- (1.) This is a derivative action filed by the Plaintiff exercising his right as a minority shareholder. It is the Plaintiff's case that the claim made in the suit is not for his personal or individual benefit but for the benefit of Defendant No.1. Though there are five Defendants, the quarrel basically is between the Plaintiff and the Defendant No.2. Defendant No.2 is the Chairman and Managing Director of Defendant No.1. Defendant No.3 is the wife of Defendant No.2 and Defendant Nos. 4 and 5 are the Directors of Defendant No.1. Defendant No.2 is the uncle of the Plaintiff (mother's brother). The relationship between the uncle and the nephew has been estranged from what is seen from the pleadings for couple of decades. The Plaintiff has filed many legal proceedings against Defendant Nos. 2 and 3 including proceedings in Company Law Board under Sections 397 and 398 of the Companies Act, 1956 with regard to Defendant No.1. The present suit is one such proceeding filed by the Plaintiff.
(2.) The grievance of the Plaintiff briefly put is that Defendant No.2 has obtained and/or applied for several patents in his own name whereas the patents ought to have been obtained and/or applied for in the name of Defendant No.1. The Plaintiff, in this derivative action, is seeking to make a claim on behalf of Defendant No.1. The supporting layer put-forth is the suit cannot be filed in the name of the Company Defendant No.1 and Defendant No.1 is not in a position to make such claim in its own name because the Plaintiff does not hold majority shares and the management of the Company is in the control of Defendant No.2/Defendant No.3. The Plaintiff also states that Defendant No.2 was in a fiduciary relationship as the promoter, director, majority shareholder and the Research Head of Defendant No.1 and by registering the patents in his individual name and not in the name of Defendant No.1, Defendant No.2 was in breach of his fiduciary duties. The Plaintiff, therefore, states that as the minority shareholder the Plaintiff became entitled to file and has filed the present suit.
(3.) The right of a minority shareholder to file a derivative action is recognised in law. It is open for a minority shareholder to take action against the wrong doers for the benefit of the Company if majority shareholders are preventing the Company itself from taking any such action as they are the people committing the wrong. Recognising a right does not mean that the action is correct or has merits. It also does not mean that in every case a minority shareholder can bring out a derivative action. (i) Palmer's Company Law 24th Edition paragraph 65-02, (page. 976-978) : "Alternatively, the individual shareholder may seek to enforce the company's rights by suing in representation form on behalf of himself and all the other shareholders in the Company (except the wrongdoers) against the wrongdoers. This procedure is founded on R.S.C. 1965, Ord. 15, r.12, but it is not a true representative action. The Plaintiff is seeking to enforce, not his own right of action, but a right of action vested in or derived from company. Hence in modern discussions the action is referred to as a derivative action. The alleged wrongdoers are made the Defendants in the action, but the Company itself is joined as a nominal Defendant in order that it can be bound by the judgment................................ The derivative action is subject, however, to the doctrine of clean hands. As an equitable invention, the derivative action cannot be used to do injustice. This principle has been applied in cases of acquiescence by the Plaintiff shareholder in the wrongdoing of which he later complains and in cases where the Plaintiff has been regarded as the puppet of outsiders whose interests are opposed to those of the company. The requirement of clean hands does not apply to the personal action." (ii) In Onyx Musicabsolute.com Pvt. Ltd. vs. Yash Raj Films Pvt. Ltd., 2008 6 BCR 418 in paragraph 13, the Ld. Judge observed as follows : "13............ I therefore hold that a suit at the instance of a minority shareholder for a wrong done to a Company is maintainable where it is shown that the wrong doers are insiders, say directors of the Company or majority of the shareholders who are unlikely to take any action for the wrong done to the company......." (iii) In Nirad Amilal Mehta vs. Genelec Ltd., 2008 6 BCR 499 in paragraph 7, it was observed as follows : "7. ........... The suit should therefore normally be filed by the Company for setting aside the alienation. The Plaintiff who is only a shareholder of the Company would not normally have a right to file a suit on behalf of the Company as the person aggrieved is the Company and not a shareholder. More than one and a half century ago, in (Foss vs. Harbottle,1843 2 Hare 461), the Court laid down the rule that normally an individual shareholder would not be entitled to bring an action for a wrong allegedly done to the company. It is the Company who alone can bring an action for a wrong done to it. The rule however has been subjected to more than one exception. In (B.B.M. (UK) Limited vs. Janardan Mohandas Rajan Pillai, 1993 3 BCR 228), this Court while upholding the rule that it is the Company who is entitled to maintain an action for wrong allegedly done to it and a shareholder has no locus standi to maintain the suit, affirmed one of the exceptions to the aforesaid rule that where a shareholder can show that the wrong doers are in control of the Defendant Company and hence the Company would be unable to maintain the action, he can maintain an action.";