On 3 July 2025, the High Court of Bombay passed an https://drive.google.com/file/d/1zYbbWwTQRr02Qk3nJLqBntp7bmeUGMOB/view?usp=sharing Order setting aside directions passed by Arbitral Tribunal imposing personal liability on sole shareholder of One Person Company (OPC).
FACTS
Innovative Film Academy Private Limited ("Innovative"), is a One Person Company ("OPC") incorporated under the provisions of Companies Act, 2013 formed by Mr. Saravana Prasad as its sole shareholder. Innovative entered into a Production Agreement dated 10 March 2021 ("Agreement") with Endemol India Private Limited ("Endemol") to produce episodes of the television show "Masterchef" in Tamil, Telugu, Kannada, and Malayalam. Endemol delivered the Tamil and Telugu episodes and raised invoices totaling approximately ₹15.93 crores, of which ₹4.45 crores was paid and ₹1.08 crores was adjusted against other dues, leaving an outstanding balance of approximately ₹10.40 crores. Disputes over these dues which lead to arbitral proceedings in turn resulting in the impugned interim order.
The Arbitral Tribunal directed both Innovative and Prasad to:
- deposit ₹10.40 crores in a fixed deposit in a nationalized bank;
- disclose all assets (movable and immovable) and all encumbrances, charges and attachment on such assets since March 2019;
- disclose details of all companies and firms in which they are shareholders, directors or partners and the extent of their interest in such enterprises;
- disclose all income-tax returns since March 2019 along with the profit and loss account and all ledger statements along with narrations; and
- disclose details of all bank accounts held by them since March 2019. Innovative and Prasad challenged these directions, arguing that imposing personal obligations on Prasad violated the limited liability framework of OPC under the Companies Act, 2013.
ISSUE
Does the limited liability of an OPC mean that the sole shareholder is not personally liable?
JUDGMENT
The High Court held that the order passed by Arbitral Tribunal erred in treating Innovative and Prasad as one entity, disregarding the legal distinction between an OPC and its sole shareholder. The Court pointed out that under Section 2(62) of the Companies Act, 2013, an OPC is a distinct juridical entity with limited liability, shielding the sole shareholder (Prasad) from personal liability for the company's obligations.
The Court further emphasized that the concept of OPC is inspired by global practices (e.g., in the EU, USA, UK, China, and Singapore), and was designed to ring fence personal assets from business liabilities. The Arbitral Tribunal's directions against Prasad, including the deposit and disclosures, conflicted with this fundamental policy of Indian law. The Court further opined that that Prasad's actions as the signatory to contracts or correspondence would not make him personally liable and such a view would undermine the statutory OPC framework. The Court further held the Arbitral Tribunal's direction for Innovative to deposit monies in a fixed deposit is a balanced approach which protects Endemol's interests without depriving Innovative of control over the funds.
The Bombay High Court partially allowed the appeals with ruling that the directions imposing obligations on Saravana Prasad for the deposit and disclosures were set aside as they violated the limited liability protections of OPC under the Companies Act, 2013. The Bombay High Court further held that the directions against Innovative, including the fixed deposit and disclosures of its assets, liabilities, and interests, were upheld as just and equitable interim measures. The Court also clarified that its observations were not intended to influence the final arbitration outcome.
MHCO COMMENT
In our opinion, this judgment strengthens the legal framework laid out in the Companies Act, 2013 for One Person Companies in India, affirming that sole shareholders cannot be held personally liable for company obligations unless there are specific contractual or factual grounds that justify the same. The order provides clarity for entrepreneurs using the OPC structure, ensuring their personal assets remain protected. The decision also underscores the judiciary's restraint in interfering with arbitral orders unless they are violative of fundamental legal principles.
This article was released on 11 August 2025.
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