DR.

RAM MANOHAR LOHIYA NATIONAL

LAW UNIVERSITY

Civil Procedural Code

Doctrine of Set- off & Counter Claim

Submitted to :- Submitted by :-
Mr. Vipul Vinod Aviral Chandra
Assistant Professor 180101035

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TABLE OF CONTENTS

INTRODUCTION 3
SET - OFF MEANING & CHARACTERISTICS 4
CONDITION FOR APPLICABILITY OF SET-OFF 5
TYPES OF SET-OFF 7
Legal Set-off 7
Equitable Set-Off 8
DISTINCTION BETWEEN LEGAL SET-OFF & EQUITABLE SET-OFF 10
COUNTER CLAIM [ ORDER VIII, RULE 6-A TO 6-G] 10
OBJECT OF COUNTER CLAIM 14
NATURE & SCOPE 15
STARTING TIME OF RIGHT TO FILE COUNTER CLAIM 16
MODE OF SETTING UP COUNTER CLAIM 18
WHO MAY FILE COUNTER CLAIM 19
WHEN COUNTER ClAIM MAY BE SET UP ? 19
DISTINCTION BETWEEN SET-OFF & COUNTER CLAIM 19
SET-OFF AND COUNTER CLAIM- COMMON FEATURES 20
CONCLUSION 21

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 INTRODUCTION

According to the Black’s Law Dictionary (Seventh Edition, 1999), a set-off is nothing but a debtor’s
right to reduce the amount of a debt by any sum the creditor owes the debtor. In the case of, Union
of India v. Karam Chand Thapar and Bros (Coal Sales) Ltd and Ors, referring to the concept of set-
off and quoting from ‘A Treatise on the Law of Set-Off, Recoupment, and Counter Claim’, by
Thomas W. Waterman, the Hon’ble Supreme Court of India held that, set-off signifies the
subtraction or taking away of one demand from another opposite or cross-demand, so as to
distinguish the smaller demand and reduce the greater by the amount of the less; or, if the opposite
demands are equal, to extinguish both. Set-off, broadly speaking, means ‘stoppage’, much because
the amount due to be set-off is stopped, or, is deducted from the cross-demand.

Courts in India treat counterclaims as a plaint in a cross-suit. Counterclaims are a claim bought
against the Plaintiff by the Defendant in a lawsuit. It is typically filed as part of a Defendant's
answer to the original claim. Counterclaim can contain a variety of material ranging from
accusation of fraudulent activity to claims which would preempt any attempt at suit. The goal of
counterclaim is to turn the table on the plaintiff by bringing up more issues in the case and
demanding redress.
This article delves with the difference between an adjustment and a set-off and/ or counterclaim and
focusing on the common features set off and counter claim. It also deals with the object of the
amendments established by Rules 6-A to 6-G are conferment of a statutory right on the defendant to
set up a counterclaim autonomous of the claim on the basis of which the Plaintiff laid the suit, on
his own cause of action. Further the article deals with the effects and reliefs to Defendants through
counterclaims.

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 SET - OFF MEANING & CHARACTERISTICS
Set off is reciprocal acquittal of debts. “Set-off” means a claim set up against another. It is a cross-
claim which partly offsets the original claim. It is an extinction of debts of which two persons are
reciprocally debtors to one another by the credits of which they are reciprocally creditors to one
another. Where there are mutual debts between the plaintiff and the defendant, one debt may be
settled against the other. It is a plea in defence, available to the defendant. By adjustment, set-off
either wipes out or reduces the plaintiff’s claim in a suit for recovery of money.
In a suit for recovery of money, a defendant can stake his claim to any ascertained sum of money-
legally recoverable by him from the plaintiff as a set-off against the plaintiff’s demand if :
(a) the ascertained sum does not exceed the pecuniary jurisdiction of the court; and
(b) both parties fill the same character as they fill in the plaintiff’s case at the first hearing of the
suit, but not afterwards unless permitted by the Court, present a written statement containing the
particulars of the debt sought to be set-off.
The written statement shall have the same effect as a plaint in a cross-suit so as to enable the Court
to pronounce a final judgment in respect of both the original claim and of the set-off. (Order VIII,
Rule 6).
In a suit for injunction, the counter claim for possession by defendant can be entertained under
Order VIII, Rule 6 (A) (1).
Where in a suit for recovery of money by the plaintiff, the defendant finds that he has also a claim
of some amount against the plaintiff, he can claim a set-off in respect of the said amount. The
doctrine of set-off may be defined as “the extinction of debts of which two persons are reciprocally
debtors to one another by the credits of which they are reciprocally creditors to one another”. A plea
of set-off is “a plea whereby a defendant acknowledges the justice of the plaintiff’s demand, but
sets up another demand of his own, to counterbalance that of the plaintiff; either in whole or in
part”. Thus, it is a “reciprocal acquittal of debts between two persons”. The right of a defendant to
claim set-off has been recognized under Rule 6. It obviates the necessity of filing a fresh suit by the
defendant.
Where, the plaintiff institutes a suit for recovery of money against the defendant and the defendant
finds that he also has a claim of certain amount against the same plaintiff, he may pray for a set-off
in respect of that amount. The term “set-off’ denotes mutual discharge of debts. It is reciprocal
satisfaction of the claim of plaintiff and the defendant against each other. In simple words, “set-off’
means that the amount claimed by the plaintiff from defendant is to be satisfied against the amount

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that the plaintiff owes to the defendant. It is a cross-claim of plaintiff and defendant to be
reciprocally discharged. The claim of plaintiff relating to certain money from the defendant may be
discharged against the money due to the defendant from the plaintiff. For instance, where ‘X’ files a
suit against ‘Y’ for recovery of Rs. 15,000/- but ‘Y’ already holds a decree of Rs. 20,000/- against
‘X’, the defendant ‘Y’ may plead for the set-off of the claim of plaintiff ‘X’.
The purpose of set-off is to obviate the necessity of a fresh suit by the defendant. Therefore, the
defendant must specifically raise a plea of set-off in his written statement. Such claim must be made
after dealing with the allegations and accusations leveled against him in the plaint. The written
statement must contain full particulars of the amount claimed by way of set-off and how and when
it fell due.

CONDITION FOR APPLICABILITY OF SET-OFF

(a) Suit must be for the recovery of money : The plea of set-off shall be available to the
defendant only in a suit instituted against him for recovery of money. If the suit is not a
money-suit, the defendant cannot raise this plea. For instance, in a suit tor dissolution of
partnership, the defendant cannot claim set-off because it not a money-suit. But, in a suit for
ejectment of tenant on the ground of non-payment of rent, in which arrears of rent have also
been claimed, the defendant-tenant may plead set-off. However, in case where ejectment of
tenant has been prayed for but amount of unpaid rent is not demanded, the defendant-tenant
cannot raise the plea of set-off since it is no more a money-suit. Thus, what is necessary is that
one of the reliefs sought in the suit against the defendant must be for recovery of money. In
such a suit, the defendant is entitled to raise the plea of set-off.

(b) The claim demanded to be set-off must be an ascertained sum of money : It means that
the amount which the defendant claims against the plaintiff tiff to be set-off must be fixed,
definite and known. Such amount may not by the plaintiff but if it is ascertained, then the
defendant may plead set-off. For unascertained sums, the plea of set-off is not available to the
defendant under Rule 6. However, such unascertained sums may be effectually set-off by
consent of parties if the suit is compromised.

(c) The ascertained sum of money must be legally recoverable from the plaintiff : The term
‘legally recoverable” means that the debtor is liable to pay the sum under any law. The
defendant shall be entitled to claim set-off in respect of such dues only which the plaintiff is

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 bound to pay under any law. A time-barred debt is not legally recoverable and hence set-off
cannot be pleaded for such amount.

(d) The sum claimed by way of set-off must not exceed the pecuniary limits of the court : It is
necessary that the amount claimed to be set-off by the defendant is within the pecuniary limits
of the court in which the suit has been instituted.

(e) The sum claimed by way of set-off must not exceed the pecuniary limits of the court : It is
necessary that the amount claimed to be set-off by the defendant is within the pecuniary limits
of the court in which the suit has been instituted.

(f) Claim to be made at first hearing : The claim must be made at the first hearing unless it is
permitted by the court to do even afterwards.

(g) When the defendant pleads set-off, he is put in the position of a plaintiff as regards the amount
claimed by him. A defendant can claim set-off even if the plaintiff’s suit is dismissed;

In Jitendra Kumar Khan v. Peerless General Finance & Investment Co. Ltd 1, it was held that under
Order VIII, Rule 6, CPC certain conditions precedent are to be satisfied for application of the said
Rule. Two primary conditions are that it must be a suit for recovery of money and the amount
sought to be set-off must be a certain sum. Apart from the aforesaid parameters there are other
parameters to sustain a plea of set-off under this Rule. However, equitable set-off is different from
legal set-off; it is independent of the provisions of the Code of Civil Procedure. The plea of
equitable set-off is raised not as a matter of right. It is the discretion of the court to entertain and
allow such a plea or not. The said discretion has to be exercised in an equitable manner. The
concept of equitable set-off is founded on the fundamental principles of equity, justice and good
conscience. Equitable set-off exists not only in cases of mutual debits and credits, but also where
cross-demands arise out of the same transaction. The mutual debits and credits or cross-demands
must have arisen out of the same transaction or to be connected in the nature and circumstances. An
equitable set-off is not to be allowed where protracted enquiry is needed for the determination of the
sum due.
If the defendant is entitled, he must present the particulars of debt sought to be set-off in his written
statement. But it does not mean that the defendant is under any obligation to necessarily raise the
plea of set-off. He may as well avoid it. It is the choice of defendant whether to claim a set-off or
1 (2013) 8 SCC 769
6
not. If he opts to claim, he must do it at the first hearing in his written statement. If he prefers not to
claim, he may very well waive his right. However, where the defendant omits to claim set-off in his
written statement, he cannot subsequently claim it unless permitted by the court. Of course, the
defendant may bring independent suit against the plaintiff for recovery of such amount.
The effect of raising the plea of set-off is that the defendant steps into the shoes of plaintiff in
respect of amount claimed by him. Thus, there are virtually two suits under the same suit-number
viz., a suit by plaintiff again: the defendant for recovery of money and a suit by defendant against
the t plaintiff claiming the amount of set-off. Both the suits are tried together. The court pronounces
final judgment in respect, both, the original claim and the set-off. The two suits are considered to be
independent of each other. Even if the suit instituted by plaintiff is dismissed or is withdrawn, it
makes no difference. The claim of defendant for amount of set-off does not go with the suit and the
court may pass a decree in favour of defendant in respect of that sum.

TYPES OF SET-OFF
Set-off is of two kinds viz., legal set-off and equitable set-off. Rule 6 speaks of legal set-off only. In
contrast to legal set-off, an equitable set-of, can be claimed for unascertained money but it must
arise from the same transaction. For example, where a servant sues his master for recovery of
amount of salary, the master can claim set-off for loss sustained by him due to negligence of servant
since it arises out of same relationship.

Legal Set-off
It is apparent from a reading of the above provisions that in order to constitute legal set-off, the
following conditions must be fulfilled, viz.,
• The suit must be for recovery of money.
• The defendant must claim an ascertained sum of money. A sum of money due in respect of a
disputed transaction cannot constitute an ascertained sum.
• That ascertained sum must be legally recoverable from the plaintiff, i.e., it is not barred by the
law of limitation.
• The plaintiff’s claim and the set-off must be claimed in the same character. The amount must be
recoverable by the defendant and if there are more than one defendant, then by all the defendants.

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 Again, the amount must be recoverable by the defendant from the plaintiff and if there are more
than one plaintiff, then from all the plaintiffs.
• The set-off should be within the pecuniary jurisdiction of the Court.
The above provisions further establish that the Court must treat the claim of the defendant exactly
as if the defendant had filed a plaint and the Court must pass a decree in favour of the defendant, if
his claim is established.’ It is only in a written statement that a plea of set-off can be raised. The rule
further confines only to set-off and does not provide for a counter-claim, which is allowed by way
of equitable set-off, and is not expressly provided in Rule 6-A of Order VIII, by C.P.C.
(Amendment) Act, 1976.

Illustrations
• A suit is brought by a Hindu son as the heir and representative of his father to recover from B
certain debt due to the father. B claims to set-off a debt due to him by A’s father. B may do so, for
both the parties fill the same character. But the amount due as manager cannot be set-off against a
personal liability, for both parties do not fill the same character.
• A bequeaths Rs. 2,000 to B and appoints C his executor and residuary legatee. B dies and D takes
out administration to B’s effects. C pays Rs. 1,000 as security for D; then D sues C for the legacy.
C cannot set-off the debt of Rs. 1,000 against the legacy, for neither C nor D fills the same
character with respect to the legacy as they fill with respect to the payment of Rs. 1,000.
• A dies intestate and in debt to B. C takes out administration to A’s effects and B buys part of the
effects from C. In a suit for the purchase money by C against B, the latter cannot set-off the debt
against the price, for C fills two different characters, one as the vendor to B in which he sues B,
and the other as representative to A.

Equitable Set-Off
There have been cases where by the defendants were allowed to set-off even an unascertained sum
of money by the Courts of Equity in England, on the premise that, if the plaintiffs’ claim and the
defendants’ claim arise out of the same transaction, then, it would be inequitable to drive the
defendants to a separate suit. This legal ideology later came to be known as the doctrine of equitable
set-off.

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Right to equitable set-off is recognised only if the claim arises out of the same transaction which is

the foundation of the plaintiff’s claim and the claim has not become time- barred2. Plea in the nature

of equitable set-off is not available when the cross demands do not arise out of the same

transactions When a plea in the nature of equitable set-off is raised, then it is not done as a matter of

right and the discretion lies with the court to entertain and allow such plea or not.

In the case of Clark v. Ratnavaloo Chetti3, it was held that, so far as equitable set-off is concerned,
the right of set-off exists not only in cases of mutual debits and credits, but also where cross

demands arise out of the same transaction. Further, in the case of, Raja Bhupendra Narain Singha

Bahadur v. Maharaj Bahadur Singh & Ors4, it was held that, a plea in the nature of equitable set-off
is not available when cross-demands do not arise out of the same transaction and are not connected
as regards their nature and circumstances. In the case of, M/s. Lakshmichand and Balchand v. State
of Andhra Pradesh5 , the Hon’ble Supreme Court of India took occasion to rule that, when a claim is
founded on the doctrine of equitable set-off, all cross-demands are to arise out of the same
transaction, or, the demands are to be so connected in the nature and circumstances that they can be
looked upon as a part of one transaction.

In the case of, Jitendra Kumar Khan v. Peerless General Finance & Investment Co. Ltd, (2013) 8
SCC 769, it was held that, an equitable set-off is different from a legal set-off, for an equitable set-
off is independent of the provisions of the Code of Civil Procedure, 1908. The concept of equitable
set-off is based on the fundamental principles of justice, equity and good conscience; the discretion
is with the court to adjudicate or not to adjudicate, as regards the claim, which is in the nature of an
equitable set-off; the court has to exercise the discretion sparingly with application of judicial mind
and sound legal principles.

2 See:
Maharashtra State Farming Corporation Ltd.v. Belapur Sugar and Allied Industries Ltd.,2004 (3) Mh LJ 414
(Bom)
3
2 M.H.C.R 296 ( 1865)
4 AIR 1952 SC 782
5 (1987) 1 SCC 19
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 DISTINCTION BETWEEN LEGAL SET-OFF &
EQUITABLE SET-OFF
• In a legal set-off, the amount claimed must be an ascertained sum of money, but in an
equitable set-off, the claim must be allowed even with respect to an unascertained sum of
money.
• In a legal set-off, the Court is bound to entertain and adjudicate upon the plea when raised.
In the case of an equitable set-off, however, it is not obligatory on the Court to adjudicate
upon it and the defendant cannot claim it as a matter of right. The Court has the discretion to
refuse to take notice of the equitable set-off if the investigation into the equitable claim is
likely to result in delay.
• In a legal set-off, it is not necessary that the cross-demands arise out of the same transaction,
but an equitable set-off is allowed only when the cross-demands arise out of the same
transaction as the plaintiff’s claim.
• In a legal set-off, the amount claimed to be set off must be legally recoverable and not
barred by limitation at the date of the suit, but a claim by way of equitable set-off can be
allowed even if it is barred at the date of the suit where there is fiduciary relationship
between the plaintiff and the defendant.
• If the defendant’s claim is barred at the date of the written statement but not barred at the
date of the suit, the defendant can get an equitable set-off to the extent of the plaintiff’s
claim only but not for the balance found due to him. In a legal set-off, the whole claim is
admissible and the defendant can even get a decree for the balance.
A legal set-off requires a Court-fee because it is a claim that might be established by a separate suit
in which a Court-fee would have to be paid. But there is no such fee required in an equitable set-off
which is for an amount that may equitably be deducted from the claim of the plaintiff where a
Court-fee has been paid on the gross amount

COUNTER CLAIM [ ORDER VIII, RULE 6-A TO 6-G]

“Counterclaim” may be defined as “a claim made by the defendant in a against the plaintiff”. It is a
claim independent of, and separable from, suit plaintiff’s claim which can be enforced by a cross-
action. It is a cause of action in favour of the defendant against the plaintiff.

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In addition to pleading a set-off in a suit, the defendant may also set-up a counter-claim. The term
“counter-claim” means a claim raised by the defendant against the claim of plaintiff in a suit. It is
essentially and substantially a cross-action of the defendant. It may be described as a cause of action
accruing to defendant against the plaintiff. However, such cause of action must accrue before filing
of written statement by the defendant. As such, the defendant may set-up a counter-claim only in
respect of a claim for which the defendant can file an independent suit. However, the defendant
must specifically state in his written statement that he is setting-up a counter-claim. Such counter-
claim shall not exceed the pecuniary jurisdiction of the court.
The defendant must set-up his counter-claim as early as possible because the no counter-claim can
be raised after framing of issues and closure evidence.
One of the pleas open to a defendant to defeat the relief sought by the plaintiff against him is a
counterclaim. Counterclaim may be defined as “a claim made by the defendant in a suit against the
plaintiff”. Therefore, defendant in a suit may, in addition to his right to plead a set-off , a
counterclaim. It may be set up only in respect of a claim for which the defendant can file a separate
suit.”.” Thus, a counterclaim is substantially a cross-action.

Rule 6-A Counter- claim by Defendant- The scheme of the new rule is to permit the defendants to
set up counter-claims, which arise between the parties and which are cognizable by the Court where
the suit is pending. A defendant in a suit may, in addition to his right of pleading a set-off under
Rule 6, also set up—by way of counter-claim against the claim of the plaintiff, any right or claim in
respect of a cause of action accruing to the defendant against the plaintiff either before or after the
filing of the suit but before the defendant has delivered his defence or before the time limited for his
defence has expired, whether such counter-claim is in the nature of f a claim for damages or not :
provided that such counter-claim shall not exceed the pecuniary limits of the jurisdiction of the
Court. (Order V111, Rule 6-A).
Such counter-claim shall have the same effect as a cross-suit so as to enable the Court to pronounce
a final judgment in the same suit, both on the original claim and on the counter-claim. The plaintiff
shall be at liberty to file a written statement in answer to the counter-claim of the defendant within
such period as may be fixed by the Court. The counter-claim shall be treated as a plaint and
governed by the rules applicable to plaints. Order VIII, Rule 6-A (2-4).

Rule 6-B Counter-claim to be stated- Where any defendant seeks to rely upon any ground as
supporting a right of counter-claim, he shall, in his written statement, state specifically that he does
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so by way of counter-claim. That rule does not apply where specifically a counter-claim is raised,
but confines itself to a ground mentioned in the written statement as supporting a right to
counter- claim.
Before the Amendment Act of 1976, there was no specific provision for counterclaim in the Code.
The Supreme Court, however, held the right to make a counterclaim statutory.'” It was held that the
court has power to treat the counterclaim as a cross-suit and hear the original suit and counterclaim
together if the counterclaim is properly stamped.
In the leading case of Laxmidas v. Nanabhai6, the Supreme Court observed, “The question has
therefore to be considered on principle as to whether there is anything in law—statutory or
otherwise—which precludes a court from treating a counterclaim as a plaint in a cross-suit. It is
difficult to see any. No doubt, the Code of Civil Procedure prescribes the contents of a plaint and it
might very well be that a counterclaim which is to be treated as a cross-suit might not conform to all
these requirements but this by itself is not sufficient to deny to the court the power and the
jurisdiction to read and construe the pleadings in a reasonable manner. If, for instance, what is really
a plaint in a cross-suit is made part of a written statement either by being made an Annexure to it or
as part and parcel thereof, though described as a counterclaim, there could be no legal Objection to
the counter treating the same as a plaint and granting such relief to the defendant as would have
been open if the pleading had taken relief of a plaint. To hold otherwise would be to erect what in
substance is a mere defect in a form of pleading into an instrument for denying what justice
manifestly demands.”, (emphasis supplied)

Rule 6-C Exclusion of counter-claim- Where a defendant sets up a counter-claim and the plaintiff
contends that the claim thereby raised ought not to be disposed of by way of counter-claim but in an
independent suit, the plaintiff may, at any time before issues are settled in relation to the counter-
claim, apply to the Court for an order that such counter-claim may be excluded, and the Court may,
on the hearing of such application make such order as it thinks fit.
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-

6 AIR 1964 SC 11
12
claim for injunction in respect of the same suit property or a different property based on a different
cause of action is maintainable8.
Only application for counter-claim but adjustment is not maintainable under R6C9.

Rule 6-D Effect of discontinuance of suit- If in any case in which the defendant sets up a
counterclaim, the suit of the plaintiff is stayed, discontinued or dismissed, the counter-claim may
nevertheless be proceeded with.
This further 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
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 with10.

Rule 6-E Default of Plaintiff to reply to counter-claim- If the plaintiff makes default in putting in
reply to the counter-claim made by the defendant, the Court may pronounce judgment against the
plaintiff in relation to the counter-claim made against him or make such order in relation to the
counter-claim as it thinks fit.
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 improper11.
Rule 6F. Relief to Defendant where counter-claim succeeds
Where in any suit a set-off or counter-claim is established as defence against the plaintiff's claim
and any balance is found due to the plaintiff or the defendant, as the case may be, the Court may
give judgment to the party entitled to such balance.

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Since order 8, rule 6(2) read with order 20, rule 19 confers power on the court to adjudicate upon
the claim to setoff 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.

Rule 6-G Rules relating to written statement to apply- The rules relating to a written statement
by a defendant shall apply to a written statement filed in answer to a counter-claim.
The effect of this rule 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.

OBJECT OF COUNTER CLAIM

Before the Amendment Act of 1976, no counterclaim or set-off could be claimed except in money
suits. The Law Commission of India, however, recommended to avoid multiplicity of proceedings,
right to the defend-ant to raise a plea of set-off in addition to a counterclaim in the same suit. The
provisions relating to counterclaim thus seek to save time of courts, exclude inconvenience to the
parties to litigation, decide all disputes between the same parties avoiding unnecessary multiplicity
of judicial proceedings and prolong trials. The object appears to be to reduce pendency of cases so
that cause of action and cross-claim similar in nature could be clubbed together and disposed of by
a common judgment.’ The purpose of the provision enabling filing of a counter-claim is to avoid
multiplicity of judicial proceedings, save the Court’s time and exclude the inconvenience to the
parties by enabling decision in all disputes between them in the course of the same proceedings. If
the counter-claim prolongs the trial, causes delays or complicate the otherwise smooth flow of
proceedings, the court would be justified in exercising its discretion not in favour of permitting a
belated counter-claim. Usually if the issues have already been framed and the trial has already
commenced or concluded, a counter-claim not contained in the original written statement may be
refused to be taken on record.
The right to make a counter claim is statutory and a counter claim is not admissible in a case which
is admittedly not within the statutory provisions.

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 NATURE & SCOPE
By the Amendment Act of 1976, a specific provision has been made for counterclaims by inserting
Rules 6-A to 6-G. Under sub-rule (1) of Rule 6-A, the defendant may set up by way of counterclaim
against the claim of the plaintiff any right or claim in respect of action accruing to the defendant
against the plaintiff either before or after the filing of the suit but before the defendant has delivered
his defence or before the time fixed for delivery of his defence has expired. Such counterclaim,
however, should not exceed the pecuniary limits of the jurisdiction of the court. In other words, by
laying the counterclaim, pecuniary jurisdiction of the court cannot be ousted and the power to try
the suit already entertained cannot be taken away by accepting the counterclaim beyond its
pecuniary jurisdiction.
When A has a claim of any land against B and brings an action to enforce that claim, and B has a
cross-claim of any kind against A which by the law he is entitled to raise and have disposed of in
the action brought by , then B is said to have a right of counterclaim. Similarly, in a suit for
injunction, a counterclaim for possession can be allowed.
In Rohit Singh v. State of Bihar7,’ there was no counter-claim in terms of VIII, Rule 6-A. The trial
court never formally treated the written statement as the counter-claim. The so-called counter-claim
was entertained after the issues were framed and the evidence was closed. It was directed not
against the plaintiff but only against the co-defendants. The supreme court held that a counter-
claim, no doubt, could be filed even after the written statement is filed, but that does not mean that a
counter-claim can be raised after the issues are framed and the evidence is closed. The counter-
claim cannot be raised after framing of issues and closure of evidence. The court further held that
the counter-claim is also not maintainable if directed solely against the co-defendants. It has to be
directed against the plaintiff, though incidentally or along with it, it may also claim relief against
co-defendants. Hence, the so-called counter-claim was not maintainable. The trial court erred in
granting decree in favour of Defendants 3 to 17 on ground of default of co-defendants in filing
answer to it.
In Ramchandra Sakharam Mahajan v. DamodarTrimbakTanksale8,` the Supreme Court remanded
the suit to trial court for decision afresh. The defendants had not appealed against the rejection of
their counter-claim, therefore, the remand of the suit for decision afresh would not entitle
defendants to pursue their counter-claim afresh. It was held that since the defendants have not

7 (2006) 12 SCC 734

8 AIR 2007 SC 10
15
pursued their counter-claim, the rejection of their counter-claim would stand confirmed and it
would not be necessary for trial court to consider the .counter-claim afresh.
The counter-claim is treated as a plaint. Hence, the plaintiff is entitled to file a written statement to
answer the counter-claim of the defendant. If, the plaintiff prefers not to reply, the court may
pronounce judgment against him in respect of such counter-claim. If, the plaintiff contends that the
claim raised by defendant by way of counter-claim ought to be raised in an independent suit, he
may accordingly apply to the court before settlement of issues.

STARTING TIME OF RIGHT TO FILE COUNTER CLAIM

A pleading by way of counter-claim runs with the right of filing a written statement and that such
right to set up a counter-claim is in addition to the right of pleading a set-off conferred by Rule 6. A
set-off has to be pleaded in the written statement The counter-claim must necessarily find its place
in the written statement. Once the right of the defendant to file written statement has been lost or the
time limited for delivery of the defence has expired, then neither the written statement can be filed
as of right nor a counter-claim can be allowed to be raised, for the counter-claim under Rule 6-A
must find its place in the written statement.
The Court has a discretion to permit a written statement being filed belatedly and, therefore, has a
discretion also to permit a written statement containing a plea in the nature of set-off or counter-
claim being filed belatedly but needless to say such discretion shall be exercised in a reasonable
manner keeping in view all the facts and circumstances of the case including the conduct of the
defendant, and the fact whether a belated leave of the Court would cause prejudice to the plaintiff or
take away a vested right which has accrued to the plaintiff by lapse of time.
An application for counter claim under Order VIII, Rule 6-A is not exfacie barred after filing of
written statement.’ In a suit for declaration of title and possession, defendant sought to the WS filed,
subsequently amend claiming recovery of possession, amendment alleged to be necessitated
because of trespass by plaintiff. It was held that subsequent filing of counter claim on basis of
trespass is not tenable. Trespass as cause of action for filing counter claim cannot be said to have
arisen prior to filing of WS.
Similarly in Rohit Singh v. State of Bihar 9,’ it was held that counter claim cannot be raised after
issues are framed and evidence is closed, further, counter-claim directed solely against co-

9 2006) 12 SCC 734

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defendants cannot be maintained. Court cannot proceed and grant decree in favour of said co-
defendants only on basis that no answer has been filed to their counter-claim by other defendants.
A counter claim was filed claiming damages for wrongful detention of goods by locking room in
her possession, 5 years after alleged locking of room. Defendant filing counter claim had
knowledge of detention of goods right from first day. It was held that counter claim was barred,
even if not Art. 91 but residuary article of Limitation Act is applied. Merely because in another suit
inventory of goods in said room was prepared that would not give rise to fresh cause of action for
respondent. Suit for damages for wrongful detention of goods is based on different footing vis-a-vis
a continuing wrong. Thus, limitation would run from time when property is wrongfully taken.
In Mahendra Jung Rana v. Pan Singh Negi, it was observed that the cause of action for the counter-
claim should accrue to the defendant either before or after the filing of the suit but before the
defendant has delivered his defence or before the time for delivering his defence has expired. The
limitation of time is clearly in respect of the cause of action on which the counter-claim is usually
made in the written statement. The provision would u workable if it is so construed as to provide a
time limit for filing because inter-claim. Since the counter-claim can, in law, validly be filed as part
a court written statement, the limitation of time that it should be filed before of the defendant has
delivered his defence would make it unworkable. That it the would go to suggest that the limitation
of time is in respect of the also wo of the cause of action for the counter-claim and not for its
actually being raised in the suit.
A defendant can file counter-claim in respect of a cause of action which is independent of cause of
action averred by the plaintiff. It need not confine to money claim or to cause of action of the same
nature as of the plaintiff or be related to or be connected with the original cause of action or matter
pleaded by the plaintiff. In a suit for injunction, counter claim for injunction in respect of the same
or different property can be made under Order VIII. Rule 6-C.
The plaintiff may object to disposal of the claim by way of counter-claim by pleading for its
disposal by an independent suit. and he may, at any time before issues are settled in relation to the
counter-claim apply to the Court for an order that such counter-claim may be excluded & the Court
may, on the hearing of such application, make such order as it thinks fit. (Order VIII, Rule 6-C).
If the plaintiff makes default in putting in a reply to the counter-claim made by the defendant, the
Court may pronounce judgment against the plaintiff in relation to the counter-claim made against
him, or make such order in relation to the counter-claim as it thinks fit. (Order VIII, Rule 6-E).
Where in any suit a set-off or counter-claim is established as a defence against the plaintiff’s claim,
and any balance is found due to the plaintiff or defendant, as the case may be, the Court may give
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judgment to the party entitled to such balance. The rules relating to a written statement by a
defendant shall apply to a written statement filed in answer to a counter-claim. (Order VIII, Rules 6-
F and 6-G).
When an application for permission to sue for counter-claim in forma pauperis is filed, the Court is
bound to consider that application and dispose it of according to law.

MODE OF SETTING UP COUNTER CLAIM

There are three modes of pleading or setting up a counter-claim in a civil suit :

1. First, the written statement filed under Rule 1 may itself contain a counter-claim which in the
light of Rule 1 read with Rule 6-A would be a counter-claim against the claim of the plaintiff
preferred in exercise of legal right conferred by Rule 6-A.
2. Secondly, a counter-claim may be preferred by way of amendment incorporated subject to the
leave of the Court in a written statement already filed.
3. Thirdly, a counter-claim may be filed by way of a subsequent pleading under Rule 9.

In the latter two cases the counter-claim though referable to Rule 6.A cannot be brought on record
as of right but shall be governed by the discretion vesting in the Court, either under Order VI, Rule
17 of the CPC if sought to be introduced by way of amendment, or, subject to exercise of discretion
conferred on the Court under Order VIII, Rule 9 of the CPC sought to be placed on record by way
of subsequent pleading.
The purpose of the provision enabling filing of a counter-claim is to avoid multiplicity of judicial
proceedings and save upon the Court’s time as also to exclude the inconvenience to the parties by
enabling claims and counter-claims, that is, all disputes between the same parties being decided in
the course of the same proceedings. If the consequence of permitting a counter-claim either by way
of amendment or by way of subsequent pleading would be prolonging of the trial, complicating the
otherwise smooth flow of proceedings or causing a delay in the progress of the suit by forcing a
retreat on the steps already taken by the Court, the Court would be justified in exercising its
discretion not in favour of permitting a belated counter-claim. The framers of the law never
intended the pleading by way of counter-claim being utilised as an instrument for forcing upon a re-
opening of the trial or pushing back the progress of proceeding. Generally speaking, a counter-claim
not contained in the original written statement may be refused to be taken on record if the issues

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have already been framed and the case set down for trial, and more so when the trial has already
commenced. But certainly a counter-claim is not entertainable when there is no written statement on
record.”

WHO MAY FILE COUNTER CLAIM

Normally, it is the defendant who may file a counterclaim against the plaintiff. But incidentally and
along with the plaintiff, the defendant may also claim relief against the co-defendants in the suit.
But a counterclaim solely against co-defendants is not maintainable.

WHEN COUNTER CLAIM MAY BE SET UP ?

A counterclaim may be set up by a defendant against a plaintiff in respect of cause of action

accruing either before or after filing of the suit, provided such claim is not barred by limitation.
Effect of counterclaim Such counterclaim has the effect of a cross-suit and the court can pronounce
a final judgment both on the original claim and the counterclaim. The counterclaim of the defendant
will be treated as a plaint and the plaintiff has a right to file a written statement in answer to the
counterclaim of the defendant.
The effect of the counterclaim is that even if the suit of the plaintiff is stayed, discontinued,
dismissed or withdrawn, the counterclaim will be decided on merits and the defendant will have a
right to get a decree for a counterclaim as claimed in the written statement. If the plaintiff does not
file any reply to the counterclaim made by the defendant, the court may pronounce the judgment
against the plaintiff in relation to the counterclaim made against him or make such order in relation
to the counterclaim as it thinks fit.268 The counterclaim shall be treated as a plaint and will be
governed by the rules applicable to plaints. Similarly, a reply filed in answer to a counterclaim shall
be treated as a written statement and governed by rules applicable to written statements.

DISTINCTION BETWEEN SET-OFF & COUNTER CLAIM

• Set-off is a statutory defence to a plaintiff’s action, whereas a counterclaim is substantially a cross-
action.

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• Set-off must be for an ascertained sum or must arise out of the same transaction as the plaintiff’s
claim. A counter-claim need not arise out of the same transaction.
• Set-off is a statutory ground of defence and has to be pleaded in the written statement. It can be
sued as a shield and not as a sword. Counter-claim, on the other hand, does not afford any defence
to the plaintiff’s claim. It is a weapon of offence which enables the defendant to enforce his claim
against the plaintiff as effectually as in an independent action. It is a sort of cross-action.
• If the statute of limitation is pleaded to a defence of set-off, the plaintiff in order to establish his
plea has to prove that set-off was barred when the plaintiff commenced the action. It is not enough
to prove that it was barred at the time when it was pleaded. In the case of a counter-claim, it is
enough for the plaintiff to prove that the counter-claim was barred when it was pleaded.
• An equitable set-off is a claim by the defendant in defence, which generally cannot exceed the
plaintiff’s claim. A counter-claim the defendant may, however, exceed the plaintiff’s claim, being
in nature of the cross action. Under the provision rule 6-F of Order 6, if in any suit a set off or
counter claim is established as a defence against 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.

SET-OFF AND COUNTER CLAIM- COMMON FEATURES

• None should exceed the pecuniary limits of the jurisdiction of the court;
• Both are pleaded in the written statement, if the law governing the court permits such plea being
raised by the defendant in the written statement;
• The plaintiff is expected to file a written statement in answer to claim for set off or to a counter
claim;
• Even if permitted to be raised, the court may in appropriate cases direct a set off or counter claim
being tried separately;
• A defendant cannot be compelled to plead a set off nor a counter claim: he may as well maintain
an independent action for enforcing the claim forming subject matter of set-off or counter claim;
• Both are liable to pay court-fee;
• Dismissal of suit or its withdrawal would not debar a set off or counter claim being tried may be
followed by a decree against the plaintiff.

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 CONCLUSION
The essence of set-off is that the defendant should have a cause of action against the plaintiff apart
from the suit and not merely as a defence to the plaintiff’s claim. Set-off is in the nature of a cross-
action which can be entertained separately. On the other hand, the concept of equitable set-off
comes from the broad principles of justice, equity and good conscience. Equitable right to set-off
exists only when both the claims, that is, of the plaintiff as well as the defendant, arise out of the
same transaction. For example, in the case of, M/s Anand Enterprises (Bangalore) v. Syndicate
Bank10, in a suit by the bank on a term loan, damages for the loss on account of delay in giving/
sanctioning the loan was claimed by the defendant in the written statement. It was held that, the
claim of the defendant was in the nature of an equitable set-off and not a counter-claim.
Thus, when the claim of the defendant is in the nature of mutual debits and credits as against the
plaintiff, arising from the same transaction, between the same parties then, equitable set-off can be
claimed by the defendant as against the plaintiff, without complying with rigours of Order VIII,
Rule 6 of the Code of Civil Procedure, 1908 and Section 3 of the Limitation Act, 1963. Grant or
non-grant of equitable set-off is the discretion of the court

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

10 AIR 1990 Kant 175

21
husband can have a counter claim of divorce on any grounds stated in Section 13 of the Hindu
Marriage Act 195511.
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 co-plaintiff'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. it was also held by Kerala High Court that,
"It is really a weapon of offence and enables a defendant to enforce a claim against the plaintiff as
effectively as in an independent action. It need not be an action of the same nature as the original
action or even analogous thereto, though the counter claim has to be one entertainable by the Court
in India."12

11 Surbhi Agarwal v. Sanjay Agarwal AIR 2000 MP 139 (DB)

12 Pathrose Sameul & Anr v. Karumban Parameshwaran, AIR 1988 Ker 163.
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