The National Company Law Tribunal, Mumbai, has admitted Reliance Entertainment Studios Private Limited into the corporate insolvency resolution process over a funding dispute linked to the release of Auron Mein Kahan Dum Tha.
The case concerns an alleged default of Rs 11.94 crores claimed by Pen India. The tribunal’s order was passed on August 19 by a bench of judicial member Nilesh Sharma and technical member Sameer Kakar.
According to the order, the tribunal accepted that Rs 20 crores advanced by Pen India for the film’s release had the character of financial debt under the Insolvency and Bankruptcy Code. The film stars Ajay Devgn and was connected to the financing arrangement cited in the proceedings.
NCLT appoints interim resolution professional
The NCLT has imposed a moratorium under Section 14 of the IBC. It has also appointed Umesh Balaram Sonkar as the interim resolution professional.
At the same time, the tribunal clarified that it has not fixed the final amount payable to Pen India. That exercise will be handled through the claims collation process by the resolution professional.
The order means Reliance Entertainment Studios has entered the insolvency resolution framework, but the exact admitted claim and further steps will depend on the process under the IBC.
What Pen India claimed
Pen India had advanced Rs 20 crores 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.
A later agreement was signed in October 2023. Under that arrangement, Friday Filmworks Private Limited, which is partly owned by Reliance, paid Rs 15 crores to Pen India.
Pen India’s case was that after this payment, Rs 4.49 crores remained outstanding as principal. It also claimed Rs 7.44 crores as interest, taking the alleged default to Rs 11.94 crores.
Reliance’s objections rejected
Reliance Entertainment Studios argued that the amount was described as a security deposit and should not be treated as a money-lending transaction. It also said its liability had been extinguished under a clause that provided for repayment through a third-party satellite or digital rights provider.
The tribunal rejected these arguments. It held that the real substance and commercial effect of the transaction were more important than the labels used in the agreement. The NCLT found that the transaction had the essential features of borrowing despite being described as a security deposit.
On the third-party rights provider clause, the bench held that it created an additional method for payment. It did not remove Reliance Entertainment Studios’ primary liability to repay the amount.
Payment schedules considered by the tribunal
The NCLT also considered Reliance Entertainment Studios’ conduct after the Rs 15 crores payment made through Friday Filmworks.
In April 2024, the company proposed paying the remaining amount in two instalments, with dates of June 30 and September 30, 2024. Later, in August 2024, it proposed a revised schedule of three instalments, with the final payment due by December 31, 2024.
The tribunal noted that Reliance did not make payments according to the revised schedules. It found the company’s later reliance on contractual clauses inconsistent with its earlier acknowledgement of outstanding dues.
Money-lending argument also dismissed
Reliance Entertainment Studios also argued that Pen India was an unlicensed moneylender under the Maharashtra Money-Lending (Regulation) Act, 2014.
The NCLT rejected this submission as well. It said there was no evidence to show that Pen India was engaged in the business of money lending. The tribunal treated the transaction as part of a specific commercial arrangement related to a cinematographic project.
Reliance also pointed to the record of National E-Governance Services Limited, an information utility, where the alleged default was marked as disputed. The NCLT said that did not bar Pen India from filing an application under Section 7 of the IBC. It observed that, unlike Section 9 proceedings, the mere existence of a dispute is not enough by itself to reject a Section 7 application.
The insolvency process will now proceed under the supervision of the interim resolution professional, while the final claim amount remains subject to verification.
Source: Bollywood Hungama.