The National Company Law Tribunal (NCLT) in Mumbai has officially accepted Reliance Entertainment Studios Private Limited into the corporate insolvency resolution process due to a claimed default of Rs 11.94 crores. This issue is connected to the movie “Auron Mein Kahan Dum Tha,” featuring Ajay Devgn. On August 19, the tribunal confirmed that a Rs 20 crore advance from Pen India to help fund the film’s release qualifies as financial debt under the Insolvency and Bankruptcy Code.
As part of the proceedings, the tribunal enforced a freeze on actions against Reliance and appointed Umesh Balaram Sonkar as the interim resolution professional. However, it’s important to note that the NCLT has not yet decided the exact amount owed to Pen India and has tasked the resolution professional with gathering claims related to this matter.
### What Led to the Dispute?
The disagreement stems from a security deposit agreement signed in November 2022, where Pen India advanced Rs 20 crores to Reliance Entertainment Studios. The contract included an interest rate of 21% per year, compounded monthly. An additional agreement in October 2023 had Friday Filmworks Private Limited—partly owned by Reliance—paying Rs 15 crores to Pen India.
Pen India claims that an amount of Rs 4.49 crores is still owed, plus Rs 7.44 crores in interest. On the other hand, Reliance argues that this money was meant as a security deposit and not as a loan. They also mentioned that their obligation was fulfilled under a clause requiring repayment through third-party satellite or digital distribution rights.
The NCLT dismissed Reliance’s arguments, stressing that the true nature of a transaction is more significant than the terms used. The tribunal stated that the deal had the basic characteristics of a loan, irrespective of the labels applied. They clarified that the repayment clause involving a third party merely added another payment option and did not eliminate Reliance’s main responsibility.
### Reliance’s Acknowledgment of Debt
The tribunal also considered Reliance’s actions after making the Rs 15 crores payment. In April 2024, the company suggested paying off the remaining amount in two parts by June 30 and September 30. By August 2024, they revised this to three payments, with the last one due by December 31, 2024. The tribunal pointed out that how the parties behaved afterward demonstrated their understanding of the agreement.
However, the NCLT highlighted that Reliance did not comply with the new payment schedule, making their later claims about the contract inconsistent with their earlier admissions of owing money.
### NCLT’s Stance on Money-Lending License
Reliance also claimed that Pen India operated as an unlicensed moneylender under Maharashtra’s regulations. The tribunal rejected this notion, noting that there was no proof to show that Pen India was in the money-lending business. Instead, the agreement was specifically tied to a film project.
Furthermore, Reliance pointed out that an information utility had categorized the alleged default as “disputed.” The NCLT clarified that this status does not prevent Pen India from filing an application under Section 7 of the IBC, as disputes do not automatically disqualify such applications.
This ongoing issue between Reliance Entertainment Studios and Pen India illustrates the complexities of financial agreements in the film industry and the legal frameworks surrounding them.
