INTRODUCTION OF SET OFF
“Set-off” means a claim set up against another. It is a cross-claim which partly offsets the
original claim. It is an 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. Where
there are mutual debts between the plaintiff and the defendant, one debt may be settled
against the other.239 It is a plea in defense, available to the defendant. By adjustment, setoff either wipes out or reduces the plaintiff’s claim in a suit for recovery of money.

DOCTRINE EXPLAINED
Where in a suit for recovery of money by the plaintiff, the defendant finds that he has also
a claim of some amount against the plaintiff, he can claim a set-off in respect of the said
amount. The doctrine of set-off may be defined as “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”

A plea of set-off is “a plea whereby a defendant acknowledges the jus- tice of the plaintiff’s
demand, but sets up another demand of his own, to counterbalance that of the plaintiff;
either in whole or in part”. Thus, it is a “reciprocal acquittal of debts between two persons”.
The right of a defendant to claim set-off has been recognised under Rule 6. It obviates the
necessity of filing a fresh suit by the defendant.
ILLUSTRATION
1- A sues B and C for Rs 1000. B cannot set off a debt due to him alone by A.
2- A and B sue C for Rs 1000. C cannot set off a debt due to him by A alone.
3- A sues B for Rs 20,000. B cannot set off the claim for the damages for breach of contract
for specific performance.
TYPES
The law recognizes two types of set-off.
(i) Legal set-off; and
(ii) Equitable set-off.
Order 8 Rule 6 deals with legal set-off. But the said provision is not exhaustive and does
not take away the power of the court to allow such adjustment independent of Rule 6 of
Order 8. It is known as “equitable set-off”.
CONDITION
A defendant may claim a set-off, if the following conditions are satisfied:
(i) The suit must be for the recovery of money
(ii) The sum of money must be ascertained;
(iii) Such sum must be legally recoverable;
(iv) It must be recoverable by the defendant or by all the defendants, if more than one
(v) It must be recoverable by the defendant from the plaintiff or from all the plaintiffs, if
more than one;
(vi) It must not exceed the pecuniary jurisdiction of the court in which the suit is brought;
and
(vii) Both the parties must fill, in the defendant’s claim to set-off, the same character as
they fill in the plaintiff’s suit.
EFFECT OF SET OFF
When a defendant pleads set-off, he is put in the position of a plaintiff as regards the
amount claimed by him. There are two suits, one by the plaintiff against the defendant and
the other by the defendant against the plaintiff; and they are tried together. A separate suit
number, however, is not given to a set-off. Where the plaintiff does not appear and his suit
is dismissed for default, or he withdraws his suit, or he fails to substantiate his claim at the
trial and his suit is dismissed, it does not affect the claim for a set-off by the defendant and
a decree may be passed in favour of the defendant if he is able to prove his claim.
EQUITABLE SET OFF
Rule 6 deals with legal set-off only. It was allowed by the Court of Common Law in
England. It is always in respect of an ascertained sum of money. But there may be cases in
which the defendant may be allowed a set-off in respect of an unascertained sum of money.
The provisions of Rule 6 are, however, not exhaustive. In addition to legal set-off,
equitable set-off, as allowed by the Courts of Equity in England, may be claimed by the
defend- ant in respect of even an unascertained sum of money, provided that both the
cross-demands arise out of one and the same transaction or are so connected, in the nature
and circumstances, that they can be looked upon as parts of one transaction.” In such a
case, it would be inequitable to drive the defendant to a separate suit. As it is, Order 20
Rule 19(3) of the Code recognises an equitable set-off.
LEGAL AND EQUITABLE SET OFF: DISTINCTION
(a) Legal set-off must be for an ascertained sum of money. Equitable set- off may be
allowed even for an unascertained sum of money.
(b) Legal set-off can be claimed of as right and the court is bound to entertain and
adjudicate upon it. Equitable set-off, on the other hand, cannot be claimed as of right and
the court has discretion to refuse to adjudicate upon it.
(c) In a legal set-off, it is not necessary that the cross-demands arise out of the same
transaction. Equitable set-off can be allowed only when the cross-demands arise out of the
same transaction.
(d) In a legal set-off, it is necessary that the amount claimed as set-off must be legally
recoverable and must not be time-barred. A claim by way of equitable set-off may be
allowed even if it is time-barred when there is a fiduciary relationship between the parties.
Thus, a trustee in possession of the trust estate may by way of equitable set-off claim to be
indemnified our of the trust estate when called upon to account even though such claim of
indemnity is time- barred. It must, however, be noted that even in case of equitable set-off,
if at the date of the written statement, the defendant’s claim is time-barred, though not
barred at the date of the suit, it will be allowed only to the extent of the plaintiff’s claim,
but a decree will not be passed in his favour for the balance found due to him.
(e) A legal set-off requires a court fee, but no court fee is required in the case of an
equitable set-off.

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