a separate, independent claim made by the defendant against the plaintiff that may go beyond the subject matter of the original suit.
Why: Both set-off and counterclaim allow disputes between the same parties to be resolved in one proceeding. They prevent multiplicity of suits and ensure complete adjudication.
Legal Framework
| Provision | Subject |
|---|---|
| Order VIII R.6 | Legal set-off in money suits |
| Order VIII R.6A | Counterclaim by defendant |
| Order VIII R.6B | Counterclaim treated as plaint; cross-suit rules apply |
| Order VIII R.6C | Plaintiff may reply to counterclaim |
| Order VIII R.6E | Counterclaim survives even if original suit is withdrawn |
Legal Set-Off (Order VIII R.6)
Conditions for legal set-off:
- The suit must be for recovery of money
- The defendant must claim an ascertained sum of money from the plaintiff
- The sum must be legally recoverable
- Both the plaintiff and defendant must be the same parties in both the claim and the set-off
- The defendant must have been entitled to claim set-off on the date of the suit
Why: The ascertained sum requirement prevents a defendant from raising speculative or unliquidated claims as set-off, which would transform every money suit into a complex counter-litigation.
Equitable set-off: Courts have recognised equitable set-off even for unascertained sums where the cross-claim arises from the same transaction as the original claim. This is judge-made law, not codified in CPC.
Counterclaim (Order VIII R.6A)
A counterclaim is an independent cause of action set up by the defendant against the plaintiff. It need not be related to the original suit.
Key features of a counterclaim:
- May exceed the amount claimed in the original suit
- May be for a claim other than money (e.g., injunction, declaration)
- Treated as a cross-plaint. The plaintiff must file a written statement to the counterclaim
- Survives withdrawal of the original suit (O.VIII R.6E)
Why: A counterclaim operates as an independent suit. Its survival on withdrawal of the main suit ensures the defendant is not denied a remedy simply because the plaintiff chooses to abandon the litigation.
Illustrations
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Legal set-off (the simplest case): A sues B for Rs.3,00,000 (price of goods sold). B says: "But A owes ME Rs.1,50,000 from a separate loan!" B raises legal set-off under Order VIII R.6. If B proves the Rs.1,50,000 debt, the court adjusts: A gets Rs.1,50,000 (3L minus 1.5L). Both debts partially cancel out. Key: B's claim must be an ASCERTAINED (fixed, certain) sum. If B says "A caused me around Rs.2-3 lakh damage" (unascertained), that's NOT legal set-off.
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Counterclaim (going beyond the original suit): A sues B for Rs.2,00,000 (unpaid rent). B files counterclaim: "A's building is structurally unsafe; I spent Rs.5,00,000 on emergency repairs. I counterclaim Rs.5,00,000." Notice: (a) B's claim exceeds A's claim, (b) B is claiming damages (not just money owed), (c) the counterclaim is RELATED to the same property but is an independent cause of action. This is a valid counterclaim under Order VIII R.6A.
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Counterclaim survives withdrawal (powerful feature): A sues B for Rs.10 lakhs. B counterclaims Rs.15 lakhs. After seeing B's strong evidence, A thinks "I'm going to lose" and withdraws his original suit. Does B's counterclaim die? NO Order VIII R.6E: the counterclaim survives independently. B's Rs.15 lakh claim continues as if it were a separate suit. A cannot escape B's claim by simply running away from his own suit.
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Set-off vs Counterclaim (the key difference):
- Set-off is DEFENSIVE: "I owe you less because you owe me." It reduces the plaintiff's claim. Maximum result: the suit is dismissed (if set-off exceeds claim, defendant cannot get a decree for the excess through set-off alone).
- Counterclaim is OFFENSIVE: "Not only do I not owe you, but YOU owe ME, and I want a decree against you." Defendant can get a positive decree (money judgment in defendant's favour) through a counterclaim.
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Equitable set-off (unascertained, same transaction): A (builder) sues B (buyer) for Rs.20 lakhs being balance flat payment. B says: "The flat has defects worth approximately Rs.8-12 lakhs to repair (unascertained depends on assessment)." B cannot raise LEGAL set-off (amount not ascertained). But courts allow EQUITABLE set-off because: B's claim arises from the SAME transaction (the flat purchase). The court will assess the defect value and adjust. This is judge-made, not codified.
Recall Check
- What are the five conditions that must be satisfied for a legal set-off under Order VIII R.6?
- How does a counterclaim differ from a set-off in terms of the type of claim allowed?
- What happens to a counterclaim if the plaintiff withdraws the original suit?
Key Cases
Ram Chandra Singh v. Savitri Devi (2003) Ram-Chandra-Singh-v-Savitri-Devi-2003 Issue: What is the nature of a counterclaim under O.VIII R.6A and how must the court deal with it. Rule: A counterclaim is in the nature of a cross-suit; it must be filed with the written statement and the court must pass a decree on it independently of the original suit. Held: Even if the original suit is dismissed, the court must adjudicate and pass a decree on the counterclaim.
Laxmidas Morarji v. Behrose Darab Madan (1966) Laxmidas-Morarji-v-Behrose-Darab-Madan-1966 Issue: What distinguishes legal set-off from equitable set-off. Rule: Legal set-off requires an ascertained (liquidated) sum recoverable at law; equitable set-off applies to unascertained sums arising from the same transaction. Held: The distinction between legal and equitable set-off is substantive; equitable set-off is available only where cross-demands arise from the same transaction.
Distinctions
| Aspect | Legal Set-Off (R.6) | Counterclaim (R.6A) |
|---|---|---|
| Type of claim | Ascertained money sum only | Any claim, including non-monetary |
| Same transaction | Not required | Not required |
| Survives withdrawal | No | Yes (O.VIII R.6E) |
| Equitable variant | Yes (judge-made law) | N/A |
| Exceeds suit amount | No (only adjustment) | Yes |
Flashcards
Q: What is the governing provision for legal set-off in CPC? A: Order VIII Rule 6 CPC.
Q: Can a counterclaim be made for a non-monetary claim? A: Yes. A counterclaim under O.VIII R.6A can be for any cause of action, including injunction, declaration or possession.
Q: What is the effect of withdrawal of the original suit on a counterclaim? A: Order VIII R.6E: the counterclaim survives. The court must adjudicate the counterclaim even after the original suit is withdrawn.
Q: What is equitable set-off? A: Judge-made doctrine allowing set-off of an unascertained sum where the cross-claim arises from the same transaction as the main claim.
Q: Does legal set-off require both claims to arise from the same transaction? A: No. Legal set-off under O.VIII R.6 only requires an ascertained sum legally recoverable from the plaintiff.
Exam Scenario
A sues B for Rs. 50,000 as price of goods sold. B, in the written statement, claims Rs. 30,000 as damages for breach of a separate contract by A, and also Rs. 20,000 as price of goods sold by B to A. Advise B on the appropriate legal remedy for each claim.
For the Rs. 20,000 claim (ascertained sum for goods sold): B may claim legal set-off under Order VIII R.6. The conditions are met: both claims are in money, the sum is ascertained, both parties are the same, and the sum is legally recoverable. The court will adjust Rs. 20,000 from the Rs. 50,000 claimed.
For the Rs. 30,000 damages claim (arising from a different contract): Legal set-off is not available for an unascertained sum. However, B may set this up as a counterclaim under Order VIII R.6A since a counterclaim can be an independent cause of action unrelated to the original suit. The court will adjudicate both the original suit and the counterclaim in the same proceeding.