2014 (12) TMI 1297 - HC - Companies Law

Mismanagement, oppression and misappropriation - grievance of the Plaintiff briefly put is that Defendant No. 2 has obtained and/or applied for several patents in his own name whereas the patents ought to have been obtained and/or applied for in the name of Defendant No. 1 - Held that - Plaintiff though holding 12% of the shares of the Company, is all alone in this action particularly when the other minority shareholders, who collectively own about 13% of the shares of Defendant No. 1, are against the action and do not consider it in best interest of Defendant No. 1. Therefore, such a Plaintiff should not be entitled to maintain this derivative action or any relief on this ground. It is the Plaintiff s case that the patents have been wrongly applied for or obtained by Defendant No. 2 though he is not entitled to the same and in fact it is Defendant No. 1 who is entitled to the same but if we accept the Plaintiff s contention then any person, it may include the Plaintiff himself, who is a competitor as explained later, or any other competitor may apply for revocation/cancellation of the patent. If the patent is cancelled then Defendant No. 1 also will not be able to use the patents, which it is now using, royalty free. It will cause a tremendous loss to the Company-Defendant No. 1. Therefore, this action can never be considered to be in the interest of Defendant No. 1 Plaintiff being a competitor with the seemingly malicious intent against Defendant No. 1, cannot be believed when the Plaintiff says that the derivative action is bona-fide and in the best interest of Defendant No. 1. On this ground also the Plaintiff cannot maintain this action and reliefs sought by the Plaintiff cannot be granted. In the case under consideration, the suit in the garb of a derivative action is really prompted by family hostilities and personal anger that the Plaintiff had against Defendant No. 2. In fact the Plaintiff/his mother had also filed a criminal complaint against Defendant No. 2 and the police whilst closing the case observed that having regard to her age and physical and mental state, the criminal complaint has not been filed by her (the mother) but at the instance of the Plaintiff and there appears to be a family dispute. Even previous litigations initiated by the Plaintiff is also evidence of family disputes/disputes of a personal nature now being again sought to be litigated in the garb of a derivative action. Therefore on this ground also, the Plaintiff will not be entitled to any relief as sought. It is also quite obvious that the Plaintiff having not succeeded in his earlier actions against Maharukh Murad Oomrigar, his sister and the Defendant No. 2, he is re-agitating the same points in the garb of a derivative suit.

Issues Involved:
1. Entitlement of the Plaintiff to file a derivative action as a minority shareholder.
2. Alleged breach of fiduciary duty by Defendant No. 2 regarding patents.
3. Plaintiff's locus standi and clean hands in bringing the derivative action.
4. Whether the action is in the best interest of the company.
5. Impact of previous litigations on the current suit.
6. Availability of alternative remedies.
7. Balance of convenience and irreparable loss.

Issue-wise Detailed Analysis:

1. Entitlement of the Plaintiff to File a Derivative Action:
The Plaintiff, a minority shareholder, filed a derivative action against Defendant No. 2, alleging that patents obtained by Defendant No. 2 should have been in the name of Defendant No. 1. The court recognized the right of a minority shareholder to file such an action if the majority shareholders prevent the company from taking action against wrongdoers. However, the court emphasized that recognizing this right does not imply the action is correct or has merits.

2. Alleged Breach of Fiduciary Duty:
The Plaintiff claimed that Defendant No. 2, as a fiduciary, breached his duty by registering patents in his name instead of Defendant No. 1. The Plaintiff argued that Defendant No. 2 used the company's resources for these patents. However, the Defendants contended that the patents were individual creations of Defendant No. 2 and not related to his duties as Managing Director. The court noted that there was no contractual obligation for Defendant No. 2 to invent for the company, and he had provided a royalty-free license to the company to use the patents.

3. Plaintiff's Locus Standi and Clean Hands:
The Defendants argued that the Plaintiff had no locus standi as similar issues had been litigated previously, and the Plaintiff had withdrawn from those proceedings. The court observed that the Plaintiff's conduct in previous litigations indicated unclean hands and ulterior motives, including attempts to sell shares to a competitor and filing multiple litigations against Defendant No. 2. The court emphasized the doctrine of clean hands, stating that the derivative action cannot be used to do injustice.

4. Whether the Action is in the Best Interest of the Company:
The court found that the Plaintiff's action was not in the best interest of the company. It highlighted that if the patents were revoked due to the Plaintiff's claims, it would cause significant loss to the company. Additionally, the court noted that the Plaintiff's competing business interests and past conduct suggested that the action was motivated by personal vendetta rather than the company's benefit.

5. Impact of Previous Litigations:
The court noted that similar issues had been raised in previous litigations, which were dismissed. The Plaintiff was found to have unconditionally withdrawn from earlier petitions, thereby acquiescing in the acts complained of. The court emphasized that the Plaintiff was re-agitating the same issues in the current suit, which was not permissible.

6. Availability of Alternative Remedies:
The Defendants argued that alternative remedies were available under Sections 397 and 398 of the Companies Act and the Patents Act. The court acknowledged that the Plaintiff had already pursued these remedies in previous litigations, which were dismissed. The court also noted that the specialized forum of the patent office was more equipped to handle issues related to patent ownership.

7. Balance of Convenience and Irreparable Loss:
The court found that the balance of convenience was against granting interim relief to the Plaintiff. It highlighted that the patents were being used royalty-free by the company and that revoking the patents would cause irreparable loss to the company. The court also noted that the Plaintiff's action was speculative and motivated by personal interests.

Conclusion:
The court dismissed the Plaintiff's notice of motion with costs, concluding that the Plaintiff failed to establish a prima facie case for the grant of relief sought. The court emphasized the need to deal with speculative and frivolous litigations with a tough hand and imposed substantial costs on the Plaintiff for engaging the Defendants in constant litigations. The Plaintiff was directed to pay Rs. 10 lakhs as costs to the Defendants.

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