Company Law Board
Vijay R. Kirloskar And Kirloskar ... vs Kirloskar Proprietary Ltd. And Ors. on 12 May, 2005
Equivalent citations: [2006]130COMPCAS139(CLB), [2005]62SCL629(CLB)
ORDER
K.C. Ganjwal, Member
1. This petition has been filed by Shri Vijay R. Kirloskar and Ors. against M/s Kirloskar Proprietary Ltd. and Ors. M/s Kirloskar Proprietary Ltd. is a public limited company incorporated under the Companies Act, 1956 on 15.11.1965 having its Registered Office at Pune. The authorized capital of the company is Rs. 10 lakhs divided into 10,000 equity shares of Rs. 100 each. The present paid up capital of the company is Rs. 5,09,600 divided into 5096 equity shares of Rs. 100 each, fully paid up. The company was formed for the purpose of centrally holding the trade marks and rights owned by the respective companies of the Kirloskar Group (without the goodwill) in accordance with the arrangement arrived at between the members of the Kirloskar family.
2. Shri Laxman Rao started business of bicycle repairing near Belgaun in Maharashtra in 1888 and in 1910, commenced business in the name of Kirloskar Brothers. In the year 1926, Kirloskar Bros Co. Ltd. (KBL) was incorporated for manufacturing fodder cutters and iron ploughs. In 1946, Kirloskar oil engines (KOEL) was incorporated for the manufacture of oil engines. IN 1946, Kirloskar Electric Co. Ltd. (KEC) was incorporated for the manufacture of electrical equipments such as motors, transformers, generators etc. In 1958, Kirloskar pneumatic was incorporated for manufacturer of air compressors and pneumatic tools. During the life time of Mr. Laxman Rao, the business was controlled and managed by him along with his sons. After his death the group company was managed by his sons Shantanu and Ravi with other family members and close friends.
3. The learned senior counsel for petitioners submitted that KBL, KOEL, KEC and Kirloskar pneumatic were regarded as "Core Companies" of the Kirloskar Group of Companies. KEC was regarded as the flagship company of the group. In or about 1950-51 KBL got register in its name the trade marks (Kirloskar) in relation to the goods manufactured by it namely, pumps etc. In or about June, 1960, KOEL got registered its name the trade marks bearing the name Kirloskar in relation to goods manufactured by KOEL. From 1946, KEC also used the trade mark Kirloskar in relation to the goods manufactured by them.
4. The learned counsel further submitted that the Kirloskar group companies product established a reputation in India and Abroad and further to avoid other parties taking advantage of Kirloskar Company's reputation by supplying products and spare parts similar to Kirloskar Products but of inferior quality, the Kirloskar company sought legal advice. They were advised to register a new company to own all-the Kirloskar Trade Marks and Trade name, so that the new company could effectively protect the trade mark and trade name of the Kirloskar. Accordingly, respondent No. 1 Company was formed in Nov. 1965 by the members of the Kirloskar family and by companies in the Kirloskar group. This new company was formed with the object of centrally holding the trade marks and other rights for the benefit of all group companies, so that the Kirloskar "brand could be built up by use of Centralized resources and common action could be taken against misuse of the name, trade marks and logos by third parties and a centralized watch could be kept in this regard. This company was incorporated on mutual faith and trust amongst the Kirloskar family members with petitioner No. 1's father, the said Shri Ravi Kirloskar being one of its founder -subscriber members, its Chairman from 1976 till his death in November 1982 and one of its first directors, alongwith other family members and trusted officers of the group. Since the incorporation of the company, the shares of respondent No. 1 Company have been held only by members of the Kirloskar family or by companies controlled by them. It was not started as a commercial venture or profit making unit. It has not carried out any business, whether manufacturing, trading or otherwise at all, although the memorandum and articles of association of the company enumerates number of other activities. The true character of the respondent No. 1 Company is that it is a family service company, formed with the object of protecting the family trade marks and logos for the common benefit of the Kirloskar Company and Kirloskar group of companies. To enable the newly formed respondent No. 1 Company to carryout the object for which it was formed, the members of the Kirloskar family adopted an arrangement of assignment and - user of trade marks. This arrangement involved each of the four core companies of the Kirloskar Group. Accordingly Kirloskar brothers Ltd. and Kirloskar Oil Engines Ltd. assigned the trade marks registered in their names, (without the good will) to Respondent No. 1 Company by assignment deeds dated 4.9.1968 and 4.3.1969. The Respondent No. 1 Company in turn entered into Registered users agreements with Kirloskar Bros. Ltd and Kirloskar Oil Engines Ltd. by granting them rights on a permanent basis in regard to the said trade marks specific to certain products manufactured by those companies. The assignee of the said trade marks in relation to the classes of the goods manufactured by KBL and KOEL "objected to these registrations". However, the objections were withdrawn as per the prearranged scheme and the trade marks were registered in the name of KEC. The learned counsel pointed out to the letter dated 12.7.1969 of Respondents advocates wherein this whole arrangement has been incorporated. It was further submitted that the pre-arranged scheme among the family members is clear from the fact that the companies were under common management at that point of time - for example, petitioner No. 1's Father, Mr. Ravi Kirloskar was the Chairman of Petitioner No. 2 Company (KEC) and also a director of Respondent No. 1 Company. In fact the Petitioner No. 1's father Ravi Kirloskar was the founder - subscriber member of the Respondent No. 1 Company. He was Chairman of Respondent No. 1 Company from about 1976 till his death in Nov. 1982. Accordingly, as Registered owners of the trade marks, KEC (petitioner No. 2 and pneumatic also assigned rights in the trade marks to respondent No. 1 company as pre-arrange and these companies became entitled to grant of permanent user rights. The Petitioner No. 2 (KEC) assigned trade marks and logos to Respondent No. 1 Company by assignment deeds dated 31.12.1971. This assignment was without any monetary consideration, solely because the rights were being transferred to a family to protect the family trade marks and logos of Kirloskar and the assignment was otherwise than in connection with the goodwill of the business as stated in Clause 1 of the assignment deed. The assignment was also granted without any limitation of time as per Clause 2 of the deed. The classes of goods manufactured by KEC, Petitioner No. 2 are set out in schedule to the assignment deed which indicates the classes of goods to which this trade mark relates. It was a part of arrangement that the Kirloskar Companies would continue to market and manufacture only complimentary products and goods, and not competing products and goods within the group. The part of this pre-arranged scheme provided in the deed itself that Respondent No. 1 company would grant user rights to KEC (petitioner No. 2) and also to each of the other three Kirloskar companies.
5. The learned counsel for petitioner further submitted that for the sake of complying with the legal, formalities, a registered user agreement dated 05.10.1973 was entered between KEC and Respondent No. 1 which provides that KEC is entitled to obtain the permitted use of the said trade marks without limitation of time. The assigned deed dated 30.12.1971 and registered user agreement dated 05.10.1973 were both part of 1 composite family scheme. The two agreements were approved by one and same resolution of the Board of Directors of KEC dated 27.12.1971. Similarly, both the agreements were approved in one and the same resolution of the Board of Directors of Respondent No. 1 Company dated 30.12.1971. Identical assignment and user agreements were also entered into by Respondent No. 1 Company with the other Kirloskar group companies pursuant to this scheme. The Chief Executive of Respondent No. 1 Company Mr. M.S. Datey, the deponent of the counter affidavit dated 20.11.2003 filed in the present petition, specifically stated on oath in Suit No. 971 of 1993 in the City Civil Court at Bangalore filed by respondent No. 1 and Ors. for protection of Kirloskar trade marks, as under:-
"There are several other companies in the Kirloskar Group of Companies which have been and continue to be the permanent users and/or registered holders of the several trade marks and/or copy rights held possessed and owned by plaintiff No. 1."
6. The Respondents relied on the termination Clauses 11 and 14 of the user agreement to justify their actions. These termination clauses were added only so as to make the register user agreement inconformity to the then prevailing statutory requirement of the law. The petitioners have always been and are members of and are still closely connected to the Kirloskar family and the Kirloskar group of companies. It is undisputed facts that Petitioner No. 1 Vijay Kirloskar is a son of Sh. Ravi Kirloskar, who was the son of the founder of Kirloskar Group, namely Shri Laxman Rao Kirloskar. Mr. Ravi Kirloskar and his brother Shantanu Kirloskar were closely connected with and instrumental in starting various businesses. In the brochure produced by Kirloskar family at the time of 100th Birth Centenary of Shri Laxman Rao Kirloskar, glowing tributes are paid to Petitioner No. 1's father Ravi Kirloskar for reviving dreams of Shri Laxman Rao Kirloskar to manufacture electric motors and setting up Petitioner No. 2 Company (KEC). Even today the "Kirloskar quality prize" instituted to generate quality consumer within the Kirloskar group companies called the "Ravi Kirloskar prize". The Petitioner No. 2 (KEC) has used the Kirloskar name, trade marks and logos uninterruptedly for the last more than 50 years since its inception in 1946. In the suits filed by Respondent No. 1 Company for protection of trade marks, Petitioner No. 2 has been joined as party plaintiff. The Petitioner has contributed and paid amounts for image building of the Kirloskar Brand Names, corporate group identity and for promotion of trade marks etc. In 1994 Petitioner No. 1 Vijay Kirloskar succeeded Shantanu Kirloskar "grandfather of Respondent No. 2 to 5 as the head of the Kirloskar group when Shantanu Kirloskar passed away. Similarly, Petitioner No. 1 was the Chairman of the Kirloskar Group of Companies. The Kirloskar Group Companies including Petitioner No. 2 (KEC) assigned their valuable rights in the registered trade mark without any monetary consideration and not for commercial consideration. This would not have been done if there was no family relation between the parties. In relation to electrical equipments like motors, transformers, generators etc. the name and trade mark of Kirloskar is solely and exclusively associated with Petitioner No. 2 Company since 1946 and with no other company of the Kirloskar group. The other Kirloskar companies controlled and managed by respondents continue to place orders on KEC and have received goods and materials regularly bearing the trade mark Kirloskar.
7. The learned counsel for petitioner further submitted by a notice of termination dated 24.1.2001 addressed to petitioner No. 2 (KEC), Respondent No. 1 company purported to record the decision of its Board of directors to terminate the registered user agreements dated 5.10.1973 without assigning any reason and the relevant paragraph of the minutes of Board Meeting reads as under:-
"(2) The Board of Directors of our Company reviewed the matter and decided to terminate the Principal Agreement dated 5.10.1973 and subsequent supplemental Agreements mentioned above. You should therefore delete the word "Kirloskar" from your corporate name forthwith and also avoid user of the trademark "Kirloskar" on your products and in any of your business activities."
8. It is not disputed that the registered users agreement was entered into with Petitioner No. 2, KEC pursuant to the articles of association of the respondent No. 1 company. This issue of notice of termination is clearly oppressive to the petitioner as minority shareholders of Respondent No. 1 Company. Particular in the context of the background facts already explained which shows that Petitioner No. 2 Company KEC has used the said name, logos and trade marks uninterruptedly for about 50 years and continues to do so. Even after notice of termination, the companies of the Kirloskar group in the respondents control continue to place orders for supply of goods and materials on Petitioner No. 2 bearing the trade marks and logos of Kirloskar. The acts of oppression on the part of respondents must be viewed in the context of family background as matrix of facts relating to the formation of Respondent No. 1 Company as a family company and not based on any commercial consideration. The petitioners were not third parties being granted users rights for commercial consideration. The petitioners were and are shareholders of Respondent No. 1 Company. As such the petitioners as shareholders enjoy a community of interest in the trade marks "Kirloskar" which is an admitted position. The contention of the respondent that the acts of terminating the use of trade mark Kirloskar do not affect the petitioners as shareholders of Respondent No. 1 Company is plainly incorrect. It is wholly untenable and clearly in breach of and contrary to the partnership principle, mutual faith and trust on the basis of which Respondent No. 1 company was formed. The main oppressive conduct of the Respondents to deny the petitioner's rights in the Kirloskar trade marks and logos and thereby unilaterally oust the petitioners from the Kirloskar group by misuse of majority shareholding of the Respondent No. 1 Company. The respondent company is concerned solely with the protection of trade marks for common benefit and common advantage of Kirloskar family members and group of Companies and has not carried out any other business till date. The respondent No. 1 company in their counter affidavit filed on behalf of Respondent No. 1 and 2 have stated as under:-
"--It was decided by the management of respondent No. 1 that the shareholders of the said respondent should be only those who are the licensed users of the trade mark "Kirloskar". As a corollary of the same principle, it was decided that no person who is not a shareholder be allowed to use the trade mark "Kirloskar" signifying the word and the typical design owned as a trade mark by the Respondent No. 1"
9. The above facts clearly show the interconnection between the Petitioners shareholding/membership of Respondent No. 1 Company and the Petitioners rights in the said trade mark and logos.
10. The Learned Counsel for Petitioner dealing with legal aspects submitted that by issuing the notice of termination and filing the suit, Respondent No. 1 Company seeks to assert its legal rights "under the termination" provisions of the registered users agreement. Such conduct though legal is oppressive in the facts of the present case. The respondents have ignored the circumstances in which respondent No. 1 company was formed as a family company and now seek to rely solely on the termination Clauses 11 and 14 of the said registered users agreement as if the transaction between the parties was a mere commercial bargain. Even assuming that the termination clauses of the agreement are legally enforceable, this Board has powers, in the circumstances of this case to interfere and prevent the misuse of termination provisions of the agreement, which amounts to oppression of minority shareholders. It is settled law under Section 397/398 of the Companies Act, that the jurisdiction and powers exercised by this Board are equitable and the Board is empowered to interfere with majority conduct that may be legal, if such conduct is shown to be oppressive to the minority shareholders. The Respondents contention that termination of registered users agreement is in exercise of contractual and legal rights and hence cannot be regarded as an act of oppression is plainly incorrect. The Learned Counsel for Petitioner relied on the judgment of the Supreme Court in (1981) 3 SCC 333 AIR 1981 Supreme Court 1298 Needle Industries (case and relied on para 44 to 52 wherein it is held that "oppressive is conduct that is in any manner burdensome, harsh and wrongful" and that Section 397 of the Act "warrants the Court in looking at the business realities of the situation and does not confine them to a narrow legalistic view". It is also held that the Court ought not to allow technical pleas to defeat the beneficent provisions of Section 397.
11. The Learned Counsel for the petitioner submitted that the above judgment clearly indicates that oppressive conduct is conduct i.e. in any manner burdensome, harsh and wrongful. The court ought not to allow technical plea to defeat Section 397 of Companies Act, 1956 and that Section warrants the court in looking at the business realities of the situation and does not confine them to a narrow legalistic view. Learned counsel also submitted that in para 49 of this judgment the Supreme Court also approved the observations in the English Case of Elder v. Elder inter alia to the effect that conduct which is technically legal and correct may nevertheless be such as to justify the application of the "just and equitable" jurisdiction. Thus, even assuming that decision of Board of Director of Respondent No. 1 Company to terminate petitioner No. 2's registered user agreement rights is legal and correct, nonetheless in the facts of the present case, such termination is clearly oppressive to the petitioner as minority shareholders of Respondent No. 1 Company.
12. The Learned Counsel for Petitioner also relied on the judgment of Supreme Court wherein above legal position has been re affirmed in (2005) Company Cases Page 566 Sangramsinh P. Gaekwad's case wherein it is observed that conduct which is technically legal and correct thus, may justify grant of relief on the application of the just and equitable jurisdiction.
13. In the present case the petitioner has clearly established that Respondent no. 1 company is a family company, all its member shareholder have at all time only been members of the Kirloskar family and the Respondent No. 1. Company was formed by the members of the Kirloskar family, including petitioner No. 1's father Sh. Ravi Kirloskar. The Respondent Company was incorporated on the basis of mutual faith trust and confidence among the family members and it was formed as central family agency with object to holding common the trademarks and logos of Kirloskar so as to protect and preserve the trademarks against misuse by outsiders. The termination is now being used by Respondents to falsely contend that the Petitioners are no longer a part of the Kirloskar group. This attempt to oust the petitioner is thus fully established.
14. The learned counsel for petitioner further submitted that such conduct of the respondent clearly lacks in probity and would justify the making of winding up order against Respondent No. 1 Company on just and equitable grounds. The learned counsel relied on the judgment of Hon'ble Supreme Court in the case of Needle Industries (para 46) wherein the Apex Court approved "The words "just and equitable" are a recognition of the fact that a limited company is more than a mere legal entity with a personality in law of its own and that there is room in Company Law for recognition of the fact that behind it or amongst it, there are individuals with rights expectations and obligations inter se which are not necessarily submerged in the company structure'' and that:
"...The "just and equitable" provision does, as equity always does, enable the Court to subject the exercise of legal rights to equitable considerations, that is, of a personal character arising between one individual and another which may make it unjust or inequitable to insist on legal rights or to exercise them in a particular way..."
15. The Learned Counsel for Petitioner further submitted there is no bar to grant relief under Section 397/398 because respondent company has filed suit No. 8 of 2003 against KEC (Petitioner No. 2) in the court at Pune for reliefs relating to Kirloskar trade marks. The filing of a suit in a Civil Court does not affect the jurisdiction or power of specially constituted expert tribunal. A minority shareholders right to reliefs under Section 397-398 and 402 of the Companies Act, cannot be defeated merely by the company or the majority shareholders instituting a suit in the civil court. Expecting such a proposition would lead to drastic consequences which is clearly not the language or intent of the statute. The scheme of Companies Act shows that Chapter VI relating to protection of minority rights is a complete code by itself. No civil court can grant the reliefs that the Company Law Board is empowered, to grant under Section 402 of the act. The learned counsel relied on the case law of Bennett Colemn and Co. v. Union of India and Ors. (1977) Vol. 47 Co. Cases pg. 92 wherein it is held that it becomes impossible read any such restrictions or limitations on the power of the code acting under Section 402. The examination of Section 397/398 brings out two aspects, first, the very vide nature of the power conferred on the court and secondly the object that is sought to be achieved by the exercise of such powers. Therefore the position is clear that while acting under Section 398 read with Section 402 of the Companies Act, the court has ample jurisdiction and very vide powers to pass such orders and give such directions as it thinks fit to achieve, the object and there would be no limitation or restriction on such powers. The respondents are attempting to add additional restrictions and limitations on the Board's power which is contrary to settled law and the learned counsel relied on the judgment of Calcutta High Court in (1982) 1 Com Law Journal (Piyush K. Guha v. West Bengal Pharmaceuticals) "--it is quite clear that the said chapter VI of the Companies Act, 1956, containing Sections 397-409--make a complete code in itself laying down the special procedure for extra ordinary equitable jurisdiction which can be exercised only by the Company Court and by no other court."
The learned counsel also relied on the judgment of the Supreme Court in AIR 1978 Supreme Court 375 --Cosmos Steel v. Jairamdas Gupta wherein it is held that the scheme of Section 397 and 406 appears to constitute a code by itself for granting reliefs to oppressed minority shareholders and for granting appropriate relief a power of widest amplitude is conferred upon the court. The Calcutta High Court has also held that Extra Ordinary Special Summary and equitable Jurisdiction under Section 397, 398 etc. can only be exercised by Company Law Board and no other court. It is a proceeding of special nature. Sections 397-398 are more comprehensive and have special jurisdiction for the interest of the company, its shareholders and public interest which is not the case in a suit which is between the parties only"
The Learned Counsel for Petitioner also relied on the judgment of Company Law Board in the case of Vijay Kishan Jaidka and Ors. v. Jaidka Motor Co. Ltd. (1997)1 Comp LJ 268(CLB) wherein it is held that the provisions of Section 397-398 are a code by themselves and that it is not possible to circumvent this procedure by instituting proceedings in a Civil Court and that where the main relief in a company petition was on the ground of oppression framing of a scheme and appointments of directors, it was distinctly different from, the relief asked for in the Civil Suit. It was also held that the decision in the Civil Suit will naturally follow the present proceedings and as such they are not parallel in nature. The contention of the respondents is based on the analogy of Section 10 of the CPC 1908, which requires the trial of a later instituted suit to be stayed until the prior instituted suit is disposed of. Section 10 of CPC 1908 has no application in the facts of present case. Moreover the respondents have waived their alleged rights for stay of the present petition as the final hearing of the petition has been completed before the hearing of the civil suit. Thus, reliefs in the present petition cannot, be denied to the petitioners on the ground that a civil suit is pending.
16. The learned counsel for the petitioner further submitted that the contention of the respondents that the reliefs claimed by the petitioners in the present case flow only from the contractual rights, which ought to be enforced in their entirety i.e. including the termination clauses and the Company Law Board has no power to modify or abrogate contractual rights of the parties is patently incorrect and contrary to the express provisions of Section 4(d) and (e) of Section 402 of the Companies Act. The Company Law Board has been conferred specific powers to modify, set aside, terminate and alter any agreement between the company and the various persons referred to in Section 402. The contention of the Respondents that grant of the reliefs to the petitioners would be contrary to the law contained in the Trade Marks Act is patently incorrect. Sections 48 and 49 (b)(4) of 1999 Trade Marks Act have no application to the facts of the present case and cannot curtail the powers conferred on this Board. Even assuming that respondent's acts are within the four corners of the relevant statute, nonetheless, once such act is shown to be oppressive to the minority shareholders of the company. This Board ought to interfere. The provision of the Companies Act is to protect the minority shareholders of the company who are subjected to oppressive conduct and mismanagement by the majority shareholders. The respondents have made changes in the shareholding without the knowledge of the petitioners. The shareholding in better value was altered so that respondent No. 3 (Sanjay Kirloskar) held the entire shareholder of better value except one share. A family company has been, converted into a subsidiary of better value, which is neither a licencee of trade mark nor can claim any rights in the trade mark nor has any interest in protecting the trade mark. Therefore, the affairs of the company are being conducted in a manner that is prejudicial to the interest of the company.
17. The Learned Counsel for Petitioner dealing with the meetings held between the parties submitted that the respondents have wrongly contended that after January 2000, the two family groups separated and the Vijay Kirloskar Group (petitioners) agreed not to use the trade mark or logos etc. The respondents rely on the minutes of the meetings of 07.1.2000 and 26.03.2000 placed on record. The records of these meetings show that there was no separation or agreement as contended. After the meetings of January and March 2000, the Respondent No. 2 in further correspondence mentioned that the whole deal is off. Thus, the minutes of the meetings relied upon by the Respondents do not support their contention that there was a separation. However, the reliance of the respondent on these meetings clearly show that the parties recognized that the Kirloskar Trade Marks and logos are very valuable properties and a Chartered Accountant be appointed for valuation of the Kirloskar brand and valuation of Respondent No. 1 companies shares. In the event of any separation, the group selling shares could be paid the value of the shares of Respondent No. 1 Company held by that family group alongwith valuation of trade marks or logos etc. It is clear from these facts that the Respondents seek to exclusively enjoy themselves the trade marks without making any payment for the value of the trade marks, logos by taking recourse to oppressive termination of the Petitioners user rights. Such a conduct is per se harsh, burdensome and oppressive to the petitioner as minority shareholder. The petitioners submit that the conduct of majority shareholders of Respondent No. 1 Company is a classic case of oppression against minority shareholders and warrants interference by this Board. The petitioners also pray to remove the present Board of Directors and appoint an independent administrator or Committee of Management to declare that by virtue of the terms of assignment deed dated 31.12.1971, the rights of the Petitioners and in particular petitioner No. 2 (KEC) to use the said trade marks and logos are permanent, non terminable rights. The petitioners further pray that alternatively this Board be pleased to modify the said deed of assignment in exercise of its powers under Section 402 of the Companies Act so as to clarify and declare that the uses rights granted thereby to Petitioner No. 2 are in perpetuity and also modify the said agreement by deleting the termination clause, along with other reliefs sought in the petition.
18. The learned counsel for respondents in reply submitted that the present petition is not maintainable and is liable to be dismissed as the entire petition is based on the notice of termination dated 24.1.2001 served by the Respondents on Petitioner No. 2. The said notice is for termination of the User Agreement dated 5.10.1973 vide which the Petitioner No. 2 was allowed to use (according to the terms of the said agreement) the trade mark Kirloskar. Admittedly, the said trade mark is owned by Respondent No. 1 Company and therefore, whether the user agreement has been validly terminated or not, is a matter of contract between the parties. This Board is not an appropriate forum, where a shareholder, can seek redressal of his grievance under Section 397/398, with regard to any contract that it has entered into. The respondent company has already filed, a Civil Suit against the petitioner No. 2 seeking an injunction against the said petitioner from using the said trade mark, Kirloskar. The Special Civil Suit No. 8 of 2003 is pending in the Court of District Judge, Pune. In the said suit, the main issue is the validity of the notice of termination referred to above and therefore the said dispute is purely sub-judice in the appropriate Civil Court. The petitioner No. 2 has submitted to the jurisdiction of the said Civil Court and has filed its reply to the application for interim injunction. A comparison of the allegation made by petitioner No. 2 in the reply to the application for interim injunction before the Civil Court reveals that allegations are substantially the same allegations as in the present petition. The Petitioner No. 2, is therefore, estopped and barred from raising the same dispute before this Board. The present proceedings before this Board should be stayed till the disposal of the Civil Suit to avoid any conflict of decision. The present petition is also not maintainable because the user agreement of the Petitioner No. 1 Company was terminated on 24.1.2001 whereas the petitioners have approached this Board in the month of September 2003, which is nearly 30 months after the termination of the said agreement. Hence they have acquiesced in the termination of the said agreement.
19. The learned counsel for respondent further submitted that it is specifically denied that there is any such as "Core Companies" as alleged. The common criteria for all the group companies is the word "Kirloskar and the family name Kirloskar, which is now become a trade mark of the group companies. When a family name has acquired the status of trade mark even a family member cannot use the said word without the prior permission of the Respondent No. 1 Company owning the trade mark. The family name Kirloskar has been transferred to the Respondent No. 1 Company as its trade mark and if any members want to start a new company with the name Kirloskar, he has to take prior permission of the Respondent No. 1 Company. Kirloskar Electric Co. Ltd. (petitioner No. 2) has taken license from the Respondent No. 1 Company to use the trade mark. Similarly other companies of the group have also taken license from the Respondent No. 1 Company for use of trade mark. It is misleading to state that the Respondent No. 1 Company does not carry on and have never carried on any manufacturing/trading business since its incorporation. The fact of the matter is that many business houses like Tatas have followed the practice of one company, owing the trade mark and further licensing the same to various companies under a User Agreement. Similarly, the Petitioners have since 1970 recognized the Respondent No. 1 Company as the only and true owner of the trade mark "Kirloskar". It has been done so to enhance the business and it is clear from the disposition of the petitioner No. 1 in OS No. 971/93 at Bangalore. Similarly, the fact that petitioner No. 2 was a party to legal proceedings initiated by the respondents against other defendants is of no consequence to the present dispute between the parties. It is again reiterated that concept of "Core Companies" used by the petitioners is contrary to the deposition of the Petitioner No. 1 in the aforesaid case at Bangalore.
20. The learned counsel for respondent further submitted that the intention and formation of the Respondent No. 1 Company are matters relating to the period when the answering respondent had not come into existence and hence cannot reply the same. However, the inference sought to be drawn from the allegations of the petitioners is completely denied. The allegations made in the petition need not be replied as they do not concern the Respondent No. 1 Company containing execution of agreement, main objects of respondent company, acquiring the trade marks from its initial holders etc, are the matters of record. It is specifically denied that the assignment deed was without any monetary consideration as alleged. In any case, the principle of law is well established that the intention of the parties to the agreement can be inferred from the written document only. Once there is an agreement between the parties, all their rights and liabilities must be based on the said documents and not on the basis of any alleged misunderstanding, impression, confidence, trust or faith outside the said agreement. In any case neither the deed of assignment, nor the User Agreement is in any way connected or relevant to the rights of the petitioners as minority shareholders of Respondent No. 1 Company. By virtue of the registered Users Agreement, the parties decided to demarcate their respective rights of pre-1971 position and now they cannot go back to that position.
21. The learned counsel for respondent further submitted that the petition is not maintainable because of the overwhelming weight of the case laws decided by Company Law Board. High Courts and Supreme Court that a petition under Section 397/398 of the Companies Act, 1956 can only be filed by a shareholder seeking redressal of grievances as a shareholder. This remedy is not available to any other person feeling aggrieved in any other capacity other than a shareholder. Even if the petition is allowed with regard to right of petitioner as shareholder, even then the petition cannot be allowed as it is based on one single act of alleged oppression and or mismanagement. There has to be a chain of events of proved oppression and mismanagement. Section 49(3) of the Trade and Merchandise Marks Act, 1958 which was statute prevailing at the time of execution of license user agreement, did not compel the parties to provide a termination clause but on the contrary allows the parties to decide whether the license agreement should be in perpetuity or should be terminable. According to the principles of English Law equity can be relied when the law is silent. If there is a conflict between the common law, and principle of equity, common law shall prevail. It is a matter of record that the Companies Act, 1956 does not expressly exclude the applicability of any prevailing law. The company Law Board is not a Civil Court under CPC and its powers are to be read in this light. If the petitioner is barred from filing a suit for recovery because of law of limitation, he cannot be allowed to file a petition under Sections 397/398 on the alleged ground of equity. The petitioners are deliberately trying to obfuscate the undisputed position that their grievances with regard to notice of termination can and should be dealt with by a competent civil court for which litigation is pending in civil suit No. 8/2003. Whether the notice of termination issued to the petitioners is valid or not is a question which will require elaborate leading of evidence, cross examination and perusal of record in the other legal proceedings. The Company Law Board is not a civil court within the meaning of Code of Civil Procedure, 1908 and is not competent to decide this issue as the grievances raised by the petitioner in the present petition cannot be decided by the Company Law Board. Because of this established and indisputable legal position, there is no question of the respondents having acquiesced in the final hearing of the present petition before the hearing of the civil suit or having waived any of their legal rights. The learned counsel relied on the case of Ammonia Supplies Corporation Ltd. v. Modem Plastics Containers Pvt. Ltd. and Ors, 1998. Vol. 94 Company Cases page 310 (SC) wherein it is held that when a company court finds that the issue raised before it does not fall in its jurisdiction, it should direct the parties to get their rights adjudicated by a Civil Court.
22. The learned counsel has also relied on judgments on various High Courts where a similar view has been taken regarding the jurisdiction of the Civil Court:--
a. R.R. Rajendra Menon (II) v. Cochin Stock Exchange Limited and Anr., (1990) Comp. Case Vol 69 Pg. 256(Kerala D.B.) where it is held that unless a particular matter is specified in the Companies Act, as one to be dealt with by the company court (Company Law Board), it cannot exercise jurisdiction merely because it is also a matter which relates to the company.
b. Similarly, in the case of R. Prakasam v. Sree Narayana Dharma Paripalana Yogam (1980) 50, Comp.Case, 611(Kerala), T.V. Kazhagam Pvt. Ltd. v. N.K. Seethai Achi, 1988, Vol. 64 Com. Case pg.304 and K. Radhakrishnan v. Thirumani Asphalts and Felts Pvt. Ltd and Ors. (1998) Comp Cases Vol. 91 Pg.32(Madras) wherein it is held that the Civil Court will have no jurisdiction only in respect of matters falling exclusively within the jurisdiction in respect of matters which are not expressly made subject to jurisdiction of the Company Law Board and the Companies Act does not bar the jurisdiction of the Civil Court. The next judgment referred in this context is in the case of Sardal Iqbal Singh and Anr. v. Sardar Gurbaksh Singh and Ors. (2000) Vol 100 Comp. Case 504(CLB) page 509 wherein it is held that the Company Law Board has been taking a consistent stand that to avoid conflicting decisions on common issues, if any proceedings are found to have been initialed prior in time to the filing of the petition before the Board on issues covered in the petition, the Company Law Board would either stay the proceedings before it or dismiss the petition unless otherwise the earlier proceedings are withdrawn.
23. The learned counsel also submitted that the entire background of Mr. Ravi Kirloskar, Petitioner No. 1 and the facts and circumstances and the prior correspondence between the parties is of no value as evidence. To read the license user agreement in the manner suggested by the petitioner will amount to rendering in meaningless the termination clause. The intention of the parties is to be culled out only from the words of written documents. However, assuming without admitting that the parties, specially the respondent were thinking on the lines as alleged, the parties finally have put in writing their intentions and their agreements in the said User Agreement. The alleged intention of the parties cannot now be super imposed on a written document. The alleged appeal to equity made by the petitioner is completely contrary to the established legal principle dealing with written documents. Accordingly, the respondents denied the inference sought to be drawn by the petitioner from the letter dated 20.12.1974 and submit that the above stated reasons, the same cannot come to the aid of the petitioners. The learned counsel relied on the following judgment to stress its point.
i. Radha Sundar Dutta v. Mohd. Jahadur Rahim, AIR 1959 Supreme Court 24, wherein it is held that it is a settled rule of interpretation, that if there be admissible two constructions of a document, one of which will give effect to all the clauses therein, while the other will render one or more of them nugatory, it is the former that should be adopted."
ii. The Union of India v. Kishorilal Gupta and Bros AIR 1959 Supreme Court 1362 at 1368 wherein it is held that when words of a contract are clear and unambiguous, there is no scope for drawing upon hypothetical considerations or supposed intention of parties.
iii. Ramana Dauara, Shetty v. International Airport Authority of India and Ors. AIR 1979 Supreme Court 1628 at 1633 wherein it is held that no author of a formal document intended to be acted upon by the others should be presumed to have used words without meaning. The court must as far as possible avoid a construction which would render the words used by the author of the document meaningless and futile or reduce to silence any part of the document and make it inapplicable.
iv. Bihar State Electricity Board v. Rejeshwar Singh 1990 Vol.1 SCC 731 wherein it is held by the Supreme Court that it is a settled law that a person who signs the document which contains contractual terms is normally bound by them, even though he has not read them, even though he is ignorant of the precise legal effect.
v. K.K. Modi v. K.M. Modi, AIR 1998 Supreme Court 1297 paragraphs 33 and 34 wherein held that the words used between the parties in their codependence with each other is not conclusive and the intention of the parties has to be drawn from the subsequent written document executed between the same parties.
24. The learned counsel for respondent dealing with petitioner rights as a shareholder submitted that the submissions made by the petitioners are totally irrelevant to the present dispute as they relate to the historical background and such matters are completely external to the written agreement between the parties contained in the license User Agreement. Assuming that the license User Agreement is not a commercial document, the judgment of the Supreme Court in AIR 1979, SC, 1628 clearly lays down that a formal document has to be interpreted by assuming that the author of the said document intended to say what he has made express, it also reiterates that such a document should not be read to render any part of the same meaningless or silent. In the light of the said judgment it cannot be denied that the license user agreement is a formal document and has to be read in the manners prescribed. In a petition under Sections 397/398 of the Companies Act it has been held that only petitioners right as a shareholder can be agitated. The learned counsel relied on the judgment in the case of M.L. Thukral and Ors. v. Krone Communications Ltd. and Ors. (1996) Vol. 86 643(CLB) at 647 wherein held that in a petition under 397/398, it is the right of a member that could be agitated. In the instant case even though the petitioner by himself is a member, what is being sought to be agitated is a commercial agreement between the company and a third party even though the Petitioner No. 1 has a controlling interest in the third party. Entering into and termination of commercial agreement are purely within the purview of the board of directors and in their commercial wisdom they may do whatever they consider appropriate. We cannot intervene in the matter unless otherwise they fall within the parameters of the provisions of Section 397/398.
25. The aforesaid decision of this Board was affirmed by the Karnataka High Court in M/L. Thukral and Ors. v. Krone Communications Ltd and Ors. 86 Comp Cas 648 (Kar High Court) and the same view has also been taken by this Hon'ble Board in Anil Gupta v. Mirai Auto Industries Pvt. Ltd. and Ors. 113 Comp. Cas 63 CLB.
26. The Petitioners have also not been able to cite a single judgment which holds that a case where petitioners are relying basically on just one alleged oppression, which is the termination of their License User Agreement in this case, the circumstances are such as to warrant the winding up of the company on just and equitable grounds. The conclusion of winding up of a company has to be done with regard to the general interest of the shareholders and the employees. The petitioners have not made out any case to justify a just and equitable winding up of the company. The learned counsel relied in the matter of Bagri Cereals (P.) Ltd. v. Bagree (2001) 105 Comp. Cases 465 (Col. HC) page 471 wherein held that it does not much learning or much legal art to see that a petitioner to be successful under Section 397 has to make out a case for just and equitable winding up. If that case cannot be made out, if the facts fall short of the case upon which the company court, which a court of equity feels that the company should be wound up on just and equitable grounds, men and in that event no relief can be had by the petitioners in regard to Section 397. The Hon'ble Supreme Court while affirming the decision in Hanuman Prasad Bagree and Ors. v. Bagree Cereals Pvt. Ltd and Ors. (2001) 105 Comp. Cas 493 (Supreme Court) page 493 wherein held that the provisions of Section 397 of the Act could not be read in any other manner than had been done by the Division Bench.
27. The ownership of shares of the petitioner has not been diluted anyway. The petitioners have subscribed to and paid for the right issue. The submission regarding the consolidation of the holding of Respondent Nos. 2 to 5 by a company known as Better Values totally irrelevant to the present dispute. The allegations with regard to the change of Articles of respondent company to the prejudice of petitioner are denied to the extent that inferences drawn there from are not correct. The reasons for change in the Article of Association was that the management of the respondent company was of the view that only a licensed user of the Trade Mark (Kirloskar) should be shareholder in the respondent company. This is a general policy decision and not in that oppressing any individual shareholder as alleged. The petitioners are free to transfer their shares at any time. AH disputes regarding Trade Marks are within the jurisdiction of the Civil Court and Company Law Board has no jurisdiction to entertain the dispute relating to the trade mark. The petitioners are party to the said dispute in Civil Court and they will have every opportunity as defendants in that suit to the contest the termination of License User Agreement.
28. The learned counsel for respondent further pointed out that it is significant to note that the petitioners have not produced a single judgment of any Court which states that because of principles of equity, the court should ignore or set aside the express terms of a written agreement between the parties. The extracts from the Needle Industries Case is completely misinterpreted by the petitioners with an attempt to mislead the Board. The extracts quoted by the petitioner from the Needle Industries can only mean if, for example, the majority shareholders by virtue of controlling the Board of Directors of a company pass a resolution which is neither ultra virus the articles of association, nor contrary to any express provision of the Companies Act, and yet is oppressive to the petitioners vis-a-vis his rights as a shareholder. In such a situation, the Company Law Board may be justified in relying on the equity of the issue rather than the legality of the said Act. However, the alleged equity in favour of the petitioner will not prevail over the legal rights accruing to the respondents under any or all statutes and written documents. The learned counsel specifically mentioned paras 46,49,51 and 52 of the Needle Industries Judgment to support its proposition that equitable jurisdiction can be exercised only when the rights as a member are effected. The isolated are not enough and facts should justify winding up. The grievance, complained should be related to the affairs of the company. The Petitioners complaint is for a single act of termination of Registered User Agreement of Petitioner No. 2, which is neither a member's or shareholder's right nor related to running of the affairs of the respondent company. Similarly in the case of Sangram Singh already quoted the Supreme Court has again and again emphasized the above said proposition stated in the Needle Industries case in paras 150, 185, 188, 191, 192, 193, 199, 202, 215 and 216. The judgment of Needle Industries Case therefore, cannot be read to mean that the alleged equity in favour of a petitioner under Sections 397 and 398 will override the mandate of Section 91 and 92 of the Evidence Act or the legal rights emanating from a written document. It is indisputable position of law that the powers of this Board under Section 402 are extremely vide, however, the width of that power has to be understood as been limited to the issues which can be decided under the Companies Act, 1956 and not in any matter merely because it is also a matter which relates to a company as held in the case of RR Rajendra Menon (No. 2) v. Cochin Stock Exchange Ltd. and Anr. Comp. Case (1990) Vol. 69.
29. In view of the above submissions, the present petition miserably fails to satisfy any requirement of law under Section 397/398 of the Companies Act. 1956 and is liable to be dismissed.
30. I have considered the pleadings and arguments of the Learned Counsel of both sides as well as their written submissions. The case of petitioner is that they are shareholders of Respondent No. 1 Company. The petitioner No. 2 is and has at all material time been a part of Kirloskar group of companies. The parental grandfather Sh. Laxman Rao of Petitioner No. 1, was the founder of Kirloskar Group of companies. Petitioner No. 1 is son of Sh. Ravinder Kirloskar, who was younger son of Sh. Laxman Rao who was Chairman of Petitioner No. 2 from 1976-1982. Sh. Ravindra Kirloskar was a Director of Respondent No. 1 Company from its incorporation and he was the Chairman of Respondent No. 1 Company from 1976 till his death in 1982. The Kirloskar family, at present, consist of two branches of family namely Shantanu Kirloskar Branch and Ravi Kirloskar Branch. Various members of both the branches of Kirloskar group are holding shares in each other's company. Petitioner No. 1 represents the Ravi Kirloskar Branch. Respondent Nos. 2 to 5 are the grand children of Shantanu Kirloskar and represents the Shantanu Kirloskar Branch of Kirloskar family. Mr. Laxman Rao died in September 1956 and during his life time, he, alongwith his sons, controlled and managed the Kirloskar group of companies. After Sh. Laxman Rao's death, the said Kirloskar group was under the management and control of his two sons. Sh Shantanu and Sh. Ravi. The four companies of the group namely Kirloskar Brothers Company Ltd. (KBL) Kirloskar Oil Engine Ltd. (KEL) Kirloskar Electric Company Ltd. (KEC) and Kirloskar Prentice Company Ltd. (Pneumatic) are main companies with Kirloskar Electrical Company Ltd. (KEC) regarded as a flagship company of the group. The entire group was being looked after by both sons by mutual faith trust and confidence with each other after the death of the founder father Sh. Laxman Rao. As a matter of family policy, the business carried on by the respective Kirloskar group companies, were complimentary to each other and not competitive. All these companies used the family name of Kirloskar as a part of its corporate name and also used the said name in a distinctive style as a trade mark and logo in relation to the products manufactured and sold by them.
31. The Learned Counsel for Petitioner further submitted that by reasons for a excellence of the quality of the products manufactured and sold by each of the Kirloskar companies including KEC, it was thought and necessary that the trademark "Kirloskar' should be protected by some Central Agency independently of the rights that each of the companies continue to have in respect of the goodwill attaching to this trademarks. Accordingly, Sh. Shantu and Sh. Ravi alongwith trusted close friends decided that it would be advantageous for the family to form a new company with the object of centrally holding the trademarks and other rights for the benefit of all group companies. For this purpose, Respondent No. 1 Company was incorporated in 1965 by the family on the basis of mutual faith and confidence, with petitioner No. 1's father. Sh. Ravi Kirloskar being one of its founder -subscriber Member and also its Chairman from 1976 till his death in November 1982. In pursuance of above arrangements, Kirloskar Brother Ltd and Kirloskar Oil Engine Ltd. assigned the trademark registered in their name without the goodwill to Respondent No. 1 Company by Assignment Deed dated 4th March 1969 and 4th September 1968 respectively and Respondent No. 1. Company in turn entered into Register user agreement with Kirloskar Brother Ltd. and Kirloskar Oil Engine Ltd., granting them rights on a permanent basis in regard to the said trademark, specific to certain classes of products manufactured by those companies.
32. The Learned Counsel for Petitioner submitted that parties are closely related and used the trademark name and logo "Kirloskar" for last over 50 years. Respondent No. 1 Company was formed by the entire Kirloskar family in 1965 for protecting these trademarks against misuse by outsiders. The rights in these trademarks were transferred to Respondent No. 1 Company by the petitioner and other Kirloskar group companies under non-commercial arrangements and without any monetary consideration and solely to enable Respondent No. 1 Company to hold these marks as the central family agency. The Respondent Company has not carried on any manufacturing and trading or any other business since its incorporation except to hold these trademarks as central family agency. The article of Respondent No. 1 Company provided that only a member of Company could be permitted the use of trademarks and that such use would be regulated by an agreement in writing, which shall comply with the law relating to trademarks for the time being in force.
33. The Petitioners have filed copies of letter dated 12.07.1969 address by the solicitors at that time of Respondent No. 1 and also a copy of letter dated 27.07.1973 from Respondent No. 1 to Petitioner No. 2. Another letter dated 20/21 September 1974 being an affidavit dated 19.12.1974 of one Sh. Kirdane, the then Secretary of Respondent No. 1 Company has also been filed by the petitioners. The petitioners have stated that these documents are more than 30 years old and would form the part of Respondent No. 1 Company. The authenticity of these documents has not been questioned by the Respondents, These documents do not make any new case but explain the circumstances and history under which Respondent No. 1 Company came into being and the register user agreement executed by the parties. The main acts of oppression relate to the attempt of the Respondent to terminate the arrangements and titling the petitioners to use the trademarks, name, logo etc and to prevent the petitioner from exercising their rights in Kirloskar trademarks etc.
34. The whole issue of present petition evolves around a notice of termination dated 24.1.2001 addressed to Petitioner No. 2 by Respondent No. 1 company based on the records and the decisions of Board of Directors to terminate the Register User Agreement dated 05.10.1973 and Supplemental Agreements without assigning any reasons for this notice whereby the petitioners are required to relieve the "Kirloskar" trademarks and not the use the trademarks on their products and any of their business activities. The petitioners beings shareholder of this company feel oppressed by this notice of termination which, according to them should be viewed in the context of family backgrounds and facts relating to the formation of Respondent No. 1 Company as a family company and not from contractual rights.
35. The Minutes of the two meetings of 07.01.2000 and 26.02.2000 between the parties have been placed on record which indicates that the Kirloskar trademarks and logos are valuable properties and the parties had agreed to refer the matter alter mutual consent to a leading firms of Chartered Accountants and valuers for valuation of Kirloskar brand and valuation of Respondent No. 1 company shares held by the petitioners. Subsequently the Respondents cancelled the whole deal on 16 August 2000.
36. The Respondents on the other hand have argued that the petition is not maintainable as the entire case is based on notice of termination dated 24.01.2001 served by the Respondent on Petitioner No. 2 as per User Agreement dated 05.10.1973. The trademark is owned by Respondent No. 1 company and therefore, whether the User Agreement has been validly terminated or not, is a matter of contract between the parties and this Board is not an appropriate forum, where a shareholder can only seek redressal of his grievance under Section 397/398 and not with regard to any contract that he entered into. The Respondent Company has already filed a Civil Suit against the Petitioner No. 2 seeking an injunction against the petitioner from using the said trade mark "Kirloskar". The case is sub-judice and the petitioner No. 2 is estopped and barred from raising the same dispute before this Board. The petitioners have filed this petition in September 2003 whereas the Users Agreement of petitioner No. 1 was terminated On 24.1.2001. The petitioners have since 1970 recognized the respondent No. 1 Company as only owner of the trade mark Kirloskar. It has been done so to enhance the business as it is clear from the deposition of Petitioner No. 1 in OS No. 971/93 at Bangalore. The intention and formation of respondent No. 1 Company are matters relating to the period when the respondent have not come into existence and cannot reply the same. The allegations made in the petition need not be replied and they do not concern the Respondent No. 1 Company containing the execution of agreement, acquiring the trade marks from its initial holders etc which are matters of record. Once there is an agreement between the parties, all. their rights and liabilities have to follow from the said document and not on the basis of any misunderstanding, impression, trust or faith. The deed of assignment and the User Agreement is no way connected or relevant to the rights of the petitioners as minority shareholders of respondent No. 1 company and the petition under Section 397/398 can only be filed by a shareholder seeking redressal of his grievances as a shareholder. The petition is based oh one single act of alleged oppression and there is no chain of events of proved oppression. If there is a conflict between the common law and the principle of equity, common law shall prevail. The Company Law Board is not a civil court under CPC and its powers are to be read in this light. The grievance with regard to notice of termination can be dealt by a competent civil court before which litigation is pending. Whether the notice of termination issued to the petitioners is valid or not, is a question which will require elaborate leading of evidence, cross examination etc. The Company Law Board is not a civil court within the meaning of code of civil procedure and is not competent to try this issue. The facts and circumstances and the prior correspondence between the parties is of no value as evidence. Assuming that the parties, especially the respondent were thinking on lines as alleged, the parties finally put in writing their intentions and the same document has to be relied upon. The historical background of the case is completely external to the written agreement between the parties. Assuming that the license User Agreement is not a commercial document, a formal document has be interpreted by assuming that the author of the said document intended to say what he has made express in the document. The document should not be read to render any part of the same meaningless or silent. Entering into a termination of a commercial agreement is purely within the purview of the Board of Directors and their commercial wisdom. The petitioners are relying on just one alleged oppression which is termination of their license Users Agreement, this act does not lead to the circumstances such as to warrant just and equitable winding up of the company. The respondents have also not argued that the court should not ignore or set aside the express terms of written agreement between the parties. The equitable jurisdiction can be exercised only when the rights of a member as a shareholder is affected and the grievance complained should be related to the affairs of the company.
37. From the above discussions, it is amply clear that the Petitioners and Respondents have argued their case on two different planks. The Petitioners are relying on me judgments in the case of Needle Industries as well as Hanuman Prasad Bagri and Ors. followed by Sangram Singh Gaekward's case of Supreme Court to emphasize that particular agreement, in this case Users Agreement dated 05.10.1973, should be looked from the angle of family concern and principles of quasi partnership would apply. The petitioners have argued at length to indicate the developments which took place in forming of Respondent No. 1 Company to which their forefathers were together responsible. The Petitioners have also submitted that it was never a commercial contract and as such it cannot be enforced as an ordinary contract between the parties but must be viewed from the pure angle of family background which led to formation of the company to keep the trademark intact from misuse from the outsiders and not from the members of the family. Interestingly the Petitioners are using trademark "Kirloskar" as they belong to the same family and for the last more than 50 years. The argument of the Respondent is that past history or any other factors cannot be invoked into equity jurisdiction of this Board and the Users Agreement as a written document should be looked into as a matter of contract between he parties. What all happened at the time of forming Respondent No. 1 Company, is a matter of history. Wrongly or rightly, the Respondents signed this agreement and they cannot turn about when one of the clauses has been invoked against them.
38. This Board has held in the case of K.N. Bhargava v. Trackparts of India Ltd. (2000) 36 CLA 291 CLB) that if the facts and circumstances of the case reveal that a company is in the nature of partnership, holding of shares by outsiders would not effect the application of partnership principles. The question would thus arise whether the company is in the nature of partnership with the understanding of direct management by the members of the family of the promoters of the Respondent No. 1 Company. If the answer is yes, then principle of quasi-partnership should apply in this case. I find that the genesis of creation of the Respondent Company by the then family members was to protect the Kirloskar logo and trademark from outsiders which has been proved from the correspondence of that time placed by the petitioners on record, which has not been denied by the Respondents. They have merely said that the history of the case cannot be taken into account at the stage when the parties after full thoughts had reduced their thinking in a particular written document i.e. Users Agreement. I am not convinced by this argument of the Respondent that it is merely a history which should not be gone into. On the contrary, it seems to be a fit case where corporate veil should be lifted and it should be seen as to what is the reality of the company. Relying on the judgment of this Board in Tirath Ram Ahuja v. Shri Jagjit Singh Chawla and Ors. (CP 57/1999), I feel that the company is in the form of partnership firm and the principles of quasi-partnership will apply on them.
39. I would now like to discuss some of the leading judgments relied upon by learned counsel of both sides. The learned counsel for respondent relying on ML Thukral and Ors. v. Krone Communications Ltd and Ors. (1996) Vol. 86 CLB (PB) (Delhi) submitted that this Board has held that in a petition under Section 397/398, it is the right of a member that could be agitated. Even though the petitioner himself was a member, what was being agitated was a commercial agreement between the company and a third party, even though the petitioner had controlling interest in the third party. Entering into and termination of commercial agreement were purely within the purview of the Board of Directors, and, in their commercial wisdom, they may do whatever they consider appropriate. The court could not intervene in these matters unless otherwise they fell within the parameters of provisions of Section 397/398.
40. This judgment has been quoted out of place by the respondent and shall not come to their rescue as the agreement between parties herein was not. that of commercial nature in as much as no consideration had been paid by either party and Respondent No. 1 Company had been created after a family agreement among the members of Kirloskar family. In the same context the learned counsel for respondent also quoted from judgment of Supreme Court in AIR 1979, Supreme Court 1628(Supra) stating that a formal document has to be interpreted by assuming that the author of the Said document intended to say what he has made express. Para 7 of this judgment reads as under:-
"-------it is a well settled rule of interpretation applicable alike to documents as to statutes that, save for compelling necessity, the court should not be prompt, to ascribe superfluity to the language of a document and should be rather at the outset inclined to suppose every word intended to have some effect or be of some use. To reject words as insensible should be the last resort of judicial interpretation, for it is an elementary rule based on common sense that no author of a formal document intended to be acted upon by the others should be presumed to use words without a meaning. The court must, as far as possible, avoid a construction which would render the words used by the author of the document meaningless and futile or reduce to silence any part of the document and make it altogether inapplicable. Now, here the expression used in paragraph(1) of the notice was "registered IInd Class hotelier" and there can be no doubt that by using this expression the 1st respondent intended to delineate a certain category of persons who alone should he eligible to submit a tender."
The above judgment of Supreme Court relied by the Respondent is not applicable in this case as the issue there was of interpretation of certain words written in a document whereas the case of the petitioner is whether the invoking of a particular clause of a User Agreement is oppressive and harsh to them. There is no question of deleting any words or superimposing any meaning on the written words in the instant case. As such, the judgment relied upon is of no consequence in this case.
The learned counsel for respondents also raised the issue of pending civil suit between the parties and relied on the case of Sardar Iqbal Singh and Ors. v. Gurbakh Singh and Ors and stated that company law Board has held that to avoid conflicting decisions on common issues, if any proceedings are found to have been initialing prior in time to the filing of the petition before the Company Law Board on issues covered in the petition, the Company Law Board would either stay the proceedings before it or dismiss the petition unless otherwise the earlier proceedings are withdrawn. In this context, I would like to mention that Company Law Board has been taking a consistent view as discussed in this judgment. But in the instant case, the Respondents but not the petitioners have filed a civil suit which is, pending in Civil Court at Pune. There is no stay or any direction given by Civil Court that this petition cannot be heard or decided by this Board during the pendency of the suit in question filed by the respondents. If this argument of the respondents is accepted, every Respondent would file a civil suit to circumvent the special jurisdiction conferred by Section 397/398 of the Companies Act, 1956 on this Board and the special jurisdiction would become meaningless. Unless any civil court has restrained Company Law Board in any civil matter pending before them, there is no bar to proceed with the matter. Accordingly, the arguments of the respondents cannot be acceded to.
41. I would now like to discuss two major judgments which have been relied by both the parties namely, Needle Industries Case and Sangram Singh Gaekward case (Supra). In para 44 of the Needle Industries case clearly indicates oppression as "burdensome, harsh and wrongful". Similarly, it is mentioned that Section 210 now Section 397 "warrants the court in looking at the business realities of the situation and does not confined them to a narrow legalistic view. "It is also mentioned that which is common to a partnership, that there should be the utmost good faith between the constituent members and finally it was held that the court ought not to allow technical pleas to defeat the beneficent provisions of Section 210 (now Section 397) of the Companies Act. Para 46 indicates just and equitable jurisdiction as under:-
"...Lord Willbram said that a company, however small, however domestic, is a company not partnership or even, a quasi-partnership and it is through the just and equitable clause that obligations, common to partnership relations, may come in."
Para 49 of judgment of Needle industries lays down that the decision of the courts indicate that conduct which is technically legal, and correct may nevertheless be such as to justify the application of other just and equitable jurisdiction. Where the just and equitable jurisdiction has been applied the inference that there has been, atleast, an unfair abuse of powers and impairment of confidence in. the probity with which the companies affairs are being conducted, as distinguished from mere resentment on the part of a minority . It also mentions that the true position is that an isolated act, which is contrary to law, may not necessarily and by itself support the interference that the law was violated with a malafide intention or that such violation was burdensome, harsh and wrongful. Para 52 of this judgment relying on the case of Kalinga Tubes it is held that it. must further be shown that the conduct of the majority shareholders was oppressive to the minority as members and this requires that events have to be considered not in isolation but as a part of consecutive story. The conduct must be burdensome, harsh and wrongful and mere lack of confidence between the majority shareholders and the minority shareholders would not be enough unless the lack of confidence brings oppression on a minority by majority in the management of the companies affairs and such oppression must involve atleast an element of lack of probity or fair dealing as a member in the matter of his proprietary rights as a shareholder. It is clearly laid down that the person complaining of oppression must show that he has been constrained to submit to a conduct which lacks in probity, conduct which is unfair to him and which causes prejudice to him in the exercise of his legal and proprietary rights as a shareholder.
42. The Second judgment relied upon and quoted extensively was in the case of Sangram Singh P. Gaekward v. Shanti Devi which has been pronounced by Supreme Court on 20.1.2005 wherein similar propositions have been accepted. Para 185 and 186 of the judgment explains the expression "oppressive", which indicates that it is now well settled, that the expression "oppressive", would mean burdensome, harsh and wrongful.
"Oppression" complained of, thus, must relate to the manner in which the affairs of the company are being conducted and the conduct complained of must be such as to oppress the minority members. By reason of such acts of oppression, it must be shown that the majority members obtained a predominant voting power in the conduct of the company's affairs.
It is further held that the conduct complained of must be such so as to oppress a minority of the members including the petitioner vis-a-vis the shareholders which a fortiorari must be an act of the majority. The remedy under Section 397 of the Companies Act is not an ordinary one. The acts of oppression must be harsh and wrongful. An isolated incident may not be enough for grant of relief and continuous course of oppressive conduct on the part of the majority shareholder is, thus necessary to be proved. It is also held in para 193 of the judgment as under:-
"It has to be borne in mind that when a complaint is made as regards violation of statutory or contractual right, the shareholder may initiate a proceeding in a civil court but a proceeding under Section 397 of the Act would be maintainable only when an extraordinary situation is brought to the notice of the court keeping in view of the wide and far-reaching power of the court in relation to the affairs of the company. In this situation, it is necessary that the alleged illegality in the conduct of the majority shareholders is pleaded and proved with sufficient clarity and precision. If the pleadings and/or the evidence adduced in the proceedings remains unsatisfactory to arrive at a definite conclusion of oppression or mismanagement, the petition must be rejected."
Again para 199 of the same judgment states as under:-
"In Shanti Prasad Jain (supra) referring to the Elder case, it was categorically held that the conduct complained of must relate to the manner of management of the affairs of the company and must be such so as to oppress a minority of the members including the petitioners qua shareholder. The court, however, pointed out that the law, however, has not defined what oppression is for the purpose of the said section and is left to court to decide on the facts of each case whether there is such oppression."
Para 215 also defines that the burden to prove oppression or mismanagement is upon the petitioner. The court, however, will have to consider the entire materials on record and may not insist upon the petitioner to prove the acts of oppression. An action in contravention of law may not per se the oppression. Again para 216 of the judgment relying on Needle Industries Case mentions that the conduct which is technically legal and correct, thus, may justify grant of relief on the application of the just and equitable jurisdiction and conversely that conduct involving illegality and contravention of the act may not suffice to warrant grant of any remedy. Isolated act of oppression may not be sufficient to grant of relief but there should be a continuous oppression therefore. This test of lack of bonafides should be applied in both for the winding up petition while determining an application under Section 397 of the Companies Act.
43. From the above discussions of the facts as well as case laws, the following points emerge clearly:-
(a) The respondent company was founded on the basis of dialogue between the family members at that point of time in order to save the brand name "Kirloskar" from misuse from outsiders. Quite clear from the correspondence exchanged by the parties at that point of time. Since the creation of this company is a de-facto partnership on the basis of both families participating in the creation and management of the respondent company. The apparent structure of the company is not the real structure and on piercing the veil it is found that in reality it is a partnership company (Hind Overseas Pvt. Ltd. v. Raghunath Prasad Jhunjhunwala (AIR) 1976 Supreme Court 565). To apply the partnership principles and special relationship between the parties, it is not necessary that there should be pre-existing partnership and there is no need of equality in the shareholding to invoke quasi-partnership principles as held by Company Law Board in the case of Vijay Krishnan Jaidka v. Jaidka Motor Co. Ltd. (1977) 1 CLJ 268 CLB). I have no doubt in reaching the conclusion that the principles of quasi-partnership firm shall apply in this case relying on M/s Tirath Ram Ahuja. (C.P No 57/1999) Company Law Board.
(b) All the constituents of both the sides agreed to give their rights to respondent company without any financial consideration which clearly indicates that formation of the Respondent No. 1 Company was purely on family considerations and not on commercial considerations. Accordingly, the petitioner became minority shareholder in the respondent company.
(c). Since it was a family settlement and Respondent No. 1 Company was the outcome of that settlement, the termination clause of Users Agreement is obviously meant for outsiders and not for the promoters and founder members of the company. This position seems to have been realised by the respondents themselves when they had tried to make a family settlement by asking the petitioners to go out of the company which was finally done away by the respondents themselves.
44. I am aware of the facts that isolated act of oppression is not a sufficient ground to grant any relief under Section 397 of the Companies Act but this isolated act of the respondent has far reaching effects and would result in continued oppression thereof to the petitioners. The winding up of the company would unfairly prejudice the Members although the facts of the case would justify the making of the winding up order on the ground that it was just an equitable that the company should be wound up.
45. The filing of a civil suit by the Respondents cannot be a ground of non-interference by this Board in the cases where oppression is established and of continuous nature. If the argument of the learned counsel for respondents is accepted, then such a proposition would lead to drastic consequences which is not the intent of the statute and would defeat the purpose of creation of special legislation under Sections 397/398 of the Companies Act. The Special Bench of Company Law Board in the case of Dr. Mrs Mrunalini Devi Puar and Anr. v. Gaekwad Investment Corporation Pvt. Ltd. (Supra) held that whenever there are parallel proceedings before two concurrent judicial authorities, one proceeding is stayed in order to avoid conflicting orders, but there is no bar to instituting such proceedings except where such proceedings are instituted with a view to abuse the process of court. Relying on this judgment, the entire materials on record prove the acts of oppression. The termination clause of Users Agreement, on the face of it, appears to be a legal and correct proposition but such a conduct on the part of Respondent has far reaching and perpetual effect on the petitioners as minority shareholders, which is sufficient ground of oppression to grant relief to the petitioners. The technicalities cannot defeat the very purpose of the special legislation as has been made clear in the cases of Needle Industries as well as Sangrah Singh P. Gaekward, which has already been discussed. All other matters agitated by the respondents and the case laws quoted by them would not come to their rescue for the reasons mentioned above.
46. This being a quasi-partnership company and the acts of respondent being oppressive and harsh to the Petitioner as minority shareholder, I am inclined to allow the petition and in exercise of powers under Section 402 of the Companies Act, I direct that the deed of assignment granting the Users right to Petitioner No. 2 (KEC) shall be in perpetuity and the agreement of Users dated 05.10.1973 shall stand modified to delete therefrom and nullify the termination clause therein so far the petitioners and their companies are concerned. The Article 12 of the Article of the Association of the Respondent No. 1 Company shall also stand modified to that extent.
47. With the above directions, the petition stands disposed of. There are no orders as to cost.