The legal and financial troubles for major entertainment banners have taken a serious turn. The National Company Law Tribunal (NCLT) bench in Mumbai has officially admitted Reliance Entertainment Studios Private Limited into the Corporate Insolvency Resolution Process (CIRP). The legal action stems from an unpaid default amounting to Rs 11.94 crores linked directly to the theatrical release financing of the Ajay Devgn and Tabu starrer film, Auron Mein Kahan Dum Tha.
In an order passed by a bench comprising judicial member Nilesh Sharma and technical member Sameer Kakar, the tribunal concluded that the financial assistance provided for the film’s distribution qualified as a legal financial debt under the framework of the Insolvency and Bankruptcy Code (IBC).
The roots of the legal battle trace back to November 2022, when Pen India advanced Rs 20 crores to Reliance Entertainment Studios under a Security Deposit Agreement (SDA). The funding was secured to assist with the financial requirements surrounding the release of Auron Mein Kahan Dum Tha.
As per the terms of the original agreement, the security deposit carried a repayment clause with an interest rate of 21% per annum, compounded monthly. Later, in October 2023, an additional agreement was executed wherein Friday Filmworks Private Limited—a company partly owned by Reliance—cleared Rs 15 crores on behalf of Reliance Entertainment. However, a significant principal balance along with accrued interest remained unpaid, pushing the total claimed default amount to Rs 11.94 crores (including Rs 4.49 crores in principal and Rs 7.44 crores in interest).
During the hearings, legal counsels representing Reliance Entertainment Studios strongly contested the maintainability of the petition. The company argued that the transaction was explicitly categorised as a security deposit rather than a commercial money-lending arrangement, meaning it allegedly fell outside the scope of a financial debt. Furthermore, Reliance relied on a specific contractual clause arguing that its primary liability stood extinguished because recovery was meant to be sourced through a third-party digital or satellite rights provider.
The NCLT bench firmly rejected these contentions. Highlighting core commercial legal principles, the tribunal stated that the actual substance and economic effect of a transaction carry far more weight than the labels or terminology chosen by the parties.
“The transaction, therefore, possesses all the essential attributes of a borrowing notwithstanding the terminology adopted by the parties,” the bench noted.
Furthermore, the tribunal ruled that third-party rights recovery clauses only served as an alternative payment mechanism rather than completely wiping out the primary liability of the corporate debtor.
The tribunal placed heavy reliance on the subsequent written conduct of Reliance Entertainment following the partial Rs 15 crore payment. Records showed that Reliance Entertainment had repeatedly acknowledged the outstanding dues, formally proposing a two-instalment settlement plan in April 2024 (with deadlines in June and September 2024), followed by a revised three-instalment schedule in August 2024.
The NCLT observed that because Reliance failed to honor its own revised repayment timelines, its sudden pivot back to arguing contractual technicalities was contradictory and inconsistent with its own prior acknowledgements.
With the financial debt and subsequent default successfully established under Section 7 of the IBC, the NCLT has imposed a strict statutory moratorium under Section 14 of the code, freezing asset transfers and legal proceedings against the company. Additionally, the tribunal has appointed Umesh Balaram Sonkar as the Interim Resolution Professional (IRP) to oversee the corporate insolvency resolution process, manage claims, and chart the path forward for the studio.
By: Bollyo
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