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Plea of Adjustment
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Plea of Adjustment
Plea of Adjustment

It is a deemed general rule that the plaintiff is the main aggrieved party and thus is provided many opportunities to plead for his grievances suffered before the Court, but there were no such remedies available for the defendant in earlier periods. But because of the change in the course of the judicial system, the advent of the concept of “equity” has given the defendant an opportunity to file his claim too before the Court.

The civil remedy for recovering money is under Order 37 of the Civil Procedure Code, 1908 that allows a creditor to file a summary suit. The summary suits are disposed of faster compared to normal suits. The defendant will be given ten days to make an appearance once the suit is instituted and the summons is issued, failing to which the Court assumes that the plaintiff’s allegations are true and further awards the plaintiff accordingly. When the defendant makes an appearance, the Court will accept his defence only if it is convinced that it is a substantial case in question.

The concept of Set-off, Payment, Adjustment and Counterclaim has not been developed overnight. These concepts have been developed with the help of Judicial Interpretations. A plaint is filed by the plaintiff, and in the same way, the defendant is required to file a written statement, that is, a response to the content in the plaint. A written statement is a response to the plaint, and such a response is required to be sent within thirty days from the date of filing of the plaint. There are four defences used to take a defendant in a suit for money which is discussed further in the article.

The Four Defences

1. Set-Off

Set-off is a reciprocal claim made by the defendant and can only be used under the suit for the recovery of money. It is defined in Order VIII Rule 6 of CPC, and it states that such written statement along with a set-off should be taken by the Court as much as plaint as it also has a subject matter in dispute. In Set-off, the suit which is filed must be for the recovery of money. The defendant should claim only the money that he has already lent to the plaintiff. The ascertained amount should be legally recoverable by the defendant from the plaintiff or plaintiffs if there are many and vice-versa. It should be filed only in the Court, which has financial jurisdiction.

2. Payment

Payment is connected to a period before the date of the plea being set out before the Court. In the payment’s Act, one party deals with the other. It is the satisfaction of a claim made by or on behalf of an individual against whom the claim is made. The person paying has the obligation in respect of which the claim arises, which therefore becomes extinguished. When there has been a payment, the party against whom the claim is made pleads payment or accord and satisfaction, which in effect alleges that the claim no longer exists. The payment is always made to the creditor and not the debtor.

In the State of M.P vs Raja Balbhadra Singh, AIR 1964 MP 231 [cited in Codex Exports Ltd. Vs. Canara Bank, AIR 1997 Delhi 355], it was observed that “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 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.”

3. Counter-Claim

Counter-claim is defined under Order VIII Rules 6-A to 6-G of the CPC, 1908. It is also a cross-claim but not really comes out of the same cause of action contained in the plaint, which is independent of that of the plaintiff. Counter Claim can be regarding any civil disputes but should accompany a written statement. It can always be filed as subsequent pleading under Rule 9 of the same Order. The objective behind counter-claim was to avoid multiplicity of proceedings and thereby save a lot of the Court’s valuable time. For instance, X files a suit against Y, and Y also wants to file a suit against X for a completely different subject matter. Instead of filing a separate suit, Y makes a counter-claim against X. In this situation, much of the Court’s time is being saved since the counter-claim proceedings are carried on by the original suit proceedings.

In the case of Rajkaran vs Ramraj & Ors., the Hon’ble High Court of Allahabad held that the counter-claim cannot be allowed to be set up once cause of action wholly or in partly accrues before the time limited for delivering defence is expired or after the defendant has delivered his defence. Thus, the part of the cause of action accrued after filing of written statement counter-claim cannot be set off.

The defendant can also file the counter-claim against the plaintiff. In some cases, he can even claim from co-defendants along with the plaintiffs. But the Courts do not entertain matters where a counter-claim has to solely claim from the co-defendants.

5. Adjustment

Where two persons have some accounts and monies payable by each, they are both entitled to mutual adjustments of the monies only if they are due and recoverable. The debtor makes the adjustment. In adjustment, it is the party himself before filing the written statement though the advantage of both is claimed by raising a plea in the written statement. For adjustment, there is no limitation period.


A lien is a legal right on the assets that are used as collateral to satisfy a debt. Lien can be established by either a creditor or a legal judgement. It serves to guarantee an underlying obligation like the repayment of a loan. If this underlying obligation is not satisfied, the creditor may seize the asset which is the subject of the lien. There are several types of liens that are used to secure assets.

Liens can be either voluntary or consensual, such as a lien on a property for a loan. However, in the involuntary or statutory liens, a creditor seeks legal action for non-payment, and as a result, the lien is placed on assets, including his property and bank accounts.

There are some liens that are filed with the government to make the public aware that the lienholder has an interest in the assets or property. The public record of the lien informs anyone who is interested in purchasing the asset or collateral, that the lien is required to be released before the assets can be sold.

In Thankappan. V.K. vs Uthiliyoda Muthukoya (7th April 2011), the issue dealt here was whether the Syndicate Bank could make use of its general lien and balance the amount due to the respondent under a cheque, for an amount which was owed to the Bank from the respondent and for which the suit filed by the Bank was dismissed as time-barred.

It was held that the Bank has a general lien over the securities which come to its hands. To put the banker's lien, it is not mandatory that the debt in respect of which and for the recuperation of which the lien is used should be one which is not barred by limitation. Bar of limitation for understanding a debt does not demolish the creditor's right to the debt. It only extinguishes the remedy. The law of limitation only prohibits the remedy, and it does not grant any right except in the contingencies as stated in Section 27 of the Limitation Act. The non-existence of rights is due to the vesting of rights on the opposite party. In the matter of debt barred by lapse of time, the right of the creditor to recuperate the debt is not levied to or conferred upon the debtor. It becomes dormant and unenforceable in a court of law. That does not say that debt is destroyed and that the creditor is not entitled, under any situation, to claim or recover it in any manner whatsoever. The utilisation of a banker's lien is one way by which even a barred debt can be recuperated by balancing from the sum of the debtor, which eventually comes to the hands of the Bank. By dismissing the suit as barred by limitation, the Court stated that the Bank was not entitled to recuperate the amount by filing a suit. Dismissal of the suit on the basis of limitation does not signify that the debt is destroyed.


Lien is a legal claim or a charge on real or personal property to satisfy some debt or duty. It is a claim on property as security to make sure someone repays money they’ve borrowed. A lien gives the creditor a legal right to seize and sell a borrower's collateral property or asset which fails to fulfil a loan or contract obligations. The owner cannot sell the property that is the subject of a lien without the permission of the lien holder, while an adjustment 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. An adjustment contemplates the existence of mutual demands between the same parties in the same capacity.

A defendant can set up a counter-claim against a plaintiff for a cause of action that may accrue either before or after the filing of the suit, provided that such claim is not barred by limitation. Such a counter-claim has the effect of a cross-suit, and the Court can pronounce the final judgement both on the original claim as well as the counter-claim. The counter-claim of the defendant will be treated as a plaint, and the plaintiff has the right to file a written statement as an answer to the counter-claim of the defendant.

In Rohit Singh v. the State of Bihar, it was held that counter-claim could not be raised after the issues were framed and evidence is closed, and counter-claim directed solely against the co-defendants cannot be maintained. Here a counter-claim was filed claiming damages for wrongful detention of goods by locking the room in her possession for 5 years. Defendant filing the counter-claim had the knowledge of the detention of goods from the first day. Thus, it was held that counter-claim would be barred, even if not Article 91, but the residuary article of the Limitation Act is applied.

If limitation is pleaded in defence of set-off, to establish the plea, the plaintiff will have to prove that set-off was barred when the plaintiff commenced the action. But in the case of a counter-claim, it is enough for the plaintiff to prove that the counter-claim was barred when it was pleaded. But this law of limitation does not apply to the defence of adjustment.

A legal set-off requires a Court-fee since it is a claim that can be established by a separate suit where a Court-fee will have to be paid. But, in an equitable set-off, no such fee is required for an amount that may be equitably deducted from the claim of the plaintiff where the Court-fee has been paid on the gross amount. In case of the defence of adjustment, there is no requirement of a court-fee. By adjustment, set-off either reduces or wipes out the plaintiff’s claim in a suit for recovery of money.

Court Precedents

The Bombay Dyeing &Manufacturing Vs The State Of Bombay And Others on 20 December 1957

The Bombay Labour Welfare Fund Act of 1953 was enacted by the State Legislature with the objective to constitute a fund for the finance of activities for the welfare of labour. Section 3(1) of the Act provided:- "A fund shall be established (Bombay Labour Welfare Fund) for the time being in force, and notwithstanding anything contained in any other law the sums specified in subsection (2) shall be paid into the Fund." Section 3(2) provided, inter alia, as follows "The Fund shall consist of:- (a) all the fines realised from the employees; (b) all the unpaid accumulation." The notices were served on the Appellant's company and even on other companies situated similarly by the Welfare Commissioner, appointed under the Act, calling them to remit to him all the fines as well as unpaid accumulations in their custody. Here, the Appellant questioned the validity of the Act on the ground that it contravened Article 31(2) under the Constitution of India and, thereafter, filed a Writ petition, out of which the present appeal has arisen, which was treated by consent of parties as a test case. The Judges of the Division Bench heard the matter filed and held that the impugned Act was intra vires though on different grounds and dismissed the petition. The major point for determination in the appeal was whether section 3(I) and sub-clause (a) and (b) of Section 3(2) of the Act were void as being violative of Article 31(2) Of the Constitution.

Thus, it was held that the unpaid accumulation of wages with the appellant company was its own property and Section 3(1) of the impugned Act directs the payment of its tinder and 3(2)(b) of the Act contravenes Article 31(2) of the Constitution and must be invalid. Article 31(2A) of the Constitution of India will have no retrospective effect and cannot be applied.

Punjab National Bank and Ors Vs Surendra Prasad Sinha on 20th April 1992

The Appellant gave a loan of Rs. 15,000 to the respondent and his wife on May 5, 1984, and a sum of Rs. 24,000 was provided to the Bank to be deposited in FD, which would mature on Nov 1, 1988. This FD acted as a security bond for the respondents. The security bond had the clause to appropriate and adjust from the proceeds of the FD at any time if the respondent failed to pay back the debt as promised. The bond also said that the respondent gave the full authority to the Bank to adjust the debt and dues and credit, which remains in his personal savings account. The respondents couldn’t pay back the debt, and hence the Bank adjusted the debt and outstanding dues of Rs. 27,037.40 from the matured FD and credited the balance of Rs. 14250 to the party’s saving account on Jan 14, 1989, as per the contract signed.

The question here was did the Bank create a criminal offence under section 409, 109, 114 of the IPC by adjusting the debt and the dues from the FD money after the debt got barred by limitation and what’s the scope of section 3 of the limitation act.

The SC stated that the Limitation Act must be read in such a way that its rules don’t destroy the rights but bars on the remedy when the time period is elapsed. Section 3 of the Act does not harm the parties from invoking their rights but prevents only the remedy that was given to them. The right to debt continues to withstand despite the remedy being barred by the law itself. The right given to the party can be exercised in any way and not by way of a suit only. The liability of the respondent still stands even though the remedy no longer exists. Section 3 of the limitation act describes the remedy and not the abolition of the right itself to get back the debt, and so such debt exists unless it is paid. Therefore, to recover this debt, a suit is not needed.


Thus, set-off provisions can be used to recover money in suits related to money, and the counter-claim can be used for civil natured claims. Both the defences need to be filed along with the written statement, and both of them have to be filed against the plaintiff by the defendant. These two concepts are similar, and thus they tend to reduce the burden of following the procedure to file a fresh suit against the plaintiff with respect to their claims.

In D. Konda Pentiah v. Chenchu Rangiah, A.I.R. 1955 Hyderabad 176, it has been held that a plea of adjustment must be distinguished from a plea of set-off. The plea of adjustment or satisfaction premises that the extinction of the plaintiff's claim or satisfaction that took place earlier to the date on which the defence was raised in the suit. The defendant raises a claim of set-off for the first time in the written statement. It was held to the following effect:

A distinction has always been observed by Courts of law between an adjustment and a set-off. The plea of adjustment or satisfaction premises that the extinction of the plaintiff's claim or satisfaction took place before the date on which the defence was raised in the suit. By a claim for set-off, on the other hand, the defendant prays that the plaintiff's dues from the outstanding dues owed by the plaintiff to the defendant. Thus, it is implicit in such a plea that the mutual indebtedness has not been adjusted till that date, and adjustment is sought in the suit itself.

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