Mutual dealings mean dealings by the one with either and vice versa. It includes credits that have a natural tendency to terminate in debits, and not merely credits which must necessarily terminate in debits [33 Mad 53]. Mutual credit or mutual dealing under section 46, Provincial Insolvency Act mean reciprocal demands which must naturally be terminated in a debt. In a case where there are reciprocal demands available by one party against the other in the same capacity, it is a clear case of mutual dealings in which a set off is a matter of course [AIR 1954 Ori 7].
When there are such mutual dealings between the insolvent and the creditor giving rise to mutual credits and debits between them, the mode of ascertaining the extent of indebtedness of either party is first to allow a set off and then to allow a claim for balance in favour of the person who holds greater credits. Of course, a person is not entitled to set-off as against the trustee in bankruptcy a debt that is not binding on trustee [9 Cal 146].