Mumbai: The National Company Law Tribunal (NCLT), Mumbai, has admitted a Section 7 insolvency petition filed by film company Pen India against Reliance Entertainment Studios, initiating the corporate insolvency resolution process (CIRP).
The petition arose from a ₹20-crore security deposit agreement dated November 14, 2022, under which Pen India disbursed the amount to Reliance Entertainment Studios. The agreement provided for interest at 21% per annum, compounded monthly. Pen India claimed a default of ₹11.94 crore, with June 30, 2024 stated as the date of default.
Under an additional agreement dated October 6, 2023, Friday Filmworks paid ₹15 crore to Pen India on behalf of Reliance, which was received on October 31, 2023. The tribunal noted that the entire amount advanced under the security deposit agreement was not repaid.
Pen India argued that the transaction constituted a financial debt under Section 5(8) of the IBC, as the amount was advanced against consideration for the time value of money and carried interest and a repayment obligation.
It also relied on Reliance’s letters dated January 5, April 3 and August 14, 2024, which it said acknowledged the outstanding liability and proposed repayment timelines. Reliance contended that the transaction was a security deposit, not a lending or borrowing arrangement, relying on Clause 15 of the agreement. It also argued that Clause 4(B) provided for repayment through a third-party satellite or digital rights provider and that its liability had consequently been extinguished.
Reliance further challenged the petition under the Maharashtra Money-Lending (Regulation) Act, arguing that Pen India did not hold a valid licence and that the 21% interest rate exceeded the applicable ceiling.
The NCLT rejected these objections, holding that the substance and commercial effect of the transaction established a financial debt. It held that Clause 4(B) was a payment mechanism and did not extinguish Reliance’s primary liability.
The tribunal noted that Reliance had repeatedly acknowledged the outstanding liability and proposed repayment schedules, but failed to make the payment due on June 30, 2024 and honour the revised schedule. It, therefore, held that default was established.
The Bench also rejected the objection based on the “disputed” status recorded with NeSL, holding that it was not a judicial determination of default.
