Dispute Resolution & ADR Newsletter - June 2025

Mutual set-off prevents the initiation of insolvency proceedings

Future Consumer Ltd v. Aussee Oats India Ltd

National Company Law Tribunal, Mumbai | Company Petition (Insolvency) No. 538 of 2024

The National Company Law Tribunal, Mumbai (NCLT) rejected the initiation of insolvency in a case where the financial creditor owed a larger amount to the corporate debtor than its claimed default. The judgment rightly clarifies that insolvency under Section 7 of the Insolvency and Bankruptcy Code, 2016 (Code) is not intended to serve as a recovery mechanism, particularly where mutual financial dealings exist and legally sustainable set-offs are in place.

The decision also affirms that a valid and legally enforceable set-off can override even the unconditional or absolute nature of a repayment obligation. Where mutual claims are supported by clear financial documentation, such as admitted, audited statements and internal acknowledgements, the existence of debt cannot