Macleod, C.J:— The plaintiff filed this suit against the defendant company to recover the amount payable to him by way of dividends in respect of the 72nd and 73rd dividends payable on the 5th February 1920 and 19th April 1920, respectively.
In their written statement the defendants claimed that they were entitled to recover damages from the firms of Vithaldas Venkatlal and Trikamdas Purshottamdas in respect of certain cotton contracts. The joint family of Gulabdas Haridas, of which the plaintiff was the manager, was a partner in these two firms and was liable to pay these damages. Reference was then made in para. 7 to Articles 13, 130 and 131 of the Articles of Association. Articles 13 and 130 had nothing to do with plaintiff's claim; but Article 131, entitling the Directors to deduct from the dividend or bonus payable to any share-holder all sums of money due from him to the company, would be in point, if certain facts were proved. The defendant company submitted that by reason of the said Articles the plaintiff was not entitled to claim the dividends referred to in paras. 3, 6 and 7 of the plaint, and submitted that the suit should be dismissed with costs. They, then, counter-claimed, in the event of it being held that the amounts of the damages could not be set off against the claim in respect of the dividends, that the plaintiff as the head of the joint family firm of Gulabdas Haridas & Sons might be ordered to pay to the defendant company a reasonable sum by way of damages on account of the premises mentioned in paragraph 6 of” the written statement.
The plaintiff then took out a summons asking for an, order that the counter-claim of the defendant company might be excluded, or that the Court should refuse-permission to the defendants to avail themselves of the counter-claim, and require them (if so advised) to file a separate suit in respect thereof. On the 11th. June 1921, an order was made on the summons that it should be adjourned to the hearing of the suit, and it was further ordered by the Court that the suit should be put down on the board of the learned Judge peremptorily for the trial of an issue on demurrer. Accordingly, the suit came on for hearing before Mr. Justice Kajiji on the 29th July 1921.
Now, the order that was made on the 11th June 1921 is couched in somewhat unfortunate terms. In the first place, it is not desirable to use the word “demurrer”, as demurrer in English Practice has been abolished since the passing of the Judicature Act, while the term has never been recognised in India by any of the Codes of Civil Procedure. It can only be used in India by way of analogy to a bygone English form of procedure. The proper order to have made, following the provisions of the Code, was to direct the suit to be set down for settlement of issues, and when the issues had been settled, it could be seen whether any of the issues were sufficient for the decision of the case under Order XV, Rule 3.
There were two questions: (1) whether the counterclaim should be struck out; (2) whether, if the counterclaim were struck out, the defendant company would be entitled to set off their claim. Those were two entirely distinct issues, depending, for their decision, upon entirely different considerations; and the confusion which arose from not raising definite issues is apparent when we come to the judgment of the learned Judge, because these two questions, which ought to be dealt with separately, are dealt with together, and the decision is that “this issue must be answered in the negative.” On that finding an order was drawn up declaring not only that the defendants were entitled to plead by way of defence the facts set out in paragraphs 6, 7 and 8 of their written statement, but were also entitled to maintain the counter-claim in the written statement of defence.
I will first deal with the question whether the counter-claim should be struck off. Now it is admitted that if the defendants were to file a separate suit on the subject matter of the counter-claim, this Court would have no jurisdiction to try such a suit Therefore, it is quite clear that the counter-claim must be struck out.
Then, there is the question whether the defendant company can set off against the plaintiff's claim for dividends their claim for damages under the contracts referred to in paragraph 6 of the written statement. It is obvious that this question must be answered in the negative, because, under Article 131, the directors can only deduct from the dividend or bonus payable to a share-holder sums of money due from him to the company. The claim for damages on the contracts is not money due.
That would be sufficient to dispose of the question because in paragraph 8 of the written statement the defendant company only claim to be entitled to set off by reason of Article 131.
But I may also deal with the question whether, apart from Article 131 of the Articles of Association, the defendants can set off the claim for damages. It could only be in the nature of an equitable set-off, which is not permitted by Order VIII, Rule 6, of the Civil Procedure Code. The learned Judge considered that the defendants could counter-claim for damages which could not form the basis of an equitable set-off under Rule 118 of the High Court Rules and referred to the case of Griendtoveen v. Hamlyn & Co.. But that case is only an authority for the proposition that where a claim in damages is preferred by a defendant which arises out of the same contract as the one on which the plaintiff is suing, the defendant could be allowed to counter-claim for those damages although a separate suit could not lie for want of jurisdiction. Now, set-off and counter-claim are governed by rules of procedure, and a plaintiff can only plead by way of set-off or counter-claim that which is permitted by those rules. A set-off can be pleaded as a defence and can only arise where the claims to be set-off one against the other whether by the plaintiff or defendant exist in the same right. A set-off can also be the subject-matter of a separate action or a counter-claim. And hence the confusion between the terms, as though every set-off can be pleaded as a counter-claim if the defendant so desires, every counter-claim cannot be pleaded as a set-off. It would be much better if the two terms were kept distinct, and, if an equitable set-off is to be allowed, it should be provided for by rule, while Rule 118 might be amended by omitting the mention of set-off. But even assuming that Rule 118 of the High Court Rules, although the marginal note is “counter-claim by defendant,” provides for an equitable set-off, then it is quite clear, under the decisions which lay down the principles on which an equitable set-off can be allowed, that the claim for damages must arise from the same transaction as that which is the subject-matter of the plaintiff's suit; and it is only when the claim for damages forms the subject-matter of a counter-claim that it makes no difference whether damages are based on a claim arising on the subject-matter of the suit, or are based on some transaction which is entirely outside the plaintiff's claim. It is, therefore, of the greatest importance to keep separate the questions of set-off and counter-claim when the defendant seeks to claim as a set-off not money due tout an unascertained sum for damages.
In any event, it is perfectly clear that in this case the counter-claim is bad because it could not form the subject-matter of a separate suit in this Court for the reason that the defendant, who is now plaintiff, resides outside the jurisdiction, and the whole of the cause of action arose outside the jurisdiction.
It is also quite clear that the defendants' claim does not come within the definition of equitable set-off.
Therefore, the defendants clearly have no answer to the plaintiff's claim for dividends, and as the issue which I have raised as the real issue argued in the lower Court must be found against the defendants, there must be a decree for the plaintiff for the amount claimed, that is to say, Rs. 10,800 the amount of the dividends, with interest at nine per cent per annum from the 18th July 1920, when notice was given that interest would be charged, till judgment; and costs and interest on judgment at six per cent per annum.
Solicitors for the appellant: Messrs. Merwanji, Kola & Co.
Solicitors for the respondents: Messrs. Ardeshir, Hormusji Dinshaw & Co.
Appeal allowed.
G.G.N