Difference Between Legal Set Off And Equitable Set Off

Understanding the difference between legal set off and equitable set off is crucial for litigants and legal professionals dealing with monetary claims and counterclaims in court. Both concepts allow a defendant to counter a plaintiff's claim by asserting their own claims, but they differ significantly in their application, requirements, and legal basis.

While legal set-off is a statutory right under Order VIII Rule 6 of the Code of Civil Procedure (CPC) and applies strictly to ascertained monetary claims, equitable set-off is rooted in principles of equity, justice, and good conscience. Equitable set-off allows claims that may involve unascertained sums or damages, provided they arise out of the same transaction or are closely connected.

This blog explores the legal provisions, key elements, and distinctions between legal and equitable set-off, helping you understand when and how they can be invoked effectively in a lawsuit.

Meaning Of Legal Set-Off

A legal set-off is permissible only in suits for the recovery of money and requires that both claims be for ascertained sums of money legally recoverable and arise from the same transaction or a series of transactions.

Definitions And Legal Provisions

Legal Set Off is defined under Order VIII Rule 6(1) of the CPC. This rule allows a defendant to claim a set off against the plaintiff's demand in a suit for the recovery of money. The relevant text states:

"Where in a suit for the recovery of money the defendant claims to set off against the plaintiff's demand any ascertained sum of money legally recoverable by him from the plaintiff, the defendant may, in his written statement, claim such set off."

This provision allows a defendant to deduct a legally recoverable sum of money owed to them by the plaintiff from the plaintiff's claim. This set-off must be for an ascertained sum of money. While it's often more convenient if both claims arise from the same transaction, it's not a strict requirement under Order VIII Rule 6. The key is that the amount claimed by the defendant must be a debt, not damages, and must be legally recoverable at the time of the suit.

Key Elements Of Legal Set Off

Legal set-off allows a defendant to deduct a legally recoverable, ascertained sum of money owed by the plaintiff from the plaintiff's monetary claim against them, provided the debt is legally recoverable at the time of the suit.

• Same Transaction: The claims must arise from the same transaction or series of transactions. This is crucial for establishing a legal set-off.
• Mutual Debts: The debts must be mutual, meaning that both parties owe each other.
• Nature of Claim: The claim must be of a liquidated nature, meaning it can be quantified in monetary terms.
• Suit for Recovery of Money: Legal Set Off can only be claimed in suits specifically for the recovery of money.
• Ascertainable Amount: The amount claimed by the defendant must be ascertained and definite. For example, if A sues B for Rs. 500, B can claim a set off only if he has a clear, ascertainable claim against A.
• Pecuniary Limits: The claim for set off must not exceed the pecuniary limits of the court's jurisdiction.

Significance

Legal set-off simplifies the litigation process. It prevents multiple lawsuits regarding the same transactions. Additionally, it promotes judicial economy by resolving related disputes in one legal proceeding. This mechanism effectively reduces the burden on courts and ensures that parties are not subjected to conflicting judgments.

Also Read : Difference Between Counter Claim And Set Off

Meaning Of Equitable Set-Off

Equitable Set Off, on the other hand, is not explicitly defined in the CPC but is recognized through judicial interpretation. It arises from principles of equity, justice, and good conscience, allowing a defendant to set off claims that may not strictly meet the criteria for Legal Set Off. The courts have discretion in allowing such claims, which are often based on the relationship between the parties and the nature of the claims involved.

Definition And Legal Provision

The concept of equitable set-off is rooted in principles of equity and has been developed through judicial pronouncements. While not codified in a specific section, courts recognize it as an inherent power to prevent injustice. Equitable set-off is allowed even if the defendant's claim is for an unascertained sum or relates to damages, provided it arises out of the same transaction or is so closely connected with the plaintiff's claim that it would be inequitable to allow the plaintiff to recover without taking into account the defendant's claim. It is distinct from legal set-off, which requires an ascertained sum.

Key Elements Of Equitable Set Off

• Discretion of the Court: Unlike Legal Set Off, Equitable Set Off is at the discretion of the court. The court may allow a set off based on fairness and justice, even if the claims are not strictly monetary or ascertainable.
• Mutuality of Claims: There must be mutuality between the claims, meaning both claims should arise from the same transaction or closely related transactions.
• No Limitation on Amount: The amount claimed in Equitable Set Off does not need to be ascertained or fixed, allowing for broader applications.

Differences Between Legal Set Off & Equitable Set Off