2011 (8) TMI 1282 - HC - Indian Laws

Derivative action dismissed due to family settlement allowing mark use. Plaintiff to pay costs.

The court dismissed the derivative action as not maintainable due to the existence of a family settlement allowing defendant No. 5 to use the 'Marvel' ... - Issues Involved:1. Maintainability of the derivative action.2. Alleged family settlement and its implications.3. Plaintiff's conduct and its impact on the first defendant company.4. Alleged tort of passing off.5. Reliefs sought and their validity.Issue-wise Detailed Analysis:1. Maintainability of the Derivative Action:The plaintiff, a minority shareholder, filed a derivative action to restrain defendant Nos. 2 to 6 from using the trade-name 'Marvel Fragrances Company,' alleging passing off. The defense argued that an action in tort can only be filed by the owner of the right infringed and not as a derivative action. The court clarified that while generally, a company must sue in its own name, an exception exists for derivative actions where shareholders can file on behalf of the company if the company's management is unlikely to act. The court affirmed that intellectual property rights are as protectable as any other company assets through derivative actions.2. Alleged Family Settlement and Its Implications:The defendants claimed a family settlement in July 2007, distributing rights and properties among the family members, allowing defendant No. 5 to use the 'Marvel' mark. The court found strong prima facie evidence supporting this settlement, including the reconstitution of family firms and the transfer of shares without consideration, indicating an intent to separate business interests. The plaintiff's failure to explain these transfers and provisions in partnership deeds further supported the existence of the settlement.3. Plaintiff's Conduct and Its Impact on the First Defendant Company:The plaintiff was found to have acted contrary to the interests of the first defendant company. Evidence showed attempts to divert business to Mysore Scents Company, in which his son had a significant interest, and informing third parties about internal disputes, thereby harming the company's prospects. This conduct indicated that the derivative action was not bona fide for the company's benefit but part of broader family disputes.4. Alleged Tort of Passing Off:The court acknowledged that had the defendants been strangers, an action for passing off might have succeeded. However, given the family context and the settlement allowing defendant No. 5 to use the 'Marvel' mark, the court found no grounds for passing off. The plaintiff's delay in raising the issue further indicated acquiescence to the family arrangement.5. Reliefs Sought and Their Validity:The court noted that the reliefs claimed in the suit were not part of the petition before the Company Law Board. However, the derivative action was not seen as bona fide, given the plaintiff's conduct and the family settlement. The court dismissed the Notice of Motion, emphasizing that the plaintiff's actions were detrimental to the first defendant and not in its interest.Conclusion:The court dismissed the derivative action, finding it not maintainable due to the strong prima facie evidence of a family settlement allowing the use of the 'Marvel' mark by defendant No. 5. The plaintiff's conduct was deemed contrary to the interests of the first defendant company, and the action was seen as part of broader family disputes rather than a genuine attempt to protect the company's rights. The plaintiff was ordered to pay costs of Rs. 15,000.