Bombay HC Upholds Limited Liability of OPC Directors

In a dispute concerning the production of MasterChef in regional languages, the Hon’ble Bombay High Court has ruled that Endemol, the producers, can recover dues only from the contracting company and not from its sole director. The Court held that making the director personally liable would contradict the fundamental principles governing a One Person Company (OPC) under Indian law.

Endemol had sought to recover over ₹10 crore under the production agreement and had already secured a favourable award from the arbitral tribunal. The tribunal directed the production company, Innovative Film Academy Pvt. Ltd., along with its sole promoter-director, Saravana Prasad, to deposit the awarded sum in a fixed deposit and disclose both the company’s and Prasad’s personal financial information.

While the High Court acknowledged that the arbitral tribunal had acted reasonably in safeguarding the award amount from potential dissipation, it found that the tribunal had committed a material error by conflating the legal identity of the company with that of its sole director. This, the Court noted, was inconsistent with the legal framework governing OPCs.

The Court emphasized that Section 2(62) of the Companies Act, 2013 explicitly introduced the concept of a One Person Company i.e. an artificial juridical entity, departing from the traditional notion that a company must consist of at least two persons. An OPC enjoys perpetual succession and legal separation from its owner, enabling individuals to benefit from limited liability while insulating personal assets from business risks. Since Saravana Prasad was not a party to the production agreement between Innovative and Endemol, imposing liability on him personally was deemed legally untenable and was accordingly set aside.

This marks the first time a court has explicitly affirmed the limited liability protection available to OPC owners. Except in cases involving fraud or personal guarantees, the liability of an OPC is limited to its paid-up share capital. OPCs are considered distinct legal entities separate from their owners, and the doctrine of lifting the corporate veil applies only in instances of abuse.

To prevent misuse as a company scales, the law mandates conversion of an OPC into a private or public limited company upon crossing certain thresholds. Currently, if an OPC records an average annual turnover of ₹2 crore or more over three consecutive years or has a paid-up capital exceeding ₹50 lakh, conversion becomes compulsory.