Defendant claims set-off based on unliquidated damages. Is it valid?

The Requirement of "Ascertained Sum"

Order VIII, Rule 6(1) opens with a precise and demanding condition: the defendant may claim a set-off only in respect of "any ascertained sum of money legally recoverable by him from the plaintiff." The word "ascertained" is not used loosely. As the law has interpreted it, an ascertained sum is one that is liquidated, fixed, and capable of quantification without requiring a judicial inquiry to determine its measure. It is used in direct contradistinction to unliquidated damages — a claim for compensation whose quantum depends on the assessment of loss, breach, negligence, or injury, none of which the court can simply read off a ledger.

Illustration (c) to Order VIII, Rule 6 makes this position unmistakable. A sues B on a bill of exchange. B alleges that A wrongfully neglected to insure B's goods and is liable in compensation, which B claims to set off. The law says: the amount not being ascertained, it cannot be set off. This is not an obscure caveat — it is an official illustration embedded in the provision itself, a direct acknowledgment that unliquidated claims are excluded from the regime of legal set-off.

Take another illustration from the same rule: a clerk sues his employer for arrears of wages. The employer alleges that the clerk left without notice and claims damages for that breach, seeking to set off that amount. Again, the law holds that since the amount is not ascertained, it cannot be set off. The pattern is consistent and unambiguous.

Legal Set-Off vs. Equitable Set-Off

It would be incomplete to stop here, because the law recognises a second species of set-off — the equitable set-off — which opens a limited door even for unascertained claims. An equitable set-off, unlike its statutory counterpart, is not a creature of the Code. It is a principle of equity, justice, and good conscience, which Indian courts have recognised and applied independently of the provisions of Order VIII.

The essence of equitable set-off is this: where the plaintiff's claim and the defendant's counter-claim arise out of the same transaction, or out of transactions so connected in nature and circumstances as to form part of one transaction, the court may allow the defendant to raise the latter as a set-off even if the amount is unascertained. The classic illustrations are telling — a suit for price of goods sold, where the defendant claims damages for the seller's failure to deliver the remaining goods under the same contract; a mortgagee's suit for rent where the defendant claims the cost of repairs the mortgagee was contractually bound to make — in each case, the cross-claims arise from the selfsame transaction, making it inequitable to drive the defendant to a separate suit.

However, equitable set-off has its own limits. The cross-demand must be intimately connected with the plaintiff's claim — it will not lie where the claims arise from entirely different transactions. Moreover, an equitable set-off must ultimately be for a liquidated amount capable of ascertainment at the date of the pleadings, not merely at the date of the decree. If the determination of the defendant's cross-claim would require a protracted and complicated inquiry wholly distinct from the plaintiff's suit, the court will not entertain it as an equitable set-off.

The Defendant's Proper Remedy

A defendant who has a genuine claim for unliquidated damages is not without a remedy. Since the 1976 Amendment, Order VIII, Rule 6A expressly empowers the defendant to file a counter-claim for any right or claim — whether it sounds in damages or not — provided the cause of action accrued before the delivery of his defence. Unlike a set-off, a counter-claim is not a defence in the narrow sense; it is a substantive cross-action that proceeds independently of the plaintiff's suit. It does not require the amount to be ascertained at the outset, and its cause of action need not even arise from the same transaction as the plaintiff's claim.

The defendant who attempts to pass off unliquidated damages as a set-off under Rule 6 is, in a sense, invoking the wrong remedy. The court should decline to entertain such a plea as a legal set-off. But if the conditions of Rule 6A are met, the defendant retains the full liberty to pursue his claim as a counter-claim within the same proceedings, securing an adjudication of both claims in one court and in one trial.