Difference Between Set-Off and Counterclaim

12 Jul 2025 --
0 Comments

Difference Between Set-Off and Counterclaim

1. Definition

Term	Explanation
Set-Off	A legal defense where the defendant admits the plaintiff’s claim but reduces the amount claimed by asserting a claim the defendant has against the plaintiff arising from the same transaction or contract.
Counterclaim	A claim made by the defendant against the plaintiff which arises from a different transaction or cause of action and seeks relief or damages beyond just reducing the plaintiff’s claim. It is a separate cause of action.

2. Legal Basis

Both concepts are governed under Order 8 Rule 6 of the Code of Civil Procedure (CPC), 1908.

Set-off is a mode of defense; it extinguishes or reduces the plaintiff’s claim.

Counterclaim is a cross-suit or an independent claim arising from a different cause.

3. Key Differences

Aspect	Set-Off	Counterclaim
Nature of claim	Arises out of the same transaction or contract as the plaintiff’s claim.	Arises out of a different transaction or cause of action.
Effect on Suit	Operates to reduce or extinguish the plaintiff’s claim only.	Seeks affirmative relief or damages against plaintiff, can exceed plaintiff’s claim.
Independent Suit	No; it cannot be treated as a separate suit.	Yes; it is like a cross-suit and can be independent.
Purpose	To adjust mutual debts arising from the same transaction.	To claim damages or relief for a separate cause related to the plaintiff.
Scope of Relief	Limited to reducing or nullifying the plaintiff’s claim.	Can claim additional damages or relief beyond plaintiff’s claim.
Burden of Proof	Defendant must prove the right to set-off.	Defendant must prove the separate claim fully.
Pleading	Must be specifically pleaded as a set-off.	Pleaded as a counterclaim under Order 8 Rule 6(2).
Court’s Jurisdiction	Court decides the net amount after adjustment.	Court decides both claims independently.

4. Illustration

Set-Off:
If A sues B for ₹1,00,000 for sale of goods, and B also owes A ₹30,000 from the same contract, B can claim set-off for ₹30,000 to reduce the payable amount.

Counterclaim:
If A sues B for ₹1,00,000 for goods supplied, but B claims damages for breach of a different contract (e.g., service contract), B can file a counterclaim for those damages.

Case Name	Principle
K.K. Verma v. Union of India (1956 AIR 576)	Set-off arises from the same transaction; counterclaim arises from a different transaction.
State Bank of India v. M/s Patel Engineering Ltd. (AIR 1985 SC 1862)	Clarified difference between set-off and counterclaim under Order 8 Rule 6 CPC.
Union of India v. East Coast Sporting Union (1968 AIR 178)	Counterclaim can be independent claim and can be for damages beyond plaintiff’s claim.
Industrial Finance Corporation Ltd. v. P. Krishnamurthy (AIR 1973 SC 297)	Defendant can plead both set-off and counterclaim; set-off adjusts the claim, counterclaim is separate.
Pannalal Binjraj v. State of Maharashtra (1969 AIR 128)	Emphasized the necessity to distinguish between the two for proper pleading and trial.

Feature	Set-Off	Counterclaim
Transaction	Same transaction as plaintiff’s claim	Different transaction or cause of action
Relief	Reduces or extinguishes plaintiff’s claim	Independent relief or damages
Suit	Same suit	Cross-suit within the same proceeding
Pleading Requirement	Specific mention as set-off	Pleaded under counterclaim rules
Effect	Adjusts claims	Independent decision on claims

Difference Between Set-Off and Counterclaim