Full Judgment Text
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.
JUDGMENT
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
Page 1
2
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
JUDGMENT
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
Page 2
3
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
JUDGMENT
Monohar Lal v. National Building Material
1
Supply, Gurgaon , Suraj Prakash Bhasin v. Smt.
2
Raj Rani Bhasin and others , Nichhalbhai
3
Vallabhai v. Jaswantlal Zinabhai , Abdul Rahim
4
Naskar v. Abdul Jabbar Naskar and ors. ,
1
AIR 1969 SC 1267
2
AIR 1981 SC 485
3
AIR 1966 SC 997
4
AIR 1950 Cal 379
Page 3
4
Baijnath Bhalotia v. State Bank of India and
5
others and I.T.C. Limited v. M.M.P. Lines Pvt.
6
Ltd. and others 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
JUDGMENT
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
Page 4
5
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.
7
v. Anil Kumar Sen and Anr. , came to hold that
the provisions of the Limitation Act do not necessarily
JUDGMENT
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
Page 5
6
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
JUDGMENT
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
Page 6
7
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
JUDGMENT
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
Page 7
8
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.”
JUDGMENT
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
Page 8
9
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
8
Clark v. Ratnavaloo Chetti 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
9
Chander .
13. In Raja Bhupendra Narain Singha Bahadur v.
10
Maharaj Bahadur Singh and others 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
JUDGMENT
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
Page 9
1
the wrongdoer to undo his wrong, and not to take
advantage of it.
14. In M/s. Lakshmichand and Balchand v. State of
11
Andhra Pradesh , 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
12
Bros. (Coal Sales) Ltd. and others , while
referring to concept of set-off, this Court has stated
thus: -
JUDGMENT
“ 15. “Set-off” is defined in Black’s Law
th
Dictionary (7 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
Page 10
1
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.”
JUDGMENT
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
Page 11
1
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
13
Spinning & Weaving Co. and Girdharilal
JUDGMENT
14
Chaturbhuj v. Surajmal Chauthmal Agarwal .
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
Page 12
1
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
JUDGMENT
appeal stands disposed of with no order as to costs.
.................................J.
[Anil R. Dave]
.................................J.
[Dipak Misra]
New Delhi
August 07, 2013.
Page 13