A civil lawsuit is started by submitting a plaint to the relevant court that has judicial power over the issue.
A civil procedure code suit begins with the submission of a complaint to the relevant court with subject-matter jurisdiction. The claimant files a complaint. The defendant must submit a written statement in response to the allegations made by the plaintiff in a similar manner. Set-off and a counterclaim may be included with this written statement in some circumstances. Therefore, the defendant’s cross-claims include set-off and counter-claims, and these cross-claims cannot be disputed unless they are accompanied by a written statement. The only acceptable form of response to a petition is in writing, and this response must be submitted within 30 days of the date the complaint was filed.
Set-Off
Debts are a factor in set-off. The defendant has made a corresponding civil procedure code. Only in a lawsuit to recover money may set-off be used. An illustration may help to clarify this. Consider the following scenario: A sues B, alleging that he is owed ₹20,000 by the latter. Now that A owes B ₹10,000, B has a counterclaim against A stating that A owes B ₹10,000. In this case, both parties are jointly liable for the other’s debts and must settle them. B submits a set-off claim along with the written statement in response to the plaint submitted by A rather than starting a new lawsuit entirely.
Order VIII Rule 6 governs the handling of set-offs, and it states that because it also involves a subject at hand that is in dispute, the court should take both the written statement and the set-off into consideration. The defendant must, however, fulfill a number of requirements in order to file a set-off. They are:
- The purpose of the lawsuit must be money recovery. So, only money suits may file a set-off.
- Only the sum that has already been granted to the plaintiff may be claimed by the defendant. The defendant is not entitled to any money that he hasn’t already lent. It means the source of the funds should be determined.
- The defendant should be able to legally recover the determined sum of money from the plaintiff. There shouldn’t be any limitations on it.
- If there are multiple defendants, the money that the defendant is entitled to recover should go to them, and if there are multiple plaintiffs, it should go to them as well.
- Only the court with financial jurisdiction should receive the set-off.
Counter-Claim
In accordance with the civil procedure code, 1908, Order VIII Rules 6-A to 6-G govern counterclaims. It is an independent claim, distinct from the plaintiff’s. Additionally, it is a cross-claim, though it need not necessarily stem from the exact cause of action as the one in the complaint. The restoration of money is not required for a counterclaim, unlike a set-off, which must be related. Any civil disputes might be involved.
The following are the characteristics of a counterclaim
- Also included with a written statement should be a counterclaim. In most cases, if the defendant wants to drag out the litigation, the court will not permit him to file a counterclaim later on if it is not submitted with the written statement. The counter-claim may, however, always be submitted as a subsequent pleading in accordance with Rule 9 of the same Order.
- In order to avoid multiple proceedings and save the court a lot of valuable time, the counterclaim was created.
As an illustration, suppose that after A sues B, B also intends to sue A, but on a completely different issue. B asserts a counterclaim against A as opposed to bringing a different lawsuit. Here, a significant amount of time is being saved because the original lawsuit proceedings are also handling the counterclaim proceedings.
- The counter-claim is given the same consideration as the plaintiff, and the plaintiff must provide a written statement responding to the counter-claim. Both the initial claim and the counterclaim may be given final judgment by the court.
- The counter-claim against the plaintiff may be brought by the defendant on their behalf. He may occasionally be able to make claims against co-defendants in addition to the plaintiffs. However, the courts will not consider a counterclaim that is limited to a claim from the co-defendants.
- When the subject matter is not exempt from the Limitation Act, the counterclaim should only be submitted.
Previously, only money lawsuits were permitted to file a set-off or counterclaim. However, the CPC was amended in 1976 to cover the idea of a counterclaim under Order VIII Rules 6-A to 6-G, as was previously discussed. This allows for the inclusion of additional civil procedure code claims against the plaintiff and also helps to save time by reducing the number of lawsuits between the same parties.
As a final point, counterclaims can be utilized for any claims of a civil procedure code nature, and setoffs can be utilized to recover money in lawsuits involving money. Both must be filed in opposition to the plaintiff by the defendant, and both must be filed with a written statement. The nature of these two ideas is so similar that bringing a new lawsuit against the plaintiff to pursue their claims tends to become less onerous.
History of Set-Off
The inception of the doctrine of set-off dates back to 1729 when English Courts introduced it alongside the emergence of equity. The primary aim was to provide compensation to defendants, marking a significant development in the legal landscape.
Meaning of Set-Off
Set-off, in legal terms, involves the recovery of a pending sum owed by the plaintiff to the defendant, where the latter claims the right to set off this amount within the same lawsuit. It ensures a reciprocal discharge of debts between both parties.
While the Civil Procedure Code (CPC) lacks a specific definition, the Supreme Court, in Union of India v. Karan Chand Thapar and Bros. (Coal Sales) Ltd., referred to Black’s Law Dictionary, defining set-off as the debtor’s right to reduce their debt by the amount owed to them by the creditor.
Certain conditions must be met for a successful set-off, as outlined in Rule 6 of Order VIII of the CPC:
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For example, in a case where X sues Y for breach of contract, and Y wishes to set off the loss caused by X’s negligence, the amount cannot be set off unless it is ascertained and fulfils the conditions specified in Rule 6.
Types of Set-Off
There are two recognized types of set-offs:
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Legal Set-Off:
Governed by Rule 6(1) of Order VIII, legal set-off must fulfill the specified conditions, including adherence to limitation periods. For instance, if A sues B for a bill of exchange, and B holds a promissory note from A, B can legally set off the amount.
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Equitable Set-Off:
Unlike legal set-off, equitable set-off is not explicitly provided for in the CPC. It is based on principles of equity, justice, and good conscience and is granted at the court’s discretion, not as a matter of right. For example, if X sues Y for breach of contract, and Y wishes to set off losses due to X’s negligence, the court may decide on equitable set-off.
Effect of Set-Off
The effect of set-off, as per Rule 6(2) of Order VIII, CPC, is equivalent to that of a cross-suit. No distinct suit number is assigned for a set-off suit; both the original and set-off suits are treated as a single suit.
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Meaning of Counter Claim:
Introduced through the 1976 amendment in Rule 6A-6G of Order VIII, CPC, a counter claim allows the defendant to file a claim against the plaintiff alongside a set-off. Counter claims serve as a defense mechanism and prevent multiple suits. The Delhi High Court, in Gastech Process Engineering (India) Pvt. Ltd. v. Saipem, emphasized that a counter claim is a defensive tool and a strategic means to avoid filing separate suits.
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Effect of Counter-Claim
The effect of a counter claim mirrors that of a cross-suit and is treated as a separate action, acting as effectively as a plaint. Unlike set-off, if the plaintiff discontinues, dismisses, or stays the suit, the counter claim is similarly affected.
When Counter Claim can be Excluded?
Under Rule 6C, the plaintiff has the option to contend that the suit should be treated as an independent suit rather than a counter claim. This application can be made at any time before issues are settled. However, the decision to pass such an order lies within the discretion of the court.
Plaintiff’s Default in Replying to Counterclaim
In the event that the plaintiff defaults in replying to the counter claim, Rule 6E empowers the court to take action against the plaintiff regarding the counter claim. The court may pass an order deemed appropriate, holding the plaintiff accountable for their default.
Relief Granted to Defendant on Success of Suit of Counterclaim:
Should the judgment favor the defendant in the suit of counter claim, Rule 6F specifies that the plaintiff becomes liable to pay the balance to the defendant. This rule ensures that the defendant receives due relief upon the success of civil procedure code counter claim, emphasizing the equitable resolution of legal proceedings.
Difference Between Set-off and Counterclaim
- Set-off acts as a defense and involves reciprocal debts, while a counter civil procedure code is a cross-action filed separately.
- Set-off is limited to monetary matters arising from the same transaction, while a counter claim can emerge from different transactions.
- Set-off is a written statement defense, whereas a counter claim is a separate action filed by the defendant.
Conclusion
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