Difference between Payment, Adjustment, Set-off and Counter-claim

Cofex Exports Ltd. vs. Canara BankAIR 1997 Delhi 355

Payment is relatable to a period anterior to the date of such plea being set out before the court.” (para 8) “It is the satisfaction or extinguishment of a debt prior to the filing of the written statement. An adjustment contemplates existence of mutual demands between the same parties in the same capacity. The broad distinction between a payment and an adjustment is that in an act of payment one party deals with the other, while in an adjustment it is an act of the party himself prior to the filing of the written statement though the benefit of both is claimed by raising a plea in the written statement. (para 7)

“A plea in the nature of payment, adjustment and the like can be raised in defense as of right. The plea if upheld, has the effect of mitigating or wiping out the plaintiff’s claim on the date of the suit itself. The plea is not a claim made by the defendant. A counter-claim or a plea of set-off is a claim made by defendant. It does not extinguish the plaintiff’s claim; it exonerates the defendant from honouring plaintiff’s claim through upheld. Such plea if raised shall be gone into by the court, if permitted by law applicable to the court and would have the effect of a decree in favor of the defendant taking away plaintiff s right to realise such amount as has been upheld in favor of the defendant.” (para 22)

State of M.P vs. Raja Balbhadra Singh, AIR 1964 MP 231 [cited in Cofex Exports Ltd. vs. Canara Bank, AIR 1997 Delhi 355]

“Where two persons have certain accounts and monies are payable by each to the other, they are both entitled to mutual adjustments of the monies provided they are really due and recoverable. The distinction between payment and adjustment is that payment is made to the creditor while the adjustment is made by the debtor himself. Although it is not called `payment’ in common parlance yet it undoubtedly partakes the character of payment. At all events, it cannot be called a claim for set off, nor can it be said to be a counter-claim.” 

Halsbury’s Laws of England [cited in Cofex Exports Ltd. vs. Canara Bank, AIR 1997 Delhi 355]

“Distinction between set-off and payment. Set-off is entirely distinct from payment. Payment is satisfaction of a claim made by or on behalf of a person against whom the claim is brought. The person paying performs the obligation in respect of which the claim arises, which thereby becomes extinguished. Set-off exempts a person entitled to it from making any satisfaction of a claim brought against him, or of so much of the claim as equals the amount which he is entitled to set off and thus to the extent of his set-off he is discharged from performance of the obligation in respect of which the claim arises. Where there has been payment, the party against whom the claim is brought pleads payment or accord and satisfaction, which in effect alleges that the claim no longer exists. On the other hand, a plea of set-off in effect admits the existence of the claim, and sets up a cross claim as being ground on which the person against whom the claim is brought is excused from payment and entitled to judgment on the plaintiff’s claim. Until judgment in favor of the defendant on the ground of set off has been given the plaintiff’s claim is not extinguished.” (para 410, at page 214)

“A set-off is available to a defendant only when the rules of procedure of the court in which the plaintiff brings his action allow a set-off to be pleaded and the mode in which a plea of set-off is to be raised is also determined by those rules. A defendant cannot be compelled to plead a set-off, he can, if he wishes, enforce his claim by independent action. (para 432, at page 251). A counter claim is available to a defendant only when the rules of procedure of the Court in which the plaintiff brings his action allow a counter-claim to be set up and the way in which a counter claim may be brought is determined by those rules. (para 477, at page 265) The effect of preferring a counter claim is that to its extent the defendant becomes a plaintiff and the plaintiff becomes a defendant. (para 482, at page 267) A counter-claim is for most purposes of procedure except execution, treated as a separate action to be tried together with the original action.” (para 491, at page 270)

Corpus Jurisdiction Vol. 57 (Edn, 1932) [cited in Cofex Exports Ltd. vs. Canara Bank, AIR 1997 Delhi 355]

“A set-off is a counter demand which a defendant holds against a plaintiff, arising out of a transaction extrinsic of plaintiff’s cause of action. It is in the nature of a cross action. (pp. 359-360) “Statutory set-off – The right or remedy of set off in actions at law is purely statutory; it was unknown at common law according to which mutual debts were distinct and inextinguishable, except by actual payment, release, or agreement, and a defendant who had a demand against a plaintiff was compelled to resort either to his cross action or a bill in chancery, except in the few instances in which the limited right of recoupment was available. This condition of the law led to the enactment by statute of the remedy of set-off, which was designed by allowing set-offs in actions at law to supersede, or obviate the necessity of a resort to, bills in equity for that purpose”. (page 360)

“Equitable set-off- A court of equity or a court possessing equitable jurisdiction has inherent power as a part of its general jurisdiction to allow or compel a set off. This power is independent of statutes allowing a set off.” (page 361)

“Adequacy of Remedy at Law. Equity will not aid a defendant in an action at law as to matters of set-off when his legal remedies are complete and adequate, but it may allow a set-off where, from the nature of the claim or situation of the parties, justice cannot be done at law.”(page 362)

A counter-claim is purely a statutory remedy of modern origin; it was not known to the common law, or before the adoption of the codes and in some states which have not adopted codes there is no statute providing for a counterclaim in an action at law. It is substantially a cross action by defendant against plaintiff and secures to defendant the full relief which a separate action at law, a bill in chancery or a cross bill would have secured him on the same state of facts.” (page 366)

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