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6. Dissatisfied with the order of rejection an appeal was preferred and the Division Bench vide order dated 17.6.2004 came to hold that the claim put forth by the defendants by way of written statement could no longer be legally recoverable at that distance of time; and that the claim could not be treated as a counter claim and set-off as envisaged under the Civil Procedure Code. The Division Bench, after referring to Mackinnon Mackenzie and Company Pvt. Ltd. v. Anil Kumar Sen and Anr.[7], came to hold that the provisions of the Limitation Act do not necessarily bar an equitable set-off and the provisions of Order VIII Rule 6 do not do away with the principles of equitable set-off. Eventually, the Division Bench clarified by stating as follows: -

8. We have heard Mr. Ranjan Mukherjee, learned counsel for the appellants, and Mr. Bhaskar P. Gupta, learned senior counsel for the respondents.

9. Mr. Mukherjee, learned counsel for the appellants, has strenuously urged that in the garb of equitable set-off an endeavour has been made to introduce a claim which is really in the nature of set-off as incorporated under Order VIII Rule 6 of the Code and, therefore, the learned single Judge was absolutely justified in not allowing the same. He has seriously criticized the opinion expressed by the Division Bench on the ground that in the case at hand the equitable set-off, as argued, encroaches into the compartment of legal set off. It is urged by him that the High Court has committed grave illegality in allowing the amendment as a result of which the defendants have been able to procrastinate the proceeding.

10. Mr. Gupta, learned senior counsel appearing for the defendants, the respondents herein, conceded that the claim put forth in the written statement cannot be regarded as a counter claim or a legal set-off as both are really not permissible at the stage when the application to amend the written statement was filed. The learned senior counsel would submit that the claim put forth in the amended written statement has to be restricted to equitable set-off which is beyond the scope of legal set-off. It is urged by him that equitable set-off is not governed by the Code and, in fact, there is an immense distinction between the equitable set-off and legal set-off.

suit of his own. When a plea in the nature of equitable set-off is raised it is not done as of right and the discretion lies with the court to entertain and allow such plea or not to do so.”

16. From the aforesaid enunciation of law it is quite clear that 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 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 set-off is not to be allowed where protracted enquiry is needed for the determination of the sum due, as has been stated in Dobson & Barlow v. Bengal Spinning & Weaving Co.[13] and Girdharilal Chaturbhuj v. Surajmal Chauthmal Agarwal[14].