What is set-off? Discuss the provisions regarding set-off as provided under the Civil Procedure Code and distinguish between legal and equitable set-off.

Question: What is set-off? Discuss the provisions regarding set-off as provided under the Civil Procedure Code and distinguish between legal and equitable set-off. [DJS 1976, BIHAR J 1975, 1976, 1977, WB J 1997, 1995 , 1992, Raj J. 1969, 1975, 1979]

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Answer

Set-off is a legal principle that allows for the adjustment or cancellation of mutual debts or claims between parties involved in a legal dispute. It is a mechanism that promotes efficiency and fairness by avoiding multiple lawsuits for separate claims and enabling the resolution of related matters in a single proceeding.

The provisions regarding set-off are governed by the Civil Procedure Code (CPC) in many jurisdictions, including India. In India, set-off is covered under Order VIII, Rule 6 to Rule 10 of the CPC.

Here is a detailed explanation of the provisions regarding set-off under the CPC:

• Order VIII, Rule 6: Under this rule, a defendant in a suit is entitled to plead a set-off against the plaintiff's claim if it arises out of the same transaction or is connected with the subject matter of the plaintiff's claim. The defendant must file a written statement along with the set-off counterclaim, specifying the amount sought to be set off.

• Order VIII, Rule 7: This rule outlines the conditions for a valid set-off. It states that the defendant must have a right to set off, and the set-off must be for a liquidated sum of money, either presently payable or payable at a certain future date.

• Order VIII, Rule 8: According to this rule, the set-off claimed by the defendant must be pleaded specifically in the written statement or a subsequent pleading. If the defendant fails to do so, the court may refuse to allow the set-off.

• Order VIII, Rule 9: This rule provides the procedure for dealing with a claim for set-off. Once the defendant pleads a set-off, the court has the authority to try both the plaintiff's claim and the defendant's claim simultaneously, or it may direct separate trials if it deems necessary.

• Order VIII, Rule 10: Under this rule, the court has the power to determine the amount of the set-off claim and adjust it against the plaintiff's claim. If the court finds that the defendant's claim is well-founded, it may pass a decree in favour of the defendant for the balance amount, if any.

Distinction between Legal and Equitable Set-off:

1. Legal Set-off: Legal set-off arises when the defendant has a legal right to adjust or cancel a debt or claim against the plaintiff's claim. It is governed by specific statutory provisions, such as those found in the CPC. The requirements for a legal set-off include a direct connection between the debts or claims and the existence of a mutual relationship between the parties involved.

2. Equitable Set-off: Equitable set-off, also known as non-legal set-off or set-off in equity, is based on principles of fairness and justice rather than specific statutory provisions. It arises when the defendant has a cross-claim that is not directly connected to the plaintiff's claim but has an equitable justification for cancellation or adjustment. Equitable set-off allows for a broader scope of claims to be set off against each other, even if they do not arise out of the same transaction or have a direct relationship.

Set-off is a mechanism provided under the Civil Procedure Code that allows for the adjustment or cancellation of mutual debts or claims between parties involved in a legal dispute. It promotes efficiency by resolving related matters in a single proceeding. Legal set-off is governed by specific statutory provisions, while equitable set-off is based on principles of fairness and justice, allowing for a broader scope of claims to be set off against each other.

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