Set-off is a defence available to a defendant in a suit for recovery of money, allowing the defendant to claim adjustment of a legally ascertained sum owed by the plaintiff to the defendant against the plaintiff's claim. Under Indian law, legal set-off is governed by Order VIII Rule 6 of the Code of Civil Procedure, 1908, which permits a defendant to set off an ascertained sum of money legally recoverable from the plaintiff against the plaintiff's claim.
Legal definition
Order VIII Rule 6 of the Code of Civil Procedure, 1908 provides for legal set-off:
Order VIII Rule 6 — Set-off: 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, not exceeding the pecuniary limits of the jurisdiction of the Court, and both parties fill, in the suit, the same character as they fill in the suit in which the set-off is pleaded, the written statement shall set forth the grounds of set-off, and the same shall have the same effect as a plaint in a cross-suit.
The provision further states that if a defendant's set-off exceeds the plaintiff's claim, the court may grant the defendant a decree for the balance. A set-off operates as a mutual extinction of debts — each party's claim is reduced to the extent of the other's.
Indian courts also recognise equitable set-off, which is not codified in the CPC but is a creature of judicial construction. Unlike legal set-off, equitable set-off applies to unascertained sums arising out of the same transaction or closely connected transactions.
How courts have interpreted this term
Laxmidas Dayabhai Kabrawala v. Nanabhai Chunilal Achwal [AIR 1964 SC 11]
The Supreme Court held that a set-off under Order VIII Rule 6 has the same effect as a plaint in a cross-suit. This means that the set-off is an independent claim by the defendant against the plaintiff, and the court must adjudicate it as such. Even if the plaintiff's suit is dismissed, the defendant's set-off claim can be decreed.
New India Assurance Co. Ltd. v. R. Srinivasan [(2000) 3 SCC 242]
The Supreme Court distinguished between legal set-off and equitable set-off. Legal set-off under Order VIII Rule 6 requires the sum to be ascertained and legally recoverable, while equitable set-off may be claimed for unascertained amounts arising from the same transaction. The Court held that equitable set-off flows from the principles of equity and requires a connection between the plaintiff's demand and the defendant's cross-demand.
Types of set-off
- Legal set-off (Order VIII Rule 6): Available when the defendant's claim is for an ascertained sum of money that is legally recoverable from the plaintiff. The claim must be within the pecuniary jurisdiction of the court, and both parties must fill the same character as in the original suit. The sum must be quantified and definite.
- Equitable set-off: Available when the defendant's claim arises out of the same transaction as the plaintiff's claim, even if the amount is not ascertained. This is a judicial creation based on principles of equity and is not expressly codified in the CPC. Courts grant equitable set-off to prevent multiplicity of proceedings and ensure justice.
Why this matters
Set-off is a valuable defensive tool that allows a defendant to reduce or extinguish the plaintiff's claim without filing a separate suit. In commercial litigation, where parties frequently have cross-demands against each other, set-off prevents the inefficiency of parallel proceedings and enables a court to settle mutual obligations in a single adjudication.
For practitioners, the distinction between legal and equitable set-off has significant procedural consequences. A legal set-off must be pleaded in the written statement and must meet the four conditions of Order VIII Rule 6: the suit must be for recovery of money, the defendant's claim must be for an ascertained sum, the sum must be legally recoverable, and it must not exceed the court's pecuniary jurisdiction. Failure to meet any condition renders the set-off inadmissible.
A common misconception is that set-off and counter-claim are identical. While both are defensive mechanisms available to a defendant, they differ in scope. A set-off is limited to money claims and operates as a deduction from the plaintiff's demand. A counter-claim under Order VIII Rules 6A-6G is a broader remedy that allows the defendant to assert any independent claim, including non-monetary relief, against the plaintiff.
Related terms
Related concepts:
Broader concepts:
Frequently asked questions
What is the difference between set-off and counter-claim?
A set-off under Order VIII Rule 6 is limited to the recovery of an ascertained sum of money and operates as a deduction from the plaintiff's claim. A counter-claim under Order VIII Rule 6A is a broader remedy allowing the defendant to assert any independent claim — including non-monetary relief such as specific performance or injunction — against the plaintiff. A counter-claim has the effect of a cross-suit, while a set-off is essentially a defence.
Can a set-off exceed the plaintiff's claim?
Yes. Under Order VIII Rule 6, if the defendant's set-off exceeds the plaintiff's claim, the court may decree the balance in favour of the defendant. In such a case, the defendant effectively obtains an affirmative decree for the excess amount.
Is court fee payable on a set-off?
Yes. Since a set-off has the same effect as a plaint in a cross-suit, the defendant must pay court fee on the amount claimed as set-off. The court fee is computed ad valorem on the set-off amount, just as it would be on a plaint.
This entry is part of the Veritect Indian Legal Glossary, a comprehensive reference of Indian legal terminology grounded in statutory text and judicial interpretation.
Last updated: 2026-03-27. Veritect provides this content for informational purposes and does not constitute legal advice.