Would a Defence of Equitable Set-Off Lie Even if beyond Limitation? Peerless Upheld

Whether the plea of equitable set-off would lie as a defence to a claim even if such plea for equitable set-off would ordinarily be barred by limitation is a question that has invited discussions elsewhere. In a recent decision, the Supreme Court has held that such a plea would be available even if it was ordinarily barred by the law of limitation. In Jitendra Kumar Khan v. The Peerless General Finance and Investment Company Ltd. (CA 6784/2013 arising out of SLP 18324/2004)(07.08.2013), the plaint was filed before the trial court in August 1993 and the Written Statement was filed in August 1994. Subsequently, the Defendant-Respondent had filed an Application for Amendment of the Written Statement in April 1998 seeking equitable set-off of Rs. 4,19,509.43. The application was opposed as it was in effect, an indirect method of raising a counter-claim/ set-off by circumventing the law of limitation. The Single Judge of the Calcutta High Court accepted the said argument and rejected the application for amendment. On appeal, the Division Bench of the Calcutta High Court held that the law of limitation does not bar a plea of equitable set-off.

On appeal to the Supreme Court, it was held:

"it is quite clear that equitable set-off is different than the legal setoff; 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 raised 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 setoff is not to be allowed where protracted enquiry is needed for the determination of the sum due... Tested on the aforesaid principles we are disposed to think that the Division Bench has rightly allowed the amendment on the base that the claim put forth could be treated as a plea in the nature of equitable set-off, for it has treated the stand taken in the amendment petition to be a demand so connected in the nature and circumstances that they can be looked upon as a part of one transaction. The view expressed by the Division Bench has to be treated as a prima facie expression of opinion."

The decision of the Supreme Court can be accessed from here.