Introduction to Set-off
Rule 6 of Order VIII of the Code of Civil Procedure, of 1908 recognizes the right of a defendant to claim a set-off. A set-off claim refers to a claim which is set up against another claim, also known as a cross-claim, for setting off the debts reciprocally owed by the defendant and the plaintiff against each other. In Union of India v. Karam Chand Thapar and Bros. (Coal Sales) Ltd., (2004) 3 SCC 504, it was held that the mutual debts owed by the defendant and the plaintiff to each other, then the debts may be settled against each other, partly or fully. Set-off is a defence plea that is available to the defendant in a civil suit. In a set-off claim, the defendant by his own will accepts the claim by the plaintiff, but he puts another claim to be set-off against that claim.
Example of Set-off
Ram sues Shyam on a bill of exchange for INR 5,000. Shyam holds a judgment against Ram for INR 10,000. The amount involved in both claims is definite, thus, pecuniary demands may be set-off. However, if the amounts are not definite, then such a claim cannot be set-off.
Types of Set-off
There are two types of set-offs. They are:
- Legal set-off: It is recognized under Rule 6 of Order VIII of CPC.
- Equitable set-off: The provision codified under Rule 6 of Order VIII of CPC, is not exhaustive in nature. It is borrowed from the Courts of Equity in England. The court has the power to set off claims based on equity without any regard to the legal set-off. Inequitable set-off, it is not necessary that the amount of recovery must be ascertained.
Conditions to be Fulfilled to Claim a Set-off
A set-off can be claimed if the following conditions are fulfilled:
- The suit must be pecuniary in nature, or for recovery of money.
- The amount involved in the suit must be ascertained i.e., the pecuniary sum must be numerical in nature, not an undetermined compensation. However, if the sum of money is not ascertained then the court has the power to equitable set-off the recovery suit.
- The amount involved must be recoverable legally.
- The defendant must be entitled to the recoverable amount of money, not a third party.
- The money must be recoverable from the plaintiff, and not any third party or someone related to him.
- The court in which the suit is pending must have pecuniary jurisdiction to try the case. The sum of money involved in the suit must not exceed the pecuniary limits of the court.
- The defendant and the plaintiff both must fill the same character in the suit for recovery.
Effect of Set-off
Where a defendant claims set-off, he claims it in the capacity of a plaintiff. This results in two suits, that are, one by the original plaintiff against the original defendant, and the other by the defendant-turned-plaintiff against the plaintiff-turned-defendant in the set-off claim. Both the suits are tried together without assigning any new suit number to the set-off claim. Whatever happens in the original suit does not affect the set-off claim if the defendant can prove his claim against the plaintiff. In other words, a decree may be passed in the favour of the defendant even if the plaintiff does not appear, or withdraws, or fails to prove his claim.
Object of Set-off
The main objective of the set-off claim is to avoid a multiplicity of proceedings. It helps the court to decide on two or more different claims, in one proceeding. It saves the time of the court, and also the cost of litigation for the defendant as well as the plaintiff.
We can conclude from the above discussion that the set-off claim is a plea of defence available to the defendant in a suit for recovery. The court in B. Seshaiah v. B. Veerabhadrayya, AIR 1972 AP 134 (FB) defined set-off claim 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”. The main object of the set-off claim is to avoid a multiplicity of claims. It saves the cost and time of the defendant as well as the plaintiff, as filing and defending multiple suits based on the recovery of money may involve significant litigation costs. A person who cannot recover his money by way of a legal set-off under Order 8 Rule 6 may request the court to set-off his claim based on equitable set-off. Thus, we can say that the legal set-off does not limit the power of a court in any way. A court having jurisdiction over a matter may decide on a set-off claim without any regard to Order 8 Rule 6 if the sum of money involved in the suit cannot be ascertained.