Preliminary Details:
Topic- Equitable Set-Off
Casse- Jitendra Kumar vs The Peerless
General Finance & Investment Company Limited & Ors. (2013) 8 SCC 769.
Case No.: Civil Appeal No. 6784 of 2013 (Arising out of SLP No. 18324
of 2004)
Forum: Supreme Court of India
Bench- Anil R. Dave, Dipak Mishra, JJ.
Facts:
1. The appellants filed a lawsuit in
the HC seeking a declaration that according to their circulars/terms and
conditions of appointment, the appellants have the rights and obligation to receive
any commissions and other incentives payable to the defendants’ field officers
in respect of transactions and business done through customers who were
certificate holders which in accordance with the circulars of appointment of
the defendant. Also, to pass a decree of total Rs. 25L, jointly or severally
against the defendant or, alternatively, to hold an inquiry into the
plaintiffs’ damages and issue a decree for that amount.
2. Following their appearance and
filing of their written statement, the defendants filed an application for an
amendment of the written statement in favor of Defendant 1 as well as a decree
for additional interest and, if needed, to enquire into the amounts owed by
Plaintiff 1 to the defendant company. The application was denied by the HC’s
Single Judge.
3. In an appeal, the Division Bench of
the HC held that, while the claim advanced by the defendants in a written
statement could no longer be legally reclaimable at that point in time and as
such the complaint could be regarded as a counterclaim and setoff as enshrined
under CPC, 1908, the provisions of the Limitation Act do not necessarily
preclude an equitable set-off, and the provisions of CPC, 1908 do not preclude
an equitable set-off. They explained that even if the appellant’s set-off claim
is determined to be prohibited by trial limitation, the appellant would still
only be entitled to a pro tanto dismissal of the plaintiff’s claim and not of a
final judgment.
4. A legal set-off argument was made in
the current appeal before SC, which argued that equitable set-off was the only
option for the claim made in a revised written statement, as opposed to legal
set-off.
Issue:
A. Determining if a claim of equitable
set-off may be made or not in the present case.
Rule/s:
Following are the applicable
provisions that needs to be taken into consideration for the current case:
1. S.3, Limitation Act, 1963- A delayed
set-off and a delayed counterclaim are prohibited in the same way that a
delayed lawsuit is prohibited. According to the appellant's counsel, this
clause would prevent the appellant from obtaining a written statement
modification now.
2. Order 6 Rule 17, CPC, 1908- It states
that, if the court finds that the party did not raise the relevant facts before
the trial began, it will not accept a motion to amend. As a result of this
proviso, the court has the authority to decide on the applicability of
pleadings after the Trial begins. If you want to change your pleadings, you'll
need to file a lawsuit first.
3. Order 8 Rule 6, CPC, 1908- According to this provision, if a scenario
develops where the plaintiff files an action to collect money from the
defendant, but the defendant has a debt to the plaintiff, the defendant may
seek for the set off of the amount against the plaintiff that he is entitled to
recover. For the defendant to be able to set off the sum, he must specify it in
the written statement he submits and a written statement in response to a
set-off claim is subject to the same standards as a written statement by a
defendant. However, this does not alter any pleader's lien on any sum decided
in respect of the costs that are due him under the decree.
4. Order 8 Rule 6A, CPC, 1908- It states
that, any right or claim in respect of a cause of action accruing to the
defendant against the plaintiff before or after the filing of the suit, but
before the defendant has delivered his defense or before the time limit for
delivering his defense is reached, may be set up as a counterclaim against a
plaintiff's claim by a defendant in the suit. Also, after filing a written
declaration, there is no embargo on the counterclaim.
5. Order 8 Rule 6(1), CPC, 1908- Defendant
may set-off against Plaintiff's demand any amount legally recoverable by him
from Plaintiff, not exceeding the pecuniary limits of the Court's jurisdiction,
if both parties fill the same character as they do in the Plaintiff's suit, but
only after getting permission from the court.
Following are the list of cases relied on by this Court:
1.
Clark v. Ratnavaloo Chetti 2
M.H.C.R. 296 (1865)
2.
Raja Bhupendra Narain Singha Bahadur
v. Maharaj Bahadur Singh and Ors. AIR 1952 SC 782
3.
Lakshmichand and Balchand v. State
of Andhra Pradesh (1987) 1 SCC 19
4.
Union of India v. Karam Chand Thapar
and Bros. (Coal Sales) Ltd. and Ors. (2004) 3 SCC 504
5.
Dobson and Barlow v. Bengal Spinning
and Weaving Co. (1897) 21 Bom 126
6.
Girdharilal Chaturbhuj v. Surajmal
Chauthmal Agarwal AIR 1940 Nag 177.
Analysis:
1. Mr. Mukherjee, who is the learned
Counsel for the Appellants has argued that an attempt has been made to bring a
claim that is in fact in the type of set-off as defined in Order VIII Rule 6 of
the Code, and, as a result, the learned single judge was completely correct in
refusing to admit it. According to him, as explained by the Division Bench, the
equitable set-off encroaches on legal set-off in this case. Defendants were
entitled to postpone proceedings as a consequence of the modifications, which
was allowed by the Hon’ble HC.
2. Mr. Gupta who is the learned Counsel
for the Defendants has argued that the Respondents herein acknowledged that the
written statement’s claim cannot be considered a counterclaim or legal set-off
since both are not permitted at the time the application to modify the written
statement was made. Expert Counsel believes that equitable set-off is
controlled by the Code, but equitable set-off does not, according to him.
3. In order to fully grasp the
situation at hand, it is necessary to comprehend the Code’s need for set-off.
Rule 6 of Order VIII relates to set-off. According to this rule, certain prerequisites
must be met before the rule may be applied. Both the action for money and the
amount to be set-off must meet specific requirements. In addition to the
aforementioned factors. There are other factors that might support a set-off
claim under this rule.
4. For equitable set-off, Clark v. Ratnavaloo Chetti (2 MHCCR 296) established
that the right to set-off applies not only in instances where there are
reciprocal debits and credits, but also where there are cross-demands arising
out of the same transactions. In Maharaj
Bahadur Singh and Ors. AIR 1952 SC 782, it was held that an equitable
set-off claim is ineligible if the cross-claims do not originate from the same
transaction and are not linked in nature or circumstances with each other.
Accordingly, it has been further stated that, a person who has acted in bad
faith and unlawfully withheld money owing to someone else is not entitled to
use equity principles in his favor and deduct the amount that is due to him. To
advise the offender to make amends and not to take advantage of his mistake is
neither inappropriate nor unfair.
5. When a claim is based on the
doctrine of equitable set-off, all cross-demands must arise out of the same
transaction or be so closely related in nature and circumstances that they can
be viewed as a part of one transaction, the Supreme Court ruled in Lakshmichand and Balchand v. State of
Andhra Pradesh (1987) 1 SCC 19.
6. Regarding set-off in Union of India v. Karam Chand Thapar and
Bros. (Coal Sales) Ltd and Ors. (2004) 3 SCC 504, this Court stated: Among
other things, Black's Law Dictionary (7th Edn., 1999) defines set-off as the
debtor's power to lower the size of his or her debt by any amount that the
creditor owes him or her. From Thomas W. Waterman's A Treatise on the Law of Set-Off
Recoupment, and CounterClaim, the dictionary quotes Thomas W. as, Subtraction
or taking away of one demand from a cross-demand in order to identify the
smaller and diminish the bigger by that of the smaller, or to extinguish both
demands if they are equal. As a result, the amount to be set off was deducted
or halted from the cross-demand.
7. After referring Rule 6(1) of Order
8, CPC, 1908, learned judges made the following observation:
8. There must be a lawfully recoverable
amount of money in the claim that is sought to be set-off. What’s more
important is that both parties must have the same character for the two claims
that are being set-off or adjusted against one another. Additionally, there is
a right to be set-off, known as equitable, which is separate from the Code.
Such cross-claims or mutual debts, in order to be eligible for equitable
offset, must have arised out of the same transaction or be so closely related
in nature and circumstances that it would be unfair for that court to allow the
claim and leave the Defendant until he files his own cross-suit. An equitable
set-off claim is not automatically accepted, and the court has the authority to
accept it or to reject it.
9. It is clear from the preceding legal
enunciation that equitable set-off differs from legal set-off, that it is
independent of the provisions of the Coe of Civil Procedure, cross-demands or
mutual debts and credits must have arisen out of the same transaction or be
related in character and situations, that such plea is not raised as a matter
of right, and it is up to the court to hear and accept such a plea or not.
10. On the basis of equality, justice,
and good conscience, equitable set-off was developed. The court has the power
to make a decision, and that authority must be utilized in a fair way. As
stated in Dobson and Barlow v. Bengal
Spinning and Weaving Co. (1897) 21 Bom 126 and Girdharilal Chaturbhuj v. Surajmal Chauthmal Agarwal AIR 1940 Nag 177,
an equitable set-off is not permitted where a lengthy investigation is required
to determine the amount due.
Conclusion
Thus, this court after applying
those rules to the case, was inclined to believe that the Division Bench was
correct in allowing amendments because they could be treated as equitable
set-off claims, because the amendment petition was treated as a demand so
closely related in nature and circumstances that it could be considered as a
part of one deal. According to the Division Bench, its opinion is prima facie a
statement of opinion. It goes without saying that the admissibility of the
claim will be determined by the evidence presented to the Court in order to
support a claim of equitable set-off. When deciding the case, the knowledgeable
single judge will have a look at these issues. Given that this case has been
ongoing since 1993, the High Court was urged to resolve it within one year of
the date of this judgment. Furthermore, due to the above, the appeal was
dismissed with no award for costs.
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