OPC & Its Sole Director Can't Be Treated As One For Liability Owed: Bombay HC Grants Relief To Director In Dispute Over MasterChef Production

The bench of Justice Somasekhar Sundaresan held that the view of the arbitral tribunal to deposit the dues in a fixed deposit of a nationalised and secure it till the completion of the arbitral proceedings is a plausible view and does not warrant any interference u/s 17 of the A&C Act.

Factual Matrix

Innovation Film Academy Private Limited ("Innovation"), a one person company formed by Prasad entered into a ("Production Agreement") dated 10/03/2021. Vide the agreement Endemol was required to create, produce, edit post-production and deliver episodes of the cookery television show franchise ("MasterChef") in Tamil, Telugu, Kannada and Malayalam. Endemol was contractually entitled to payments amounting to Rs. 15.93 crores, for delivering the episodes in Tamil and Telugu. A sum of Rs. 4.45 crores had been paid by Innovative to Endemol, and a sum of Rs. 1.08 crores were adjusted against dues. The total outstanding dues against the invoices were Rs. 10.40 crores, and disputes pertaining to this amount triggered the arbitral proceedings between the parties.
In the arbitral proceedings, the Learned Arbitral Tribunal passed an order u/s 17 of the A&C Act directing Innovative to deposit the entire amount in a fixed deposit in a nationalised bank. The Learned Arbitral Tribunal took a prima facie view of the material on record and observed that parties must stick to the contractual terms and cannot rely on the principles of equity. The Learned Arbitral Tribunal observed that Endemol's case revolved around the latter dated 11/07/2022, which confirmed balances amounting to Rs. 10.40 crores (“Confirmation Letter”), and the evidence which would be examined in due course of the proceedings would confirm the full veracity of the dues owned.

Analysis of the Court

The court observed that the Learned Arbitral Tribunal has taken note of the Confirmation Letter as being the core of Endemol's Arguments, and noted that Innovative has not denied the issuance of the Confirmation Letter. The court took the view that the Confirmation Letter was consciously issued in the course of audit confirmation sought by auditors of Endemol. The reasons pertaining to the absence of Confirmation Letter not being issued after 2022, and the implication of accounts reconciliation exercises that the parties engage in, are all matters that are to be dealt by the Learned Arbitral Tribunal during the course of the arbitral proceedings.

The Learned Arbitral Tribunal took note of Innovative is an OPC, and the impugned order is crippled with a material error of treating Prasad and Innovative as one entity in terms of liability owned to the Endemol. The findings of the impugned order pertaining to make the deposit, and directing each of them to make a full disclosure of all personal assets, liabilities, tax returns, and ownership interests in any enterprise conflict with the fundamental policy of India. Furthermore, the impugned order contains no analysis per which Prasad was required to make the deposit and disclose his personal assets and liabilities. The impugned order is contrary to Innovative being a limited liability company, which means that no final relief of liability is possible against Prasad for no reason other than being the sole shareholder of Innovative. The legal design behind the OPC is to be business and social alter ego of the OPC, and the entire framework of OPC would be rendered redundant if the director signing on behalf of the OPC is a sufficient reason to wash away the statutory mechanism of limited liability.

The court further observed that the Learned Arbitral Tribunal has not accepted the Confirmation Letter as gospel. However, there is no contemporaneous correspondence or correspondence after the Confirmation Letter, that was presented by Innovative for consideration by the Learned Arbitral Tribunal in order to undermine the Confirmation Letter. The Tribunal has balanced all the said factor and taken a just approach of not directing a deposit in a manner that Innovative loses control over the money, and has only directed Innovative to create a fixed deposit and keep it secure till the completion of arbitration. The Confirmation Letter issued by Innovative, confirmed the balances to the auditors of counterparties, and the amounts shown in the books of the counterparty as being dues, is taken prima facie true record in the books of accounts. At the section 17 stage, the Learned Arbitral Tribunal has rightly adopted the said prima facie view. Therefore, unless such view is conflict with the material on record, it would not be appropriate for this Court to interfere with the said view.

The Court finally observed that no direction against Prasad to either deposit the amount or to make any disclosure is not legally tenable as Innovation is OPC. The said direction in the impugned order is direct conflict with the fundamental policy of Indian Law governing OPCs, as enshrined in the Companies Act. At the said stage, there is not a prima facie case for issuing the said directions involving personal liability on Prasad. Therefore, the Court set aside the directions issued to Prasad.

Case Name Saravana Prasad v. Endemol India Private Limited & Anr.

Case Number: COMMERCIAL ARBITRATION PETITION (L) NO. 22714 OF 2024 WITH COMMERCIAL ARBITRATION PETITION (L) NO. 22746 OF 2024

Counsel for the Petitioners: Mr. Siddhesh Bhole a/w. Mr. Yakshay Chheda (through VC) a/w. Mr. Apoorva Kulkarni i/b. SSB Legal and Advisory, for Petitioner in both Petitions.

Counsel for the Respondents: Mr. Sharan Jagtiani, Senior Advocate a/w. Ms. Surabhi S. Agrawal, Mr. Rashmin Khandekar, Mr. Anand Mohan, Ms. Sneha Nanandkar, Ms. Ruddhi Bhalekar, Ms. Pallavi Thakur i/b. ANM Global, for Respondent No.1 in both Petition