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Set-Off in CPC

Updated: May 5


Set Off in CPC

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Set-off in CPC


"Set-off" refers to a cross-claim that mitigates the original claim to some extent. It represents the clearing of debts where two individuals owe each other reciprocally, balancing out their mutual obligations.


When there exist mutual debts between the plaintiff and the defendant, one debt can be reconciled against the other. This mechanism serves as a defence plea accessible to the defendant.


Through adjustment, set-off either cancels out or diminishes the plaintiff's claim in a monetary recovery suit.


In a suit where the plaintiff seeks to recover money, if the defendant discovers they have a claim against the plaintiff for some amount, they can invoke a set-off for that sum.


The doctrine of set-off can be defined as "the cancellation of debts in which two parties owe each other reciprocally, using the credits they owe each other reciprocally."


  • A plea of set-off is "a plea in which a defendant acknowledges the validity of the plaintiff's claim but asserts another claim of their own to offset the plaintiff's demand, either wholly or partially."


Therefore, it represents a "mutual discharge of debts between two parties." The defendant's right to claim set-off is acknowledged under Rule 6, eliminating the need for the defendant to initiate a new suit.

 
 

Illustrations


(a) A leaves Rs 2000 to B in his will and appoints C as the executor and residual legatee. When B passes away and D assumes administration of B's estate, C, as a surety for D, pays Rs 1000. Subsequently, D sues C for the legacy.


Here, C cannot offset the Rs 1000 debt against the legacy because C and D do not assume the same roles regarding the legacy as they do concerning the payment of Rs 1000.


(b) Upon A's intestate demise, owing a debt to B, C takes over administration of A's estate. B then purchases some of A's effects from C. In a suit initiated by C against B for the purchase price, B cannot set off the debt against the price.


This is because C plays two distinct roles: one as the vendor to B, suing B, and the other as the representative to A.


(c) In a case where A sues B over a bill of exchange, and B claims A neglected to insure B's goods wrongfully and seeks compensation to offset against the bill, the indeterminate amount cannot be set off.


(d) If A sues B on a bill of exchange for Rs 500, and B holds a judgement against A for Rs 1000, both being definite pecuniary demands, they may be set off.


(e) When A sues B for trespass compensation, and B holds a promissory note for Rs 1000 from A, B can set off that amount against any sum A may recover in the suit. Once A recovers, both sums become definite pecuniary demands.


(f) If A and B jointly sue C for Rs 1000, C cannot set off a debt due to him by A alone.


(g) If A sues both B and C for Rs 1000, B cannot set off a debt due to him alone by A.


(h) A owes the partnership firm of B and C Rs 1000. After B's demise, leaving C surviving, A sues C for a separate debt of Rs 1500. Here, C may set off the Rs 1000 debt.


(i) A sues B for Rs 20,000, where B's claim for damages for breach of contract for specific performance cannot be set off.


(j) A sues B for Rs 10,000. B cannot set off any amount due on a promissory note executed by A before five years.


(k) A sues B for Rs 10,000. B cannot claim a set-off for any amount owed to him for performing illegal or immoral activities of A.


(l) A sues B for Rs 15,000. If the court has pecuniary jurisdiction up to Rs 20,000 only, B cannot set off an amount of Rs 30,000.


Essentials for claiming set-off


A defendant is entitled to claim a set-off if the following conditions are met:


(i) The suit must aim at recovering money.


(ii) The sum of money must be determined.


(iii) The said sum must be legally recoverable.


(iv) It must be recoverable by the defendant, or by all the defendants if there are more than one.


(v) It must be recoverable by the defendant from the plaintiff, or from all the plaintiffs if there are more than one.


(vi) The sum must not exceed the pecuniary jurisdiction of the court in which the suit is filed.


(vii) Both parties involved in the defendant's claim to set-off must occupy the same character as they do in the plaintiff's suit.

 
 

Effect of Set-off


When a defendant asserts a set-off, they assume the role of a plaintiff concerning the claimed amount. This results in two simultaneous suits: one initiated by the plaintiff against the defendant and the other by the defendant against the plaintiff.


These suits are adjudicated together, but a separate suit number is not assigned to a set-off claim. If the plaintiff fails to appear, withdraws the suit, or fails to substantiate the claim during the trial resulting in dismissal, it does not impact the defendant's claim for a set-off.


In such cases, if the defendant can substantiate their claim, a decree may be issued in their favour.


Equitable Set-off


Equitable set-off, distinct from legal set-off addressed in Rule 6, expands the scope beyond ascertained sums of money. While Rule 6 originates from the Court of Common Law in England, equitable set-off finds its roots in the Courts of Equity.


It allows a defendant to assert a set-off even for an unascertained sum, provided both cross-demands emerge from the same transaction or are closely interconnected.


This prevents unfairness by avoiding the necessity of a separate suit.


Order 20 Rule 19(3) of the Code acknowledges equitable set-off, highlighting its significance. For instance, if A sues B to recover Rs 50,000 under a contract, B can counterclaim damages resulting from A's breach of the same contract.


Similarly, in a case where a servant sues their master for salary, the master can set off losses incurred due to the servant's negligence or misconduct, stemming from the same employment relationship.


Furthermore, if a washerman sues for unpaid wages, the employer can offset the value of clothes lost while in the washerman's care.


Difference between Legal Set-off and Equitable Set-off


Aspect

Legal Set-off

Equitable Set-off

Nature of Amount

Must be for an ascertained sum of money.

May be allowed even for an unascertained sum of money.

Claiming Right

Can be claimed as a right.

Cannot be claimed as a right; court has discretion.

Arising from Same Transaction

Not necessary.

Required; must arise from the same transaction.

Legally Recoverable

Must be legally recoverable and not time-barred.

May be allowed even if time-barred, especially in fiduciary relationships.

Court Fee

Requires court fee.

No court fee required.

 
 


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