Doctrine of Set off

History of Set Off

• Under the old English law set-off had no
existence even though it was already
recognised under equity. Insolvent Debtors
Relief Act, 1779 and the Debts Relief
Amendment Act, 1735 brought about the set-
off concept under the legal statutes for the first
time.
• The concept of allowing the defendant in a
civil law suit to claim a set off originated back
when defendants were still sent to debtors
prisons for owing money.
• The courts began to realize that the doctrine of
equity called for a solution to situations where
a defendant was sent to debtor’s prison despite
the fact that the plaintiff in the lawsuit actually
owed money to the defendant as well.
 Green v. Farmer
• In this case Lord Mansfield has described set
off in the following words:
• Natural equity says that cross demands should
compensate each other by deducting the less
sum from greater; and the difference is only the
sum which can be justly due. But positive law,
for the sake of the forms of the proceeding and
convenience of trial has said, that each must sue
and recover separately, in separate action.
 Doctrine of set-off
• In such a situations when the plaintiff finds
out that the  plaintiff has some debt to settle
against the defendant and the defendant in turn
also finds out that he has similar debts against
the plaintiff, then he could claim a set off for
the particular amount.
• The doctrine of set-off could 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.
• When a claim is made against another claim, it is
called set-off. A set-off therefore is a cross claim
which has the effect of partly offsetting the original
claim. Set off has been described in the Rule 6
Order 8 of the Code of Civil Procedure of India.
• Set-off is a form of settling the reciprocal
debts. When there are mutual debts between
the  plaintiff and the defendant then, one debt
is set-off against another debt. Set-off is one of
the defence which is available to the plaintiff
as it reduces the plaintiffs claim in a suit for
recovery of money
 Conditions for claiming a set-off
• The set of requires the fulfilment of the
following conditions-
• Money suit; it means the suit must be for
recovery of money.
• The sum of money must be ascertained.
• The sum of money must be legally
recoverable. It must not be time barred.
• The sum of money must be recoverable by the
defendant from plaintiff. If there are more than
one defendant, the amount must be
recoverable from all the plaintiffs.
• The sum of money to be recovered must be
within pecuniary jurisdiction of the court.
 Effect of set-off
• The defendant is considered to be in the same
position as that of the plaintiff as regards of
the amount when he claims for set- off. As
regards to numbering of cases the set off filed
does not have a new case number , rather it is
tagged with the original claim. Even though
they are separate suits, they are tried together.
• In cases where the defendant is not able to
appear in person and is not able to substantiate
his claim as a result of which his suit is
dismissed. This however have no bearing on
the set off claimed by the defendant. If the
defendant could prove that the plaintiff owes
his money then the suit can be instituted
against him.
 Indian Law
• Set-off is of two kinds.
• Legal set-off.
• Equitable set-off.
• Under Order 8 Rule 6 of the Civil Procedure
Code the defendant may claim a set-off. The
essential conditions which must be satisfied
are as under:
• The suit must be for recovery of money.
• The amount must be an ascertained sum of
money.
• The amount must be legally recoverable by
the defendant from plaintiff.
• It must not exceed the pecuniary limits of the
jurisdiction of the court.
 Equitable set off
• Order 20 Rule 19 (3) of CPC recognises an
equitable set-off. The defendant can plead an
equitable set off only in the exercise of the
general right and not under Order 8 Rule 6,
which is confined to legal set off only. Remedy
of equitable set off depends on the discretion
of court.
 Sloman v. Walter
• Distinctions between legal and equitable set
off:
• Same Transaction: In legal set off cross
demands necessarily do not arise out of same
transaction. In equitable set off cross demand or
claims must be aroused in the same transaction.
• Court Fee: In legal set off court fee has to be
paid but in equitable set off it is not required.
• Ascertained sum of money: In legal set off it
must be ascertained sum of money but in
equitable set off it may be unascertained sum
of money.
• In legal set off, amount must be legally
recoverable and must not barred by law of
limitation but in equitable set off it is not
necessary.
• Legal set off may be claimed as matter of
right. Equitable set off depends upon the
discretion of the court. Court may accept or
reject it.
• In legal set off the whole amount is
admissible. In equitable set off, balance due to
plaintiff can not be claimed. Claim can be
allowed to the extent of the plaintiff’s claim.