JITENDRA KUMAR KHAN AND OTHERSversusTHE PEERLESS GENERAL FINANCE AND INVESTMENT COMPANY LIMITED AND OTHERS

                   [2013] 7 S.C.R. 1093


         JITENDRA KUMAR KHAN AND OTHERS                            A
                              v.
THE PEERLESS GENERAL FINANCE AND INVESTMENT
         COMPANY LIMITED AND OTHERS
          (Civil Appeal No. 6784 of 2013)
                                                                   B
                      AUGUST 7, 2013
         [ANIL R. DAVE AND DIPAK MISRA, JJ.]

     Code of Civil Procedure, 1908:
                                                                   c
       0. 6, r. 17 - Written statement - Amendment - Equitable
 set-off - Suit for declaration as regards plaintiffs' entitlement
 to certain amounts - Defendants seeking amendment of
 written statement after more than 3 years of its filing and
 seeking to grant of a decree for a certain amount - Held: D
 Division Bench of High Court has rightly allowed the
 amendment on the basis 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 amendment petition to be a
 demand so connected in the nature and circumstances that E
)hey 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. 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.
                                                                   F
     0. 8, rr. 6 and 6-A - Set off and counter claim - Legal set
off and equitable set-off - Explained.

    A suit was filed before the High Court for declaration
that the plaintiffs were entitled to a decree of certain           G
amount against defendant-respondent no. 1 company.
The defendants filed their written statement on 12.8.1994.
Thereafter, on 7 .4.1998, they filed an application for
amendment of the written statement seeking to grant of
                             1093                                  H
    1094    SUPREME COURT REPORTS               [2013) 7 S.C.R.


A a decree for a sum of Rs.4, 19,509.43 in favour of
  defendant No. 1 and a decree for further interest, which
  was resisted by the plaintiffs as impermissible since it
  amounted to introducing a counter claim or set-off. The
  single Judge of the High Court rejected the application.
B However, the Division Bench of the High Court allowed
  the amendments holding that if the defendants' set-off
  were found to be barred by limitation at trial, they would
  not be entitled to a decree on their. own but only to a
  wiping off pro-tanto of the plaintiffs' claim.
c        In the instant appeal filed by the plaintiffs, the
    question for consideration before the Court was: whether
    the claim of equitable set-off, as put forth, was tenable or
    not.

D       Disposing of the appeal, the Court
      HELD: 1.1 For application of r. 6 of 0. 8 of the Code
  of Civil Procedure, 1908, two primary conditions are that
  it must be a suit for recovery of money and tile amount
  sought to be set-off must be a certain sum. Besides, there
                                     a
E are other parameters to sustain plea of set-off under r.6.
  [para 12) [1101-D]

       Jai Jai Ram Monohar Lal v. National Building Material
                                         =
  Supply, Gurgaon 1970 (1) SCR 22 AIR 1969 SC 1267;
F Suraj Prakash Bhasin v. Smt. Raj Rani Bhasin and Others
  AIR 1981 SC 485; Nichhalbhai Vallabhai v. Jaswantlal
  Zinabhai AIR 1966 SC 997; Abdul Rahim Naskar v. Abdul
  Jabbar Naskar and Ors. AIR 1950 Cal 379; Baijnath Bhalotia
  v. State Bank of India and Others AIR 1967 Pat 386; I. T.C.
G Limited v. M.M.P. Lines Pvt. Ltd. and Others AIR 1978 Cal
  298; Mackinnon Mackenzie and Company Pvt. Ltd. v. Anil
  Kumar Sen and Anr. AIR 1975 Cal 150 - referred to.

      1.2 As far as equitable set-off is concerned, the right
H of set-off exists not only in cases of mutual debits and
JITENDRA KUMAR KHAN v. PEERLESS GENERAL FINANCE1095
          AND INVESTMENT COMPANY LTD.
credits, but also where cross-demands arise out of the        A
same transaction. From the enunciation of law, it
emerges 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
credits or cross-demands must have arisen out of the          B
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    c
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.       0
(para 12 and 16] (1101-E; 1103-E-G]
    Raja Bhupendra Narain Singha Bahadur v. Maharaj
Bahadur Singh and Others, AIR 1952 SC. 782; Mis.
Lakshmichand and Balchand v. State of Andhra Pradesh,
                   =
1987 (1) SCR 108 (1987) 1 SCC 19; Union of India v. E
Karam Chand Thapar and Bros. (Coal Sales) Ltd. and Others,
2004 (2) SCR 997 = (2004) 3 SCC 504; Dobson & Barlow v.
Bengal Spinning & Weaving Co. (1897) 21 Born 126;
Girdharilal Chaturbhuj v. Surajmal Chauthma/Agarwa/AIR ·
1940 Nag 177; and Chishlom v. Gopal Chander, ILR 16 Cal F
711 (1889) - referred to.             ·

     Clark v. Ratnavaloo Chett, M.H.C.R. 296 (1865) -
referred to.     · ·

     1.3 The Division Bench of the High Court has rightly     G
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
amendment petition to be a demand so connected, in the
nature and circumstances, that they can be looked upon        H
    1096   SUPREME COURT REPORTS               [2013) 7 S.C.R.

A as a part of one transaction. The view expressed by the
  Division Bench has to be treated as a prima facie
  expression of opinion. 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-
B off. These aspects are to be gone into while disposing
  of the suit. [para 17] [1104-A-C]

                       Case Law Reference:
        1970 (1) SCR 22          referred to         para 5
c      AIR 1981 SC 485           referred to         para 5
       AIR 1966 SC 997           referred to         para 5
       AIR 1950 Cal 379          referred to         para 5
D      AIR 1967 Pat 386          referred to         para 5
       AIR 1978 Cal 298          referred to         para 5
       AIR 1975 Cal 150          referred to         para 6
        M.H.C.R. 296 (1865)      referred to         para 12
E
        ILR 16 Cal 711 (1889)    referred to         para 12
       AIR 1952 SC 782           referred to         para 13
        1987 (1) SCR 108         referred to         para 14
F
        2004 (2) SCR 997         referred to         para 15
        (1897) 21 Born 126       referred to         para 16
        AIR 1940 Nag 177         referred to         para 16
G       CIVIL APPELLATE JURISDICTION : Civil Appeal No.
    6784 of 2013.
        From the Judgment and Order dated 17.06.2004 of the
    High Court of Calcutta in G.A. No. 1372 of 1998.
H
JITENDRA KUMAR KHAN v. PEERLESS GENERAL FINANCE 1097
          AND INVESTMENT COMPANY LTD.

    Ranjan Mukherjee for the Appellants.                             A
    Bhaskar P. Gupta, Abhijit Chatterjee, S. Sukumaran,
Anand Sukumar, Bhupesh Kumar Pathak, K. Rajeev for the
Respondents.

    The Judgment of the Court was delivered by                       B

    DIPAK MISRA, J. 1. Delay in filing the application for
substitution is condoned and prayer for substitution of appellant
No. 2 is allowed.
                                                                     c
    2. Leave granted.

     3. The appellant Nos. 1 and 3 along with the predecessor-
in-interest of appellant No. 2 instituted 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     D
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              E
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
                                                                     F
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 defendant No. 1 and a        G
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
                                                                     H
    1098      SUPREME COURT REPORTS                     [2013] 7 S.C.R.


A   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.

B         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, Gurgaon 1, Suraj Prakash Bhasin v. Smt. Raj
    Rani Bhasin and Others2, Nichhalbhai Val/abhai v. Jaswantlal
C   Zinabhai3, Abdul Rahim Naskar v. Abdul Jabbar Naskar and
    Ors. 4, 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
D   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
E   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
F   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
    payable by the defendants to the plaintiffs. Being of this view,

    1.   AIR 1969 SC 1267.
G
    2.   AIR 1981 SC 485.
    3.   AIR 1966 SC 997.
    4.   AIR 1950 Cal 379.
    5.   AIR 1967 Pat 386.

H   6.   AIR 1978 Cal 298.
JITENDRA KUMAR KHAN v. PEERLESS GENERAL FINANCE 1099
   AND INVESTMENT COMPANY LTD. [DIPAK MISRA, J.]

the learned single Judge rejected the application for                    A
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           B
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                  C
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: -
                                                                         D
      "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 ever.it, they would never be entitled
      to a decree on their own but only to a wiping off pro-tanto
      of the plaintiff's claim. The amendment by way of                  E
      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.
                                                                         F
      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           G
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
7.   AIR 1975 Cal 150.                                                   H
    1100    SUPREME COURT REPORTS                  [2013] 7 S.C.R.


A 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
B allowing the amendment as a result of which the 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
C 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
D 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
E 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 set-off in the Code. Order VIII Rule 6 deals with
  set-off. It reads as follows:-
F       "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 plaintiffs
        demand any ascertained sum of money legally recoverable
        by him from the plaintiff, not exceeding the pecuniary limits
G       of the jurisdiction of the Court, and both parties fill the
        same character as they fill in the plaintiffs 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
H
 JITENDRA KUMAR KHAN v. PEERLESS GENERAL FINANCE1101
    AND INVESTMENT COMPANY LTD. [DIPAK MISRA, J.]
      be set-off.                                                        A
      (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
                                                                         8
      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-
      ~·                                                                 c
      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           0
must be a certain sum. Apart from the aforesaid parameters
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
                                                                         E
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. Gopa/ Chander9.

      13. In Raja Bhupendra Narain Singha Bahadur v.
Maharaj Bahadur Singh and Others10 it has been opined that               F
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                   G
principles of equity in his favour and seek to deduct therefrom

8.   2 M.H.C.R. 296 (1865).
9.   ILR 16 Cal 711 (1889).
'O. AIR 1952 SC 782.                                                     H
    1102     SUPREME COURT REPORTS                  [2013] 7 S.C.R.


A the amounts that have fallen due to him. There is nothing
    improper or unjust in telling the wrongdoer to undo his wrong,
    and not to take advantage of it.

         14. In Mis. Lakshmichand and Balchand v. State of
    Andhra Pradesh 11, this Court has ruled that when a claim is
8
    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.

c        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
D        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:
E
              "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 the
         greater by the amount of the less; or, if the opposite
F        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"."

G       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

    11. (1987) 1 sec 19.
H 12. (2004) 3 sec 504.
JITENDRA KUMAR KHAN v. PEERLESS GENERAL FINANCE 1103
   AND INVESTMENT COMPANY LTD. [DIPAK MISRA, J.]

     to be set off must be for an ascertained sum of money and           A
    "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,       B
     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            c
      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
                                                                         D
      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 credits or cross-demands must have             E
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      F
and good conscience. The discretion rests with the court to
adjudicate upon it and the said discretipn 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                G
Spinning & Weaving Co. 13 and Girdharila/ Chaturbhuj v.
Surajmal Chauthmal Agarwar 4 •

13. (1897) 21 Born 126.
14. AIR 1940 Nag 177.                                                    H
    1104    SUPREME COURT REPORTS                 [2013] 7 S.C.R.


A       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 amendment petition to be a
B. 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
c evidence adduced before the Court so as to sustain a claim
   of equitable set-off. These aspects are to be gone info 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.
0
        18. Ex-consequenti, with the aforesaid observations, the
    appeal stands disposed of with no order as to costs.

    RP.                                      Appeal disposed of.