Set Off under CPC and its essential Conditions
Set Off under CPC and its essential Conditions: In today’s article, we will learn the meaning of Set Off under CPC, its essential conditions, kinds of Set Off and the difference between types of set off.
The Code of Civil Procedure, 1908 (hereinafter, as CPC) under Order VIII provides for rules regarding a Written Statement, set off and a counterclaim, although interestingly neither of the terms are defined in the CPC.
Introduction of Set Off under CPC
The doctrine of set-off did not originate in India, it came from English law. In early English common law, if A owed B and B owed A, they had to file separate suits. This was expensive and caused multiplicity of proceedings. To avoid multiple proceedings the English Parliament passed the Statutes of Set-Off in 1729 and 1735, which allowed courts to adjust cross-claims in one proceeding.
When the British introduced their legal system in India, this concept was also brought here. The Civil Procedure Codes of 1859, 1877, and 1882 all included provisions for set-off. Finally, the Civil Procedure Code of 1908, which we still use today, formally codified it under Order VIII, Rule 6.
Meaning of Set Off under CPC
Under Order VIII Rule 6 of the Code of Civil Procedure, 1908, set-off means a legal defense available to the defendant in a money suit. It allows the defendant to claim that the plaintiff also owes him a certain, legally recoverable, and ascertained sum of money. In such a case, the defendant can request the court to adjust his claim against the plaintiff’s claim
For example, if A sues B for ₹50,000, and B proves A owes him ₹20,000, B can claim legal set-off.
In the case of B. Seshaiah v. B. Veerabhadrayya, the Andhra High Court explained set-off as “cancelling debts between two individuals who owe each other money.”
In simple words, Set-off simply means adjusting money that two people owe each other. If one person files a case to recover money, and the other person also has a valid money claim against the first, then instead of going to court twice, the law allows both claims to be balanced in the same case.
Essential Conditions of Set Off under CPC
For a defendant to successfully claim set off, the following conditions must be satisfied:
1. Same Parties and Same Legal Capacity
The first condition is that the defendant to present a set off, both parties must have the same roles in the lawsuit as they do in the plaintiff’s claim. Set-off is possible only if the parties are the same and they stand against each other in the same role like individual vs. individual, company vs. company. If one claim is made in a different capacity then set-off is not allowed.
2. The suit should be for the recovery of money
Set-off under Order VIII Rule 6 CPC is allowed only when the plaintiff’s suit is for the recovery of money. This means that the defendant can claim set-off only if the plaintiff has filed a money suit. If the suit is for anything else like possession of property, recovery of goods, or injunction—then the defendant cannot ask for set-off.
In simple words, Set off shall be available to the defendant only in a suit instituted against him for recovery of money. If the suit is not for recovery of money, the defendant can’t plead for set off.
3. The amount shall be legally recoverable
For a set-off to be valid, the money claimed by the defendant against the plaintiff must be legally recoverable at the time the suit is filed. This means the debt should be enforceable under law, and not barred by any legal restriction.
- If the debt is time-barred under the Limitation Act, it cannot be claimed as a set-off.
- If the debt is based on an illegal contract (for example, money owed for gambling or smuggling), it cannot be claimed as set-off.
4. Ascertained Sum
The amount claimed by the defendant must be a definite and ascertained sum of money. It means that the amount which the defendant claims against the plaintiff to be set off must be fixed, definite and known.
5. Court Jurisdiction
The court where the original case is filed should also have jurisdiction to hear the defendant’s claim. It is necessary that the amount claimed to be set off by the defendant is within the pecuniary limits of the court in which the court has been instituted.
Types of Set Off Under CPC
The law recognizes two types of set-offs:
- legal set-off: which is explicitly provided under Order VIII Rule 6 of the Civil Procedure Code (CPC), and
- Equitable set-off: which is based on principles of fairness.
Legal set-off
Legal set-off is the right given under law (Order VIII Rule 6 CPC). It applies when both the plaintiff and defendant have clear money claims against each other. The amount must be fixed, certain, and legally recoverable.
Example: A sues B for ₹1,00,000. B shows A also owes him ₹30,000. The court will adjust, and A will get only ₹70,000.
Equitable set-off
Equitable set-off is not written in the CPC but is allowed by courts for fairness. It applies when both claims come from the same deal or are closely connected, even if the defendant’s claim is not a fixed sum.
Example: A sells defective goods to B for ₹2,00,000 and sues for payment. B claims damages of ₹50,000 for the defects. The court may allow set-off since both arise from the same transaction.
Difference between Legal Set-off and Equitable Set-off in CPC
| Legal Set-Off | Equitable Set-Off |
|---|---|
| Mentioned in Order VIII Rule 6 CPC | Not in CPC, recognized by courts (judge-made law) |
| A legal right of the defendant | Depends on court’s discretion (fairness) |
| Must be a fixed, certain, and legally recoverable sum | Can be uncertain or unascertained, like damages |
| Need not arise from the same transaction | Must arise from the same or closely connected transaction |
| Defendant can demand as a right | Defendant can request, but court decides |
| To avoid multiple suits where both sides have money claims | To ensure fairness and justice in connected claims |
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