P L D 1954 Lahore 91 (PLP)

M. KHURSHID ZAMAN, J.-This appeal arises out of a suit filed by the appellant against the respondents for the recovery of Rs. 10,907-9-6 as arrears of price of ice sold by the former to the latter. The relevant facts are these. On the 20th March 1948, the parties entered into an agreement whereby the defendants undertook to purchase from the .plaintiff 100 blocks of ice each weighing 31 maunds daily at the rate of Rs. 7 per block from the Ist April 1948 to the 30th September 1948. The price of 100 blocks of ice was to be paid daily whether the defendants took delivery of the agreed quantity or not. Another term of the agreement required the purchaser to deposit Rs. 5,000 as security for the due performance on their part of the terms of the agreement. It was further provided that if the defendants failed to perform their obligations in the terms of the agree ment, the amount of the security would stand forfeited. The defendants deposited the amount of the security with the plaintiff and from 1st April to the 7th April 1948 took delivery of 100 blocks of ice daily against payment. On the 8th April 1948 the defendants finding it no longer possible to take delivery against payment, approached the plaintiff for accom modation in this matter. The plaintiff acceded to this request and thereafter payment was made on account. The plaintiff's case is that the defendants removed 100 blocks of ice daily till the 26th May 1948, that on the 27th and 28th May they removed only 27 and 26 blocks respectively and thereafter the defendants discontinued to remove any ice, that the price of the ice actually supplied to the defendants from the 1st April to the 28th May came to Rs. 41,878-1z-0 and that the defendants had paid Rs. 29,900 in all towards the price of the ice sold to them, leaving a balance of Rs. 11,978-12-0. The plaintiff giving up a part of the claim, sued only for Rs. 10,907-9-6. The suit was resisted inter alia on the grounds that the plaintiff in breach of the agreement had refused to allow the defendants to remove 100 blocks of ice on the 27th and 28th May, that having accepted the new mode of payment the plaintiff was not legally justified in withholding the agreed quantity of ice on those two dates, that after the 27th May the defendants were willing to perform their part of the contract by taking delivery of ice oil cash payment, that the plaintiff without any legal justification refused to allow the defendants to remove 100 blocks of ice oil payment after the 27th May 1948, that as a result of this refusal the defendants had to purchase ice in the market at a higher price and thus suffered a loss exceeding the amount claimed by the plaintiff and that, therefore, they claimed the same amount as damages as equitable set-off as was claimed by the plaintiff. These pleas prevailed with the trial judge -and he dismissed the plaintiff's suit holding that the defendants suffered damages to the extent of Rs. 19,500 in consequence of the breach of the contract on the part of the plaintiff and that the defendants were entitled to set-off this amount against the claim of the plaintiff and have their suit dismissed. Against this decision the plaintiff preferred an appeal which is before us. It was contended by the learned counsel for the appellant that the defendants were not entitled to raise the plea of equitable set-off without paying Court-fee on the amount claimed. The learned counsel for the respondents, on the other hand, maintained that no Court-fee is payable on, equit able set-off. In support of his contention he relied on a Division Bench ruling of this Court reported as Bashesher. Nath Khanna & Sons v. Grindlay & Co. (A I R 1937 Lah. 73.). In that case their Lordships expressed the view that no Court-fee was necessary in a case where the defendant claims damages only by way of an equitable set-off arising out of the very contract on which the plaintiff bases his claim. Reliance was placed on Bhagat Singh v. Devidial (85 Punjab Record 1908.) Ram Das v. Dwarka Das (A I R 1930 All. 875.), and Madan Mohan Garg v. Bohra Ram Lal (A I R 1934 All; 115:). The decision in the Punjab case was given before the word "written statement, pleading, a set-off or counter-claim" were introduced in Article 1, Schedule I of the Court-fees Act by section 155 and Schedule 4 of the Code of Civil Procedure (Act V of 1908). This case, therefore, cannot be cited as an authority for the proposition contended for by the learned counsel for the respondents. In Ram Das v. Dwarka Das (A I R 1930 All. 875), it was held that "an equitable set-off can be claimed independently of the specific provisions of the Civil Procedure Code. It was not necessary to demand Court-fees on this account". Reliance was placed on Nand Ram v. Ram Prasad (I L R 27 All. 145) which was also decided before the amendment of Article 1, Schedule I of the Court-fees Act. Assuming that an equitable set-off can be claimed independently of the specific provisions of the Code of Civil Procedure, for the purposes of Court-fee it would be governed by Article 1, Schedule I which makes no distinction between an equitable set-off and a legal set-off. In Madan Mohan Garg v. Bohra Ram Lai (A I R 1934 All. 115) it was held that no Court-fee was required in the case of an equitable set-off which is for, an amount that may be equitably deducted from the claim of the plaintiff where a Court-fee has been paid on the gross amount. Neither in A I R 1937 Lab. 73 nor in the cases referred to in that case, there is any reference to the amended Article 1, Schedule I of the Court Fees Act, 1908. In fact the question whether the amended article applies to an equitable set-off does not appear to have been raised in any of these cases. Article

1. Schedule I of the Court Fee Act as it now stands includes a 'set-off' without making any distinction between a legal and an equitable set-off. There are several cases in which the view taken is that an equitable set-off is also covered by the amended Article 1, Schedule I. In Shiromani Sugar Mills Ltd. v. Seth Sugni Chand Hashmat Rai & Co. (A I R 1938 All. 522) Bannet, J. pointed out that no exception was provided in the amending provision of Schedule 4, Code of Civil Procedure of 1908 for any equitable set-off, A I R 1930 All. 875 was cited before him, but he declined to follow that ruling partly on the ground that the judgment in that case contained no reference to the amend ment in Article 1, Schedule I of the Court Fees Act. In W. Wilrow v. Mahadeo Govind Mehendale (A I R 1943 Bom. 227) Macklin J. also took the view that the expression "set-off" used in Article 1, Schedule I, as amended, includes an equitable set-off and the necessary Court-fee must be paid thereon. The same view was taken by Bose, J , in Sadasheo Krishnarao Buty v. Nathu Bala Mahar (A I R 1943 Nag. 314). It is thus clear that there is conflict of authority on the question whether an equitable set-off requires Court-fee or not. Prima facie there appears to be no reason why Court-fee should not be required on an equitable set-off. As already pointed out, the amended Article 1 Schedule I of the Court Fees Act does not make any distinction between an equitable set-off and a legal set-off. In A I R 1937 Lab. 73 the point is very briefly dealt with and there is no reference to the amended Article 1, Schedule I of the Court Fees Act. In the circum stances, we refer the following question for consideration by a larger Bench:- "Whether Court-fee is payable on the amount claimed by the defendant as damages by way of an equitable set-off arising out of the very contract on which the plaintiff has based his claim". The papers may be placed before the Honourable the Chief Justice for orders. ORDER RAHMAN, J.-The question that has been referred to this Full Bench for consideration is in the following terms :- "Whether Court-fee is payable on the amount claimed by the defendant as damages by way of an equitable set-off arising out of the very contract on which the plaintiff has based his claim" ? The question has arisen in the following circumstances. The plaintiffs-appellants, Messrs. Ahmad and Brothers; brought a suit against Allah Bakhsh and Sons defendants respondents, for recovery of Rs. 10,907-9-6 on account of arrears of price of ice supplied by the plaintiffs to the defend ants, during a. specified period, under a contract. The purchaser had deposited a security of Rs. 5,000 with the plaintiffs, for the due performance, on their part, of the terms of the contract. The defendants had undertaken to purchase from the plaintiffs one hundred blocks of ice daily, each weighing 31 maunds; at the rate of Rs. 7 per block. One of the agreed stipulations was that the price of one hundred blocks was to be paid daily, whether the defendants took delivery of the total quantity or not. The plaintiffs' case was that the defendants adhered to the contract till the 26th May 1948, but that thereafter, they took 27 and 26 blocks respectively on the two succeeding days and then discontinued taking delivery of any ice. The price of the ice actually supplied to the defendants from the 1st April to the 28th May came to Rs. 41,878-12-0 and giving credit for Rs. 29,900 paid by the defendants, the balance payable was Rs.11,978-12-0. The plaintiffs relinquished a part of their claim and sued for Rs. 10,907-9-6. The defendants resisted the suit on several grounds. One of these grounds was that the plain tiffs, in breach of the agreement, had refused to allow the defendants to remove 100 blocks of ice on the 27th and 28th May 1948; without any legal justification and as a consequence; the defendants had to purchase ice in the open market at a higher price; thus suffering a loss exceeding the amount claimed by the plaintiffs. They claimed a set-off for this loss as damages in answer to the suit, on equitable grounds this defence was accepted as valid by the trial Judge and he dis missed the plaintiffs' suit holding that the defendants had suffered damages to the extent of Rs. 19,500 as a result of breach of the contract on the part of the plaintiffs and that the defendants were entitled to set-off this amount against the plaintiffs' claim without payment of any Court-fee. An appeal was brought against that decision to this Court; being Regular First Appeal No. 50/50. This appeal came up for hearing before a Division Bench constituted by two of us and this reference has been made to the Full Bench in view of a conflict of authority on the point, The trial judge relied on Basheshar Nath Khanna v. Grindlay & Co. (A I R 1937 Lah. 73), a Division Bench judgment of this Court, as authority for the proposition that a defendant need not be called upon to pay Court-fee on the amount claimed by him as equitable set-off. It is contended by Mr. Ghias Muhammad on behalf of the appellants that this authority does not lay down sound law. It is common ground that the only provision in the Court Fees Act 1870 (hereinafter referred to as the Act), which could possibly cover the case, is that contained in Article 1 of Schedule I to the Act. The entry in the first column of this Article reads as follows :- "Plaint, written statement pleading a set-off or counter claim or memorandum of appeal (not otherwise provided for in this Act) or of cross-objection presented to any Civil or Revenue Court except those mentioned in section 3". Section 3 of the Act has no material bearing on the present case. The words `written statement pleading a set-off or counter-claim" and the words "or of cross-objection" occur ring in this entry were inserted therein in 1908, by section 155 of the Code of Civil Procedure read with Schedule IV to that Act. Prior to that year these words did not exist in this Article. It is pointed out by Mr. Ghias Muhammad that there are no qualifying words to limit the meaning of "set-off" to what is known as legal set-off in contradistinction to equitable set-off and consequently this Article would apply to the present case. This is the view which received approval in the following reported cases from the Indo-Pakistan Sub-Continent :- (1) A. Z. M. Reazai Karim v. Muhammad Israil Ostagar (1) . (2) Pusaram Maniklal Marwadi v. Himatrao Baswantrao Deshmukh (2). (3) W. Wilrow v. Mahadeo Govind Mehendale (3). (4) Ratan Lal v. Nadari (4). (5) Dr. Jessie George v. Mrs. Shakuntla Hari Das (5). (6) Muhammad Ibrahim v, Messrs. East and West Steam ship Co. (6). The contrary view was taken in :- (7) Bhagat Singh v. Devi Dial (7). (8) Ram Das v. Dwarka Das (8). (9) Madan Mohan Garg v. Bohra Ram Lal (9). (10) Basheshar Nath Khanna v. Messrs. Grindlay & Co. (10), The Punjab Record case was decided before the amend ment of Article I, Schedule I to the Act was made and is therefore of not much assistance in determining the point in (1) A I R 1939 Cal. 415 (D B), (2) A I R 1943 Nag. 314 (S B). (3) A I R 1943 Bom. 227 (S B). (4) AIR 1950 All. 237 (DB). (5) A I R 1950 (East) Pb. 225 (F B)., (6) P L D 1952 Sind 41 (S B). (7) 85 Punjab Record 1908 (D B). (8) A I R 1930 All. 875 (D B). (9) AIR 1934 All.115 (SB). (10) AIR 1937 Lah. 73 (DB). issue. This was one of the authorities relied on by the learned Judges who decided Basheshar Nath Khanna v. Messrs. Grindlay & Co. (A I R 1937 Lah. 73). The Allahabad cases did not discuss the previous precedents on the subject and made no reference to Article 1, Schedule 1 of the Court Fees Act. As has been observed above, the latest view of the Allahabad High Court in Ratan Lal v. Madari (A I R 1950 All. 237), dissents from the opinion expressed in these two authorities. The preponderance of authority therefore appears to be clearly in favour of the contention that the charging provision contained in Article 1, Schedule I to the Act, covers an equitable as well as a legal set-off. Mr. Karam Elahi Chauhan for the defendants-respondents attempted to argue, however, that a written statement pleading an equitable set-off was within the ambit of section 19 (iii) of the Act and was therefore "otherwise provided for" within the meaning of Article 1, Schedule I. The relevant portion of this section is reproduced below :- "Nothing contained in this Act shall render the following documents chargeable with any fee :- Written statements called for by the Court after the first hearing of a suit". The argument proceeds that the amended Article 1 of Schedule I to the Act refers only to what is familiarly known as legal set-off and provision for which is made in Order VIII rule 6 C. P. C. This reads "(1) Where in a suit for the recovery of money the defen dant claims to set-off against the plaintiffs demand any ascertained sum of money legally recoverable by him from the plaintiff, not exceeding the pecuniary limits of the juris diction of the Court, and both parties fill the same character as they fill in the plaintiff's suit, the defendant may as the first hearing of the suit, but not afterwards unless permitted by the Court, present a written statement containing the particulars of the debt sought to be set-off. (2) The written statement shall have the same effect as a plaint in a cross-suit so as to enable the Court to pro nounce a final judgment in respect both of the original claim and of the set-off: but this shall not affect the lien, upon the amount decreed, of any pleader in respect of the cost payable to him under the decree. (3) The rules relating to a written statement by a defen dant apply, to a written statement in answer to a claim of set-off". It is clear that the set-off contemplated by this rule is confined to suits for recovery of money and must be for an ascertained sum. It is not disputed that an equitable set-off may be pleaded in respect of an unascertained amount of damages arising out of the very transaction on which the suit is founded. The Legislature, it is argued, may have had in mind the provisions of Order VIII rule 6, C. P, C. only, when introducing the amendment in 1908 to Article 1, Schedule I of the Act, prescribing Court-fees to be paid on a set-off, while a written statement pleading, inter alia, an equitable set-off. was already provided for within the meaning of this Article in section 19 (iii) of the Act. The argument is clearly fallacious and untenable. In terms, clause (iii) of section 19 refers only to written statements called for by the Court after the first hearing of the suit, whereas it is obvious that an equitable set-off may be pleaded in the written statement submitted on the very first hearing of a suit. Moreover, the contention that the Legislature's atten tion was confined to the provisions of Order VI rule 6, C. P. C. while effecting amendment of Article 1 of Schedule I to the Act, fails to take into consideration the provisions of Order XX rule 19, C. P. C. sub-rule 3 of which plainly envisages a plea of set-off not falling within the four corners of Order VIII rule 6, C. P. C. The distinction between legal and equitable set-off has been made in decisions of Courts prior to 1908 and the Legislature must be deemed to be aware of this distinction at the time when section 155 of the Code of Civil Procedure 1908 was enacted. If, therefore, no qualifying words before the word set-off were used in the amended Article I of Schedule I to the Act, it follows that the intention was to provide for both kinds of set off and not merely legal set-off. The argument advanced on behalf of the respondents does not gain in strength by reference to section 121 of the Code of Civil Procedure 1859, which corresponds to Order VIII rule 6 of the present Code. The plea that while placing on the Statute Book, clause (iii) of section 19 of the Act in 1870. the pro visions of section 121 of the old Code of Civil Procedure were in the contemplation of the; Legislature, does not rest on any solid foundation. This clause of section 19 as has been observed above, is restricted to a specific category of written statements and includes no reference to any kind of set-off. Section 120 of the Code of Civil Procedure 1859 required written statements tendered at the first hearing of a suit, to be on stamp paper prescribed for petitions. It was, apparently, clarified by clause (iii) of section 19 of the Court-Fees Act 1870, that subsequent written statements, called for by the Court would be exempt from such stamp duty. In the Code of Civil Procedure, 1877, the provision with regard to stamp on written statements, seems to have been omitted, as a reference to the corresponding section 110 of that Code shows. Nevertheless, clause (iii) of section 19 of the Court-Fees Act seems to have been retained on the Statute Book. Mr. Karam Elahi Chauhan then advanced the plea that the, Court was not bound in every case to entertain a claim for equitable set-off and it would be hard on a litigant if he is required to pay Court-fee but is subsequently told that his claim cannot be adjudicated upon. This is not such a pressing consideration which should constrain us to hold that an equit able set-off is excluded from the purview of Article I of Schedule I to the Act if a fair reading of the Article leads to the opposite conclusion. The remedy in such cases may lie in asking for refund of the Court-fee paid. It hardly sounds equitable that a claim to legal set-off, however small its value, as contemplated by Order VIII rule 6, C. P. C. should be liable to Court-fee but that a big claim by way of equitable set-off, should escape the fiscal provisions of the Act. Another difficulty pointed out in the way of application of the Article in question, was that an equitable set-off may sound in unliquidated damages and it will not be practicable to assess the Court-fees payable on such a claim. But the difficulty will vanish 'with the direction that the defendant setting up the plea should quantify his claim and pay Court-fee thereon. The suggestion was then put forward that an equitable set-off was of the nature of relief contemplated by Order VII rule 7, C. P. C. which enables a Court to give such a general or other relief as may be considered just, without an express prayer for it either by the plaintiff or by the defendant. I do not think, however, that the provision referred to has any connection with cases of set-off, whether equitable or legal. The contention again that an "equitable set-off" is not a set-off in the strict sense and is more akin to a plea of "pay ment" ignores a fundamental distinction between the two pleas. A set-off which is in the nature of a cross-claim, if upheld, would operate to extinguish protanto the plaintiff's claim, in future. On the contrary a plea of payment refers to the past and amounts to saying that to the extent pleaded the claim of the plaintiff has already ceased to exist. Mr. Karam Elahi Chauhan attempted to argue, in the alternative, that the claim of his clients in the present case was not really a set-off at all but was a plea of adjustment. On that question I do not feel called upon to express an opinion. That will be a point for determination by the Bench hearing the case, if entertainable. The upshot of the whole discussion is that neither on principle nor on authority is there any warrant for the plea that an equitable set-off is immune from payment of Court-fee. The provision of Article 1, Schedule I of the Court-Fees Act must be held to cover it. I would, therefore, answer the question referred to the Full Bench in the affirmative. M. KHURSHID ZAMAN, J.-I agree. B. Z. KAIKAUS, J.-I agree. A.H. Reference answered.