By equitable set-off we mean that form of set-off which the Court of Equity in England allowed when cross-demands arose out of the same transaction, even if the money claimed by way of the set-off was an unascertained sum of money. The Common Law Courts refused to take notice of equitable claims for they were not of ascertained sums.
The Court of Equity, however, however, held that it would be inequitable to drive the defendant to a separate cross-suit, and that he might be allowed to plead a set-off though the amount might be unascertained. Such a set-off is called an equitable set-off.
The Courts in India have, apart from and independent of the provisions contained in the Code, allowed the principles adopted by the Courts of Equity and allowed as set-off even in respect of an unascertained sum in the nature of cross-demand arising out of the same transaction, or if they Eire so connected in their nature and circumstances that they can be looked upon as one transaction. But it is necessary that the claim to set-off must be within limitation on the date on which the written statement was presented.
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ADVERTISEMENTS:
As a result of series of decisions of the Courts in India there emerge the following propositions of law with regard to equitable set-off:
1. An equitable right of set-off exists in this country when the claims of the plaintiff and that of the defendant arise out the same transaction.
2. The law of equitable set-off applies where the cross-claims though not arising out of the same transaction, were closely connected together.
ADVERTISEMENTS:
3. In order that a claim for equitable set-off may arise it is not sufficient that there are cross-demands; it is further necessary that there should be a connection between them which makes it inequitable to drive the defendant to a separate suit—as when the demands arise out of the same transaction or when there is, on each side, knowledge of and confidence in one debt discharging the other.