NCLT Mumbai Admits ₹11.94 Cr Insolvency Plea Against Reliance Entertainment, Says Security Deposit Is Debt

The Mumbai National Company Law Tribunal (NCLT) on 19 August held that an amount advanced under a Security Deposit Agreement can constitute a financial debt under Section 5(8) of the Insolvency and Bankruptcy Code, 2016 (IBC).

A Bench comprising Judicial Member Nilesh Sharma and Technical Member Sameer Kakar admitted Pen India Private Ltd's insolvency plea against Reliance Entertainment Studios Pvt Ltd over a default of Rs. 11.94 crore. It observed:

“In view of the foregoing discussion, we are satisfied that the amount advanced by the Applicant under the Security Deposit Agreement constitutes a financial debt within the meaning of Section 5(8) of the IBC; the contractual provisions relied upon by the CD do not extinguish its repayment obligations; the defence founded upon the Money-Lending Act and the disputed status recorded by the Information Utility is without merit.”

The dispute arose from a Security Deposit Agreement dated 14 November 2022, under which Pen India advanced Rs. 20 crore to Reliance Entertainment Studios on 29 November 2022. The agreement provided for repayment with 21% interest compounded monthly.

Under a subsequent agreement dated 6 October 2023, Friday Filmworks Pvt Ltd paid Rs. 15 crore to Pen India on behalf of Reliance Entertainment, leaving around Rs. 5 crore in principal, along with interest, outstanding.

Pen India told the Tribunal that Reliance Entertainment subsequently acknowledged the outstanding liability through various communications. In a letter dated 3 April 2024, the company undertook to clear the dues in two instalments due on 30 June and 30 September 2024.

After Reliance Entertainment failed to pay the first instalment, Pen India issued a legal notice on 8 October 2024. It filed the insolvency application on 8 August 2025, claiming Rs. 11.94 crore.

Reliance Entertainment opposed the petition, arguing that the transaction was expressly not a lending or borrowing arrangement under the Security Deposit Agreement. It also relied on Clause 4(B) of the agreement to contend that its liability could be discharged through payment by a third party satellite and digital rights provider.

The Tribunal found that the agreement recorded Reliance Entertainment's receipt of Rs. 20 crore as financial assistance and its obligation to repay the amount with 21% interest, compounded monthly. It held that these terms reflected consideration for the time value of money and created a definite repayment obligation.

It also noted that, after Friday Filmworks paid Rs. 15 crore, Reliance Entertainment continued to acknowledge the balance liability. In its letter dated 3 April 2024, the company undertook to repay the outstanding amount in two installments. The Bench held:

“More importantly, the contemporaneous conduct of the parties completely contradicts the interpretation now sought to be advanced by the CD. Following receipt of Rs.15,00,00,000/- from Friday Filmworks Pvt. Ltd., the CD repeatedly acknowledged that the balance principal together with interest continued to remain payable by it. By its letter dated 03.04.2024, the CD itself quantified the outstanding liability and undertook to repay the same in 2 instalments falling due on 30.06.2024 and 30.09.2024.”

Reliance Entertainment had argued that Clause 4(B) extinguished its liability and required Pen India to recover the balance from the third party satellite and digital rights provider. The Tribunal, however, noted that Reliance Entertainment's contemporaneous communications never invoked Clause 4(B) and instead repeatedly acknowledged its own liability.

Accordingly, the NCLT admitted Pen India's Section 7 application, and commenced insolvency proceedings against Reliance Entertainment Studios. It declared a moratorium and appointed Umesh Balaram Sonkar as the Interim Resolution Professional to conduct the Corporate Insolvency Resolution Process.

For Applicant: Adv. Nausher Kohli a/w Adv. Jehan Fauzdar and Adv. Shoma Maria i/b Wadia Ghandy & Co.

For Respondent: Adv. Rohit Gupta a/w Adv. Krushi Barfiwala and Adv. Archit Shah i/b Parinam Law Associates.