Set-Off Agreement (India)
SET-OFF AGREEMENT
Indian Contract Act 1872 | Civil Procedure Code 1908 (Order VIII Rule 6) | Bilateral Netting of Qualified Financial Contracts Act 2020
This Set-Off Agreement ("Agreement") is entered into on [Agreement Date] at [City], India, between:
(1) [Party A Name] (CIN: [Party A CIN], PAN: [Party A PAN]), having its registered office at [Party A Address] (hereinafter referred to as "Party A"); and
(2) [Party B Name] (CIN: [Party B CIN], PAN: [Party B PAN]), having its registered office at [Party B Address] (hereinafter referred to as "Party B").
1. MUTUAL OBLIGATIONS
1.1 Party A's Debt: Party A acknowledges that it owes Party B the following amount: [Party A Owes].
1.2 Party B's Debt: Party B acknowledges that it owes Party A the following amount: [Party B Owes].
1.3 Both parties confirm that the amounts specified above are undisputed, certain, and immediately due and payable.
2. SET-OFF AND NETTING
2.1 The parties hereby agree to set off their mutual obligations against each other pursuant to this [Set-Off Type] arrangement and the principles of the Indian Contract Act 1872.
2.2 Upon the execution of this Agreement, the mutual obligations of the parties described in Clause 1 are hereby set off against each other to the extent of the lesser amount, and the obligations of both parties are extinguished up to that extent.
2.3 Net Balance: Following the set-off, the net balance payable is: [Net Balance]. This net balance shall be paid on or before [Payment Deadline] by bank transfer (NEFT/RTGS/UPI) to the payee party's designated bank account.
3. DISCHARGE OF OBLIGATIONS
3.1 Upon execution of this Agreement and payment of the net balance of [Net Balance] by [Payment Deadline], the mutual obligations described in Clause 1 shall be fully and finally discharged and extinguished.
3.2 Each party hereby releases and discharges the other from all claims, demands, and causes of action arising from the obligations set off under this Agreement.
3.3 Neither party shall commence or continue any legal proceedings, arbitration, or recovery action in respect of the obligations extinguished by this set-off.
4. GOVERNING LAW AND JURISDICTION
4.1 This Agreement is governed by the Indian Contract Act 1872 and the laws of India.
4.2 Any dispute arising from this Agreement shall be subject to the jurisdiction of courts at [City], India.
Party A (Authorised Signatory)
________________
Signature
Party B (Authorised Signatory)
________________
Signature
What Is a Set-Off Agreement (India)?
A Set-Off Agreement in India governs the arrangement between the parties and the conditions on which it operates.
In India, set-off rights arise both by operation of law (under Order VIII Rule 6 of the Civil Procedure Code 1908 for legal set-off in litigation, and under equitable principles) and by express contract (contractual set-off). A Set-Off Agreement formalises the contractual right to set-off, specifying the obligations to be offset, the calculation of the net amount, and the payment of any residual balance.
Set-off agreements are widely used in Indian banking (banker's right of combination of accounts), intercompany transactions within corporate groups, supply chain finance, derivatives and financial market transactions (governed by the Bilateral Netting of Qualified Financial Contracts Act 2020), and commercial disputes where parties agree to settle mutual claims by netting rather than litigation.
The legal framework governing the Set-Off Agreement (India) in India draws on several key statutes and regulatory bodies. Under Indian law, the Indian Contract Act 1872 governs contractual obligations, with Section 10 setting essential requirements for valid agreements. The Companies Act 2013 regulates corporate entities through the Registrar of Companies (ROC) and Ministry of Corporate Affairs (MCA). The Industrial Disputes Act 1947 and state labour commissioners govern employment disputes. The Information Technology Act 2000 and IT (Reasonable Security Practices) Rules 2011 protect personal data. The Income Tax Act 1961 and Goods and Services Tax Act 2017 govern tax obligations through the Central Board of Direct Taxes (CBDT) and GST Council. Parties executing a Set-Off Agreement (India) in India should confirm the document reflects current law, including any amendments enacted since the original drafting date. The Indian Contract Act, 1872 sets the foundational requirements.
When Do You Need a Set-Off Agreement (India)?
You need a Set-Off Agreement when two businesses or individuals have mutual debts to each other and want to simplify settlement by netting the obligations rather than making separate payments in both directions. This reduces transaction costs, payment risk, and administrative burden.
You need this document if you are a supplier and a customer who both owe money to each other arising from different transactions, and you want to formally agree to offset these obligations. It is also used in banking relationships where a bank and its customer have mutual obligations (loans outstanding versus deposits held) that they wish to net.
The India Set-Off Agreement (India) agreement is also essential for intercompany netting arrangements within a corporate group, where multiple entities within the same group have receivables and payables with each other and want to settle on a net basis periodically.
Parties in India should prepare a Set-Off Agreement (India) proactively rather than waiting for a dispute to arise. Courts interpret agreements based on the written terms rather than oral representations. Under Indian law, the Indian Contract Act 1872 governs contractual obligations, with Section 10 setting essential requirements for valid agreements. The Companies Act 2013 regulates corporate entities through the Registrar of Companies (ROC) and Ministry of Corporate Affairs (MCA). The Industrial Disputes Act 1947 and state labour commissioners govern employment disputes. The Information Technology Act 2000 and IT (Reasonable Security Practices) Rules 2011 protect personal data. The Income Tax Act 1961 and Goods and Services Tax Act 2017 govern tax obligations through the Central Board of Direct Taxes (CBDT) and GST Council. Where the transaction involves regulated activities, prior approval from the relevant authority may be required before execution.
What to Include in Your Set-Off Agreement (India)
A valid India Set-Off Agreement should contain the following key elements.
Parties: Full names, addresses, CIN, and PAN of both parties.
Description of Mutual Obligations: A precise description of each party's debt or obligation to the other, including the basis, amount, and due date of each obligation.
Set-Off Calculation: The calculation of the net amount after offsetting the mutual obligations, and identification of which party owes the net balance.
Payment of Net Balance: The amount of the net balance remaining after set-off, and the deadline and method for payment.
Scope of Set-Off: Whether the set-off is limited to the specific obligations described, or whether it creates an ongoing netting mechanism for future mutual obligations.
Conditions for Exercise: Whether set-off is automatic upon the agreed date, or requires written notice from one party to the other.
Acknowledgement of Discharge: Confirmation that upon set-off (and payment of any net balance), the specified obligations of both parties are fully discharged.
Governing Law: Indian law and specified jurisdiction.
Additional compliance elements for a Set-Off Agreement (India) used in India include: Under Indian law, the Indian Contract Act 1872 governs contractual obligations, with Section 10 setting essential requirements for valid agreements. The Companies Act 2013 regulates corporate entities through the Registrar of Companies (ROC) and Ministry of Corporate Affairs (MCA). The Industrial Disputes Act 1947 and state labour commissioners govern employment disputes. The Information Technology Act 2000 and IT (Reasonable Security Practices) Rules 2011 protect personal data. The Income Tax Act 1961 and Goods and Services Tax Act 2017 govern tax obligations through the Central Board of Direct Taxes (CBDT) and GST Council. Forms-legal.com provides this template as a starting point for India-compliant documentation.
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Reference this free template in an article, syllabus, or research note:
Forms Legal. (2026). Set-Off Agreement (India) (India) [Legal document template]. Forms Legal. https://forms-legal.com/india/business/contracts/set-off-agreement-india
"Set-Off Agreement (India) (India)." Forms Legal, 2026, https://forms-legal.com/india/business/contracts/set-off-agreement-india.
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note = {Free legal document template. Based on Indian Contract Act, 1872}
}Also available for these jurisdictions:
Frequently Asked Questions
Set-off under Indian law is a right that allows a defendant (or debtor) to reduce or extinguish a plaintiff's (or creditor's) claim by asserting a cross-claim or counter-debt owed by the plaintiff to the defendant. While there is no single codified statute specifically titled 'Set-Off Act' in India, the right of set-off is recognised and governed by several legal sources. Civil Procedure Code (CPC) 1908 — Order VIII, Rule 6: Provides for legal set-off as a procedural right in civil suits. A defendant may plead set-off of an ascertained sum of money legally recoverable from the plaintiff. The set-off must be a debt owed by the plaintiff to the defendant, must be an ascertained (certain and liquidated) amount, and both claims must be recoverable by the same parties in the same capacity. Indian Contract Act 1872: The general principles of contract law govern contractual set-off agreements where parties expressly agree to offset mutual obligations. Section 64 (consequences of rescission) and general principles of consideration and payment underpin contractual set-off arrangements. Equitable Set-Off: Indian courts have recognised equitable set-off (beyond the strict CPC provision) where the cross-demands are so closely connected that it would be inequitable to enforce one without the other — drawing from English equity principles applied by Indian courts.
Indian law recognises several distinct types of set-off, each with its own requirements and legal basis. 1. Legal Set-Off (CPC Order VIII Rule 6): Available in civil suits where both the plaintiff's claim and the defendant's cross-claim are ascertained (certain) sums of money, both are legally recoverable, and both involve the same parties in the same capacity. The defendant pleads set-off as a defence and counter-claim. If the set-off amount equals the plaintiff's claim, the suit is dismissed; if it exceeds the plaintiff's claim, the defendant can recover the excess. 2. Equitable Set-Off: Applies where the plaintiff's claim and the defendant's cross-claim arise out of the same transaction or are so closely connected that it would be inequitable to enforce one without the other. Indian courts have applied equitable set-off principles even where the cross-claim is an unliquidated sum, provided the connection is sufficiently close. 3. Contractual (Consensual) Set-Off: The most commercially important form for businesses — parties expressly agree in a contract that mutual debts, credits, or obligations shall be set off against each other automatically or upon notice. This is the basis of netting agreements in banking (ISDA Master Agreements, for example), intercompany netting arrangements, and commercial supply chain finance. Contractual set-off is fully enforceable under the Indian Contract Act 1872. 4.
The exercise of set-off rights in Indian insolvency proceedings under the Insolvency and Bankruptcy Code 2016 (IBC) is an important and evolving area of law. The IBC recognises the concept of set-off in a limited but significant way. Section 36(4) of the IBC provides that the liquidation estate assets shall not include assets over which a secured creditor has rights under a security interest, but more relevantly, the IBC (and associated IBBI regulations) recognises the right of creditors to net off mutual obligations in certain circumstances. In the context of financial contracts (derivatives, repo agreements, securities transactions), the Financial Resolution and Deposit Insurance (FRDI) framework and RBI regulations on close-out netting protect counterparties' right to net obligations upon insolvency of the counterparty — preventing the insolvency representative from 'cherry-picking' (i.e., demanding performance on contracts favourable to the estate while rejecting unfavourable ones). The Bilateral Netting of Qualified Financial Contracts Act 2020 (BNQFC Act) was specifically enacted in India to give statutory recognition and enforceability to close-out netting provisions in qualified financial contracts (QFCs) — including derivatives, repo, and securities lending agreements — upon the insolvency or resolution of a party. This Act ensures that netting and set-off agreements in Indian financial markets are protected and enforceable against a liquidator, receiver, or resolution professional, and are not subject to the general moratorium under the IBC.
A Set-Off Agreement (India) does not legally require a lawyer in India, and individuals and businesses may draft and execute the document independently. The Indian Contract Act, 1872 does not mandate legal representation for the creation or signing of this type of document. However, seeking independent legal advice from a qualified India lawyer is recommended for transactions involving substantial financial value, complex regulatory requirements, or cross-border elements where multiple legal jurisdictions may apply. A lawyer can verify that the document complies with all applicable statutory requirements, identify potential risks specific to the transaction, and confirm that the terms adequately protect the interests of all parties involved. The Supreme Court of India has jurisdiction over disputes arising from this type of document, and Registrar of Companies (ROC) may impose additional compliance obligations depending on the nature of the underlying transaction. Professional legal review is particularly advisable where the document will be submitted to government agencies or used as evidence in legal proceedings.
A Set-Off Agreement (India) does not legally require a lawyer in India, though legal advice is recommended. Under Indian law, the Indian Contract Act 1872 governs agreements. The Companies Act 2013 and Registrar of Companies (ROC) regulate corporate documents. The Information Technology Act 2000 governs electronic contracts and data protection. The Consumer Protection Act 2019 provides consumer rights. The Income Tax Act 1961 requires tax compliance. Forms-legal.com provides this template as a starting point — always review with a qualified Indian advocate for significant transactions. Under India law, Indian Contract Act, 1872, parties should seek independent legal advice from a qualified lawyer to confirm compliance with all applicable requirements. Under Indian law, the Indian Contract Act 1872 governs contractual obligations, with Section 10 setting essential requirements for valid agreements. The Companies Act 2013 regulates corporate entities through the Registrar of Companies (ROC) and Ministry of Corporate Affairs (MCA). Forms-legal.com provides this template as a starting point for India-compliant documentation.
This template is provided for informational purposes only and does not constitute legal advice. Laws vary by jurisdiction and change over time. Consult a qualified attorney for advice specific to your situation.Full disclaimer
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