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2016 (2) TMI 134 - HC - Companies LawDirector competing the business of company in which he/she is already a Director - Infringement of goodwill - declaration, rendition of account, damages, permanent and mandatory injunctions seeked - violation of Section 166 of the Companies Act, 2013 and Section 88 of the Trusts Act, 1882 by defendant No.1 - Held that - Defendant No.1 being the Director of defendant No.3 is entitled to 50% net-profit of the Company but at the same time, as she has violated her fiduciary duties and is guilty of breach of Section 166 of the Companies Act, 2013, the undue gain already made by her is liable to be paid to the Company under sub-Section 5 of Section 166 of the Act and the Director of the company is not to assign his office unless the breach is stopped. But under no circumstances, the Director can be allowed to compete the business of the Company, in which he/she is already a Director, to exploit the mark in order to give the impression to the public at large that he/she has any association or affiliation of the Company in which he/she is still a Director. Subject to the condition and by filing of an affidavit of undertaking that (i) the defendants No.1 and 2 shall not use the mark PARAMOUNT, its goodwill in any manner in its Company defendant No.2 and shall not poach teachers, students or staff members of defendant No.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. 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 wishes to inspect the record of defendant No.3 or attend the meeting or to visit office of the Company for any purposes, she will inform the Local Commissioner so that smooth atmosphere is created in order to avoid any untoward incident as earlier happened. The defendant No.3 and plaintiff shall also maintain the correct accounts and to file before this Court from the date of filing of suit till December, 2015 and continue to file the same every quarterly so that actual figures of profits of defendant No.2 and defendant No.3 be ascertained after trial for adjustment purposes. The fee of the Local Commissioner is fixed at ₹ 60,000/- per visit at this stage which shall be paid by both the parties in equal proportion from the account of defendant No.3, subject to final adjustment.
Issues Involved:
1. Ownership and use of the trademark "PARAMOUNT." 2. Fiduciary duties and conflict of interest of a company director. 3. Derivative action and its maintainability. 4. Allegations of mismanagement and oppression. 5. Jurisdiction of civil courts versus Company Law Board. 6. Interim relief and injunctions. Issue-wise Detailed Analysis: 1. Ownership and Use of the Trademark "PARAMOUNT": The plaintiff claimed that he began the business under the name "Paramount Coaching Centre" in 2005 as a sole proprietor. The defendant No.1, his wife, contested this, asserting her prior use of the name. The court noted that the trademark "PARAMOUNT" became the property of defendant No.3 upon its incorporation in 2009. The plaintiff alleged that defendant No.1 used the name "PARAMOUNT" to promote her competing business, causing confusion and deception among the public. The court found that defendant No.1 had made public statements and advertisements using the "PARAMOUNT" name to harm the business of defendant No.3 and mislead the public. 2. Fiduciary Duties and Conflict of Interest of a Company Director: The court emphasized the fiduciary duties of a director under Section 166 of the Companies Act, 2013, and Section 88 of the Indian Trusts Act, 1882. It found that defendant No.1, while being a director of defendant No.3, started a competing business (defendant No.2) and used the resources and goodwill of defendant No.3 for her benefit. This was a clear violation of her fiduciary duties. The court highlighted that a director must act in good faith and avoid conflicts of interest, and any undue gain must be held for the benefit of the company. 3. Derivative Action and Its Maintainability: The plaintiff filed the suit as a derivative action on behalf of defendant No.3, claiming that the company was unable to take action due to the equal shareholding and disputes between the plaintiff and defendant No.1. The court held that the derivative action was maintainable, as the plaintiff was acting on behalf of the company to address wrongs done by the directors. The court cited precedents to support the maintainability of derivative actions when the company itself cannot act due to internal conflicts. 4. Allegations of Mismanagement and Oppression: Both parties made personal allegations against each other, including misuse of company funds, appointment of family members to key positions, and physical assaults. The court noted that these issues were beyond the scope of the present suit but acknowledged their relevance to the overall dispute. The court emphasized that the primary focus was on the competing business set up by defendant No.1 and the breach of fiduciary duties. 5. Jurisdiction of Civil Courts Versus Company Law Board: Defendant No.1 argued that the suit was barred by the provisions of the Companies Act and should be addressed by the Company Law Board (CLB). The court rejected this argument, stating that the civil court had jurisdiction to hear the case, especially given the derivative nature of the action. The court cited various judgments to support its position that civil courts can address disputes involving fiduciary duties and competing businesses. 6. Interim Relief and Injunctions: The court granted interim relief to the plaintiff, restraining defendant No.1 from using the "PARAMOUNT" name and engaging in competing business. The court directed defendant No.1 to remove the "PARAMOUNT" name from all promotional materials and advertisements within two weeks. The court appointed a Local Commissioner to oversee compliance and ensure no further conflicts. The court emphasized the principles of prima facie case, balance of convenience, and irreparable injury in granting the injunction. Conclusion: The court found in favor of the plaintiff on the key issues of trademark ownership, breach of fiduciary duties, and maintainability of the derivative action. The court granted interim relief to protect the interests of defendant No.3 and prevent further harm from the competing business set up by defendant No.1. The detailed analysis addressed the legal principles and evidence presented, ensuring a comprehensive understanding of the judgment.
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