Sole Director Of OPC & OPC Are Different Legal Entities, Cannot Be Treated As One In Terms Of Liability Owed: Bombay High Court

The bench of Justice Somasekhar Sundaresan held that the view of the arbitral tribunal to deposit the dues in a set deposit of a nationalised and safe it until the completion of the arbitral proceedings is a believable view and doesn’t warrant any interference u/s 17 of the A&C Act.

Factual Matrix

Innovation Movie Academy Non-public Restricted (“Innovation“), a one individual firm fashioned by Prasad entered right into a (“Manufacturing Agreement”) dated 10/03/2021. Vide the settlement Endemol was required to create, produce, edit post-production and ship episodes of the cookery tv present franchise (“MasterChef“) in Tamil, Telugu, Kannada and Malayalam. Endemol was contractually entitled to funds 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 Modern to Endemol, and a sum of Rs. 1.08 crores had been adjusted towards dues. The entire excellent dues towards the invoices had been Rs. 10.40 crores, and disputes pertaining to this quantity triggered the arbitral proceedings between the events.
Within the arbitral proceedings, the Realized Arbitral Tribunal handed an order u/s 17 of the A&C Act directing Modern to deposit your entire quantity in a fastened deposit in a nationalised financial institution. The Realized Arbitral Tribunal took a prima facie view of the fabric on report and noticed that events should stick to the contractual phrases and can’t depend on the ideas of fairness. The Realized Arbitral Tribunal noticed that Endemol’s case revolved across the latter dated 11/07/2022, which confirmed balances amounting to Rs. 10.40 crores (“Affirmation Letter”), and the proof which might be examined in due course of the proceedings would verify the complete veracity of the dues owned.

Evaluation of the Courtroom

The courtroom noticed that the Realized Arbitral Tribunal has taken observe of the Affirmation Letter as being the core of Endemol’s Arguments, and famous that Modern has not denied the issuance of the Affirmation Letter. The courtroom took the view that the Affirmation Letter was consciously issued within the course of audit affirmation sought by auditors of Endemol. The explanations pertaining to the absence of Affirmation Letter not being issued after 2022, and the implication of accounts reconciliation workouts that the events interact in, are all issues which are to be dealt by the Realized Arbitral Tribunal throughout the course of the arbitral proceedings.

The Realized Arbitral Tribunal took observe of Modern is an OPC, and the impugned order is crippled with a cloth error of treating Prasad and Modern as one entity by way of legal responsibility owned to the Endemol. The findings of the impugned order pertaining to make the deposit, and directing every of them to make a full disclosure of all private property, liabilities, tax returns, and possession pursuits in any enterprise battle with the elemental coverage of India. Moreover, the impugned order incorporates no evaluation per which Prasad was required to make the deposit and disclose his private property and liabilities. The impugned order is opposite to Modern being a restricted legal responsibility firm, which signifies that no remaining reduction of legal responsibility is feasible towards Prasad for no purpose apart from being the only shareholder of Modern. The authorized design behind the OPC is to be enterprise and social alter ego of the OPC, and your entire framework of OPC can be rendered redundant if the director signing on behalf of the OPC is a adequate purpose to clean away the statutory mechanism of restricted legal responsibility.

The courtroom additional noticed that the Realized Arbitral Tribunal has not accepted the Affirmation Letter as gospel. Nonetheless, there isn’t a contemporaneous correspondence or correspondence after the Affirmation Letter, that was introduced by Modern for consideration by the Realized Arbitral Tribunal in order to undermine the Affirmation Letter. The Tribunal has balanced all of the mentioned issue and brought a simply method of not directing a deposit in a way that Modern loses management over the cash, and has solely directed Modern to create a set deposit and maintain it safe until the completion of arbitration. The Affirmation Letter issued by Modern, confirmed the balances to the auditors of counterparties, and the quantities proven within the books of the counterparty as being dues, is taken prima facie true report within the books of accounts. On the part 17 stage, the Realized Arbitral Tribunal has rightly adopted the mentioned prima facie view. Due to this fact, except such view is battle with the fabric on report, it will not be applicable for this Courtroom to intrude with the mentioned view.

The Courtroom lastly noticed that no route towards Prasad to both deposit the quantity or to make any disclosure is just not legally tenable as Innovation is OPC. The mentioned route within the impugned order is direct battle with the basic coverage of Indian Legislation governing OPCs, as enshrined within the Corporations Act. On the mentioned stage, there’s not a prima facie case for issuing the mentioned instructions involving private legal responsibility on Prasad. Due to this fact, the Courtroom set apart the instructions issued to Prasad.

Case Title Saravana Prasad v. Endemol India Non-public Restricted & Anr.

Case Quantity: 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 (via VC) a/w. Mr. Apoorva Kulkarni i/b. SSB Authorized and Advisory, for Petitioner in each 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 International, for Respondent No.1 in each Petition