TaxTMI 
TaxTMI 
2016 (2) TMI 134
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....efendant No.1 are holding 50% share each of defendant No.3 who is involved in the business of imparting education, training and preparation for various national competitive examinations. 4. There is a dispute between the plaintiff and defendant No.1 as to who adopted the mark PARAMOUNT prior in times. However, it is not in dispute that in 2009, the said mark became the property of defendant No.3-Company on its incorporation. 5. It is the case of the plaintiff that he began the business of imparting education under the banner of Paramount Coaching Centre in January, 2005 as a sole proprietor. The plaintiff has pointed out few documents in order to show that prior to incorporation of defendant No.3 in the year 2005, the plaintiff opened a bank account with the Bank of Maharashtra as the sole proprietor of Paramount Coaching Centre. On the other hand, defendant No.1 in support of her claim for ownership of the name PARAMOUNT has relied upon a document in order to show the use of the name Paramount prior to 2005 of her reply to the plaintiff's injunction application. The plaintiff submits that the said document is purporting to be a self-serving advertisement; the same is neither....
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.... she along with her relatives including her sisters (i.e. Maya Chaudhary as CEO of defendant No.3 and Director of defendant No.2) and brother-in-laws hatched a conspiracy to set up a competing business with defendant No.3 while still working as Director/ employees of defendant No.3 to divert the business, future business opportunities, staff and students to their own private companies. 8. She holds 99.99% shares and her sister Maya Chaudhary's daughter holds 0.01% share for the purposes of carrying on competing business of coaching centres of defendant No.2 as alleged by the plaintiff. Another company, namely, Paramount Reader Publication Pvt. Ltd. (a one person Company under Section 2(62) of the Companies Act, 2013, in which she holds 100% shares) for carrying on the competing business of printing, publishing and distributing reading material by using the property (Reading Material) of defendant No.3, which is the subject matter of the suit pending in Rohini Court. 9. As mentioned above, defendant No.3 has been printing, publishing, selling and providing the books, Journals and other study material in the name of defendant No.3 for various competitive and other examinations ....
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....A new venture by Neetu Singh, founder/director of Paramount Coaching Centre' - defendant No.3's resources, such as Facebook and Twitter using this phrase. She marketed K.D. Campus Pvt. Ltd. as a New venture by 'Neetu Singh, founder/director of Paramount Coaching Centre' over the radio, Metro trains as well as in her personal publication i.e. Paramount Reader Publication, a magazine run by defendant No.1 using the name of defendant No.3 in violation of the Companies Act, 2013. 14. In order to restrain defendant No.1 from indulging in the aforesaid wrongful actions, the plaintiff on 26th May 2015 had instituted a suit being CS(OS) No.1592 of 2015 along with an application under Order XXXIX Rules 1 and 2 CPC. By an order dated 26th May, 2015, the learned Single Judge issued notice. For completion of service and pleadings, the matter was listed before Joint Registrar on 7th October, 2015. Being aggrieved by the said order, the plaintiff preferred an appeal being FAO(OS) No.301/2015. By an order dated 10th August, 2015, the Division Bench was pleased to direct the learned Single Judge that the plaintiff's application under Order XXXIX Rules 1 & 2 CPC be heard on 24th August, 2015.....
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....ent forums cannot continue as it may result in conflicting orders. The present suit and the present application are also barred by Section 41(h) & (i) of Specific Relief Act. (iv) It is not open for the plaintiff to allege that the defendant No.1 is disentitled to do business in defendant No.2-Company. The plaintiff has concealed from this Court that the plaintiff has prevented, obstructed and interfered with the defendant No.1 acting as Director of defendant No.3-Company. The plaintiff has not allowed holding of any meeting of Board of Directors or of the shareholders. No meeting of the Board of Directors was ever held. The plaintiff has failed to convene or attend any board meetings or general meetings in as much as there are only two directors and shareholders i.e. plaintiff and defendant No.1. There can be no meeting without either the plaintiff or defendant No.1. He has taken physical control over the business, affairs and belongings of defendant No.3-Company and is now seeking to prevent the defendant No.1 from carrying on her lawful business in defendant No.2-Company. He has no right or interest in defendant No.2-Company. He is jealous that the defendant No.1 has be....
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....ry of Broadcasting, Govt. of India wherein "Arohan" has been shown to be running by plaintiff from one place and "Paramount Coaching Centre" has been shown to be running by the defendant No.1 from the same place. (x) The share of the defendant No.1 was reduced by 9% in the financial year 2013-14 by the plaintiff by forging the signatures of the defendant No.1 in collusion with the previous account care-taker Mritunjay Singh who had impersonified himself as C.A. The Form-II was filed for this purpose bears his signatures both digital as well as normal. The returns of the year 2012-13 was filed using the forged signatures of the defendant No.1 and to this effect, a complaint was made by the defendant No.1 to the Police Station, Mukherjee Nagar vide DD No.66 dated 18th January, 2015 and after that he has restored the share of the defendant No.1 to 50%. (xi) The Magazine namely "Paramount Readers" which is edited by the defendant No.1 and popular amongst the students and the same is appreciated by the students, the distribution of the same has been abruptly stopped by the plaintiff in the centres and at its place, he has published a deceptively similar magazine "Param....
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....efendant No.1 was already married with one Bachhan Singh Chauhan and despite they never disclosed this material fact to the plaintiff rather helped the defendant No.1 in getting married with the plaintiff despite of the brother of defendant No.1 even stood as a witness before Hindu Marriage Registrar, C.M.C. area, Calcutta at the time of registration of marriage of defendant No.1 with her first husband Bachhan Kumar Singh Chauhan. (II) The plaintiff, in good faith, believed defendant No.1's untruths and married her in March, 12, 2006 and having been appointed Director of the defendant No.3-Company, defendant No.1 started appointing her family members to key positions in defendant No.3, with intent to be go gain assistance and control in the process of diverting the plaintiff's business. The defendant No.1 appointed her sister and brother in law, Maya Chaudhary and R.K. Chaudhary as CEO's of defendant No.3, her nephews for looking after books and magazine section of defendant No.2 and her other sister Manju Singh, in another key position at defendant No.3. (III) Prior to the incorporation of defendant No.3, the parties had mutually agreed that they would not carry ....
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....t No.3 and the plaintiff. 17. The defendants No.1 and 2 have denied all the allegations made by the plaintiff, rather the counter-allegations are made by defendant No.1 who stated that the plaintiff has started taking unilateral decisions of defendant No.3-Company regarding appointment, termination, enhancing salaries of the employees and without calling any board meetings. He had hired the musclemen and lady bouncers in order to prevent the defendant No.1 in the affairs of the defendant No.3-Company and also the ingress and outgress of the company premises, which is evident from the CCTV footage and photographs of incident occurred on 5th August, 2015 in the Munirka Branch of deferent No.3, when the defendant No.1 was mercilessly beaten and brutally assaulted by the goons hired by the plaintiff in order to kill the defendant No.1. Due to unilaterally decision of his own choice in the Company, the management of the defendant company is deadlocked. Recently, he appointed one lady namely Swaraj Gupta of his own choice and sent her to the Uttam Nagar Centre of the company in order to create chaos in the said centre and when the defendant No.1 interfered, a false and fabricated case....
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...., thus, it can be presumed that the same is of the nature of a partnership and not a company. 19. In reply, Ms.Geeta Luthra, learned Senior counsel on behalf of defendant No.1 argued that Section 166 of the Companies Act or Section 88 of the Indian Trusts Act or Section 16 of the Partnership Act do not debar defendant No.1 in entering into a similar business as she has been ousted from defendant No.3 as per averments made in the written statement. It is argued that defendant No.1 has started the independent business under the compelling circumstances and the reasons as explained in the written statement. She has placed reliance on the following judgments:- (i) Heena Dutt v. Chavi Designs Pvt. Ltd. & another, (2008) 141 Comp Cas 172 (CLB) (ii) Foster v. Bryant, 2007 EWCA Civ. 200 20. The next submission is that there are numerous pending litigations between the two shareholders and the plaintiff has been resorting to assault and battery on the defendant No.1 to prevent her from entering the premises of the defendant No.3. Plaintiff's vendetta against defendant No.1 has surpassed civil methods and the plaintiff has been: 1) Withdrawing huge amounts fr....
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.... The whole Account Section of Paramount Coaching Centre Pvt. Ltd has been shifted to some unknown destination, the address of which is unknown to the defendant No.1. 22. It is stated that one of the petitions filed by defendant No.1 against the plaintiff is already pending before the Company Law Board, thus, the present suit is not maintainable. The plaintiff has filed the present suit against the defendant No.1 and her relative which is not maintainable. Even a third party can be made a party before the Company Law Board as per Section 405 of the Companies Act, 1956. Ms. Luthra has referred para 23 of Henna Dutt (supra) decided by the Company Law Board in support of her submissions that there should be bids between them and highest bidder should purchase the shares of the other party. The said para reads as under:- "23. Objects and purpose of Sections 397, 398, 402 and 408 of the Act is twofold - to set right the wrongs and take remedial action to prevent occurrence of wrongs in future. Thus both preventive and curative action can be taken by the Company Law Board to regulate the conduct of the Company's affairs in future and to bring to an end the matters complain....
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....rovision is to give the fiduciary duty to the Director otherwise the features, consequences and incorporation in the said provision which is in consonance of Section 88 of the Indian Trusts Act, 1882 as well as Section 16 of the Partnership Act, 1932. The said provisions of these Acts reads as under:- Section 166 of the Companies Act, 2013 "(1) Subject to the provisions of this Act, a director of a company shall act in accordance with the articles of the company. (2) A director of a company shall act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment. (3) A director of a company shall exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment. (4) A director of a company shall not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company. (5) A director of a company shall not achieve or attempt to achiev....
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....the same is without any substance. It is submitted that Section 166(5) of the Companies Act, 2013 provides for relief that is more of a personal remedy, whereas Section 88 of the Trusts Act, 1882 provides for the "pecuniary advantage" to be held in benefit of such other person, to whom the other person is bound under a fiduciary duty. The remedy under Section 88 of the Trusts Act, 1882 is provided as a part of the no-conflict rule. The incorporation of defendant No.2 was not in conflict with the interests of defendant No.3 but out of necessity. The creation of defendant No.2 is not an act of breach of trust against defendant No.3 but in order to survive her life. The ousting of defendant No.1 who being one of the Directors has 50% shareholding and has created defendant No.3 is the biggest act of deceit. There cannot be a breach in fiduciary duty, when it exists on paper and not in reality, as she had already been ousted as a Director No.3 and for the sole reason of survival, she laid the foundation of defendant No.2 Company. The remedy provided under Section 166(7) of the Companies Act, 2013 is a fine not less than that of Rs. 1 lakh and the legislative intent could no....
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.... party against whom he was seeking relief. His conduct should be fair and honest. The same has been directed in the case of Gujrat Bottling Co. Ltd. and Ors. v. Coca Cola Co. and Ors., (1995) 5 SCC 545, para 47. 29. Mr.P.V.Kapur, learned Senior counsel appearing on behalf of the plaintiff has refuted the argument of defendant No.1 to the effect that under the compelling circumstances, defendant No.1 started her own independent business as she was ousted from the company of defendant No.3 by the plaintiff and his persons. He says that the facts of the present case are dissimilar to the case of Heena Dutt (supra). Thus, the question of bid of shares does not arise, as the defendant No.1 has already established very well handsome parallel business of similar nature, thus, now at this juncture, the said suggestion of bid inter se between the parties is not feasible as the defendant No.1 has refused to transfer the undue profits made by her in the Company of defendant No.2. The defendant No.1 is making huge profit by doing the competing business hence, she is liable to pay all the profit to the defendant No.3 and the defendant No.2 is also to be restrained. It is also argued that the....
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....pany Law Board, she is alleging plaintiff's removal as a Director of defendant No.2 as the plaintiff is taking decisions unilaterally; he should be restrained from using funds of the company; and she has been asserting that she alone has the right to take all the decisions of defendant No.3's company. Counsel for the plaintiff has referred the petition filed before the Company Law Board by defendant No.1. 33. Therefore, it is clear that she has taking contrary stands in different proceedings. Even otherwise, Heena Dutt's case (supra) is a 2008 Judgment when Section 166 of the Companies Act, 2013 had not yet been enacted. In the said judgment, the provisions of Section 88 of the Indian Trusts Act and Section 166 of the Companies Act, 2013 have not been discussed or dealt with. From the material placed on the record, it appears that the ouster pleaded by her is after-thought and the plea is contrary to the written statement filed in CS(OS) No.1592/2015. Therefore, prima-facie, the defence raised by defendant No.1 cannot be allowed at this stage. 34. With regard to reliance on Foster Bryant's case (supra), in paragraph 8 of the judgment the Court has discussed about the Dire....
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....ed by the court on legal principles and not on one's own moral views. Law is different from morality, as the positivist jurists Bentham and Austin pointed out." (iii) Abdul Basit v. Abdul Kadir Choudhary, 2014 (10) SCC 754 - at pg. 766, para 25 "25. It is a well-settled proposition of law that "what cannot be done directly, cannot be done indirectly". While exercising a statutory power a court is bound to act within the four corners of the statute. The statutory exercise of the power stands on a different pedestal than the power of judicial review vested in a court. The same has been upheld by this Court in Bay Berry Apartments (P) Ltd. v. Shobha [(2006) 13 SCC 737] , U.P. State Brassware Corpn. Ltd. v. Uday Narain Pandey [(2006) 1 SCC 479 : 2006 SCC (L&S) 250] and Rashmi Rekha Thatoi v. State of Orissa [(2012) 5 SCC 690 : (2012) 2 SCC (Cri) 721] . It is the duty of the superior courts to follow the command of the statutory provisions and be guided by the precedents and issue directions which are permissible in law." 36. In the present case, the plaintiff has filed clear evidence on record to show that defendant No.1 had tried to divert the business of defe....
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....g that she is trying to poach and threaten the employees. 41. Being a Director of defendant No.3, in her business of defendant No.2, i.e., K.D. Campus Pvt. Ltd., she has given advertisements that K.D. Campus is a new venture by Neetu Singh, Founder and Director of Paramount Coaching Centre. The other following details filed by the plaintiff would speak for themselves: a) Advertisements on Paramount official website, Multiple photographs of hoardings with the statement 'new venture by Neetu Singh', 'founder/director of Paramount Coaching Centre', Receipts of books sold in the last two years (till 15th December 2015) under the banner of Paramount Reader, by Neetu Singh. b) Magazine cover says 'a new venture by Neetu Singh, founder/director of Paramount Coaching Centre'. c) The defendant No.3 continues to pay the rent for two premises which are in the possession and are being used by defendant No.1 for running/promoting her competing business d) Hindi pamphlets saying 'a new venture by Neetu Singh', founder/ director of Paramount Coaching Centre'. e) Official website of KD Campus says 'a new ventur....
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....in the company by any of the parties, the same became the property of the company unless there is an agreement in writing to the effect that the other party/Director shall not claim any right to the same name. Such agreement or consent has not been pleaded by defendant No.1. 43. Now, I shall deal with the next submissions addressed on behalf of defendants No.1 and 2 that the suit filed by the plaintiff as derivative action is not maintainable. It is submitted on behalf of the plaintiff that the plaintiff has instituted the present action for and on behalf of defendant No.3 as derivative action because defendant No.3 is unable to from instituting the present action in its own name. It is alleged in the plaint by the plaintiff that the inability has attached to defendant No.3 as plaintiff and defendant No.1 are equal share-holders in defendant No.3 and since disputes have arisen between them, defendant No.3 is prevented from passing any resolution to institute any suit in its own name. The plaintiff has also instituted the present suit in his own capacity as a shore-holder having 50% share-holding in defendant No.3, for violation of his individual membership rights that arises fro....
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....en those who constitute the membership of the company but one between the company on the one hand and third parties on the other. It makes no difference in principle that the third parties may accidentally happen to be the directors or controlling shareholders of the company. Foss v. Harbottle itself is an illustration of such an action. Where such an action is allowed the member is not really suing on his own behalf nor on behalf of the members generally but on behalf of the company itself. In a derivative action, in the framing of the suit for the purpose of compliance of the formalities the plaintiff had to describe himself as a representative suing for and on behalf of all the members other than the wrong-doers. In a true derivative action the plaintiff shareholder is not acting as a representative of the other shareholders but is really acting as a representative of the company. The expression "derivative action" was basically borrowed from the United States, but has in recent years also been in use in the United Kingdom. 31. In a derivative action, the company would be the only party entitled to sue for redressal of any wrong done to it. However, since a company is a....
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.... personal rights are being infringed they may bring a representative action. The reliefs in such an actions would be essentially, primarily and solely for the benefit of the company as opposed to vindication and enforcement of the personal rights of the named plaintiffs though there could be a thin dividing line between the two, namely, personal rights and corporate rights. Satya Charan Law (supra) brings out the essence of such an action in the following words:- "17. The correct position seems to us to be that ordinarily the directors of a company are the only persons who can conduct litigation in the name of the company, but when they are themselves the wrongdoers against the company and have acted mala fide or beyond their powers, and their personal interest is in conflict with their duty in such a way that they cannot or will not take steps to seek redress for the wrong done to the company, the majority of the share-holders must in such a case be entitled to take steps to redress the wrong. There is no provision in the articles of association to meet the contingency, and therefore the rule which has been laid down in a long line of cases that in such circumstances the ....
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.... of machinery to obtain relief under special and peculiar circumstances. If the wrongdoer has the balance of power, and, therefore, the company does not take action, there are two courses open. The minority may take the risk and boldly use the company's name. The other course, and what has been thought to be the better course, where the wrongful act is supported by the majority, is for the minority shareholders to sue in their own name or, as a matter of convenience, for a shareholder to sue on behalf of himself and all the other share-holders. If, however, as generally happens and must happen logically, the wrong-doers are also shareholders, these shareholders as a matter of course must be excluded from the category of the plaintiffs; hence the phrase "except those who are defendants." In a suit so brought, the complaint is said to be a "fraud on the minority." If by this it is understood that the minority in a company have some natural right to sue a majority which is oppressing it, if it is suggested that there is any such thing legally as a wrong done by a bigger group to a smaller group within the company and, therefore, there is a class of action by a minority qu....
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....agement of the proforma defendant company. The orders disclosed in this proceeding would not show that the defendant Nos. 3 to 5 were not authorized to represent the said company in the arbitration proceeding. This observation, however, is not an expression of opinion with regard to the claim of the plaintiffs against the said defendant Nos. 3 to 5, that the said defendants have ceased to become directors. The said defendant No. 1 is no way concerned with the inter se disputes between the plaintiffs and the defendant Nos. 3 to 5. Although, the plaintiffs have asserted that the said defendants for long years have ceased to become directors and since 2009 the said defendants were not entitled to hold themselves as directors but the plaintiffs did not take recourse to any legal proceeding to prevent the said defendants from asserting their rights as directors since even thereafter the said defendants continued to assert their right as directors that had resulted in various litigation. Even if it is assumed that the defendant No. 1 is aware of the inter se disputes between the plaintiffs and the defendant Nos. 3 to 5, the defendant No. 1 is under no obligation to disclose such dispute ....
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....gs must be doing so for the benefit of the Company and not for some other purpose. It follows that the court has to satisfy itself that the person coming forward is a proper person to do so'." Further at page 256 it was held: "I can well understand that Mrs. Barrett is upset at what has occurred between Christopher and Carol and that she is indignant at the supplanting of Carol by Janet. But her partiality shows through all her evidence, and it is by her behaviour in relation to the claims against Carol, in contrast to the claims against Christopher and Janet, that I have become convinced that she is not pursuing this action bona fide on behalf of the company. If she had been, she would have had to sue Carol no less than Christopher in respect of diverted moneys. She claims that she did not sue Carol because Carol does not have any assets. But when Mr. Guy was asked what assets Christopher had to make him worth suing, the first two items listed by Mr. Guy were the jointly owned former matrimonial home in Gerrards Cross and the proceeds of The Noakes in each of which Carol retains her interest. Mr. Guy sought to assure us that now that the decision had been mad....
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....rate fiduciary may not appropriate to his or her own use a business opportunity which in equity and fairness belongs to the corporation. The corporation may bring an action for an accounting of the secret profits of a promoter, or, in a proper case, it may bring an action for damages for fraud, or it may rescind the transaction. An action may be brought by the corporation, its receiver or stockholders, depending on the circumstances of the case, and the promoter has the burden to prove that he or she has been true to his or her fiduciary duties. Subscribers to stock may, in the case of fraud or breach of trust resulting in injury to them individually, maintain an action against the promoters to compel them to return or to account for any funds which they have received and misappropriated, and for a proper share of any secret profits. 46. In the case of Dr. Satya Charan Law and others v. Rameshwar Prasad Bajoria and others, AIR (37) 1950 Federal Court 133, para 42, wherein it was held as under:- "18. The correct position seems to us to be that ordinarily the directors of a company are the only persons who can conduct litigation in the name of the company, but when they a....
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....nce of the legal rules, statutory provisions and provisions in the memorandum and articles which cannot be waived by a bare majority of shareholders." 48. In case the above said decisions are read in a meaningful manner, the circumstances would clearly go in favour of the plaintiff and against the submission of defendant No.1 and 2 that the suit filed by the plaintiff as derivative action is not maintainable. The facts in the present case would speak for themselves as defendant No.1 has stated her business obviously in order to harm the business of defendant No.3-Company. There is sufficient material on record in this regard. 49. Thus, prima-facie, this Court is of the view that derivative action filed by the plaintiff against defendants No.1 and 2 and on behalf of defendant No.3 is maintainable. The plaint cannot be rejected as alleged by defendants No.1 and 2. 50. Next objection of the defendants No.1 and 2 is that the company has not authorized the plaintiff to file any such action. The suit of the plaintiff is without any cause of action, as he has filed the suit as shareholder to the extent of 50% in the shareholding of defendant No.3-Company for violation of his indi....
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....Central Government may, if in its opinion circumstances exist which make it just and equitable so to do, authorise any member or members of the company to apply to the [Tribunal] under Section 397 or 398, notwithstanding that the requirements of clause (a) or clause (b) as the case may be, of sub-section (1) are not fulfilled. (5) The Central Government may, before authorising any member or members as aforesaid, require such member or members to give security for such amount as the Central Government may deem reasonable, for the payment of any costs which the [Tribunal] dealing with the application may order such member or members to pay to any other person or persons who are parties to the application." Section 241 (2013 Act) 241. Application to Tribunal for relief in cases of oppression, etc.-(1) Any member of a company who complains that- (a) the affairs of the company have been or are being conducted in a manner prejudicial to public interest or in a manner prejudicial or oppressive to him or any other member or members or in a manner prejudicial to the interests of the company; or (b) the material change, not being a change brought ....
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....sses of cases in which a liability may be established founded upon statute. One is where there was a liability existing at common law, and that liability is affirmed by a statute which gives a special and peculiar form of remedy different from the remedy which existed at common law; there, unless the statute contains words which expressly or by necessary implication exclude the common law remedy, the party suing has his election to pursue either that or the statutory remedy. The second class of cases is, where the statute gives the right to sue merely, but provides no particular form of remedy; there, the party can only proceed by action at common law. But there is a third class viz., where a liability not existing at common law is created by a statute which at the same time gives a special and particular remedy for enforcing it...... The remedy provided by the statute must be followed, and it is not competent to the party to pursue the course applicable to cases of the second class. The form given by the statute must be adopted and adhered to." The rule laid down in this passage was approved by the House of Lords in Neville v. London Express News Paper Limited (1919) A.C.....
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....pany is concerned. The defendants have already been removed in the meeting. The very grievance aired by the defendants before the Board has not been taken into consideration, and it is held that the civil court is seized of the matter. Thus a simple suit for injunction seeking the equitable relief of permanent injunction about the day-to-day management of the company and its affairs is maintainable." iii) In another case titled as Avanthi Explosives P. Ltd. v. Principal Subordinate Judge, Tirupathi, and another, [1987] 62 CompCas 301 (AP), it was observed as under:- "It may be seen that there are various provisions in the Act which refer to "the court", such as sections 107, 155, 163(6), 237, 391, 394, 395 and 397 to 407, 425, etc. The Central Government is empowered, however, to confer jurisdiction on the District Court powers only in respect of some these sections but not all. In my view, section 10 of the Act only proceeds to enumerate or specify "the court having jurisdiction under this Act ", wherever such jurisdiction is conferred on "the court" by the other provisions of the Act. Powers are conferred by the act not only on courts but also on other ....
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....1843] 2 Hare 461, are admitted as pointed out by Jenkins L. J. in Edwards v. Halliwell [1950] 1 All ER 1064, namely, the majority cannot confirm - (1) an act which is ultra vires the company or illegal; (2) an act which constitutes a fraud against the minority and the wrongdoers are themselves in control of the company; or (3) a resolution which requires a qualified majority but has been passed by a simple majority. In other words, the rule in Foss v. Harbottle [1843] 2 Hare 461 does not apply to such acts as referred to above inasmuch as the majority cannot sanction those acts. A resolution which is ultra vires or illegal or is a fraud on the minority or is not bona fide or for the benefits of the company as a whole or is intended to discriminate between the majority shareholders and the minority shareholders, is illegal and can be questioned by a separate action in the civil court. The reason for this is that if the minority were denied that right, their grievance could never reach the court because the wrongdoers themselves being in control, do not allow the company to sue. In some cases, it has been held that further exceptions to the rule in....
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....n of the company law board under the Companies Act in relation to Section 397 of the said Act is a concurrent jurisdiction which may be exercised by civil courts where allegations pertaining to oppression and mismanagement partake the character of a civil dispute. Thus, it was the duty of the plaintiff to have made averments in the plaint or in the injunction application, giving material particulars of the dispute pending before the company law board. In particular, plaintiff ought to have disclosed about CA No. 39/2006 filed under signatures of Shri Gautam Khandelwal." 57. In another case titled as CDS Financial Services (Mauritius) Limited v. BPL Communications Limited and Others, (2004) 121 CC 374 (Bom) (DB), it was held as under:- "Under section 9 of the Code of Civil Procedure, civil courts have jurisdiction to try all suits of civil nature except those of which cognizance by the civil court is either expressly or impliedly excluded. Such exclusion is not to be readily inferred, the rule of construction being that every presumption should be made in favour of the existence rather than exclusion of jurisdiction of the civil courts. In Dhulabhai vs. State of Madhya P....
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....ed, without expressly excluding the civil courts jurisdiction, then both the common law and the statutory remedies might become a concurrent remedies leaving open an element of election to the persons of inherence." From the above two decisions of the Supreme Court it is clear that when there is no express provision excluding jurisdiction of the civil courts, such exclusion can be implied only in cases where a right itself is created and the machinery for enforcement of such right is also provided by the statute. If the right is traceable to general law of contract or it is a common law right, it can be enforced through civil court, even though the forum under the statute also will have jurisdiction to enforce that right." 57.1 In the case of Ganga Ram Hospital Trust v. Municipal Corporation of Delhi, 2001(60) DRJ 549, para 16, it was held as under:- "16. Section 169 provides for a remedy of appeal against levy or assessment of any tax under the Act while section 170 lays down conditions subject to which the right of appeal conferred by section 169 can be exercised. Neither of these two sections contain any provision barring a civil suit to challenge levy and a....
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....n of Mr.Sethi in view of the facts of the present case. The common law does not prevent the plaintiff to take protection of common law rights, even if the statute excludes it specifically. Reliance is placed on Avanthi (supra). The decision referred by Mr.Sethi does not help the case of defendants No.1 and 2. i) In the case of Sangramsinh P. Gaekwad and others v. Shantadevi P. Gaekwad (Dead) through LRs. And others, (2005) 11 SCC 314, in para 39, it was held as under:- "39. By reason of Section 88 of the Indian Trusts Act, a person bound in fiduciary character is required to protect the interests of other persons but the heart and soul thereof is that as between two persons if one is bound to protect the interests of the other and if the former availing of that relationship makes a pecuniary gain for himself, Section 88 would be attracted. What is sought to be prevented by a person holding such fiduciary benefit is unjust enrichment or unjust benefit derived from another, which is against conscience that he should keep. When a person makes a pecuniary gain by reason of a transaction, the cestui qui trust created thereunder must be restored back." In any c....
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.... shareholders (C A. 283/ 62 [9]), this in parallel to the recognition by Israeli case law that shareholders owe a duty not to act in a manner resulting in a "fraud on the minority" (see A. Felman, Applied Israeli Corporate Law (Karni, 3rd ed., 1981) vol. II, at 594). 56. Within the scope of this appeal, we have no need to discuss at length whether a shareholder is under any general duty of loyalty towards the company and towards the other shareholders. We are dealing with a new matter, with extensive practical and theoretical implications, and we will therefore do well if we act cautiously in developing this matter, answering any concrete questions arising and aiming to formulate an over-all approach on the basis of past experience. For the purpose of the appeal before us, the following proposition will suffice: a controlling shareholder who wishes to sell his shares owes a duty of loyalty to the company with respect to the sale, and must act in good faith and honesty toward it, and he will be in breach of his duty if he sells his shares to a buyer who to the best of his knowledge will strip the company of its assets and lead to its insolvency. This duty has been recognize....
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....pressed in corporate law. Accordingly, the duty of loyalty is incumbent upon the promoter and upon the director. By virtue of the self-same principle, the duty of loyalty also rests upon the holder of the controlling shares with regard to their sale. The promoter, director and controlling shareholder wield power, which they hold in trust, as Professor Berle said more than fifty years ago, "corporate powers as powers in trust" (see Berle, supra, and Pepper v. Litton (1939) [25], at 306). Indeed no formal specific recognition of this duty of loyalty on the part of a shareholder has yet been made in our legal system, but the fundamental principle upon which it is based has been part of our system for years. On the basis of this well-known, recognized fundamental principle, we are fully entitled to deduce new secondary duties, to suit our needs. An example of another field in which there has been a similar development is the field of negligence in torts, in which from time to time this court recognizes new duties of care in regard to negligence - this on the basis of the general principle of negligence as recognized by our system. This being so, we are no longer required to examine whe....
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....s the freedom of property and the shareholder's right to do whatever he pleases with his shares on the one hand, and assures protection of the interests of the company on the other. This principle is common in the United States both in the literature (see A. Hill, "The Sale of Controlling Shares," 70 Harv. L. Rev. 986 (1956-57); A.A. Berle, " 'Control' in Corporate Law," 58 Colum. L. Rev. (1958) 1212; Comment, "Sales of Corporate Control and the Theory of Overkill," 31 U. Chi. L. Rev. (1963-64) 725) and in case law (see Insuranshares [22]; Levy v. American Beverage Corporation (1942) [26]; Gerdes v. Reynolds (1941) [27]; Dale [24]). Note: I do not mean to say that we must adopt the balance extant in the United States between the ownership of a share and the power of control granted by the share, or that we must follow their approach in everything related to controlling shares. The matter before us raises a specific question, involving the breach of loyalty in the sale of controlling shares and liability to indemnify the company for the loss it suffered. Here we can learn from the balance present in the United States. Should other problems arise in the future - such as t....
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....vail of the advantages of forming a limited company. They voluntarily and knowingly bind themselves by the provisions of the Companies Act. The submission that a limited company should be treated as a quasi-partnership should, therefore, not be easily accepted. Having regard to the wide powers under Section 402, very rarely would it be necessary to wind up any company in a petition filed under Sections 397 and 398." Without prejudice to the rights of both the parties, even this Court is of the considered view that the plaintiff and defendant No.1 should resolve their disputes. They are husband and wife and they have only one child. For the purpose of settlement, the matter was discussed many times in Chamber as well as in open Court, but it could not be resolved despite final proposed settlement of terms handed over to the defendant No.1 who although agreed to many major terms. Copy of the same and the comments and modification made by the defendant No.1 has been placed on record. As it could not finally materialize, both the parties submit that let the interim application be decided on merit. 63. Lastly, it is argued by Ms.Luthra that the suit is barred under Order II Rule 2....
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....meaningful manner, it is clear that if the Court is satisfied that it is a formal defect and there are sufficient grounds for allowing the application to institute a fresh suit for the subject-matter of a suit or part of a claim, the plaintiff can be permitted to withdraw his claim as a whole or part, but he cannot be precluded from suing again on the same cause of action by filing a fresh suit after obtaining leave from the Court. 15. In the present case, it is apparent from the statement made by the plaintiff in the second suit that it is a formal defect and the cause of action and the relief of the subject-matter of the second suit are on the same terms. In case, the contents of para 19-23 and 25 of fresh suit are read, there is no force in the submission of the learned counsel for the defendants that the second suit is not maintainable when the first suit was still pending. It is a matter of fact that the plaintiff has filed the second suit in a transparent manner, nothing has been concealed by the plaintiff from the Courts. Prima facie valid reasons have been given to file the fresh suit. The interim order was neither passed in the first suit nor in the second suit, t....
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.... Section 166 of the Companies Act 2013, which came into effect from 1st April 2014, a hitherto prohibition in common law was translated into a statutory prohibition providing, inter-alia, that a Director could not and cannot enter into a competing business with the Company of which he is a Director or gain any advantage either to himself or to his relatives and further that if he is found guilty of violating the said provision, he shall be liable to pay an amount equal to that gain to the company. Additionally, Section 88 of the Indian Trusts Act also provides that a Director/Partner who in violation of his fiduciary character gains for himself any pecuniary advantage or enters into any dealing in which his own interest is adverse to the interest of the Company and thereby gains a pecuniary advantage to himself, he will hold such advantage gained for the benefit of the Company. It appears that the prayer sought in the present suit and in the Rohini suit is not the same. The mark Paramount in Rohini Court was used by the defendant No.1 in relation to publication materials. However, the main relief sought in the present suit against the defendant No.1 and 2 to compete the bu....
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.... on the same cause of action. Such liberty being granted by the court enables the plaintiff to avoid the bar in Order II Rule 2 and Section 11 CPC. 13. The provision in Order XXIII Rule 1 CPC is an exception to the common law principle of non-suit. Therefore on principle an application by a plaintiff under sub-rule (3) cannot be treated on a par with an application by him in exercise of the absolute liberty given to him under sub-rule (1). In the former it is actually a prayer for concession from the court after satisfying the court regarding existence of the circumstances justifying the grant of such concession. No doubt, the grant of leave envisaged in sub-rule (3) of Rule 1 is at the discretion of the court but such discretion is to be exercised by the court with caution and circumspection. The legislative policy in the matter of exercise of discretion is clear from the provisions of sub-rule (3) in which two alternatives are provided; first where the court is satisfied that a suit must fail by reason of some formal defect, and the other where the court is satisfied that there are sufficient grounds for allowing the plaintiff to institute a fresh suit for the subject-ma....
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....rcumstances available in the case. 72. No doubt, defendant No.1 has raised allegations against the plaintiff. Certain documents by way of photographs are also filed. It is alleged by the defendant No.1 that the plaintiff has appointed lady bouncers just to create terror in the mind of the defendant No.1 and in order to take over the defendant No.3-Company like his proprietorship. In the month of June, 2015 the plaintiff had appointed CEO & Chief Advisor of the defendant No.3-Company which was against the memorandum and articles of association of the company which was objected to by the defendant No.1 and upon the interference of the police the CEO and Chief Advisor were asked to leave the office. Recently keeping aside the memorandum and articles of association of the company, the plaintiff has appointed many staffs and bouncers which act of the plaintiff is adverse to the interest of the company. 73. The defendant No.1 has also pleaded that the plaintiff in connivance with the accountants has started siphoning the money of the company straightaway to his own account instead of depositing the same in the company account, which act of the plaintiff is again adverse to the inte....
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....directly in any manner in relation of imparting education and training. She shall not approach any student, staff member, teacher or any person of defendant No.3 in this regard or to pouch the business of defendant No.3. She is also agreeable if a Local Commissioner is appointed to verify the position in all centers in Delhi and outside and if any signboard or advertisement pointed out by the plaintiff through Local Commissioner of the PARAMOUNT, the defendant No.1 shall remove the same without loss of time though she has already taken all necessary steps to remove the same. Mr.Sethi, learned Senior counsel, also suggested that in order to know the goodwill of the mark PARAMOUNT and business of defendant No.3, let a Chartered Accountant be appointed who after having gone through the business of all centers owned by defendant No.3 and after assessing the value of the goodwill of name of Paramount business within a period of 12 months would give the report and thereafter, both parties should agree for bidding and the highest bidder should purchase the shares of another party. Mr.P.V.Kapur, learned Senior counsel for the plaintiff did not agree for appointment of Chartered Accountant.....
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....g the entire gamut of the matter and peculiar facts and circumstances of the case, I am of the view that there can be three scenarios in order to decide the dispute in hand: Scenario 1: That the defendants No.1 and 2 accept the terms and conditions for the purpose of settlement of matter in hand suggested by the plaintiff. Under such a situation, the defendant No.1 not only to continue with the business of defendant no.2 subject to disclaimer as suggested by Mr.Sethi as mentioned para 71 of my order and at the same time, she would also get Rs. 25 crores from the plaintiff within the period of four years as per details mentioned in the proposed settlement. The defendant No.1 wanted certain modifications/ changes in the proposal of settlement; the same are not acceptable to the plaintiff though main terms are agreed to by both parties. However, this Court felt that still they should resolve the dispute. The counter proposal given by defendant No.1 to the plaintiff is also not agreeable to the plaintiff. Scenario 2: As suggested by Mr.Kapur that all centres of defendant No.2 are merged with defendant No.3 and let the defendant No.3 may run under the....
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....ant injunction and he needs protection from the consequence of apprehended injury or dispossession of apprehended injury or dispossession. Irreparable injury, however, does not mean that there must be no physical possibility of repairing the injury, but means only that the injury must be a material one, namely on that cannot be adequately compensated by way of damages. The third condition also is that 'the balance of convenience' must be in favour of granting injunction. The court while granting or refusing to grant injunction should exercise sound judicial discretion to find the amount of substantial mischief or injury which is likely to be caused to the parties, if the injunction is refused and compare it with that it is likely to be caused to the other side if the injunction is granted. If on weighing competing possibility or probabilities of likelihood of injury and if the court considers that pending the suit, the subject matter should be maintained in status quo, an injunction would be issued. Thus the court has to exercise its sound judicial discretion in granting or refusing the relief of ad interim injunction pending the suit." 84. In M/s. Gujarat Bottling Co. Ltd. and ....
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.....3 and within two weeks shall remove the word PARAMOUNT from all hoardings, advertisements, brochures and other materials and shall not open any new centre within the range of 100 meters where the centre of defendant No.3 already exists; (ii) she shall furnish the true account from February, 2015 till December, 2015 and every quarterly till the decision of the suit; the first statement would be filed by 15th February, 2016; (iii) she will not create any hurdle in smoothly going of defendant No.3 and she shall perform her fiduciary duties under the Act and sign all the requisite papers of the defendant No.3 and shall not create any hindrance of running business of defendant No.3 directly or indirectly. In case of above said compliance and undertaking, the defendants No.1 and 2 are allowed to continue with the business of defendant No.2. In case of any breach, the plaintiff is entitled to move before Court for modification of order and then the Court may pass any appropriate orders. 88. Mr.Abhimanyu Mahajan, Advocate (Mobile No.9811103447) is appointed as a Local Commissioner to oversee the entire situation as per direction passed by this Court. In case the defendant No.1....