NCLT admits Reliance Entertainment Studios into Rs 11.94 cr default insolvency case

The Mumbai bench of the National Company Law Tribunal (NCLT) has admitted Reliance Entertainment Studios Private Limited into insolvency proceedings over a payment default of ₹11.94 crore linked to financing for the film ‘Auron Mein Kahan Dum Tha’.

In an order dated August 19, the tribunal held that the ₹20 crore advanced by Pen India towards the film's release qualified as “financial debt” under the Insolvency and Bankruptcy Code (IBC). 

The NCLT clarified, however, that it had not determined the final amount payable to Pen India. The IRP will verify and collate the claim as part of the insolvency process.

Pen India had advanced ₹20 crore to Reliance Entertainment Studios under a security deposit agreement signed in November 2022. The agreement provided for repayment with interest at 21% per annum, compounded monthly. Subsequently, Friday Filmworks Private Limited, which is partly owned by Reliance, paid ₹15 crore to Pen India under a separate agreement signed in October 2023.

Pen India claimed that ₹4.49 crore remained outstanding as principal, along with ₹7.44 crore in interest.

Reliance contested the insolvency petition, arguing that the amount was expressly described as a security deposit and did not constitute a loan. 

It also maintained that its liability had been discharged under a contractual provision allowing repayment through a third-party satellite or digital rights provider.

The tribunal rejected both arguments, holding that the nature of a transaction is determined by its substance and commercial effect rather than the terminology used by the parties. It concluded that the arrangement contained the essential characteristics of borrowing and therefore constituted financial debt.

The NCLT also rejected Reliance's contention that the third-party payment provision extinguished its primary obligation. According to the tribunal, the clause merely provided an alternative mechanism for making the payment.

The tribunal further relied on Reliance's subsequent conduct, noting that the company had acknowledged the outstanding liability on multiple occasions after the ₹15 crore payment.

In April 2024, Reliance proposed clearing the outstanding dues in two instalments by June 30 and September 30. It later submitted a revised three-instalment repayment schedule, with the final instalment proposed for December 31, 2024. The company failed to adhere to either schedule.

The NCLT said these acknowledgements and repayment proposals demonstrated how the parties themselves had understood the agreement and were inconsistent with Reliance's subsequent claim that no liability remained.

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 to establish that Pen India was engaged in the business of moneylending, as opposed to entering into a specific commercial transaction connected to a film project.

Reliance had also pointed out that National E-Governance Services Limited, an information utility, had recorded the alleged default as “disputed”.

The NCLT held that this did not prevent Pen India from filing a Section 7 insolvency application, noting the distinction between such proceedings and applications under Section 9, where the existence of a pre-existing dispute can be grounds for rejection.

The tribunal accordingly admitted the insolvency petition and initiated the corporate insolvency resolution process against Reliance Entertainment Studios.