Sanchyita Lahkar

The High Court of Judicature at Bombay Division Bench of Justice Somasekhar Sundaresan has held that a shareholder of a One Person Company (OPC) cannot be subjected to personal liability or compelled to make disclosures or deposits merely due to their association with the OPC. In disposing of two commercial arbitration petitions, the Court quashed the directions issued by an Arbitral Tribunal requiring an individual—also the sole shareholder and director of the OPC—to deposit a disputed amount of approximately Rs. 10.40 crores and disclose personal financial details. The Court held that such directions were "in direct conflict with the fundamental policy of Indian law governing OPCs" and cannot be sustained. However, the Court upheld the order requiring the OPC itself to make the deposit and relevant disclosures.

The Court clarified that the individual cannot be equated with the OPC solely based on his role as the sole shareholder or director, unless there was a specific legal basis or contemporaneous evidence establishing personal liability. The judgment thus limits the reach of interim arbitral measures under Section 17 of the Arbitration and Conciliation Act, 1996 when such measures infringe upon statutory corporate protections granted under the Companies Act, 2013.

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These petitions arose under Section 37(2)(b) of the Arbitration and Conciliation Act, 1996, challenging an order passed by a Learned Arbitral Tribunal on July 10, 2024, under Section 17 of the Act. The impugned order directed both the petitioner company and its sole shareholder to deposit a sum of approximately Rs. 10.40 crores in a fixed deposit account in a nationalised bank. It also directed expansive disclosures regarding personal and corporate assets, tax returns, and financial interests.

The petitioners include Innovative Film Academy Private Limited, a One Person Company (OPC), and its sole shareholder and director, Mr. Saravana Prasad. The respondents include Endemol India Private Limited and another entity. The disputes relate to a Production Agreement dated March 10, 2021, under which Endemol was to produce and deliver episodes of the popular television show franchise "Masterchef" in Tamil, Telugu, Kannada, and Malayalam.

The Agreement stipulated milestone-based payments for the work. It is not disputed that Endemol delivered episodes in Tamil and Telugu and raised four invoices aggregating to approximately Rs. 15.93 crores. Innovative made partial payments amounting to Rs. 4.45 crores, and Rs. 1.08 crores were adjusted against dues under another contract, leaving an alleged outstanding amount of approximately Rs. 10.40 crores.

Disputes arose between the parties regarding this unpaid amount, prompting Endemol to seek interim relief under Section 17 of the Arbitration Act. The reliefs sought included a direction for deposit of the claimed amount and disclosures of assets and liabilities by both the company and Mr. Prasad.

The Arbitral Tribunal partly granted Endemol's application, directing that:

• A fixed deposit of approximately Rs. 10.40 crores be maintained in a nationalised bank.

• Disclosures be made by both Innovative and Mr. Prasad regarding their movable and immovable assets, liabilities, tax filings, and ownership interests in enterprises since March 2019.

However, it declined to order disclosure of the assets of Mr. Prasad's family members.

The primary documentary basis for Endemol’s claim was a letter dated July 11, 2022, issued by Innovative, confirming a balance of approximately Rs. 10.40 crores as due and payable. This Confirmation Letter was not denied by the petitioners but its probative value was contested, with the petitioners arguing that it was a routine audit document.

The petitioners challenged the Tribunal’s order on multiple grounds, primarily that Mr. Prasad, not being a party to the Production Agreement, could not be saddled with personal liability or subjected to directions meant for the OPC. They contended that the Arbitral Tribunal had conflated the identities of the OPC and its sole shareholder, undermining the statutory protections available to OPCs under the Companies Act, 2013.

The respondents, represented by Senior Counsel, argued that Mr. Prasad’s conduct, including signing the Confirmation Letter and contractual communications, implied personal liability. They cited the decision in Cox and Kings Ltd. v. SAP India Pvt. Ltd. to support the theory of implied consent.

The Court recorded that the Arbitral Tribunal had taken a prima facie view and not engaged in a detailed assessment of merits. "The Learned Arbitral Tribunal has essentially directed in the Impugned Order, what the Learned Arbitral Tribunal, in its wisdom, believed would meet the ends of justice as an interlocutory measure."

It was observed that the Tribunal correctly noted the relevance of the Confirmation Letter, stating: "The issuance of the Confirmation Letter is not denied by Innovative." However, the Court stated that "whether the Confirmation Letter was something consciously issued or routinely issued in the course of audit confirmations... are all matters that would be dealt with by the Learned Arbitral Tribunal in the course of the conduct of the arbitration."

The core issue, according to the Court, was whether the Tribunal’s order was a reasonable and plausible view or whether it was implausible and untenable. The Court held: "The Impugned Order represents a material error by treating Prasad and Innovative as one and the same in terms of liability owed to the Endemol."

The Court extensively discussed the concept and legal nature of OPCs, observing: "By such construct, the Companies Act enabled the creation by a sole individual, of a body corporate that is an artificial juridical person... whereby, individuals who need the protection of limited liability can ring-fence their personal liability and personal assets from the risks involved in the businesses run by them."

Referring to Saloman v. Saloman, the Court stated: "The House of Lords overturned the view... Today, as a matter of Indian company law, the concept of the OPC is now a matter of special corporate law policy of India."

On the conflation of identities, the Court unequivocally stated: "The Impugned Order makes no distinction between Innovative and Prasad... this facet... is in direct conflict with the fundamental policy of India."

Addressing the reliance on Mr. Prasad’s role as signatory, the Court recorded: "It is nobody’s case that Prasad is a party to the Agreement... The OPC is meant to be the business and social alter ego of the OPC, and that is by legal design."

The Court rejected the respondents' reliance on the Cox & Kings case: "This submission is totally untenable... If being an alter ego were enough to dilute the limited liability... the very legal framework governing OPCs would stand obliterated."

The Court concluded that the Arbitral Tribunal’s directions towards Mr. Prasad lacked any prima facie basis. "There is no discussion of even a prima facie possibility... Therefore, the Impugned Order is unsustainable insofar it effects an over-reach by imposing obligations on Prasad."

In its conclusive directions, the Court stated: "Since Prasad’s liability is limited by the Companies Act, no direction against Prasad to make a deposit or make any disclosure is legally sustainable or tenable." It further recorded: "Such a direction is in direct conflict with the fundamental policy of Indian law governing OPCs, as enshrined in the Companies Act."

The Court clarified that "even a final relief against Prasad looks, prima facie, unlikely... Therefore, directing him to make a deposit or to make disclosures of his personal assets and liabilities... is untenable and liable to be set aside."

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The Court consequently held: "The Impugned Order, insofar as it directs imposition of any personal obligations on Prasad, is hereby set aside."

However, it upheld the directions against the OPC, stating: "The Impugned Order, insofar as it imposes obligations on Innovative... cannot be faulted with." The Court recorded that "in this regard, the Impugned Order renders a plausible view that cannot be substituted by this Court’s view."

Finally, the Court clarified the scope of its decision: "All observations made in this judgement are in aid of dealing with the prima facie findings... and are therefore also made on a prima facie basis."

Advocates Representing the Parties:

For the Petitioners: Mr. Siddhesh Bhole, Advocate with Mr. Yakshay Chheda (through VC), and Mr. Apoorva Kulkarni, instructed by SSB Legal and Advisory

For the Respondents: Mr. Sharan Jagtiani, Senior Advocate with Ms. Surabhi S. Agrawal, Mr. Rashmin Khandekar, Mr. Anand Mohan, Ms. Sneha Nanandkar, Ms. Ruddhi Bhalekar, and Ms. Pallavi Thakur, instructed by ANM Global

Case Title: Saravana Prasad v. Endemol India Private Limited & Anr.

Neutral Citation: 2025: BHC-OS:9926

Case Number: COMMERCIAL ARBITRATION PETITION (L) NO. 22714 OF 2024

Bench: Justice Somasekhar Sundaresan