Laxmidas Morarji v Behrose Darab Madan

Facts

• The defendant sought to raise a claim of set-off against the plaintiff's demand, asserting an ascertained sum due from the plaintiff that could be adjusted against the plaintiff's claim
• A question arose regarding the precise legal character and limits of this set-off, and how it should be treated within the framework of the pending suit

Issue

1. What is the legal character of a set-off raised as a defence under Order VIII Rule 6 CPC or under equitable principles, and how does it differ in operation from a counterclaim.

Held

• The Supreme Court held that a set-off operates as a defence, allowing the defendant to demonstrate that the plaintiff's claim should be reduced or extinguished by reason of an ascertained sum owed by the plaintiff to the defendant, decided within the same suit
• Unlike a counterclaim, a set-off does not confer independent plaintiff status on the defendant with respect to a wider or separate claim for relief; it is confined to adjusting the balance of the existing claim between the parties
• A legal set-off under Order VIII Rule 6 requires the sum claimed to be an ascertained sum of money, legally recoverable, and arising in the same suit's context; an equitable set-off may be permitted in wider circumstances at the court's discretion, even where the sum is not strictly ascertained, provided there is a sufficiently close connection between the two claims

Ratio Decidendi

A set-off, whether legal under Order VIII Rule 6 CPC or equitable, functions as a defence to reduce or extinguish the plaintiff's claim within the same suit, and does not confer on the defendant an independent status to pursue separate affirmative relief, distinguishing it clearly from the cross-suit character of a counterclaim.