2025 (7) TMI 1071 - HC - Indian Laws

Arbitral tribunal's order imposing personal liability on One Person Company shareholder set aside for violating limited liability principles

Saravana Prasad Versus Endemol India Private Limited & Anr. and Innovative Film Academy Pvt. Ltd. Versus Endemol India Private Limited & Anr.

Saravana Prasad Versus Endemol India Private Limited & Anr. and Innovative Film Academy Pvt. Ltd. Versus Endemol India Private Limited & Anr. - 2025:BHC - ... ISSUES: Whether an interim order under Section 17 of the Arbitration and Conciliation Act, 1996 directing deposit of disputed sums and expansive disclosures is sustainable.Whether the sole shareholder and director of a One Person Company (OPC) can be directed to make deposits and disclosures personally in arbitral interim proceedings.Whether the Confirmation Letter issued by the OPC admitting balance dues can be relied upon as a basis for interim measures.Whether the arbitral tribunal can impose personal liability on the sole shareholder of an OPC despite limited liability protections under the Companies Act, 2013.The scope of interference by the court under Section 37(2)(b) of the Arbitration Act with interlocutory orders under Section 17. RULINGS / HOLDINGS: The interim order directing the deposit of Rs. 10.40 crores by the OPC in a fixed deposit is a 'reasonable and just approach' and 'unworthy of interference,' balancing the need to secure dues without alienating the funds.The direction to the sole shareholder and director of the OPC to make the deposit and provide disclosures of personal assets and liabilities is 'in direct conflict with the fundamental policy of Indian law governing OPCs' and 'cannot be sustained' as it ignores the limited liability status of the OPC.The Confirmation Letter, though not conclusive of the merits, is a 'linchpin' of the claim and its issuance by the OPC is undisputed, justifying prima facie reliance for interim relief.The arbitral tribunal must not treat the OPC and its sole shareholder as one and the same for liability purposes absent specific contractual or factual basis; the Impugned Order's failure to distinguish between them renders that part of the order vulnerable.The court will not substitute its own view for the arbitral tribunal's plausible prima facie assessment unless the order is 'blatantly perverse' or 'ex facie conflict' with the record. RATIONALE: The legal framework governing OPCs under Section 2(62) of the Companies Act, 2013 creates a separate legal entity with limited liability, protecting the sole shareholder from personal liability for company obligations.Precedent from Saloman v. Saloman establishes the principle that a company is a separate juridical person distinct from its shareholders, which applies equally to OPCs.The arbitral tribunal's power under Section 17 of the Arbitration Act to grant interim measures is broad and not bound by the procedural strictures of Order 38, Rule 5 CPC; apprehension of dissipation or diminution of value suffices.The Confirmation Letter constitutes a prima facie admission of debt, justifying interim security measures, but does not preclude full examination of merits during arbitration.The court's interference under Section 37(2)(b) is limited to cases where the arbitral tribunal's order is unreasonable or untenable; here, the tribunal's directions regarding the OPC are plausible, but the extension of liability to the sole shareholder is an overreach.No evidence was presented to establish contractual or factual liability of the sole shareholder distinct from his capacity as OPC member, thus no basis exists to impose personal interim obligations on him.The ruling clarifies that observations are prima facie and do not prejudice the final adjudication of issues in arbitration.