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TMI Blog2014 (12) TMI 1297X X X X Extracts X X X X X X X X Extracts X X X X ..... lation 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 init ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany is in the control of Defendant No. 2/Defendant No. 3. The Plaintiff also states that Defendant No. 2 was in a fiduciary relationship as the promoter, director, majority shareholder and the Research Head of Defendant No. 1 and by registering the patents in his individual name and not in the name of Defendant No. 1, Defendant No. 2 was in breach of his fiduciary duties. The Plaintiff, therefore, states that as the minority shareholder the Plaintiff became entitled to file and has filed the present suit. 3. The right of a minority shareholder to file a derivative action is recognised in law. It is open for a minority shareholder to take action against the wrong doers for the benefit of the Company if majority shareholders are preventing the Company itself from taking any such action as they are the people committing the wrong. Recognising a right does not mean that the action is correct or has merits. It also does not mean that in every case a minority shareholder can bring out a derivative action. (i) Palmer's Company Law 24th Edition paragraph 65-02, (page. 976-978): Alternatively, the individual shareholder may seek to enforce the company's rights by sui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In (B.B.M. (UK) Limited vs. Janardan Mohandas Rajan Pillai), 1993 (3) Bom.C.R. 228, this Court while upholding the rule that it is the Company who is entitled to maintain an action for wrong allegedly done to it and a shareholder has no locus standi to maintain the suit, affirmed one of the exceptions to the aforesaid rule that where a shareholder can show that the wrong doers are in control of the Defendant Company and hence the Company would be unable to maintain the action, he can maintain an action. 4. The issue involved in the Notice of Motion is whether the Plaintiff is entitled to protection as sought, i.e., to restrain Defendant No. 2 from selling or transferring or assigning or licensing or exploiting or encumbering or creating any third party rights or interest or otherwise dealing with the patents which Defendant No. 2 has obtained in his individual name and/or applied for in his individual name. The Plaintiff's case is that they want to preserve the property which belongs to Defendant No. 1 so that Defendant No. 2 does not transfer the patents to any third party and by filing this action the Plaintiff has no interest or no personal claim. The Plaintiff's ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the person on whom the firm relied upon. 8. Defendant No. 1 is in the business of manufacture and sale of organic, inorganic chemicals, its byproducts, perfumery chemicals, cement and other materials. Therefore, the Defendant No. 2 was entrusted with the charge of the partnership firm and later of the Defendant No. 1 Company. 9. The shareholding patterns in Defendant No. 1 is as under:- STATEMENT OF SHARES HELD BY THE PLAINTIFF STATEMENT OF SHARES HELD/CONTROLLED BY DR. K.H. GHARDA AND MRS. K.H. GHARDA STATEMENT OF SHARES HELD OTHERS INCLUDING EMPLOYEES 10. Defendant No. 1 has a state of the art research department and spends substantial amount every year on R D. It is the case of the Plaintiff that Defendant No. 2 used the R D facility, support and the R D team of Defendant No. 1 and therefore, any patent, obtained and/or applied for, should be in the name of Defendant No. 1 and cannot be in the individual name of Defendant No. 2. The Plaintiff's case also is that even assuming for the sake of argument, Defendant No. 2 did not use the resources of Defendant No. 1, still in view of his fiduciary duty, being the Managing Director of Defenda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Defendant No. 2 cannot take advantage of that and registered the patent in his own name. The Plaintiff also alleged that Defendant No. 2 has also benefited by the efforts of the employees of Defendant No. 1. It is the Plaintiff's case that Defendant No. 2 never did any work or never made any efforts in his personal capacity but always acted on behalf of Defendant No. 1 in collaboration with other employees of Defendant No. 1 in the matter of research and development and making new inventions resulting in the grant of patents. 13. The Plaintiff's case is in two parts. The first part as mentioned above, i.e., Defendant No. 2 used facilities of Defendant No. 1 and the second part is that the Defendant No. 2 as the Managing Director and in the whole time employment of Defendant No. 1 was obligated and devoted his whole time exclusively for the benefit of Defendant No. 1 alone. In his capacity as the Managing Director of Defendant No. 1, Defendant No. 2 has been receiving substantial remuneration and commission from Defendant No. 1 and for the past 10 years alone, i.e., upto the date of filing of the suit, has been paid an amount aggregating to about ₹ 27.54 crores of w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in Defendant No. 1 and all the Directors on the Board of Directors of Defendant No. 1 having been appointed by Defendant No. 2, any resolution moved by the Plaintiff with Defendant No. 1 to initiate action against Defendant No. 2 will obviously be defeated. 16. The Defendants' case is that the Plaintiff has no locus. According to the Defendants the issues raised by the Plaintiff have been decided in previous litigations and this is the third round of litigation. It was submitted that the Plaintiff, now in the garb of a derivative suit, is raising the same issues that have been litigated and decided against the Plaintiff in other litigations between the same parties. According to the Defendants, the Plaintiff had filed a Company Petition No. 77 of 1990 where the Plaintiff had made similar allegations of mismanagement, oppression and misappropriation of assets of Defendant No. 1 Company by Defendant No. 2. During the said proceedings, an MOU, whereby the Plaintiff alongwith other Petitioners therein had agreed to sell/sold shares to Defendant No. 1 to Godrej, a competitor of Defendant No. 1-Company, came to light. Thereupon the Plaintiff withdrew from the said Petition, but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss Knowhow and to encash the same for his own exclusive benefit, thereby depriving the 1st Respondent and its minority shareholders including the Petitioners from the benefit of the Specific Process Knowhow. The 2nd Respondent, who has access to and possession of the Specific Process Knowhow is required to be restrained by this Hon'ble Bench from in any manner selling, transferring, alienating, encumbering, or otherwise dealing with the Specific Process Knowhow. In the said Company Petition the Plaintiffs had inter alia sought the following prayer being prayer (iv) therein: (iv) That pending the hearing and final disposal of the Petition, this Hon'ble Bench be pleased to pass a temporary order and injunction restraining Respondents directly or indirectly by themselves and/or through their servants or agents or in any manner howsoever, directly or indirectly, from selling, transferring, disposing, alienating, encumbering, creating third party rights or otherwise dealing with the assets, properties, intellectual property including but not limited to the processes, knowhow, technology and or the benefit of Research and Development (including the Specific Process Knowho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to sell their shares to person who happens to be the competitor of respondent company. According to the respondents the present petition is a speculative petition for which reason also the grievance made at the instance of petitioners with regard to meeting dated 15th February 1990 cannot be countenanced.' '50. The fact that even the present petitioners were party to MOU and have committed themselves to espouse the cause of the alleged competitor of the Company and in fact transferred part of the shares to an outsider, have come to the notice of the respondents only in February 2005. Those material facts have been suppressed by the petitioners. For this reason alone, the petitioners deserve to be non-suited. It is well established that no indulgence can be shown to a litigant who approaches the court with unclean hands. In any case, as observed earlier, after the withdrawal of other petitioners from the present proceedings unconditionally, thereby giving up all the allegations and claim against the respondent company, the issue regarding validity of meeting dated 15th February 1990 survives only at the instance of present petitioners. They have less than 7% of share hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... veled of being oppressed as minority shareholders, then, I do not see how the present appellants can on the same material succeed in proving the said allegation. Apart from finding that they are raising the same issues based on the same allegations and identical arguments, I am of the opinion that the observations of the learned Single Judge would be applicable to the present appellants too. Any wider controversy, including about applicability of Order XXIII Rule 1 of CPC to a Company Petition need not be gone into and decided. Assuming that this provision and/or principles analogous thereto apply, apart from the appellants not seeking any liberty from the learned Single Judge while withdrawing themselves from Company Petition No. 77 of 1990, I find that their arguments in the present appeal are identical to those raised by the remaining petitioners in Company Petition No. 77 of 1990. 19. The Defendants submitted, therefore, that the Plaintiff should not be allowed to re-agitate the same issues now in the garb of a derivative action. The Defendants also submitted that though the Plaintiff has preferred an SLP against the order dated 14th June 2011, which has been admitted, but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dant No. 1 or that Defendant No. 2 should hold them in trust for Defendant No. 1. It is the case of the Defendants that Defendant No. 2 is the inventor and as an inventor, he is entitled to apply for the patents as per Section 6(1)(a) of the Patents Act and there is no provision in law which provides that the employee generated patent should belong to the employer. It is also submitted that under the contract whereby Defendant No. 2 is appointed as the Managing Director of Defendant No. 1, Defendant No. 2 is only entrusted with powers of management and he is not required to do any research and development or make inventions. In fact even the other shareholders who are siblings of the Plaintiff also acknowledged the fact that the patents belong to Defendant No. 2 and not Defendant No. 1. The siblings are Percy Kavasmaneck, who is the brother of the Plaintiff, his wife Aban Percy Kavasmaneck and the Plaintiff's sister Maharukh Murad Oomrigar, who between them hold 13% of the shares in Defendant No. 1. The Defendants have relied upon the affidavits filed by these persons, in which they have expressly stated that the patents belong to Defendant No. 2 and not Defendant No. 1. Even t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pply for revocation/cancellation of the patent and this can never be in the interest of company. 25. According to the Defendants, the Plaintiff's conduct is also tainted and he has not come with clean hands because the Plaintiff has engaged the Defendants in constant litigations which demonstrates that the Plaintiff has never been and is not a well-wisher of the Company. The Plaintiff has always been on the look-out for opportunities to harass Defendants and this action also is a continuation of a series of frivolous litigations initiated by the Plaintiff to harass Defendant No. 1. Through this litigation also, the Plaintiff is subjecting Defendant No. 1 to immense costs and unnecessary spending of management time and creating uncertainty in the minds of the people with whom Defendant No. 1 deals with in an endeavor to suggest that all is not well. It was also submitted that the finding of this Court in the matters as mentioned earlier shows that the Plaintiff has been acting against the interest of the Company and he is a litigant who has approached the Court with unclean hands. To the submissions of the Plaintiff that the past conduct of the Plaintiff is not relevant and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that the Plaintiff is only espousing the cause of Godrej, a competitor. Such an action is not bona-fide or in the best interest of the Company and hence on this ground alone, the Plaintiff is not entitled to maintain this derivative action. 28. The Defendants also submitted that the Plaintiff had even filed a criminal complaint-filed by the original Plaintiff no. 2 (mother of the Plaintiff) against her daughter Maharukh, i.e., Plaintiff's sister and Defendant No. 2. The Police, whilst closing the case, in its report has made an observation that having regard to the age, physical and mental stage of the Plaintiff's mother, the complaint has not been filed by the Plaintiff's mother on her own free will but at the instance of the Plaintiff and there appears to be a family dispute qua Defendant No. 2. 29. According to the Defendants since a derivative action is an equitable relief available under exceptional circumstances and subject to the fulfillment of certain strict conditions, as an exception to the rule that the Company alone is entitled to sue for the wrongs done to it rather than any shareholder, the existence of an alternative remedy would debar the Plainti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich requires specialized knowledge for correct determination of the ownership rights and hence all the more reason why such issues should be left to a specialized forum like the patent office and the Court should not grant an interlocutory injunction where the Plaintiff has not sought any reliefs before the specialized forum. 30. It was also submitted that Article 160 (a) of the Articles of Association of Defendant No. 1 empowers any Director to initiate legal action on behalf of Defendant No. 1 and that he does not need a Board Resolution for the same. The Plaintiff not having approached any Director, particularly Defendant Nos. 3 or 4, who are independent Directors for initiating the action on behalf of the Company, the Plaintiff has failed to establish that the Company has failed to initiate the action against the wrongdoers which establishment is a pre-requisite before initiating any derivative action. 31. The Defendants submitted that the Plaintiff merely holds 12% of the shares in the Company. The Plaintiff's brother, brother's wife and sister, who in the aggregate hold 13% of the shares in the Company are against this action and have stated in affidavit that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. Thus, the Plaintiff may seek to enforce the Company's rights by suing in a representative form on behalf of himself and all other shareholders in the Company (except the wrongdoers) against the wrongdoers. Therefore, as derivative action has to be filed in a representative form, let us see whether the Plaintiff crosses that first hurdle. The Plaintiff is the only shareholder of Defendant No. 1 who has filed this action. The Plaintiff's own siblings namely Percy Kavasmaneck, who is the brother of the Plaintiff, his wife Aban Percy Kavasmaneck and the Plaintiff's sister Maharukh Murad Oomrigar, who are also the shareholders in the Company and hold 13% shares between them, have, in fact, disassociated themselves from the Plaintiff. In this case, the Plaintiff holds 12% shares in the Company. In the plaint, an attempt is made to suggest that the Kavasmaneck family, of which the Plaintiff is a member, is a group of shareholders who are allegedly wronged. However, if we consider the affidavit dated 20th April 2012 of the Plaintiff's brother Percy Kavasmaneck in support of chamber summons No. 669 of 2012 in this suit and Plaintiff's sister Maharukh Oomrigar's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eholders in question is a minority. 36. Having regard to the aforesaid, the 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, in my view, such a Plaintiff should not be entitled to maintain this derivative action or any relief on this ground 37. The next point which is necessary to be considered in a derivative action is that, the action is in the bona-fide and best interest of the Company. 38. In my view, by virtue of Section 64(1)(b) of the Patent's Act, 1970 this action will not be in the interest of Company because if the order as prayed for by the Plaintiff is passed, there is a risk of the patents itself being lost. Section 64(1)(b) of the Patents Act, 1970 reads as under: Section 64: Revocation of patents (1) Subject to the provisions contained in this Act, a patent, whether granted before or after the commencement of this Act, may, be revoked on a petition of any person interested or of the Central Government b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by jeopardizing the business of Defendant No. 1. The statement of the Plaintiff in his affidavit in rejoinder explains the fact that the Plaintiff's interests are in conflict with that of Defendant No. 1 and also the malice that the Plaintiff has against Defendant No. 1. 41. In an unreported judgment of this Court in the matter of Anil Madhavdas Ahuja Vs. Marvel Fragrances Private Limited and Ors. NMS No. 767/2011 in Suit No. 566/2011, dt. 11.08.2011 this Court has held that derivative action by a party contrary to the interest of the Company and in furtherance of his personal interest should not be encouraged. Paragraphs 34 and 39 of the said judgment read as under: 34 It is pertinent to note that a petition under sections 397, 398 has been filed by the Plaintiff against the Defendants. The present action, prima-facie, at least, does not appear to be bona fide for the benefit or protection of Defendant No. 1, but as a part of the overall litigation and in respect of the disputes between the Plaintiff and the Defendants. The Plaintiff's conduct even otherwise does not appear to have been for the benefit of or keeping in mind the interests of the first Defendant compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany may be permitted in this Court to maintain a suit on behalf of himself and the other shareholders of the company, but the principle upon which that constructive representation of the shareholders is permitted indisputably requires that the suit shall be a bona fide one, faithfully, truthfully, sincerely directed to the benefit and the interests of those shareholders whom the Plaintiff claims a right to represent. But can I permit a man who is the puppet of another Company to represent the shareholders of the Company against whom he desires to establish the interests and benefits of a rival scheme? That would be entirely contrary to the principle upon which this constructive representation has been permitted to be founded. When the Plaintiff sues in that capacity any personal exception to the Plaintiff remains, and it would be in direct contradiction of every principle of truth and justice if I permitted a man to come here clothed in the garb of a shareholder of Company A., but who is in reality a shareholder in Company B., and has no sympathy whatever with, no real purpose of promoting the interests of the other company. Such a thing would be so much at variance with the princ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r shareholders. Since the procedural device has evolved so that justice can be done for the benefit of the company, whoever comes forward to start the proceedings 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 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioners, later withdrew from the petition. The said petition was, however, dismissed by this Court by an order dated 14th November 2008, inter-alia, holding that no ground of any oppression or mismanagement and misappropriation was made out. While dismissing the petition, the Court made an observation on the withdrawal by the petitioner from the petition by stating that the effect of unconditional withdrawal from the proceedings by the petitioners is that they have given up other grievances with regard to the alleged acts of oppression and mismanagement and the petitioners thereby have consciously acquiesced in the acts complained of. Though this matter was carried right up to the Apex Court, the Apex Court, while disposing of the said Appeal, has not made any observation on this point. 50. The Plaintiff had also filed a Company Petition No. 132 of 2009 before the Company Law Board where also similar allegations as in the earlier petition and in the present suit pertaining to mismanagement, oppression and misappropriation of funds appear to have been made. In the said Petition, the petitioners namely the Plaintiff herein also appeared to have prayed for restraining Defendant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a court of equity as disqualifying him from appearing as Plaintiff on the company's behalf...' Further at page 7 of the above decision it was held as follows: My understanding of these judgments is that the court is entitled to look at the conduct of a Plaintiff in a minority shareholder's action in order to satisfy itself that he is a proper person to bring the action on behalf of the Company and that the Company itself will benefit. A particular Plaintiff may not be a proper person because his conduct is tainted in some way which under the rules of equity may bar relief. He may not have come with 'clean hands' or he may have been guilty of delay . (emphasis supplied) In any event, it is trite that anyone coming to Court with unclean hands should be shown the door. The Courts have to be very strict on this and should deal with such people with an iron hand. On this ground also, therefore, the plaintiff in my view should not be allowed to maintain this action and relief sought by the Plaintiff should not be granted. 51. In view of the above, I do not see any necessity to go into the other grounds of Defendants like alternative remedy etc. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... buttress the second point that because Defendant No. 2 is working as a Managing Director, he has a fiduciary duty to register the patents in the name of Defendant No. 1 are applicable. I deal below with these judgments. (a) In Triplex Safety Glass Co. Ltd. v. Scorah (Vol. LV RPC Page 21), the chemist who took out a patent in his own name was employed in the laboratories of the Plaintiff-Company. He had been directed by the Company to discover a method for producing Acrylic Acid and hence he had a duty to discover a method of Acrylic Acid as part of his employment contract. Moreover, under the employment contract, he was required to assign the patent to the Company. Accordingly, even though the employer Company did not express an interest in patents initially but did so subsequently, he was required to assign the patents to the Company as they had been invented during the course of his employment and as part of his duty to the Company. Whilst holding that the chemist held the patents in trust for the employer Company, the Court held as under: In a case of this kind, in my judgment it is a term of the employment, apart altogether from any express covenant, that any inventio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. (Vol. LXXII, RPC, Page 50), the employee was employed in the department of design and development of domestic electrical appliances of his employer company. The Court observed It was not disputed that in this capacity it was his duty to put his inventive faculty and skill at the service of the company . During the course of his employment he created the inventions for which patents were obtained. It was in these circumstances that the court held that where the employee in the course of his employment (i.e. in his employer's time and with his material) makes an invention which falls within his duty to make (as was the case here) he holds his interest in the invention and in any resulting patent as trustee for the employer unless he can show that he has a beneficial interest which the law recognizes . Further, the court, in this case, was considering the provision of section 56(2) of an English statute which recognized the employer being entitled to the benefit of an invention created by an employee. The facts and circumstances of the present case are therefore, distinguishable from the findings of the court in the above case as Defendant No. 2 did not create the inven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are patented in the name of Defendant No. 2 and not Defendant No. 1. Hence, it is not a case whereby the assets belonging to the Company have been sought to be unauthorizedly distributed or misappropriated. It looks more like clarificatory. Moreover the said resolution has become final upon its passage by the requisite majority of the shareholders. The said resolution, I am told, has not been challenged by the Plaintiff in any legal proceedings and the validity thereof is not the subject matter of these proceedings and cannot be gone into in these proceedings. 56. On Plaintiff's submissions that by virtue of Section 88 of Indian Trust Act, 1882, the Defendant No. 2 held the patents in trust for Defendant No. 1, in my view, Section 88 is not applicable. The patents have not been devised by Defendant No. 2 in his role as a Managing Director of Defendant No. 1 or to use the expression in the Section by availing himself of his character as Managing Director. I am saying this because his contract with Defendant No. 1 dated 6th May 2008 does not require him to devise any invention. Therefore, in my view, Section 88 is not applicable at all. 57. Even on the Plaintiff's subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng with such speculative suits and shoot down such bogus litigation at an early stage. This action of the Plaintiff, it is quite obvious is inspired by vexatious motives. I observe with regret the infliction of the ordeal upon the Courts by parties like the Plaintiff by presenting a case which was disingenuous or worse. It may be a valuable contribution to the cause of justice if such speculative and frivolous litigations are dealt with a tough hand. Substantial judicial time will be saved if such parties are saddled with substantial costs so that they would not continue the onslaught on precious judicial time. In view of the past conduct of the Plaintiff in engaging the Defendants in contesting litigations which also had a strong bearing in the Court's time, this is one of those cases where substantial costs have to be imposed on the Plaintiff. The Plaintiff is directed to pay a sum of ₹ 10 lakhs as costs to the Defendants within four weeks. 64. The counsel for the plaintiff prays for stay of the order. In my view, no stay is required since the counsel for defendant nos. 2 and 3 makes a statement that the statement that was recorded in the order dated 1st December 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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