2022 (1) TMI 1454 - HC - Companies Law

Delhi HC rules civil suit for perpetual injunction against directors misusing company name maintainable despite NCLT jurisdiction arguments

RAJAN GUPTA Versus PRADEEP KUMAR GUPTA & ORS.

The Delhi HC held that a civil suit for perpetual injunction against directors for misusing company name and goodwill was maintainable, rejecting ... Appropriate Forum - Oppression and mismanagement - suit for perpetual injunction against directors restraining them from using the name and goodwill of company - Use of company name and goodwill by a director for personal business. Crux of the arguments of defendants is if the plaintiff is aggrieved of oppression and mismanagement by the defendants then an appropriate forum would be NCLT and not to a civil court. HELD THAT:- Though, ICP Investments (Mauritius) Ltd. [2019 (8) TMI 1631 - DELHI HIGH COURT] says a civil suit would not be maintainable as derivative action can be filed before the NCLT, but it is equally true Rajeev Saumitra [2016 (2) TMI 134 - DELHI HIGH COURT] says there is no provision in the Companies Act to approach the Company Law Board for a wrong done to the company by a director. The Hon’ble Supreme Court in Ahmed Abdulla Ahmad Al Ghuriar vs Star Health and Allied Insurance Company Limited [2018 (11) TMI 1408 - SUPREME COURT] says a derivative action is maintainable in a Civil Court though only in a particular situation and as an exception. No doubt contrary views are expressed by this Court, but in view of Ahmed Abdulla Ahmad Al Ghuriar, prima facie one can say such an action cannot be brushed aside in its infancy. Thus, summons of suit and application are hereby issued to defendants. Learned counsels for defendants accepts summons and seeks to file their response. Since the plaintiff is in business prior to that of defendant No.5, hence it would be appropriate if the defendant No.5 is directed not to use the name HI TECH as its trade name in its future bids, to be applied afresh from now onwards, till the next date of hearing. Affidavit of admission/denial of documents be also filed by the parties. List for completion of pleadings before the learned Joint Registrar on 20.04.2022 - Upon completion the pleadings the matter be listed in this Court. Issues:1. Allegations of mismanagement and oppression by directors of a company.2. Jurisdiction of the civil court in cases of oppression and mismanagement.3. Use of company name and goodwill by a director for personal business.4. Derivative action and maintainability of civil suits in cases of wrongs by directors.5. Relief sought against a specific defendant for injunction.Analysis:1. The lawsuit involves allegations of mismanagement and oppression by certain directors of a company, leading to a claim for perpetual injunction against them. The plaintiff contends that the defendants have diverted business from the company to a new entity created by them, resulting in financial losses and misuse of the company's name and goodwill.2. The jurisdictional issue arises concerning whether the civil court can entertain cases of oppression and mismanagement by company directors. The defendants argue that such matters fall under the purview of the National Company Law Tribunal (NCLT) as per the Companies Act, 2013, and not within the jurisdiction of the civil court.3. The plaintiff asserts that one of the directors has engaged in oppressive conduct by diverting business and usurping powers without consulting other shareholders. The plaintiff relies on legal provisions, including Section 166 of the Companies Act, 2013, which prohibits directors from conflicting with the interests of the company.4. The discussion on derivative action and the maintainability of civil suits in cases of wrongs by directors highlights conflicting judgments. While one case suggests that NCLT is the appropriate forum for such actions, another ruling indicates that a civil court can entertain derivative actions in exceptional circumstances, as per the Companies Act and relevant legal precedents.5. The relief sought by the plaintiff is an injunction against a specific defendant to prevent the unauthorized use of the company's name and goodwill. The court directs the defendant not to use the company's trade name in future bids until the matter is resolved, emphasizing the plaintiff's prior business establishment.This detailed analysis outlines the complex legal issues raised in the judgment, including jurisdictional challenges, allegations of misconduct by directors, and the application of legal principles governing corporate governance and remedies available to aggrieved parties.