The Mumbai bench of NCLT has admitted Reliance Entertainment Studios Private Limited into the insolvency process over a payment default of ₹11.94 crore arising from financing for the film Auron Mein Kahan Dum Tha. According to reports from Business Standard, The Economic Times, Bollywood Hungama, and Bar and Bench, a bench comprising judicial member Nilesh Sharma and technical member Sameer Kakar held that the ₹20 crore paid by Pen India towards the film's release qualified as 'financial debt' under the Insolvency and Bankruptcy Code (IBC). The tribunal also imposed a moratorium under Section 14 of the IBC and appointed Umesh Balaram Sonkar as the interim resolution professional (IRP). In its latest order passed on August 19, the tribunal specifically held that the amount advanced under the security deposit arrangement qualifies as a 'financial debt' under Section 5(8) of the IBC. The NCLT noted that the entire amount advanced under the security deposit agreement was not repaid, establishing the default position. However, the tribunal clarified that it has not crystallised the amount claimed by Pen India and has left the process of collating the claim to the resolution professional.
As reported by Business Standard, The Economic Times, Bollywood Hungama, and Bar and Bench, Pen India had advanced ₹20 crore to Reliance Entertainment Studios under a security deposit agreement signed in November 2022. The arrangement provided for repayment with interest at 21 per cent a year, compounded monthly. Subsequently, Friday Filmworks Private Limited, which is partly owned by Reliance, paid ₹15 crore to Pen India under a separate agreement executed in October 2023. According to Pen India, ₹4.49 crore remained outstanding as principal, besides ₹7.44 crore in interest. The tribunal relied on Reliance's letters dated January 5, April 3 and August 14, 2024, which acknowledged the outstanding liability and proposed repayment timelines, including a revised three-instalment schedule with the final payment proposed for December 31, 2024. The NCLT rejected Reliance's argument that the transaction was a security deposit, holding that Clause 4(B) was a payment mechanism and did not extinguish Reliance's primary liability. The tribunal emphasized that "the actual substance and commercial effect of a transaction matter more than the terminology used by the parties," stating that "the transaction, therefore, possesses all the essential attributes of a borrowing notwithstanding the terminology adopted by the parties."
According to Business Standard, The Economic Times, Bollywood Hungama, and Bar and Bench, Reliance Entertainment disputed the insolvency plea, arguing that the amount was expressly described as a security deposit and was not a loan. It also claimed that its liability had been discharged under a contractual provision providing for repayment through a third-party satellite or digital rights provider. The company maintained its position in the Indian entertainment industry, stating that it has produced and distributed more than 400 films with cumulative global box-office revenues exceeding $1 billion. Its business includes investments in film production companies and intellectual property, along with digital distribution relationships with platforms including Netflix, Amazon, Disney+ Hotstar and Jio Studios. The company argued that its scale, industry relationships and diversified content portfolio demonstrated that it could not reasonably be characterised as an entity financially incapable of meeting its obligations. However, the tribunal rejected these arguments, noting that the clause concerning repayment through a third-party rights provider only created an additional mechanism for payment and did not remove Reliance's primary liability. The NCLT also noted that "the subsequent conduct of the parties constitutes the best evidence of how they themselves understood and acted upon the Agreement."
As reported by Business Standard, The Economic Times, Bollywood Hungama, and Bar and Bench, the tribunal relied on Reliance's subsequent conduct, noting that the company had acknowledged the outstanding liability on several occasions after the ₹15 crore payment. In April 2024, it proposed clearing the dues in two instalments by June 30 and September 30. It later offered a revised three-instalment schedule, with the final payment proposed for December 31, 2024. The company failed to adhere to either schedule, with these acknowledgements and repayment proposals showing how the parties themselves had understood the agreement. The NCLT noted that "the subsequent conduct of the parties constitutes the best evidence of how they themselves understood and acted upon the Agreement." The tribunal found that Reliance's later reliance on the contractual clauses was inconsistent with its earlier acknowledgements of the outstanding dues, as the company had failed to make payments according to the revised schedules. The NCLT also rejected Reliance's objection based on the 'disputed' status recorded with NeSL, holding that it was not a judicial determination of default.
According to Business Standard, The Economic Times, Bollywood Hungama, and Bar and Bench, the tribunal also rejected Reliance's argument that Pen India was an unlicensed moneylender under the Maharashtra Money-Lending (Regulation) Act, 2014. It found no material showing that Pen India was engaged in the business of moneylending, as opposed to entering into a specific commercial transaction related to a film project. The tribunal distinguished insolvency proceedings from applications under Section 9, where the existence of a pre-existing dispute can be a ground for rejection. The tribunal clarified that unlike proceedings under Section 9, the existence of a dispute is not by itself a ground to reject an Application under Section 7. The tribunal also noted that it had not determined the final amount payable to Pen India, with the IRP to verify and collate its claim during the insolvency process. Addressing Reliance's objections regarding the existence of a dispute, the NCLT emphasized that "the legal position under Section 7 differs from proceedings initiated by operational creditors under Section 9, where the mere existence of a dispute does not constitute sufficient grounds to reject a Section 7 application."
