One Person Company liability and arbitral interim relief: personal obligations cannot be imposed without an independent basis, but company security measures may stand.

A one person company retains separate legal personality and limited liability, so interim directions under the Arbitration and Conciliation Act, 1996 cannot fasten the company's alleged liability on its sole shareholder or director absent an independent basis for personal liability; the personal deposit and disclosure directions were therefore set aside. The arbitral tribunal may, however, on a prima facie assessment and reasonable apprehension of risk to the claim, direct the company itself to secure the amount by fixed deposit and disclose assets and finances, without being confined to the strict requirements of Order 38 Rule 5 CPC. Those company-directed interim measures were upheld.

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Issues: (i) Whether directions under Section 17 of the Arbitration and Conciliation Act, 1996 could be sustained against the sole shareholder and director of a one person company by fastening the company's alleged liability on him personally; (ii) whether the arbitral tribunal's interim direction requiring the company to secure the claimed amount by fixed deposit and to make asset and financial disclosures was liable to interference.

Issue (i): Whether directions under Section 17 of the Arbitration and Conciliation Act, 1996 could be sustained against the sole shareholder and director of a one person company by fastening the company's alleged liability on him personally.

Analysis: A one person company is a statutorily recognised corporate form under the Companies Act, 2013, intended to confer limited liability on the sole shareholder. The arbitral order contained no independent analysis showing any contractual liability of the individual apart from his status as the sole shareholder/director. Treating the company and the individual as one and the same would defeat the statutory scheme of limited liability and the legal protection attached to the corporate form. The interim directions against the individual, including a personal deposit and personal disclosures, therefore lacked legal foundation.

Conclusion: The directions against the individual were unsustainable and were set aside.

Issue (ii): Whether the arbitral tribunal's interim direction requiring the company to secure the claimed amount by fixed deposit and to make asset and financial disclosures was liable to interference.

Analysis: The tribunal adopted a prima facie approach on the basis of the confirmation letter and the admitted issuance of that letter, while also balancing the competing interests by directing security without depriving the company of control over the funds. In proceedings for interim measures, the tribunal is not confined by the strict requirements of Order 38 Rule 5 of the Code of Civil Procedure, 1908, and may act on a reasonable apprehension of risk to the claim. The company's challenge did not disclose perversity or such overreach as would justify appellate interference.

Conclusion: The directions against the company were upheld.

Final Conclusion: The appeal succeeded only to the extent that the personal obligations imposed on the sole shareholder/director were annulled, while the interim measures against the company were maintained.

Ratio Decidendi: Interim measures under the Arbitration and Conciliation Act, 1996 cannot be used to disregard the separate legal personality and limited liability of a one person company by imposing personal obligations on its sole shareholder absent an independent basis for personal liability; but a tribunal may, on a prima facie assessment, direct the company itself to secure the claim by a reasonable interim measure.

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