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TMI Blog2016 (2) TMI 134X X X X Extracts X X X X X X X X Extracts X X X X ..... as 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 dated nor does it demonstrate as to where this advertisement appeared and it also does not prove that defendant No.1 is the owner of the mark PARAMOUNT. In the month of July, 2005, the defendant No.1 came in contact with plaintiff looking for a job and requested the plaintiff to allow her to teach English subject in his coaching instit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 on various subjects like Reasoning, physics, Chemistry, English, Maths, etc. Defendant No.1 has been indulging in causing wrongful loss to the defendant No.3 and wrongful gain for her individual one-person company namely M/s. Paramount Reader Publication OPC Pvt. Ltd. The plaintiff on behalf of the defendant No.3 as well as for himself being shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ader 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. The plaintiff earlier also filed the Suit No.78/2015 before the ADJ, Rohini Courts, Delhi restraining the defendants from using the mark Paramount in the publication of books. The same was withdrawn on 17th August, 2015 with liberty to file the fresh one. As far as litigation in this Court is concerned, it is submitted that though the plaintiff initially i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bstructed 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 been able to set up the defendant No.2-Company and provides good service in the market. Unable to deal with the defendant No.1 in the market, the plaintiff has filed the present suit to abuse its process to bring wrongful pressure upon the defendant No.1. (v) Defendant No.2-Company does not use the mark or name "Paramount" for its business. The defendant No.1 has neither diverted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 "Paramount Current Affairs" and the students are being compelled to take the magazine edited and published by the plaintiff and despite the demands made by the students, the plaintiff is not allowing distribution of Magazine "Paramount Readers" which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 out any separate business in this field or use the name 'Paramount' in the same business for their individual gain unless mutually consented to. In any event, there exists a statutory injunction in Section 166 of the Companies Act, 2013 against the defendant No.1 being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment, 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 was got registered by the Police of Bindapur Police Station at the instance of plaintiff but later on, on preliminary enquiry of the police, it was found that the said lady has been illegally trespassed in the premises of the company and upon the complaint of the defendant No.1, FIR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 from the Company accounts, 2) Drawing overdrafts, 3) Making appointments, 4) Overall making a plethora of extremely harmful financial decisions, 5) Siphoning off funds, and 6) Increasing the debt on the Company. 21. It is also submitted on behalf of defendants No.1 and 2 that the plaint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 complained of. To do substantial justice between the parties, I hereby direct the respondent No.2 to restore the sale consideration received in respect of the discounted sales and other amounts siphoned off from the respondent No.1 company's accounts forthwith. Since there is a deadlock in the respondent No.1, and since both the parties kno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 013 "(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 achieve any undue gain or advantage either to himself or to his relatives, partners, or associates and if such director is found guilty of making any undue gain, he shall be liable to pay an amount equal to that gain to the company. (6) A director of a company shall not assign his office and any assignment so made shall be void. (7) If a director of the company contravenes the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 ₹ 1 lakh and the legislative intent could not have been to introduce the remedy of the magnitude provided under Section 88 of the Trusts Act, 1882 or that of an injunction on defendant No.2. The remedy provided under Section 166(7) is the maximum that can be imposed for the breach of the duties by a Director under Section 166. 27. As far as the opening of independent business by defendant No.1 under the name of defendant No.3 is concerned, Ms.Luthra, learned Senior counsel argues ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 plea of ousting is wholly after-thought. Defendant No.1 under no circumstances could have started competing business, as she was never ousted from the business of defendant No.3. It is the admitted fact in the first written statement filed by defendant No.1 in the suit being CS(OS) No.1592/2015 (which was withdrawn by plaintiff to file fresh present suit), it was never her stand that she had been ousted from the business of defendant No.3. However, in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king 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 Director's Fiduciary Duties and it was held that a Director has a Fiduciary Duty towards the Company and must deal with loyalty and good faith and avoidance of conflict of duty and self-interest. He is precluded from obtaining any property or business advantage that is in conflict with the business of the Company. A mere exception is carved out that while the employment as a director subsists, a director can take steps 'preparatory to competition'. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 defendant No.3 by setting up competing businesses despite of remaining a Director of defendant No.3. The same is even apparent from the messages sent by defendant No.1 which does not demonstrate any ouster, rather the said messages would give indication about competing with the business of defendant No.3-Company - "Tumko sadak par utar ke zinda rakhna bhi zaroori hai". She is luring defendant No.3 students by offering a 20% discount in the fee or a special fee to solicit Paramount's exis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 venture by Neetu Singh', founder/ director of Paramount Coaching Centre', Director message on KD Campus's official website is identical to the director message written on Paramount's official website, Projecting Paramount Reader as part of Paramount Coaching Centre on Facebook and Twitter. f) FAQ on D2's website. Identical courses offered by defendant No.2 Courses offered by the said Company are the same as those of the defendant No.3-Company. 42. The proximity of the defendant No.3-Company's existing cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 from a contract between himself and defendant No.3 by virtue of its Memorandum of Association (MOA) as also under the common law. (i) In the case of Starlite Real Estate (ASCOT) Mauritius Limited and Ors. v. Jagrati Trade Services Private Limited and Ors., decided on 14th May, 2015 by the High Court of Calcutta in G.A. No.2437/2014 and CS No.284/2014, paras 30 to 34 & 39, it was observed as under:- "30. There is a clear distinction between individual and corporate membership rights of shareholders. A member can always sue for wrongs done to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 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 an artificial person, it must act through its directors. Where the wrong is being done to the company by the directors in control, the company obviously cannot take action on its own behalf. It is in these circumstances that the derivative action by some shareholders (even if they are in a minority) becomes necessary to protect the interest of the company. The minority shareholders sue on behalf of themselves and all other shareholders except those who are defendants, and may join the company as a defendant. The directors are usually defendants. This ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany 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 majority of the share-holders can sue in the name of the company must apply. In MacDougall v. Gardiner, (1875) 1 Ch. D. 13: (45 L.J. Ch. 27) and Pender v. Lushington, (1877) 6 Ch. D. 70: (46 L.J. Ch. 317), specific reference was made to the fact that the directors, being the custodians of the seal of the company, were the persons who should normally sue in the name of the company, but nevertheless it was held that the majority of the share-holders were entitled to sue in the name of the company when relief was sought against the directors themselves. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 qua minority against a majority qua majority, I disagree. There can be no such thing as a legal war of parties. Brown v. British Abrasive Wheel Co. is in my opinion not an authority for such a theory nor did Mr. Sanyal cite it as such. In that case, if I remember rightly, the Court would not allow an alteration of articles so that the majority could appropriate a small minority. It was not allowed as being contrary to justice. The real significance of it, in my opinion, is that it was a violation of the constitutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 before the arbitrator since the claim of the defendant No. 1 is against the proforma defendant. The defendant No. 1 appears to have been roped in by clever drafting, in order to avoid the award passed against the proforma defendant. The reliefs claimed in the plaint so far as it seeks a declaration that the award against the defendant No. 1 is non est, illegal and not enforceable and the said award is required to be set aside, in my view, having regard to the frame of the suit is not maintainable and barred by law. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laims 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 made to sue Carol, the action would proceed against her. I am afraid that I simply do not believe that Mrs. Barrett would pursue any claim against her daughter to the point of enforcing judgment: to my mind it is improbable in the extreme that she would force her daughter and grandchildren out of their home and I quite understand why she would not. Her failure to take the order making Carol a Defendant any further speaks volumes. On the other hand I do not doubt that she would pursue the other Defendants as far as she could, regardless of whether th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 shareholders must in such a ease 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 majority of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndant 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 individual membership rights. The remedy for the plaintiff, if any, is a petition under Section 397/398 of the Companies Act, 1956 before Company Law Board. 51. There is no provision in the Companies Acts that enables a company to approach the Company Law Board for a wrong done to the Company in view of competing business started by the defendant No.1 being the Director of defendant No.3. Defendant No.1 has not denied the fact that she has incorporated the company K.D. Campus - defendant No.2 who is doing the similar business. She has also not denied the fact tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mber 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 about by, or in the interests of, any creditors, including debenture-holders or any class of shareholders of the company, has taken place in the management or control of the company, whether by an alteration in the Board of Directors, or manager, or in the ownership of the company's shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to its interests or its members or any class of members, may apply to the Tribunal, provided such member has a right to apply under Section 244, for an or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 368 and has been reaffirmed by the Privy Council in Attorney-General of Trinidad and Tobago v. Gordons Grant & Co. (1935) A.C. 532 and Secretary of State v. Mask & Co (1940) 44 C.W.N. 709; and it has also been held to be equally applicable to enforcement of rights : see Hurdutrai v. Official Assignee of Calcutta (1948) 52 C.W.N. 343, 349. That being so, I think it will be a fair inference from the provisions of the Representation of the people Act to state that the Act provides for only one remedy, that remedy being by an election petition to be presented after the election is over, and there is no remedy provided at any intermediate stage." 55. During the course of hearing, Ms.L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 authorities like the Central Government, the Company Law Board and the Registrar; and where a power is vested in a court, that court has to be specified. Beyond so specifying the court competent to deal with a matter arising under the Act, section 10 does not purport to invest the company court with jurisdiction over every matter arising under the Act. It may be that, in view of the elaborate provisions contained in the 1956 Act in regard to the management and the conduct of a company's affairs including important internal matters of administration, the court's interference by civil court has become more limited, but the power has not at all been taken away. Every suit for redress of individual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 Foss v. Harbottl, [1843] 2 Hare 461, are permissible in cases in which "justice requires that the courts should intervene" to assist an otherwise minority shareholder. In Heyting v. Dupont, [1964] 1 WLR 843, Harman L. J. said (at page 854) : "....there are cases which suggest that the rule (in Foss v. Harbottle [1843] 2 Hare 461) is not a rigid one and that exception will be made where the justice of the case demands it." The above rule in Foss v. Harbottle, [1843] 2 Hare 461, has come up for consideration in several High Courts in our country. K.K. Mathew J. (as he then was) was dealing in Joseph v. Jos, [1964] 34 Comp Cas 931 (Ker), with a suit for a declaration that the proceedings of the meeting regarding the election of certa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 Pradesh: [1968] 3 SCR 662 a five-judge Bench of the Supreme Court considered the earlier decisions on this aspect and laid down the following propositions: "(1). Where the statute gives finality to the orders of the special tribunals, the civil courts jurisdiction must be held to be excluded, if there is adequate remedy to do what the civil courts would normally do in a suit. Such a provision, however, does not exclude those cases where the provisions of the particular Act have not been complied with or the statutory tribunal has not acted in conformity with the fundamental principles of judicial procedure. (2) Where there is an express bar of jurisdiction of the court an examination of the scheme of the particular Act to find the adequacy or the suf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessment of tax under the Act. At best it may be argued that in view of the remedy of appeal provided under section 169 of the Act a party should have recourse to the said remedy. But a party filing a civil suit to challenge the levy and assessment of tax under the Act may like to urge that the levy and assessment of tax is not in accordance with the Act or is violative of the provisions of the Act. In other words it may be the case of a plaintiff that the authorities under the Act have not acted in accordance with the provisions of the Act while levying and assessing tax and, therefore, it is entitled to exercise its inherent right to challenge such a levy and assessment by way of a civil suit. Availability of an alternative remedy may be treated as a bar by the court while exercising i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary 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 case, even promoter/majority shareholders are fiduciaries to the company as well as the other shareholders because they control the assets of the other shareholders who cannot play a fraud on the minority. ii) Kossoy and Filco v. Bank Feuchtwanger Ltd., CA 817/79, P.D., vol. 38(3) 253, paras 55-58 whereof reads as under:- "Filco: Shareholder's Liability. 55. Filco and Kossoy are not one and the same. The latter was a director of the Bank, who by his actions breached the fiduciary duty he owed the Bank as one of its directors. Filco was not a director of the Bank, nor was it bound by any duty of a director. Filco was, however, a shareholder in the Bank. It belongs to the Appelbaum-Kossoy group, which controlled the Bank. As a shareholder, and a member of the controlling group, is it bound by any duty towa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling 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 recognized in the United States for many years (see Insuranshares Corporation v. Northern Fiscal Finance Corp. (1940) [22]; Levy v. Feinberg (1941) [23]; Dale v. Thomas H. Temple Co. (1948) [24]). In this regard, where the transaction takes place in a number of stages, which in commercial terms could be viewed as a series, its entirety can also be viewed as a single entity in legal terms. Accordingly, a breach of loyalty can also be attributed to a shareholder with regard to actions which are to take place in the future, provided that they are foreseeable and constitute a part of the entire scheme, or series of actions (see Pepper v. Litton (1939) [25]). The basis of this duty rests on the fundamental principle discussed earlier: the controlling shareholder wields power in the company. He controls the property of others. The source of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led 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 whether the very same result could be arrived at on the basis of the application of the principle of good faith specified in Section 39 of the Contracts Law (General Part), 5733-1973. 58. I have already stated that the duty of loyalty requires concretization, within which the unique legal relationship upon which the duty of loyalty is based must be expressed. The content of this duty of loyalty is not identical in all legal relationships in which it lies. The duty of loyalty of a director is not the same as the duty of loyalty of a shareholder. It must not be forgotten that a shareholder is an owner of property, and according to the general law of title, he is entitled to do whatever he pleases with his property. This freedom is not unrestricted, since one of the restrictions derives from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the "price" of control; whether the consideration for the sale of control belongs to the company itself, and whether a basis for the formation of the duty is the vendor's actual knowledge of the purchaser's intentions, or whether it suffices that he did not know in a case where a reasonable shareholder should have known; and other similar questions which have been raised in the United States - we will deal with them when, as and if they arise." 60. The defendant No.1 in the present case has failed to cross the hurdle of the mandatory provision of Section 166 which is incorporated in April 2014 in the new Act. The plaintiff has filed solid evidence which is unimpeachable, thus common remedy is available to the plaintiff against the act of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot 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 CPC. She submits that despite of pendency of the first suit being CS(OS) No.1592/2015, the plaintiff has filed another suit before this Court without the first withdrawal of the suit and sought liberty. In addition it is also submitted that the relief in the present suit and prayer in Rohini Court is the same. If not at least, it could have been incorporated in the earlier suit filed in Rohini court. As the prayer in the present suit was not made earlier, the present suit is barred under Order II Rule 2 CPC. 64. As far as Rohini suits are concerned, admittedly, earlier the plaintiff filed the Civil Suit No.78/2015 titled as Rajiv Saumitra v. Neetu Singh, seeking inter-alia the relief restraining the defendant from using the initial name of PARAMOUNT f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, the plaintiff has pressed for an ex parte order without withdrawing the first suit filed by the plaintiff. In the second suit, even the summons and notice were not issued. On the first date itself, when the suit was listed, the learned counsel for the plaintiff had informed the Court that the first suit was listed before Hon'ble the Judge Incharge (Original Side), on mentioning, the said suit was transferred to this Court. Counsel for the plaintiff has alleged that as there is defect in the first suit, in order to avoid delay for the purpose of filing the amendment application in the first suit, rather the plaintiff has chosen to file fresh suit as the plaintiff is seeking urgent interim orders. There is a force in the submissions of the learned Senior counsel for the pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 business of defendant No.3, as the defendant No.1 has failed to do her fiduciary duties as a Director and she is in violation of the mandatory provision of Section 166 of the Act, 2013. b. In the case of M/s. Bengal Waterproof Limited Vs. M/s. Bombay Waterproof Manufacturing Company and Another, reported in AIR 1997 SC 1398, it was held as under: "20.……..It is now well settled that an action for passing off is a common law remedy being an action in substance of deceit under the Law of Torts. Wherever and whenever fresh deceitful act is committed the person deceived would naturally have a fresh cause of action in his favour. Thus every time when a person passes off his goods as those of another he commits the act of such deceit. Similarly whenever and wherever a person commits breach of a regis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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-matter of a suit or part of a claim. Clause (b) of sub-rule (3) contains the mandate to the court that it must be satisfied about the sufficiency of the grounds for allowing the plaintiff to institute a fresh suit for the same claim or part of the claim on the same cause of action." 69. In case the order already passed on 24th September, 2015 is read, it is apparent that Suit No.1592/2015 filed by the plaintiff had a formal defect, as the same was not a derivative action. The plaintiff during the pendency of first suit became aware that the said action may not be maintainable. Even no doubt, the application for amendment could have been filed by amending the plaint. There is a force in the submission of Mr.Kapur that in order to avoid delay, the present suit was filed disclosing about the pendency of the earlier suit and application under Orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laintiff 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 interest of the company. Recently in the month of August, 2015, without the consent of the defendant No.1, the plaintiff had purchased two Bolero Cars and one Car by using the funds of the company which is also against the company norms. The Counsellor, namely, Rashmi of Bindapur Centre of the company was forced to resign as she was threatened by two lady bouncers sent by the plaintiff and she had no option than to resign because the defendant No.1 being director of the company was brutally assaulted by the same lady bouncer. The plaintiff is having no respect for lady staffs of the company as he is harassing the centre head of Uttam Nagar namely Manju Singh by sending his goons and bouncers, to this effect, she has reported the matter to the Police Station Binda Pur. Not only that without the knowledge and consent of the defendant No.1, he has opened a ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue 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. He says that why his client should suffer because of the fault of defendant No.1 who has earned undue gain by filching the goodwill and name of defendant No.3 by competing the business, rather the defendants No.1 and 2 be directed to deposit all profits earned with the defendant No.3. 76. The injunction being an equitable remedy, the court has to exercise its discretion from various facets which arise in particular set of circumstances in each matter. There may be cases in which grant of an injunction will only meet the ends of justice and an alternative safeguard for the preservation of rights of the challenging party cannot at all be thought of. 77. The grant or non-grant of injunction has to be measured within the parameters of three tests laid down by this court. However, the court must weigh the comparative hardship of one party as against the anot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 name of Paramount in a peaceful manner for which the plaintiff has no objection. The said offer is not acceptable to the defendant No.1 who stated that it is she who has not only been able to establish the defendant No.3 but also acquired a name and goodwill in the defendant No.2 and there is no guarantee or safety if centers are merged with defendant No.3, the plaintiff may not harass her. She is not sure that she can continue with any active business with the plaintiff anymore in the way as earlier she was doing. 82. As Scenarios 1 and 2 are not agreeable to the parties, I am of the view that third scenario is only the solution at this stage but the same is subject to the conditions in order to strike the balance. 83. The principle of law relating to temporary injunction during pendency of the suit is well recognized in the decision of the Supreme Court in the case of Dalpat Kumar v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 others v. Coca Cola Company and Others, AIR 1995 SC 2372, it was observed as under:- "46……. The object of the interlocutory injunction is to protect the plaintiff against injury by violation of his right for which he could not be adequately compensated in damages recoverable in the action if the uncertainty were resolved in his favour at the trial. The need for such protection has, however, to be weighed against the corresponding need of the defendant to be protected against injury resulting from his having been prevented from exercising his own legal rights for which he could not be adequately compensated. The court must weigh one need against another and determine where the 'balance of convenience' lies......" 85. This Court is conscious about the fact 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 viola ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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. 89. The present application is disposed of with these directions. The findings are tentative in nature. The suit after trial be decided as per its own ..... X X X X Extracts X X X X X X X X Extracts X X X X
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