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TMI Blog2023 (2) TMI 1323X X X X Extracts X X X X X X X X Extracts X X X X ..... to bring to the notice of the court the facts and circumstances which have made the pending litigation infructuous.' In Kedar Nath Agrawal (dead) Anr. v. Dhanraji Devi (dead) by LRs Anr., [ 2004 (10) TMI 631 - SUPREME COURT] the Supreme Court stated the law on taking into account subsequent events for determining whether the suit should be allowed to be continued or not, has held that 'in our judgment the law is well settled on the point, and it is this : the basic rule is that the rights of the parties should be determined on the basis of the date of institution of the suit or proceeding and the suit/action should be tried at all stages on the cause of action as it existed at the commencement of the suit/action.' Applying the above ratio to the facts of the present case, it is evident that after the filing of the suit, the plaintiff, for and on behalf of the defendant no.6 and as a 50% Shareholder thereof, agreed to the defendant no.1, who was executing the agreements for and on behalf of his family members, to incorporate new companies/form LLP with the use of the words 'Hitech Audio' or 'Hitech'. It was further agreed that the parties shall be allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dant no. 6 was started by the plaintiff and his parents, and the defendant no. 1 later joined the said business. 3. In the plaint, it is alleged that the defendant no. 5 has been set up by the defendants nos.2 and 3 with active support and encouragement from the first defendant, and is a competitor of the defendant no. 6. The plaintiff further asserts as under: The prime mover in this conspiracy is the first defendant, who conceived the grand plan of looting and internally hemorrhaging a successful business entity with a highly successful business model, merely to make more monetary benefits than he was entitled to and to divert profits to himself and his immediate family members, using defendant no. 5 entity as a vehicle for the said nefarious plans. In so doing, the first defendant breached his fiduciary duties and his duties and obligations under the Companies Act and to put it more specifically, grossly violated the duties cast on him under Section 166 of the Companies Act, 2013. Defendants 2 and 3, being the son and daughter in law respectively, of the first defendant, in fact actually set up the Limited Liability Partnership which is arrayed as defendant no. 5 herein, purely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... award costs of the suit in favour of the plaintiff and against the defendants. 6. This Court by its order dated 10.01.2022, while issuing summons on the suit, passed the following interim order: 19. In the meanwhile, since the plaintiff is in business prior to that of defendant No. 5, hence it would be appropriate if the defendant No. 5 is directed not to use the name HI TECH as its trade name in its future bids, to be applied afresh from now onwards, till the next date of hearing. Affidavit of admission/denial of documents be also filed by the parties. 7. It is not denied that thereafter, the plaintiff and the defendant no.1 entered into an Initial Settlement of their inter se disputes and executed the Brief Note and Record of Discussions and Understanding held between the Shareholder Directors of Hitech Audio Systems Private Limited held on 22 January 2022 . It was duly recorded in the Brief Note‟ that the same has been executed by the plaintiff and the defendant no.1 representing their own interest as also interest of their family members. The Agreement further records as under: 3. That it is understood by and between the two groups of shareholders represented by each of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s signed, apart from the plaintiff and the defendant no.1, also by the defendant no.4. 10. The plaintiff also does not deny that in terms of the above settlement, and taking benefit thereof, the plaintiff opened a new entity by the name Hi-tech Audio and Image LLP‟ on 09.05.2022. In the new entity, the plaintiff moved the retail sales business and is selling the exclusive retail brands of the defendant no.6. 11. Finally, the plaintiff and the defendant no.1, as Shareholders of the defendant no.6, executed the Note of the Discussions Held in the Meeting between the Two Shareholders Group of Hi-tech Audio Systems Private Limited and decision taken on 25th July, 2022 allowing each other to incorporate Companies using the words Hi-tech Audio‟ or Hi-tech‟. They also agreed to the transfer of trade/business of defendant no.6 to each other. The Note of Discussion is relevant for the purposes of the present application, and is reproduced in full as under: NOTE OF THE DISCUSSIONS HELD IN THE MEETING BETWEEN THE TWO SHAREHOLDERS GROUP OF HITECH AUDIO SYSTEMS PRIVATE LIMITED AND DECISION TAKEN ON 25TH JULY, 2022 PRESENT: 1. Mr. Rajan Gupta - Director 2. Mr. Pradeep Kumar Gup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a new Company / LLP ______ Private Limited' or __________ LLP or any other Company /LLP with similar /identical name, by existing promoters /directors of the Company either by themselves or with other persons of their choice. For Hitech Audio Systems Private Limited Rajan Gupta Director DIN: Add: Date: Place: 2. REGARDING RELATED PARTY TRANSACTIONS EXECUTED IN HITECH AUDIO SYSTEMS PRIVATE LIMITED It is confirmed by the Both Shareholders Group and Directors that pursuant to the provisions of section 188 of the Companies Act, 2013, be and is hereby accord their consent and approve for all the transactions which are and /or to be carried out between the Companies and / or the companies / LLP belonging to the related parties / Directors and / or shareholders and/ or arising on account of the abovementioned understanding between 2 shareholders group. 3. TRANSFER OF BUSINESSES AND /OR BRANDS OF HI-TECH AUDIO SYSTEMS PRIVATE LIMITED: Pursuant to the understanding arrived between the two shareholders group, both the Directors representing their set of shareholders in Hitech Audio Systems Private Limited reiterate the following: A. Mr. Rajan Gupta entitled to transfer all the brands ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate a new company/LLP with the words Hi Tech Audio‟ or Hi Tech‟. The defendant no.5, in any case, cannot take away the customers of the plaintiff or the defendant no.6, or act in competition thereto. 16. I have considered the submissions made by the learned counsels for the parties. 17. It needs no reiteration that for deciding an application under Order VII Rule 11 of the CPC, only the averments in the plaint will have to be referred to; the defence made by the defendant in the suit must not be considered while deciding the merits of the application. 18. At the same time, the Supreme Court in Shipping Corporation of India Ltd. v. Machado Brothers Ors. (2004) 11 SCC 168, has observed as under: 22. While examining this question we will have to consider whether the court can take cognizance of a subsequent event to decide whether the pending suit should be disposed of or kept alive. If so, can a defendant make an application under Section 151 CPC for dismissing the pending suit on the ground the said suit has lost its cause of action. This Court in the case of Pasupuleti Venkateswarlu v. Motor General Traders (SCC at pp. 772- 73, para 4) has held thus: 4. We feel the subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the case has lost its relevance due to passage of time and subsequent events which have taken place during the pendency of the litigation. In the circumstances, continuing this litigation will be like flogging a dead horse. Such litigation, irrespective of the result, will neither benefit the parties in the litigation nor will serve the interest of the Union. 25. Thus it is clear that by the subsequent event if the original proceeding has become infructuous, ex debito justitiae, it will be the duty of the court to take such action as is necessary in the interest of justice, which includes disposing of infructuous litigation. For the said purpose it will be open to the parties concerned to make an application under Section 151 CPC to bring to the notice of the court the facts and circumstances which have made the pending litigation infructuous. Of course, when such an application is made, the court will enquire into the alleged facts and circumstances to find out whether the pending litigation has in fact become infructuous or not. 19. In Kedar Nath Agrawal (dead) Anr. v. Dhanraji Devi (dead) by LRs Anr., (2004) 8 SCC 76, the Supreme Court stated the law on taking into account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alf of his family members, to incorporate new companies/form LLP with the use of the words Hitech Audio‟ or Hitech‟. It was further agreed that the parties shall be allowed to continue in the same business as that of the defendant no.6. Having agreed to the same, nothing further survives in the present suit. The prayer made in the suit has clearly been rendered infructuous. 22. I may herein quote the relevant pleadings from the application and the reply thereto given by the respondent, as it is evident therefrom that there is no dispute raised by the plaintiff on the settlement: Application 13. After the abovestated litigations were filed, the parties came together for discussing and resolving all issues and disputes mutually. Thereafter, on 22.01.2022, the parties reached at an initial written understanding titled as, Brief Note and Record of Discussions and Understanding held between the Shareholder Directors of Hitech Audio Systems Private Limited held on 22 January 2022 (hereinafter referred as Initial Settlement dt. 22.01.2022 ). This initial understanding or Initial Settlement dt. 22.01.2022 provided for a framework to the parties to recognise the division of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.04.2022 and within a period of less than 20 days, the Plaintiff opened a new entity by the name 'Hitech Audio and Image LLP' (hereinafter Hitech AI ) on 09.05.2022, i.e. right after signing of the Settlement dated 22.04.2022. This clearly evinces that the Plaintiff has acted upon the Settlement 22.04.2022. In the said new entity, i.e. Hitech AI, the Plaintiff has moved the retail sales business and is selling the exclusive retail brands of the Defendant No. 6 Company in the market through this new entity, and the same is evident from the invoices in respect of such retail sales from 'Hitech Audio and Image LLP'. Copy of the Master Data of 'Hitech Audio and Image LLP' procured from the website of Ministry of Corporate Affairs is attached to the present application as Document-7. 16. Thereafter, another Meeting was held on 30 July 2022 between the parties and a note/minutes of meeting, namely, Note of the Discussions held in the Meeting between the Two Shareholders Group of Hi-Tech Audio Systems Private Limited and decision taken on 25th July 2022 , was signed by all parties herein on 30.07.2022 (hereinafter referred as MOM dated 30.07.2022 ). Herein, it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by this Hon'ble Court. Reply 11.-17. With reference to paragraphs 11, 12, 13, 14, 15, 16 and 17, the nonapplicant/plaintiff states and submits that the partial settlements that have been referred to in these paragraphs have nothing to do with the cause of action in the present suit and are in fact the subject matter of other litigation that is pending before the National Company Law Tribunal. The fact is that the actual culprits, that is defendants 2, 3 and 5, acting under the advice of Defendant No. 1, are the ones who have no defense whatsoever, and it is not now permissible for them to rely on any partial settlement between Defendant No. 1 and the plaintiff in order to create a defense where none exists. In fact, the application under reply is a crass example of how a defense is sought to be inserted on the record when the same is not permissible anymore in view of the law as interpreted by the Apex Court. Defendants 2, 3 and 5 being the actual culprits in close league with Defendant No. 1, are seeking to rely upon extraneous documents to set up a defense, but the same is not permissible in law. 18. With reference to paragraph 18, it is relevant to state that defendants 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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