Reliance Entertainment’s Insolvency Admission
The National Company Law Tribunal (NCLT) in Mumbai has initiated the corporate insolvency resolution process (CIRP) for Reliance Entertainment Studios Private Limited due to a debt default amounting to ₹11.94 crore. This financial obligation is linked to the film Auron Mein Kahan Dum Tha. The tribunal’s decision was rendered by a bench comprising judicial member Nilesh Sharma and technical member Sameer Kakar on August 19.
Financial Debt Under IBC
As per the NCLT ruling, a ₹20 crore advance from Pen India to Reliance Entertainment, intended for the film’s release, constitutes financial debt under the Insolvency and Bankruptcy Code (IBC) 2016. Consequently, the tribunal has imposed a moratorium under Section 14 of the IBC and appointed Umesh Balaram Sonkar as the interim resolution professional. The bench clarified that it has not finalized the amount claimed by Pen India, leaving the determination to the interim resolution professional.
Security Deposit Agreement and Repayment Issues
The advance was part of a security deposit agreement executed in November 2022, which required repayment with an annual interest rate of 21%, compounded monthly. Friday Filmworks Private Limited, partly owned by Reliance, paid ₹15 crore to Pen India under a subsequent agreement in October 2023. However, Pen India claims that ₹4.49 crore, along with ₹7.44 crore in interest, remains due.
NCLT’s Rejection of Reliance’s Arguments
Reliance Entertainment argued that the transaction was a security deposit rather than a loan and claimed that their liability was voided by a clause allowing repayment through a third-party satellite or digital rights provider. The NCLT dismissed these arguments, emphasizing that the substance and commercial effect of a transaction, not its label, determine its classification as financial debt. The tribunal noted, “The transaction, therefore, possesses all the essential attributes of a borrowing notwithstanding the terminology adopted by the parties.”
Conduct and Payment Schedules
The tribunal highlighted that Reliance had acknowledged the outstanding amount after the ₹15 crore payment. In April 2024, Reliance proposed paying the remaining balance in two installments by June 30 and September 30, 2024, later revising this to a three-installment schedule ending December 31, 2024. The NCLT found that Reliance failed to adhere even to these revised schedules.
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Rejection of Additional Contentions
Reliance’s argument that Pen India was operating as an unlicensed money lender under the Maharashtra Money-Lending (Regulation) Act, 2014, was also dismissed by the tribunal. It found no evidence that Pen India engaged in money lending as a business, rather than participating in a singular commercial transaction regarding a film project. Furthermore, the tribunal noted that the recording of the default as “disputed” by the National E-Governance Services Limited did not warrant the dismissal of a Section 7 plea, as the existence of a dispute does not invalidate a Section 7 application.
Legal Representation
Pen India was represented by advocates Nausher Kohli, Jehan Fauzdar, and Shoma Maria of Wadia Ghandy & Co, while Reliance Entertainment Studios was represented by advocates Rohit Gupta, Krushi Barfiwala, and Archit Shah of Parinam Law Associates.
