Set Off and Counter Claim
By Joy Puri
Table of Contents
Introduction
The concepts of set-off and counterclaim origins can be traced back in English common law, evolving to enhance judicial efficiency and fairness in the legal system.
Set-off, which emerged as a statutory remedy to allow defendants to reduce or extinguish a plaintiff’s claim by asserting their own claims within the same legal proceedings.
Over the time, the doctrine of counter claim developed through the generations, enabling defendants to raise independent claims against plaintiffs in the same lawsuit, even if unrelated to the plaintiff’s original claims thereof.
In the United States, these principles were inserted and dealt into the legal system and were thereby codified in the Federal Rules of Civil Procedure in 1938, distinguishing between compulsory and permissive counter claims on the part of the parties.
In France which was blessed with the Roman law, the Civil Code introduced “compensation judiciaire” which means judicial set-off to balance mutual debts and “demande reconventionnelle” which means counterclaims, to address all related claims in one proceeding to save the time and the cost.
Set off: Legal and Equitable
Set off refers to the reciprocal acquittal of the respective debts between the two persons. In a situation wherein, there exists a suit of recovery of the monetary value by the plaintiff, the defendant in the antecedent matter finds that he also has a claim against the respective person for some amount, the law confers the opportunity to him to claim set off of the said amount.
It is also recognized as a plea in regards to which the defendant acknowledges the said demands of the plaintiff but sets up another demand of his own, to counterbalance that to the plaintiff which can exist either in parts or as a whole.
The aforementioned doctrine can also be opined as the extinction of the debts of which two persons are reciprocally debtors to one another by the credits of which they are reciprocally creditors to one another thereof.
In a legal Set off the amount claimed to be set off must be legally recoverable and not be barred by the limitation at the date of the respective suit but a claim of equitable set off can be allowed even if it is barred at the date of suit where there is fiduciary relationship between the plaintiff and the defendant.
If the defendant’s claim in the respective matter is barred by the date of written statement by not by the date of the suit, the defendant can thereby be awarded with the equitable set off to the extent of plaintiff’s claim only but not of the balance found due to him.
In the scenario of legal set off it is not required or compulsory that the cross demands take birth due to the same transactions but an equitable set off is allowed only when the cross demands arise out of the same transaction as of the plaintiff’s claim.
Counter Claim: Meaning and Effect
Counter claim in the legal landscape may be stated as the claim made by the defendant in as suit against the plaintiff. Therefore a counter claim is substantially a cross action. Talking about the amendments made in the respective code, the concept of counter claim was introduced in the code in the amendment act of 1976.
The counter claim in the legal fiction is treated as same as of the plaint and is thereby governed and subject to the rules and procedures which are applicable to the plaint.
The effect of counter claim is that even if the suit of the plaintiff is stayed, discontinued, dismissed or have been withdrawn the counter claim will be decided on the merits of the case and thereby the defendant will have the right to receive a decree for a counter claim as claimed in the written statement.
If the plaintiff in the respective case does not file a reply to the counter claim made on the part of the defendant the court has been conferred with the power to pronounce the judgement against the plaintiff in relation to the counter claim made against him or make such order as the court thinks is reasonable.
Landmark Cases
Madan Mohan Garg v. Bohra Ram La, 1934 ALJ 421
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.
Laxmidas v. Nanabhai AIR 1964 SC
A defendant in a suit may, in addition to his right to plead a set off, set – up a counterclaim to defeat the plaintiff’s relief. It may be defined as “a claim made by the defendant in a suit against the plaintiff.” The Supreme Court, however, held the right to make a counter claim as statutory in the aforementioned case.
Conclusion
The aforementioned concepts therefore have evolved as crucial players in the proceedings of civil suits thereof as they have helped in saving the cost and the time of the court.
They have also acted as a comprehensive solution to the problems arising the civil suits thereby making efficient use of the judicial resources and the and promoting the concept of settlement.
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