What Is Set-off?
Definition:
Set-off allows a defendant to balance a mutual debt by adjusting what the plaintiff claims with a claim of his own. It is a statutory defense provided under Order VIII Rule 6 of CPC.
Example:
If ‘A’ sues ‘B’ to recover ₹50,000, and ‘B’ has a lawful claim of ₹30,000 against ‘A’, then ‘B’ can request the court to set off that amount from the total, reducing the liability.
Essentials of Set-off
- Suit must be for recovery of money.
Set-off applies only in money suits. - Both parties must hold the same legal character.
The plaintiff and defendant must sue and be sued in the same capacity. - Mutual debt must be ascertained and legally recoverable.
The amount claimed in set-off must be definite and not time-barred. - Pecuniary limits of court must be respected.
The value of the set-off must fall within the jurisdiction of the court. - Claim must arise from the same or a different transaction.
Set-off can apply regardless of whether the debts arise from the same transaction.
Types of Set-off
1. Legal Set-off
- Governed by Rule 6, Order VIII.
- Applies only when both debts are legally recoverable and definite.
2. Equitable Set-off
- Recognized through judicial interpretation, not explicitly under CPC.
- Allows unascertained or unliquidated amounts if closely connected with the plaintiff’s claim.
What Is a Counter-Claim?
Definition:
A counter-claim is a cross-suit filed by the defendant against the plaintiff. It is governed by Order VIII Rule 6A to 6G of the CPC.
It enables the defendant not only to defend but to raise a claim against the plaintiff, as if the plaintiff had sued them.
Example:
‘A’ sues ‘B’ for ₹1,00,000 as unpaid rent. ‘B’ files a counter-claim for ₹25,000 as damages caused by poor property maintenance.
Essentials of Counter-Claim
- Defendant must file it along with or after the written statement.
It must relate to a cause of action accruing before or after the filing of the suit but before the defense is concluded. - May include claims beyond money.
Unlike set-off, counter-claims can include claims for damages, injunctions, or declarations. - Independent claim.
The court treats a counter-claim as a separate suit. - Within jurisdiction.
The court must have jurisdiction over the counter-claim’s subject matter. - No need for separate court fee initially.
It proceeds with the same suit, making litigation more efficient.
Legal Provisions at a Glance
| Provision | Applies to | Nature |
|---|---|---|
| Order VIII Rule 6 | Legal Set-off | Defensive claim |
| Order VIII Rule 6A–6G | Counter-claim | Cross-suit or independent claim |
Distinction Between Set-off and Counter-Claim
Let’s explore their differences through several aspects:
1. Nature of Claim
- Set-off is a defensive claim to reduce liability.
- Counter-claim is an offensive action to assert rights.
2. Scope
- Set-off applies only to monetary suits.
- Counter-claim applies to all types of civil claims.
3. Timing
- Set-off must be pleaded with the written statement.
- Counter-claim can be raised after filing the written statement, but before the defense concludes.
4. Transaction
- Set-off may arise from the same or different transaction.
- Counter-claim may relate to completely different subject matter.
5. Court Fee
- Set-off requires no additional fee.
- Counter-claim may need court fee as it is treated as a separate suit.
6. Outcome
- Set-off results in a net balance or dismissal of the plaintiff’s claim.
- Counter-claim may lead to a decree in favor of the defendant.
Judicial Interpretation
State Bank of India v. Ranjan Chemicals Ltd. (2007)
The court emphasized that a counter-claim could include any right or cause of action, even if unrelated to the original claim.
Jayanti Lal v. Abdul Aziz (AIR 1956 Bom 605)
This case highlighted the requirement that set-off must be for an ascertained sum of money, not for unliquidated damages.
Indian Bank v. Mahalingam (1993)
Held that counter-claims must be genuine and cannot be filed to delay proceedings.
Practical Importance in Civil Litigation
- Both tools reduce the need for multiple cases.
- Save time, effort, and money for both litigants and courts.
- Strengthen the defendant’s position in a lawsuit.
- Promote complete adjudication of disputes.
When Should You Use Which?
| Scenario | Best Tool |
|---|---|
| Claim relates to debt adjustment only | Set-off |
| Defendant has suffered damage from plaintiff | Counter-claim |
| Claim is unascertained but directly related | Equitable Set-off |
| Matter involves injunction or declaration | Counter-claim |
Memory Code to Remember the Distinction
Use this memory trick: “SCOPE-T”
| Letter | Meaning | Set-off | Counter-Claim |
|---|---|---|---|
| S | Scope | Monetary | Broad |
| C | Court Fee | No | Yes (if needed) |
| O | Offensive/Defensive Nature | Defensive | Offensive |
| P | Pleading Time | With WS | Later possible |
| E | Enforcement as Separate Suit | No | Yes |
| T | Type of Remedy | Liquidated | Any civil remedy |