Equitable Set-off and Legal Set-off

“Set-off is defined in Black’s Law Dictionary (7th Edition, 1999) inter alia as a debtor’s right to reduce the amount of a debt by any sum the creditor owes the debtor; the counterbalancing sum owed by the creditor. The dictionary quotes Thomas W. Waterman from a Treatise on the Law of Set-off, Recoupment and Counter-claim as stating:
“Set-off signifies the subtraction or taking away of one demand from another opposite or cross-demand, so as to distinguish the smaller demand and reduce the greater by the amount of the less; or, if the opposite demands are equal, to extinguish both. It was also, formerly, sometimes called stoppage, because the amount to be set-off was stopped or deducted from the cross-demand.”
Equitable set-off is different than the legal set-off; that it is independent of the provisions of the Code of Civil Procedure; that the mutual debts and credits or cross-demands must have arisen out of the same transaction or to be connected in the nature and circumstances; that such a plea is raise not as a matter of right; and that it is the discretion of the court to entertain and allow such a plea or not. The concept of equitable set-off is founded on the fundamental principles of equity, justice and good conscience. The discretion rests with the court to adjudicate upon it and the said discretion has to be exercised in an equitable manner. An equitable set-off is not to be allowed where protracted enquiry is needed for determination of the sum due, as has been stated in Dobson and Barlow v. Bengal Spinning and Weaving Company, (1897) 21 Bom 126 and Girdharilal Chaturbhuj v. Surajmal Chauthmal Agarwal, AIR 1940 Nag 177. Jitendra Kumar Khan v. Peerless General Finance and Investment Company Ltd., 2013 (6) AWC 6359.

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