P L D 1975 Lahore 1047 (PLP)

The rule of compensation or set‑off is a doctrine, so consonant with the principles of justice, equity, and good conscience, that it governs alike the rules of substantive and adjective law.

Is there, then, anything in the Code, or any equitable consideration which would prohibit a pre‑emptor‑decree‑holder from availing himself of the doctrine of set‑off by deducting the costs allowed to him from the purchase money which he has to deposit under the very decree which awards him costs? The Civil Procedure Code, as we have pointed out, falls short of providing any specific rule to meet exactly the case before us. The doctrine of set‑off, which owes its origin to Roman jurisprudence, was well known to the civil law under the more compre hensive title of compensation, which in the words of Story, J., may be defined to be the reciprocal acquittal of debts between two persons who are indebted, the one of the other ; or, as it is perhaps better stated by Pothier, compensation is, the, extinction of debts, of which two persons are reciprocally debtors to one another, by the credits of which they are reciprocally creditors to one another. The civil law itself expressed it in a still more concise form‑compensatio est debiti et crediti inter se contribatio. The civil law treated compensation as founded upon a natural equity, and upon the mutual interest of each party to have the benefit of the set‑off, rather than to pay what he owed, and than to have an action for what was due to himself‑(Story's Eq. Juris, as 1438‑39). The doctrine of compensation in the civil law of course, has never been fully adopted either in England or in this country, probably for reasons based upon the inconvenience and delay which would arise in the trial of suits. But in the case before us, there can be no such inconvenience or delay ; the decree which declares the plaintiff‑pre‑emptor entitled to obtain possession of the property in suit on payment of the purchase‑money declares him, in the same breath, entitled to recover costs from those against whom the decree has to be enforced." To the same effect are the cases in Ram Lagan Pande and another v. Muhammad Ishaque Khan and another (A I R 1919 All. 4) and Umrao Singh v. Kanwal and others (AIR 1933 All. 113). This principle was extended to a decree for possession, in Hamendra Nath v. Tulshi Singh. It was held that where the decree is subject to the plaintiff making a deposit, he is entitled to set off the costs against the amount be is directed to deposit. The right of set‑off of costs in a redemption suit against the money due was recognised in Brijhatha Dass.v. Juggernath Das (I L R 4 Cal. 742), Krishana Chandar v. P. Dhanahandhar Co. (A I R 1935 Cal. 225), Chinnam mal v. Chidambara Kothanar (A I R 1936 Mad. 626) and A. Rama Rao v. Vankataramanchar and others (A I R 1951 Mys. 20).

8. The provisions for set off have been made in the Code of Civil Procedure in Order VIII, rule 6, Order XXI, rules 18, 19 and 20 and Order XX, rule

6. If it can be held that Order VIII, rule 6 and Order Xx rule 6 are not exhaustive and equitable set‑oft can be allowed, there is no reason why equity should not work to the advantage of a person holding a cross‑decree in a case where the strict provisions of rules 18, 19 and 20 are not applicable.

9. In view of the preponderance of the authorities in favour of the invocation of the equitable doctrine of inherent jurisdiction of the Court toll cases of set off which are not governed strictly by Order XXI, rules 18 and 19, C. P. C. I find myself in full agreement with the decision in Badri Nath Mehra v. Moti Ram Mehra (183 1 C 61) on this point.

10. The next question is not free from difficulty. In Badri Nath Mehra v. Moti Ram Mehra set‑off was allowed even though one decree was in executable due to bar of limitation. There is, however, no discussion of the principles on which the Limitation Act can be by‑passed by the Courts in exercise of inherent powers. Reliance was placed on Mst. Nonibai v. Jetha nand Sheroomal. The Sind Chief Court held in this case that ` it is now well established that apart from rules 18 and 19 of Order XXI, C. P. C. the Court has inherent jurisdiction on equitable principles to allow a set‑off of claims arising at different stages in the same suit or proceedings and this even if the right to recover the claim sought to be set‑off is barred by limitation." For the second proposition reference was made only to the following statement of Atkinson, J., in Ramu Sahu v. Thakur Dayal Rai (A I R 1917 Pat. 259=39 1 C 888) :‑ "I do not think that the question of limitation will materially arise in this case, because according to the view we take, whether the order be barred by limitation or not is immaterial." But Atkinson, J. did not decide the question of limitation in his statement as above. He further stated the following reason in the same sentence inasmuch as the order of the 6th April 1908 was made in the same proceedings and must be deemed to be part of the final decree of the 5th April 1944". In view of this finding that the order of 1908 merged in the decree of 1914, the question of limitation in that case was not material. This case could not, therefore, be relied as authority for the proposition that even time‑barred decrees can be allowed to be set‑off. , With respect to the learned Judges who decided the Sind case, they cited the view in the Patna case without referring to the context in which it was expressed. The Patna case is neither an authority for ‑‑the proposition that equitable set‑off can be claimed even after the claim is barred by limitation.

11. There are cases in which a litigant having his opponent's money in ibis hands was allowed to appropriate the same towards payment of a sum due to him. This principle was recognised in Parasuanu: Patter v. Venkatacha lim Patter (A I R 1914 Mad. 661), Sheo Saram Singh, v. Nanabir Parshad Shah (I L R 32 Cal. 576), Nursing Narain Singh v. Babu Lakputty Singh (I L R 5 Cal. 333), and Nandu Sahu v. Ram Luban Singh (2 I C 633), where in mortgage suits sums were allowed to be set‑off in taking accounts of the mortgage, even though barred by limitation. In Chidambara Mudana v. Krishana Sami Pillai (I L R 59 Mad. 365), it was held that a trustee was entitled to have a decree for the amounts due to him from the trust in a suit brought for his removal, although his right to sue for these amounts was barred by limitation. These cases are clearly distinguishable. These are cases either of fiduciary relationship as in a case of trust or of accountability as in cases of mortgage. The ratio in the cases of mortgage is that so long as the relation ship of the mortgagor and mortgagee continues the obligation of the mortgagee to give mortgagor credit for all payments which he is bound to make under it, subsists. The fixation of time for such payment does not exempt him from his liability to pay at the time of redemption even if more than six years have passed since the stipulated time for payment. As held in another context by the Calcutta High Court in Edward Dolgish and others v. Ramdhan Singfi Chaudhary and another (5 I C 67), these are not strictly speaking cases involving questions of limitation. In that case a suit was filed by the p tiff for rent due to the plaintiff for the years 1311, 1312 and 1313. The defendants pleaded that rent due to them from plaintiffs must be taken into account by virtue of an arrangement inter partes that such money would be adjusted. It was held that this was not strictly speaking a claim for set‑off' but of payment i.e., a set‑off of money which the plaintiffs had in their pockets. The question of limitation was not, therefore, held to be relevant.

12. The principles enunciated in cases of mortgages was applied by the Calcutta High Court to a time‑barred claim for set‑off also in Ramohari Singh v. King Behari Singh (2 I C 716).but as will be seen later a different view was taken by the same Court in Jitendra Nath Ray v. Jhanda Kanta Dasa (A I R 1936 CaL 277). In a Patna case reported in Nathan Prasad Shah v. Kali Parshad Shah (A I R 1926 Pat. 77), relying upon the case of a mortgage, time‑barred d9bt was allowed to be set‑off, but the cases about mortgage and trust were not followed in Panuganti Narasimha Rao and another v. Sree Rajah Villanki Srinivasa Jagannatha Rao (A I R 1920 Mad. 819). In that case equitable set‑off was pleaded which was not covered by Order V III, rule 6, C. P. C.. It was held that in pleading an equitable set‑off the procedure of Order V1It, rule 6 of the Code should be followed. Reliance was placed on Vyravan Chetty v. Srinath Deivasikamani Natarja Desikar (I L R 59 Mad. 939), in which in a suit based upon contract it was held that no equitable set‑off can be allowed of a claim which is barred at the date of suit because the amount claimed is not legally recoverable. This was also the view of the Allahabad High Court in Pragi Lai v. Maxwell (I L R‑7 All. 284 ).

13. In the case of Panuganti Narasimha Rao a distinction was drawn between a case where the defendants' demand arising out of the same contract is for an amount which can be applied in satisfaction of the plaintiff's demand and a case where the defendant pleads that a further sum is payable to him after satisfaction of the plaintiff's claim. It was held that in the first case the defendant's claim should be within time on the date of institution of the suit while in the second, case it should be within time on the date when setoff is pleaded. As stated by Bakewall, J. "Since the defendants' claim was not barred on the date of the suit, he was entitled to plead that there was sum in the plaintiff's hands which the latter was bound under his contract to apply in satisfaction of his demand but that, since a suit could not be brought by the defendant to enforce his claim, he could not plead that there was a further sum payable to him". This distinction was drawn by the Bombay High Court in Najan Ahmad Maji Ali v. Salehmohammad (A I R 1923 Bom. 113) which was also a case of equitable set‑off. In this case set‑off was distinguished from a counter‑claim, While criticising the defendants' pleadings it was observed; "Had the defendants' pleading been properly drawn the defendants would have in their written statement claimed to set off against the amount that might be awarded by the Court to the plaintiffs an equal amount of their claim, and they would have counter‑claimed for the: balance." It was further stated that the set‑off is a ground of defence while counter claim is a weapon of offence. It was, therefore, held that if the statute of limitation is pleaded to a defence or set‑off, the plaintiff, in order to establish his plea, must prove that the set‑off was barred when the plaintiff commenced his action, it is not enough to prove that it was barred at the time when it was pleaded. Walker v. Clemant ((1850) 15 Q B D 569=81 R B 882) was referred in this con nection. . A Division Bench of the Calcutta High Court while dealing with a case of equitable set‑off held in Jitendra Nath Ray v. Jananda Kanta Dad Gupta (A I R 1936 Cal. 277), that a set‑off may be purely defensive, that is to say, it may amount to an adjustment or satisfaction of the plaintiff's claim, or it may be a counter claim under which the defendants claim. A decree for the surplus amount is due to him and limitation applies to both these claims. In a defensive set‑off the set‑off claimed must be recoverable at the date of the plaintiff's suit while in a counter‑claim the sum claimed should be legally recoverable at the date when he makes the claim, that is at the date when he files the written‑state ment. Same view was taken in Beni v. Bisan Dayal and another (A I R 1925 Nag. 445), Bharta v. Chet Ram (A I R 1934 All. 427), Narendra Lai v. Tar Bala Dass (A I R 1921 Cal. 61) and Rai Harendra Nath Chaudhary v. Rai Harendr Nath Chaudhury (A I R 1942 Cal. 559). The preponderance is in favour of the applicability of the statute of Limitation to equitable set off. The decision in Klatath alias Muthetath Mallisseri Narvanan Nambudiri and others v. Etacheri Kunnath Chatukutti Nayar and others (A I R 1942 Mad. 307) may now be noticed as there is an observation in that case that statute of Limitation is applicable to legal set‑off only. It was further held that the Jenmi would not lose his right to set off even if a decree for rent was obtained in its behalf or that decree had become barred by time. This finding was arrived on an interpretation of section 6(2) of Malabar Compensation for Tenants' Improvements Act (I of 1900). This section empowered the Court to set off any 'amount due by the ',plaintiff to the defendant'. These words were compared with the words "legally recoverable" in Order VIII, rule 6, C. P. C., and it was held that the words "legally recoverable" applied the statute of limitation to a legal set‑off. It was also observed that 'in cases of equitable set‑off claimed by a defendant no such exception has been engrafted". The tease of Vyravan Chatti v. D. Nataraja Desikar (A I R 1917 Mad. 258), in which it was held that it was not open to a lessee to claim by way of equitable set‑off ‑ an un-liqui dated claim for damages which was barred at the date of suit was distinguished on the ground that this rule cannot be applied to a Kanom where the landlord is declared bound by the Statute to pay for improve ments effected by the tenant during the period of his tenancy. Reference was also made to Rewanchal Singh v. Jawahar Singh (I L R 16 Cal. 307 (P. C)) and this authority was interpreted as laying down that there could be no merger in spite of the decree having been passed in favour of the mortgagee for certain interest so as to .preclude him from claiming the same amount in a redemption suit instituted .against him subsequently by the mortgagor. This Madras case is distinguish. able for several reasons. It is a case of mortgage principles of which do not apply to the case in hand. It Vs mainly decided on the interpretation of the 'statute and the earlier authority of that Court in Vyravan Chetti v. D. Nataraja Desikar, which lay down a proposition in favour of applicability of statute of limitation to equitable set‑off claimed by a defendant was distingui shed. The other cases of equitable set‑off which were in favour of applicability of statute of limitation were not noticed. It may also be seen that the interpretation of the words "amount due" is also contrary to the interpretation placed upon those words by the Supreme Court of Pakistan in Ashfagur Rehman v. Ch. Muhammad Afzal (P L D 1968 S C 230), in which the words "rent due" as used in section 13(6) of the West Pakistan Urban Rent Restriction Ordinance, 1959, were interpreted to mean rent which was legally recoverable and not rent which could not be recovered on account of the bar of limitation. In Kinna Plsharoti v. Kombi Achan (I L R 8 Mad. 381) which was relied upon in the above case it was pointed out that a claim that a deduction should be made from the Kanom amount on account of rent is not properly described as a ‑set‑off.

14. Rule 18 of Order XXI, C P. C. provides for set‑off where both the decrees are being executed before the Court. It contemplates that both the decrees must be executable, Similarly, Order VIII, rule 6, C. P. C. also provides that legal set‑off can be claimed only in regard to ascertained sum of money which is legally recoverable. A claim for set‑off is not directly subject 'to any period of limitation. But the principle underlying these provisions of the Civil Procedure Code is in consonance with the principle of Limitation Act that the Court can render assistance to a party only if he approaches the Court within the period of limitation although the principle of the statute of limitation with the exception of matter dealt with in its section 28 is that this statute only bars the remedy and not the right. There is no ‑ reason why the ‑principle underlying the provisions of the Civil Procedure Code about set‑off should not be followed in cases where the equitable principle of set‑off in regard to suits or decrees is invoked. This is also in consonance with the principle that equity follows law. Lord Redensdate stated the principle as follows in Hovenden v. Lord Annexley (2 Schoales‑Lefroy 607‑641=9 R R 119) :‑ "But it is said that Courts of equity are not within the statutes of limita tions. This is true in one respect ; they are not within the words of the Statutes, because the words apply to particular legal remedies : but they are within the spirit and meaning of the Statutes, and have been always so considered. I think it is a mistake in point of language, to. say that Courts of equity act merely by analogy to the Statute ; they act in obedience to it The Statute of limitations, applying itself to certain legal remedies, for recovering the possession of lands, for recovering of debts, due. Equity, which in all cases follows the law acts on legal titles, and legal demands, according to matters of conscience which arise, and which do not admit of the ordinary legal remedies : nevertheless, in thus administering justice, according to the means afforded by a Court of equity, it follows the law. I think, therefore, Courts of equity are bound to yield obedience to the Statute of limitations upon all legal titles and legal demands, and cannot act contrary to the spirit of its provisions. I think the statute must be taken virtually to include Courts of equity ; for when tire Legislature by statute limited the proceedings at law in certain cases, and provided no express limitations for proceedings inequity, it must be taken to have contemplated that equity followed the law, and therefore it must be taken to have virtually enacted in the same cases a limita tion for Courts of equity also."

15. Set‑off of a decree is a mode of satisfaction or adjustment of the decree through the imprimature of the Court. A decree‑holder who invites the Court to record such satisfaction or adjustment must show that his decree is alive or executable. In R. T. Rangaswami Ayyangar v. Subharaya Goundan and others (A I R 1944 Mad. 255), it was held that;

"The adjustment contemplated in Order XXI, rule 18, does not come into being automatically the moment there are two applications for execution of cross‑decrees between the same parties. In my opinion the satisfaction of the smaller decree and the part satisfaction of the larger decree are the result of an act of the Court making orders in the two execution applications and until those orders have been passed the two decrees do not become adjusted one against the other." The satisfaction of the smaller decree as against the larger decree being an act of the Court, the principle of Limitation Act cannot be lost sight of by the Court.

16. There are cases under Order XXI, rule 19 in which it has been held that where there are cross‑decrees, the decree for the lesser amount cannot be executed for so long as the greater decree remains 'unsatisfied. (Ukkali v. Kelu Nayar (A I R 1941 Mad. 399), Nagar Damodar v. Gange (A I R 1938 Mad. 638), Jugal Kishore v. Bhagwat Sahai (A I R 1948 Oudh 222) and also Sabhomal Thaoomal v. Dulandinemal Tilusing. These cases will not apply to the facts of the present case which is of a converse nature. Here the decree of the respondent could be executed.

17. I am of the view that the respondent could not claim set‑off of his time‑barred decree against the appellant's decree. The appeal is, therefore, allowed the order of the Additional District Judge is set aside and the order of the Executing Court is restored. There will be no order as to costs. K. B A. Appeal accepted.