Set-Off in CPC
Set-Off under Civil Procedure Code (CPC)
1. Meaning of Set-Off:
Set-off is a legal defense used by a defendant in a civil suit where they claim that the plaintiff owes them something as well. Essentially, it allows mutual debts to be settled against each other in a lawsuit.
For example, if A sues B for ₹1,00,000, and B is owed ₹40,000 by A in a separate transaction, B can claim a set-off of ₹40,000. If successful, B would only be liable to pay ₹60,000.
2. Legal Provision:
Set-off is governed by Order VIII Rule 6 of the Code of Civil Procedure, 1908 (CPC).
Order VIII Rule 6 CPC – Set-Off:
A defendant may claim a set-off against the plaintiff's demand in a suit where:
The suit is for recovery of money,
The defendant wants to set off any ascertained sum of money,
The amount must be legally recoverable from the plaintiff,
Both parties must fill the same character (i.e., in the same capacity).
3. Types of Set-Off:
There are two primary types of set-off:
a) Legal Set-Off:
This is permitted under Order VIII Rule 6 CPC and is based on mutual debts that are:
For specific and ascertained sums,
Both debts are legally enforceable,
Arise between the same parties in the same legal capacity.
🟩 Example: A sues B for ₹50,000. B claims A owes him ₹20,000 from a business transaction. B can claim legal set-off.
b) Equitable Set-Off:
Not expressly mentioned in CPC but recognized in equity and court practice.
Arises from closely connected transactions or situations where it would be unjust not to consider the defendant's claim.
Even unascertained or time-barred debts may be considered in equity.
🟩 Example: A sues B for non-delivery of goods worth ₹1,00,000. B claims that A failed to pay for raw materials supplied for those goods. B can raise an equitable set-off.
4. Conditions for Set-Off:
For legal set-off, the following conditions must be met:
The suit must be for recovery of money.
The defendant must claim a definite sum of money.
The claim must be legally recoverable.
Both claims must be mutual and between the same parties in the same capacity.
5. Procedural Aspects:
Set-off must be pleaded in the written statement.
It is treated as a plaintiff’s claim, meaning court fees may be payable.
The court may pass a decree for the balance amount due after adjusting set-off.
6. Key Case Laws on Set-Off:
1. Jayant Verma v. Union of India, AIR 1994 SC 1893
Held: For a legal set-off, the amount must be an ascertained and legally enforceable debt. The Court cannot entertain vague or unliquidated claims under legal set-off.
2. Union of India v. Karam Chand Thapar & Bros. (Coal Sales) Ltd., AIR 2004 SC 3629
Held: Set-off cannot be claimed unless the suit is for recovery of money. A claim for injunction or declaration cannot be met with a set-off.
3. State Bank of India v. Firm P.N. Bankers, AIR 1981 MP 8
Held: The doctrine of equitable set-off is applicable even where the claim is not for an ascertained sum, if both claims are closely connected.
4. M/s. Jwala Prasad Firm v. Ram Prasad Firm, AIR 1958 All 47
Held: If the cross-demands arise out of independent transactions, equitable set-off may not be allowed unless justice requires it.
7. Difference Between Set-Off and Counter-Claim:
| Particulars | Set-Off | Counter-Claim |
|---|---|---|
| Nature | Defensive | Offensive |
| Scope | Only money claims | Broader; includes damages, injunctions, etc. |
| When Raised | Along with written statement | Along with written statement |
| Limitation | Only mutual debts | No such strict condition |
| Statutory Basis | Order VIII Rule 6 CPC | Order VIII Rule 6A to 6G CPC |
8. Limitation on Set-Off:
Set-off must be within the period of limitation under the Limitation Act, 1963.
If time-barred, legal set-off is not allowed, though equitable set-off may be considered in rare cases.
Conclusion:
Set-off is a useful tool for the defendant to avoid multiplicity of suits and to resolve mutual debts in a single proceeding. While legal set-off is strictly defined and requires specific conditions, equitable set-off is more flexible and rooted in fairness. Courts have wide discretion to allow equitable set-offs where justice demands, especially in cases involving closely connected transactions.
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