03 July 2025 Arbitration Law >> Business & Commercial Law  

In a significant ruling of Saravana Prasad & Another v/s Endemol India Private Limited & Another concerning interim measures in arbitration, the High Court has partially set aside an order by an Arbitral Tribunal, emphasizing the legal distinction and limited liability afforded to a One Person Company (OPC). The decision clarifies the scope of interim directions that can be issued against a sole shareholder of an OPC.

The case involved Innovative Film Academy Private Limited (Innovative), an OPC founded by Mr. Saravana Prasad, and Endemol, a production company. The dispute arose from a "Production Agreement" dated March 10, 2021, under which Endemol produced episodes of the "Masterchef" television show franchise in various South Indian languages. While Endemol delivered Tamil and Telugu episodes, an outstanding payment of approximately Rs. 10.40 crores remained due from Innovative.

Arbitral Tribunal's Directions:

As an interim measure under Section 17 of the Arbitration and Conciliation Act, 1996, the Arbitral Tribunal had directed both Innovative and Mr. Prasad (referred to as "Respondents" in the arbitration) to:

• Deposit the claimed sum of approximately Rs. 10.40 crores into a fixed deposit in a nationalized bank.
• Disclose all movable and immovable assets, encumbrances, charges, and attachments since March 2019.
• Disclose details of all companies and firms in which they held shares, directorships, or partnerships.
• Provide all income-tax returns, profit and loss accounts, and ledger statements with narrations since March 2019.
• Disclose details of all bank accounts held since March 2019.

The Tribunal had based its decision primarily on a Confirmation Letter dated July 11, 2022, which acknowledged the outstanding balance, though it noted that further evidence would be required to establish the full veracity of the dues.

High Court's Analysis: Protecting the OPC Framework

The High Court meticulously reviewed the Arbitral Tribunal's order, particularly focusing on the directions issued against Mr. Prasad, the sole shareholder of the OPC.

The Court highlighted the fundamental principle of limited liability enshrined in the Companies Act, 2013, through the introduction of the OPC concept. It reiterated the historical precedent set by Salomon v. Salomon, which established the separate legal personality of a company from its shareholders. The Court stressed that the OPC framework was specifically designed to allow individual entrepreneurs to "ring-fence their personal liability and personal assets" from business risks.

The High Court found that the Arbitral Tribunal made a "material error by treating Prasad and Innovative as one and the same in terms of liability owed to Endemol." It observed that the impugned order provided no analysis or reasons for effectively disregarding the separate legal entity of the OPC and imposing personal obligations on Mr. Prasad. The Court stated that "no final relief of liability is possible against Prasad for no reason other than being the sole shareholder of Innovative," which implies that interim relief fastening such liability would also be untenable.

Furthermore, the Court rejected the argument that Mr. Prasad's role as signatory or his correspondence on behalf of the OPC could imply personal liability, asserting that this would "render the very framework of the OPC redundant and otiose."

Upholding the Deposit Direction for Innovative:

Despite setting aside the directions against Mr. Prasad personally, the High Court upheld the Arbitral Tribunal's order for Innovative to deposit the approximate Rs. 10.40 crores in a fixed deposit. The Court found this direction "just, equitable and well balanced." It noted that the Tribunal had considered the Confirmation Letter without treating it as absolute proof, and had balanced the requirement by allowing Innovative to retain control over the money in a fixed deposit, preventing its alienation during the arbitration.

The Court also reiterated that an arbitral tribunal is not strictly bound by the principles of Order 38, Rule 5 of the Code of Civil Procedure, 1908, concerning attachment before judgment, and that apprehension of diminution in value can be a sufficient ground for such an interim measure.

Conclusion:

In conclusion, the High Court partially allowed the appeals, setting aside all personal obligations imposed on Mr. Prasad, including the requirement for him to make a deposit or disclose personal assets. However, it upheld the obligations placed solely on Innovative, such as maintaining the fixed deposit and disclosing its own assets and liabilities.

The Court clarified that its observations are preliminary and do not intend to influence the final adjudication of issues in the ongoing arbitration. No costs were imposed at this stage, with the Arbitral Tribunal instructed to consider costs in its final award.

Section 17, Arbitration and Conciliation Act - 1996  

Arbitration and Conciliation Act, 1996  

Code of Civil Procedure, 1908