NCLT Admits Reliance Entertainment Studios into Insolvency Over Rs 11.94 Crore Unpaid Film Production Dues

In a significant ruling with far-reaching implications for the Indian film and entertainment industry, the National Company Law Tribunal (NCLT), Mumbai Bench, has admitted Reliance Entertainment Studios Private Limited into the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC). The order, dated August 19, 2026, was passed by a bench comprising Judicial Member Nilesh Sharma and Technical Member Sameer Kakar, on a petition filed by Pen India (the financial creditor) under Section 7 of the IBC. The default amount stands at Rs 11.94 crore, arising from unpaid film production financing dues linked to the Bollywood film "Auron Mein Kahan Dum Tha," starring Ajay Devgn.

The ruling is notable not only for the high-profile corporate debtor involved, but also for the Tribunal's emphatic application of the substance over form doctrine when assessing whether a transaction labelled as a "security deposit" constitutes financial debt under the IBC.

Background of the Dispute

The dispute traces its origins to a security deposit agreement executed in November 2022 between Pen India and Reliance Entertainment Studios Private Limited. Under this agreement, Pen India advanced Rs 20 crore to Reliance Entertainment Studios to finance the theatrical release of the film "Auron Mein Kahan Dum Tha." The agreement stipulated an interest rate of 21% per annum, compounded monthly, on the advanced amount.

Subsequently, in October 2023, Friday Filmworks Private Limited, a company partly owned by Reliance, made a payment of Rs 15 crore under an additional agreement. Despite this partial repayment, a substantial sum remained unpaid. According to the petitioner, the outstanding amount comprised Rs 4.49 crore in principal and Rs 7.44 crore in accrued interest, totalling Rs 11.94 crore.

Notably, Reliance Entertainment Studios had acknowledged the outstanding amount on at least two separate occasions. In April 2024, the company proposed repayment in two instalments, with deadlines of June 30 and September 30, 2024. When these commitments were not honoured, a revised three-instalment schedule was proposed in August 2024, with the final payment due by December 31, 2024. Despite these proposals, the amounts remained unpaid, prompting Pen India to initiate insolvency proceedings before the NCLT.

The Security Deposit Agreement and Financial Arrangements

A central issue before the NCLT was whether the transaction between Pen India and Reliance Entertainment Studios constituted "financial debt" within the meaning of the IBC, despite being labelled as a "security deposit" in the underlying agreement.

Reliance Entertainment Studios raised multiple defences. First, the company argued that the Rs 20 crore payment was merely a security deposit and not a loan or financial facility. The company contended that since the transaction was structured as a deposit rather than a lending arrangement, it could not be classified as financial debt under Section 5(8) of the IBC. Second, Reliance argued that its liability had been extinguished under a specific contractual clause that required repayment to be channelled through a third-party satellite and digital rights provider.

The arrangement, when examined closely, bore all the hallmarks of a conventional financial facility. A principal sum of Rs 20 crore was advanced, interest was charged at a commercial rate of 21% per annum (compounded monthly), and explicit repayment obligations were stipulated in the agreement. These characteristics placed the transaction squarely within the ambit of financial debt as defined under the IBC.

NCLT's Analysis: Substance Over Form

The NCLT's reasoning in this case reinforces a well-established principle in insolvency jurisprudence: the substance over form doctrine. The Tribunal held that the substance and commercial effect of a transaction, not the label assigned to it by the parties, determines whether it constitutes financial debt under the IBC.

In reaching its conclusion, the bench examined the totality of the arrangement, including the advance of a specific sum, the imposition of interest at a commercial rate, the obligation to repay, and the repeated acknowledgements of liability by the corporate debtor. All these elements, taken together, satisfied the definition of "financial debt" under Section 5(8) of the IBC, which includes any amount raised under a transaction having the commercial effect of a borrowing.

Regarding the contractual clause on which Reliance relied, the NCLT held that the provision merely created an additional payment mechanism (routing repayment through a third-party satellite and digital rights provider) and did not extinguish the primary liability of Reliance Entertainment Studios to repay the outstanding amount to Pen India. The Tribunal emphasized that a secondary payment channel cannot substitute for, or override, the fundamental repayment obligation owed by the debtor to the creditor.

The acknowledgements made by Reliance in April 2024 and August 2024, wherein the company proposed detailed instalment schedules, further reinforced the petitioner's case. These proposals demonstrated that the corporate debtor itself recognized the existence of the outstanding liability and its obligation to repay, thereby undermining its own defence that the transaction was not in the nature of financial debt.

Rejection of the Money Lending Argument

Reliance Entertainment Studios raised another defence, arguing that Pen India was operating as an unlicensed money lender under the Maharashtra Money-Lending (Regulation) Act, 2014. The company contended that since Pen India was not registered as a money lender under the state legislation, the transaction was void and unenforceable. Consequently, it argued, no valid claim could be maintained under the IBC.

The NCLT rejected this argument. The Tribunal held that the IBC is a comprehensive and self-contained code for dealing with insolvency and bankruptcy. The question of whether a creditor holds a valid licence under state money-lending legislation is a separate regulatory matter and does not affect the jurisdiction of the NCLT to entertain a petition under Section 7 of the IBC, provided the statutory requirements of financial debt and default are established. This holding reinforces the primacy of the central insolvency framework over state-level regulatory provisions when it comes to adjudicating claims of financial debt and default.

Section 7 vs Section 9: The Dispute Defence

Another notable aspect of the ruling was the NCLT's treatment of Reliance's attempt to invoke the existence of a dispute as a ground for rejecting the petition. The corporate debtor argued that the quantum of the claim was disputed and that the petition should therefore be dismissed.

The NCLT drew a clear distinction between petitions filed under Section 7 (by financial creditors) and those filed under Section 9 (by operational creditors) of the IBC. The Tribunal observed:

"Unlike proceedings under Section 9, the existence of a dispute is not by itself a ground to reject an Application under Section 7."

Under Section 7, the NCLT is required to ascertain the existence of a financial debt and a default. Once these two elements are established, the Tribunal is bound to admit the application, regardless of whether the corporate debtor raises a dispute regarding the claim. This distinction is critical because it underscores the relatively lower threshold for admission of CIRP applications by financial creditors compared to operational creditors. While operational creditors must demonstrate the absence of a pre-existing dispute under Section 9, financial creditors need only establish the existence of debt and default under Section 7.

Moratorium and Appointment of IRP

Following the admission of the petition, the NCLT imposed a moratorium under Section 14 of the IBC. The moratorium has the following effects:

• Prohibition on the institution or continuation of suits and proceedings against the corporate debtor, including execution proceedings pending in any court of law, tribunal, or arbitration panel

• Prohibition on the transfer, encumbrance, alienation, or disposal of any assets of the corporate debtor

• Prohibition on any action to foreclose, recover, or enforce any security interest created by the corporate debtor in respect of its property

• Prohibition on the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor

This moratorium will remain in effect throughout the duration of the CIRP. The Tribunal also appointed Umesh Balaram Sonkar as the Interim Resolution Professional (IRP). The IRP will take over the management of Reliance Entertainment Studios and will be responsible for conducting the insolvency resolution process, including the preparation of an information memorandum and the invitation of resolution plans from prospective resolution applicants.

Implications for the Film and Entertainment Industry

This ruling carries significant implications for the Indian film and entertainment industry, which relies heavily on complex financial arrangements for film production, distribution, and theatrical release. Several key observations merit attention.

First, the decision establishes that financial arrangements in the entertainment sector, regardless of how they are labelled, will be scrutinized for their true economic substance. Production houses and studios that structure their financing through unconventional instruments (such as security deposits, advances, or revenue-sharing agreements) must be aware that these transactions may be classified as financial debt if they possess the commercial effect of a borrowing.

Second, the case highlights the risks associated with default on film production financing. The entertainment industry frequently operates on tight timelines and cash flows, and delays in revenue realization (from theatrical releases, satellite rights, or digital streaming deals) can cascade into default on financing obligations. Companies in this sector must ensure robust financial planning and timely compliance with repayment schedules to avoid insolvency proceedings.

Third, the ruling reinforces the supremacy of the IBC framework over state-level regulatory legislation. Arguments based on non-compliance with money-lending regulations are unlikely to succeed as a defence against CIRP applications, provided the essential ingredients of financial debt and default are duly established before the Tribunal.

Fourth, the involvement of a prominent entity like Reliance Entertainment Studios in CIRP proceedings may prompt greater caution among financiers, investors, and production partners in the entertainment sector. Due diligence on counterparty financial health and the enforceability of repayment mechanisms is likely to become more rigorous in the wake of this order.

Key Takeaways for Corporate Stakeholders

The following are the key takeaways from this ruling for corporate stakeholders, legal practitioners, and industry participants:

• The label or nomenclature assigned to a financial transaction does not determine its character under the IBC. The Tribunal will examine the substance and commercial effect of the arrangement to ascertain whether it constitutes financial debt.

• Acknowledgement of liability (such as through proposed repayment schedules) can be used as compelling evidence of default in Section 7 proceedings.

• Contractual clauses that create alternative payment mechanisms (such as routing payments through third-party rights providers) do not automatically extinguish the primary repayment obligation owed by the debtor to the creditor.

• The existence of a dispute is not a valid ground for rejecting a Section 7 petition filed by a financial creditor. This is a key distinction from Section 9 proceedings initiated by operational creditors, where a pre-existing dispute can serve as a bar to admission.

• Companies in the entertainment sector must exercise caution when structuring film financing arrangements, as these may be reclassified as financial debt in insolvency proceedings regardless of the terminology used in the agreements.

• Defences based on state money-lending legislation (such as the Maharashtra Money-Lending (Regulation) Act, 2014) will not override the NCLT's jurisdiction under the IBC.

Conclusion

The NCLT's order admitting Reliance Entertainment Studios Private Limited into CIRP serves as a stark reminder that financial obligations cannot be evaded through creative labelling or contractual structuring. The Tribunal's emphatic application of the substance over form doctrine reaffirms that the IBC looks beyond the surface of a transaction to ascertain its true nature. For stakeholders in the entertainment industry and the broader corporate landscape, this decision underscores the importance of honouring financial commitments and the serious consequences that follow from default under the IBC framework.

The outcome of the CIRP, including whether a viable resolution plan emerges or the company proceeds towards liquidation, will be closely watched by industry participants, creditors, and legal practitioners alike. The case also raises broader questions about the adequacy of financial risk management practices in India's entertainment sector, an industry that continues to grapple with the challenges of complex, multi-party financing structures.

Representation

Pen India was represented by Nausher Kohli, Jehan Fauzdar, and Shoma Maria of Wadia Ghandy and Co.

Reliance Entertainment Studios was represented by Rohit Gupta, Krushi Barfiwala, and Archit Shah of Parinam Law Associates.