Definition:

Where in a suit by the plaintiff for recovery of money and the defendant finds that he also has a claim of some amount against the plaintiff what he does is he can claim a set-off in respect of the said amount. This right of the defendant to claim set-off has been recognized under Order 8, Rule 6 of the Code.

Essential Conditions:

1. A defendant may claim a set-off, if:
2. The suit is for the Recovery of money;
3. The sum of money must be ascertained;
4. Such sum must be legally recoverable;
5. It must be recoverable by the defendant or by all the defendants, if not more than one;
6. It must be recoverable by the defendant from the plaintiff(s);
7. It must not exceed the pecuniary jurisdiction of the court in which the suit is brought;
8. Both the parties must fill in the defendant’s claim to set-off, off the same character as they fill in the plaintiff’s

Effects:

When a defendant claims set-off, he is put in the position of the plaintiff as regards the amount claimed by him. Where the plaintiff doesn’t appear and his suit is dismissed or he withdraws, it does not affect the claim for set-off by the defendant and a decree may be passed in his favor if he is able to prove his claim.

Types of Set-Off

Set-off is of two kinds viz., legal set-off and equitable set-off. Rule 6 speaks of legal set-off only. In contrast to legal set-off, an equitable set-off can be claimed for unascertained money but it must arise from the same transaction. For example, where a servant sues his master.

for recovery of the amount of salary, the master can claim set-off for loss sustained by him due to negligence of servant since it arises out of the same relationship.

Legal Set-Off

It is apparent from a reading of the above provisions that in order to constitute legal set-off, the following conditions must be fulfilled, viz.,

1. The suit must be for the recovery of money.
2. The defendant must claim an ascertained sum of money. A sum of money due in respect of a disputed transaction cannot constitute an ascertained sum.
3. That ascertained sum must be legally recoverable from the plaintiff, i.e., it is not barred by the law of limitation.
4. The plaintiff’s claim and the set-off must be claimed in the same character. The amount must be recoverable by the defendant and if there is more than one defendant, then by all the defendants. Again, the amount must be recoverable by the defendant from the plaintiff and if there is more than one plaintiff, then from all the plaintiffs.
5. The set-off should be within the pecuniary jurisdiction of the Court.

Equitable set-off

The Court of Equity in England allowed set-off when cross-demands arose out of the same transaction, even if the money claimed by way of set-off was an unascertained sum of money. The Common Law Courts refused to take notice of equitable claims for they were not ascertained sums. The Courts of Equity, however, held that it would be inequitable to drive the defendant to a separate cross-suit and that he might be allowed to plead a set-off though the amount might be unascertained. Such a set-off is called an equitable set-off.

In India, the distinction between legal and equitable set-off remains. The provisions as to legal set-off are contained in Order VIII, Rule 6, C.P.C. The same has now been enlarged by insertion of Rule 6-A with regard to counter-claim by the defendant. So far as equitable set-off is concerned it is provided in Order XX, Rule 19(3), C.P.C., which states that:

The provisions of this rule (relating to a decree for set-off or counter-claim and an appeal therefrom) shall apply whether the set-off is admissible under Rule 6 of Order VIII or otherwise.