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Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL Nos.   6784  OF 2013 (Arising out of SLP (C) Nos. 18324 of 2004)

Jitendra Kumar Khan and others ...  Appellants

Versus

The Peerless General Finance and Investment  Company Limited and others      ...Respondents

J U D G M E N T

Dipak Misra, J.

Delay  in  filing  the  application  for  substitution  is  

condoned and prayer for substitution of appellant No. 2 is  

allowed.

2. Leave granted.

3. The  appellant  Nos.  1  and  3  along  with  the  

predecessor-in-interest of appellant No. 2 instituted

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suit No. 301 of 1993 in the High Court of Calcutta  

principally for a declaration that they are entitled to  

be  paid  all  the  commissions  and  other  incentives  

payable to the agents/field officers by the defendants  

in respect of the transactions and/or business which  

was done through the customers/certificate holders  

in accordance with the circulars/terms and conditions  

of  appointment  of  all  agents/field  officers  of  the  

defendant company and for a decree of Rs.25 lacs  

against  the  defendant  No.  1  company  jointly  and  

severally  or  in  the alternative to cause an enquiry  

pertaining to the damages suffered by the plaintiffs  

and pass a decree for such a sum.

4. After  issuance  of  notice  of  the  plaint  which  was  

presented  on  11.8.1993,  the  defendants  entered  

appearance  and  filed  their  written  statement  on  

12.8.1994.  Thereafter, on 7.4.1998, the defendants  

filed  an  application  for  amendment  of  the  written  

statement.  The amendment that was sought for by  

the defendants was to the effect of grant of a decree  

for  a  sum  of  Rs.4,19,509.43  in  favour  of  the  

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defendant  No.  1  and  a  decree  for  further  interest  

and, if necessary, to enquire into the sum which is  

payable  by  the  plaintiff  No.  1  to  the  defendant  

company.   The  said  application  was  seriously  

opposed by the plaintiffs on the ground that such an  

amendment  was  totally  impermissible  and  by  

seeking  incorporation  of  such  a  plea  by  way  of  

amendment  the  defendants  were  actually  taking  

recourse to an adroit method of introducing a counter  

claim or set-off.

5. The learned single Judge scanned the anatomy of the  

language employed in  Order  VI  Rule  17,  Order  VIII  

Rule 6 and Rule 6-A of the Code of Civil  Procedure  

and  after  referring  to  decisions  in  Jai  Jai  Ram  

Monohar  Lal  v.  National  Building  Material   

Supply, Gurgaon1, Suraj Prakash Bhasin v. Smt.  

Raj  Rani  Bhasin  and  others2,  Nichhalbhai  

Vallabhai  v.  Jaswantlal Zinabhai3, Abdul Rahim  

Naskar  v.  Abdul  Jabbar  Naskar  and  ors.4,  

1 AIR 1969 SC 1267 2 AIR 1981 SC 485 3 AIR 1966 SC 997 4 AIR 1950 Cal 379

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Baijnath  Bhalotia  v.  State  Bank  of  India  and  

others5 and  I.T.C. Limited  v.  M.M.P. Lines Pvt.  

Ltd. and others6 and analyzing the principles stated  

therein,  came  to  hold  that  there  is  no  scope  for  

entertaining  a  counter  claim  when  the  time  had  

expired long back and there was no justification to  

accede to the claim at the desire of the party.  Be it  

noted,  the  learned  Judge  came  to  hold  that  the  

claims were not identical in nature and, hence, the  

defendants could not have asked for adjustment of  

any claim on the basis of a cause of action inasmuch  

as the nature of cause of action, as pleaded by the  

defendants  in  their  amendment  application,  is  

different  from the cause of  action set  forth by the  

plaintiffs  in  the  suit.   It  was  further  opined  that  

conceptually they did not meet the same character  

and the spacious plea that the amendment should be  

treated  as  equitable  set-off  was  not  acceptable.  

Emphasis was laid on the relief sought in the plaint  

which pertained to declaration and the entitlement of  

the  plaintiffs  to  the  commission  and  incentives  5 AIR 1967 Pat 386 6 AIR 1978 Cal 298

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payable by the defendants to the plaintiffs.  Being of  

this  view,  the  learned  single  Judge  rejected  the  

application for amendment.

6. Dissatisfied with the order of rejection an appeal was  

preferred  and the Division Bench vide  order  dated  

17.6.2004 came to hold that the claim put forth by  

the defendants by way of written statement could no  

longer be legally recoverable at that distance of time;  

and that the claim could not be treated as a counter  

claim  and  set-off  as  envisaged  under  the  Civil  

Procedure Code.  The Division Bench, after referring  

to Mackinnon Mackenzie and Company Pvt. Ltd.  

v.  Anil Kumar Sen and Anr.7,  came to hold that  

the provisions of the Limitation Act do not necessarily  

bar an equitable set-off and the provisions of Order  

VIII  Rule  6  do  not  do  away  with  the  principles  of  

equitable  set-off.   Eventually,  the  Division  Bench  

clarified by stating as follows: -

“It is clarified that though the amendments are  allowed, if  the appellant’s set-off  are found to  be barred by limitation at trial, then and in that  event, they would never be entitled to a decree  

7 AIR 1975 Cal 150

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on their own but only to a wiping off pro-tanto  of the plaintiff’s claim.  The amendment by way  of  paragraph 20G of  the  written  statement  is  particularly to be read in this light at trial.”

7. The aforesaid order is the subject-matter of assail in  

the present appeal by special leave.

8. We  have  heard  Mr.  Ranjan  Mukherjee,  learned  

counsel for the appellants, and Mr. Bhaskar P. Gupta,  

learned senior counsel for the respondents.

9. Mr.  Mukherjee,  learned  counsel  for  the  appellants,  

has strenuously urged that in the garb of equitable  

set-off an endeavour has been made to introduce a  

claim  which  is  really  in  the  nature  of  set-off  as  

incorporated under Order VIII Rule 6 of the Code and,  

therefore,  the  learned  single  Judge  was  absolutely  

justified in not allowing the same.  He has seriously  

criticized  the  opinion  expressed  by  the  Division  

Bench on the ground that in the case at hand the  

equitable  set-off,  as  argued,  encroaches  into  the  

compartment of legal set off.  It is urged by him that  

the  High  Court  has  committed  grave  illegality  in  

allowing  the  amendment  as  a  result  of  which  the  

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defendants  have  been  able  to  procrastinate  the  

proceeding.

10. Mr. Gupta, learned senior counsel appearing for the  

defendants,  the  respondents  herein,  conceded that  

the claim put forth in the written statement cannot  

be regarded as a counter claim or a legal set-off as  

both are really not permissible at the stage when the  

application to amend the written statement was filed.  

The  learned  senior  counsel  would  submit  that  the  

claim put forth in the amended written statement has  

to be restricted to equitable set-off which is beyond  

the scope of legal  set-off.   It  is  urged by him that  

equitable set-off is not governed by the Code and, in  

fact,  there  is  an  immense  distinction  between  the  

equitable set-off and legal set-off.

11. In view of the aforesaid submissions we are required  

to  restrict  our  deliberations  to  the  controversy  

whether the claim of equitable set-off, as put forth, is  

tenable  or  not.   To  appreciate  the  said  issue  it  is  

relevant  to  understand what  is  the  requirement  of  

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set-off in the Code.  Order VIII Rule 6 deals with set-

off.  It reads as follows:-

“6.  Particulars  of  set-off  to  be  given  in  written statement. – (1) Where in a suit for  the recovery of money the defendant claims to  set-off  against  the  plaintiff’s  demand  any  ascertained sum of  money legally  recoverable  by  him  from  the  plaintiff,  not  exceeding  the  pecuniary limits of the jurisdiction of the Court,  and both parties fill the same character as they  fill in the plaintiff’s suit, the defendant may, 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.

(2)  Effect of 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  both  of  the  original  claim and of the set-off; but this shall not affect  the  lien,  upon  the  amount  decreed,  of  any  pleader in respect of the costs payable to him  under the decree.

(3) The rules relating to a written statement by  a  defendant  apply  to  a  written  statement  in  answer to a claim of set-off.”

12. On a reading of  the aforesaid Rule it  is  noticeable  

that 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  

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there are other parameters to sustain a plea of set-

off  under  this  Rule.   As  far  as  equitable  set-off  is  

concerned,  it  has  been  enunciated  in  the  case  of  

Clark v. Ratnavaloo Chetti8 that 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.  The said principle has been reiterated  

by the Calcutta High Court  in  Chishlom  v. Gopal  

Chander9.

13. In  Raja Bhupendra  Narain  Singha  Bahadur  v.  

Maharaj Bahadur Singh and others10 it has been  

opined that a plea in the nature of equitable set-off is  

not available when the cross-demands do not arise  

out of the same transaction and not connected in its  

nature and circumstances.  It has been further stated  

therein  that  a  wrongdoer  who  has  wrongfully  

withheld moneys belonging to another cannot invoke  

any  principles  of  equity  in  his  favour  and  seek  to  

deduct therefrom the amounts that have fallen due  

to him.  There is nothing improper or unjust in telling  8 2 M.H.C.R. 296 (1865) 9 ILR 16 Cal 711 (1889) 10 AIR 1952 SC 782

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the wrongdoer to undo his wrong,  and not to take  

advantage of it.

14. In M/s. Lakshmichand and Balchand v. State of  

Andhra Pradesh11, this Court has ruled 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 so connected in the  

nature and circumstances that  they can be looked  

upon as a part of one transaction.

15. In  Union of India  v.  Karam Chand Thapar and  

Bros.  (Coal  Sales)  Ltd.  and  others12,  while  

referring to concept of set-off, this Court has stated  

thus: -

“15. “Set-off”  is  defined  in  Black’s  Law  Dictionary  (7th Edn.,  1999)  inter  alia  as  a  debtor’s right to reduce the amount of a debt by  any  sum  the  creditor  owes  the  debtor;  the  counterbalancing  sum  owed  by  the  creditor.  The  dictionary  quotes  Thomas  W.  Waterman  from  A  Treatise  on  the  Law  of  Set-Off,   Recoupment, and Counter Claim as stating:

“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  

11 (1987) 1 SCC 19 12 (2004) 3 SCC 504

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the greater by the amount of the less; or, if  the  opposite  demands  are  equal,  to  extinguish  both.   It  was  also,  formerly,  sometimes  called  stoppage,  because  the  amount  to  be  set  off  was  stopped  or  deducted from the cross-demand”.”

Thereafter,  the learned Judges referred to  Sub-rule  

(1) of Rule 6 of Order VIII and proceeded to opine thus: -

“What the rule deals with is legal set-off.  The  claim  sought  to  be  set  off  must  be  for  an  ascertained  sum  of  money  and  legally  recoverable  by  the  claimant.   What  is  more  significant is that both the parties must fill the  same  character  in  respect  of  the  two  claims  sought to be set off or adjusted.  Apart from the  rule enacted in Rule 6 abovesaid, there exists a  right to set-off, called equitable, independently  of  the  provisions  of  the  Code.   Such  mutual  debts  and  credits  or  cross-demands,  to  be  available for extinction by way of equitable set- off,  must  have  arisen  out  of  the  same  transaction or ought to be so connected in their  nature  and  circumstances  as  to  make  it  inequitable  for  the  court  to  allow  the  claim  before it and leave the defendant high and dry  for the present unless he files a cross-suit of his  own.  When a plea in the nature of equitable  set-off is raised it is not done as of right and the  discretion lies  with the court  to  entertain and  allow such plea or not to do so.”

16. From the aforesaid enunciation of law it is quite clear  

that equitable set-off is different than the legal set-

off;  that  it  is  independent  of  the  provisions  of  the  

Code of Civil  Procedure; that the mutual debts and  

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credits or cross-demands must have arisen out of the  

same transaction or to be connected in the nature  

and circumstances; that such a plea is raised not as a  

matter of right;  and that it  is  the discretion of the  

court to entertain and allow such a plea or not.  The  

concept  of  equitable  set-off  is  founded  on  the  

fundamental  principles  of  equity,  justice  and  good  

conscience.   The discretion rests  with  the  court  to  

adjudicate upon it and the said discretion has to be  

exercised in an equitable manner.  An equitable set-

off is not to be allowed where protracted enquiry is  

needed for the determination of the sum due, as has  

been  stated  in  Dobson  &  Barlow  v.  Bengal  

Spinning  &  Weaving  Co.13 and  Girdharilal  

Chaturbhuj v. Surajmal Chauthmal Agarwal14.

17. Tested on the aforesaid principles we are disposed to  

think that the Division Bench has rightly allowed the  

amendment  on  the  base  that  the  claim  put  forth  

could be treated as a plea in the nature of equitable  

set-off,  for  it  has  treated  the  stand  taken  in  the  

13 (1897) 21 Bom 126 14 AIR 1940 Nag 177

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amendment petition to be a demand so connected in  

the  nature  and  circumstances  that  they  can  be  

looked upon as a part of one transaction.  The view  

expressed by the Division Bench has to be treated as  

a  prima  facie  expression  of  opinion.   Needless  to  

emphasise, whether the claim would be allowable or  

not will  depend upon the evidence adduced before  

the Court so as to sustain a claim of equitable set-off.  

These aspects  are to  be gone into  by the learned  

single Judge while disposing of the suit.  As the suit is  

pending since 1993, the High Court is requested to  

dispose  of  the  same  as  expeditiously  as  possible  

preferably within one year from today.

18. Ex-consequenti, with the aforesaid observations, the  

appeal stands disposed of with no order as to costs.

.................................J. [Anil R. Dave]

.................................J. [Dipak Misra]  

New Delhi August 07, 2013.  

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