Full Text
HIGH COURT OF DELHI
JUDGMENT
LUXEMBOURG BRANDS S.A R.L & ANR ..... Plaintiffs
Through: Mr.Sanjeev Sindhwani, Sr.Advocate with Mr.Prashant Gupta, Advocate.
Through: Mr.Sandeep Sethi, Sr.Advocate with Mr.Arun, Mr.Tahir AJ, Ms.Shreya
Sethi, Mr.Vikram Singh Dalal and Ms.Tanvi Tewari, Advocates.
2480/2020 (O-XI R-5 of CPC)
1. By way of the present judgment, I shall dispose of I.A. No.2479/2020 filed under Section 151 of the Civil Procedure Code, 1908 (CPC) and I.A. No.2480/2020 filed under Order XI Rule 5 of the CPC for production of documents.
BRIEF FACTS
2. The brief facts insofar as are relevant for deciding the present applications are set out below.
3. The plaintiffs are the owners of various registered marks including „TRIMAX‟ in relation to stationery products such as writing instruments, correction pens, glue sticks, etc.
4. Since the year 1986, the defendant was a licensee of the plaintiff companies and was manufacturing pens and other stationery instruments using the trademarks of the plaintiffs, pursuant to a license agreement. Last such license was granted to the defendant vide license agreement dated 9th April, 2010.
5. The aforesaid license was terminated by the plaintiffs vide letter dated 1st September, 2015 w.e.f. 1st March, 2016.
6. It was the case of the plaintiffs that the defendant continued to use some of the trademarks of the plaintiffs even after termination of the license agreement and therefore, the present suit was filed on 17th August, 2016.
7. It was noted in the order dated 17th November, 2016 passed in the present suit that the defendant shall not use the trade mark „T-MAX‟.
8. On 3rd May, 2017, issues in the suit were framed. The issues relevant for the purposes of the present applications are set out below: “6. Whether the plaintiffs are entitled to a decree of rendition of accounts against the defendants, as prayed for? OPP
7. Whether an independent auditor is required to be appointed to audit the accounts the defendant? OPP
8. Whether the defendant has disobeyed any of the orders passed by this court? OPP”
9. An affidavit of unconditional apology dated 19th September, 2017 was tendered on behalf of the defendant for having used the trade mark „TERAMAX‟.
10. A judgment dated 26th November, 2018 was passed in the present suit. The relevant portion of the said judgment in relation to issue no.8 above is BANSAL set out below: “122. It is indisputable that the trademarks T-MAX and TERAMAX are phonetically similar to the trademark TRIMAX and, thus, both the trademarks are deceptively similar. The fact that the defendant had applied for registration of the brand TERAMAX in October, 2016 (which is prior to the order dated 17.11.2016) is of little relevance and does not, in any manner, establish that the adoption of the said trademark by the defendant is bonafide. Mr Sethi, learned senior counsel who was appearing for the defendant at the material time had thus, rightly not disputed that the trademark TERAMAX was deceptively similar to the trademark TRIMAX, and had tendered the affidavit of the Managing Director of the defendant expressing his unconditional apology. However, Mr Arun C. Mohan, the learned counsel who appeared for the defendant at the end of the final arguments, sought to contest the application filed on behalf of the plaintiffs; he contended that the trademark TERAMAX was not similar to TRIMAX. This is plainly unsustainable. It is also clear that even after tendering an unconditional apology, the defendant has continued to sell its product under the trademark TERAMAX. xxx xxx xxx
125. In view of the above, the issue is decided in favour of the plaintiffs to the extent that the defendant has violated the orders passed by this court by selling writing instruments under the trademark „Teramax‟.”
11. In respect of issue no.6 relating to rendition of accounts, the relevant observations made in the judgment are set out below: “Re: Issue no.6 Whether the plaintiffs are entitled to a decree of rendition of accounts against the defendants, as prayed for?
126. In view of the above, the plaintiffs are not entitled to profits made by the defendant in respect of products sold under the trade mark RORITO or that may offend the injunction as sought for. The defendant had voluntarily agreed to transfer various sub-trademarks BANSAL used in conjunction with Reynolds as recorded in the order dated 17.11.2016, and the disputes to that extent were resolved. However, in view of the above conclusion that the defendant is passed of its goods under the brand name TERAMAX, the defendant must account for the profits made in respect of the said writing instrument sold under the trademarks TERAMAX to the plaintiffs and to this extent, the issue is decided in favour of the plaintiffs and against the defendant. The plaintiffs would also be entitled for verification of the accounts so rendered by independent auditors.”
12. In respect of issue no.7 relating to appointment of independent auditor, the relevant observations made in the judgment are set out below: “Re: Issue No.7 Whether an independent auditor is required to be appointed to audit the accounts of the defendant?
127. This issue is also decided in favour of the plaintiffs and they are entitled to ensure that the accounts are rendered in respect of the net revenue from the manufacture and sale of the products sold under the trademark TERAMAX. xxx xxx xxx
131. As held above, the defendant and its Executive Directors, namely, Mohmad Meeran Katch and Indra Kumar Mahendran, arrayed as respondents in IA No. 3153/2008, are plainly guilty of violating the orders passed by this Court inasmuch as the defendant has continued to manufacture and sell the writing instruments under the trademark TERAMAX. The defendant and respondent no.2 and 3 (Mohmad Meeran Katch and Indra Kumar Mahendran) are imposed with a penalty of ₹5,00,000/- which shall be paid to the plaintiffs within a period of one month from today, failing which respondent nos. 2 and 3 (Mohmad Meeran Katch and Indra Kumar Mahendran) shall undergo imprisonment for a period of one month.
132. In addition, the defendant is liable to account for the net revenue earned by the sale of the writing instruments under the trademark TERAMAX. The defendant shall render a statement of account of the net revenue (profit) earned from the sale of writing BANSAL instruments under the trademark TERAMAX, within a period of two weeks.
133. M/s Vaibhav Gupta, VGG & Co. Chartered Accountants (Mobile No. 9811045762) is appointed as the Local Commissioner to independently verify the accounts so rendered by the defendant relating to the profits earned by the sale of the writing instruments under the trademark TERAMAX. The defendant shall produce all books and accounts and furnish all information as required by the Local Commissioner. The fee of the Local Commissioner shall be commensurate with the quantum of work and is tentatively fixed at ₹3 lacs plus expenses. The aforesaid sum shall be paid by the defendant in advance.
134. The Local Commissioner shall submit a report within a period of six weeks, after the defendant has furnished the statement of account as directed above.
135. Objections to the report, if any, be filed within a period of two weeks, thereafter.
136. The decree for the amount so determined shall follow after considering the report of the Local Commissioner.
137. The suit is partially decreed to the extent as indicated above.
138. List on 26.02.2019 for consideration of the report of Local Commissioner.”
13. On 6th July, 2019, the independent auditor appointed by this Court submitted a report before this Court. At page no.7 of the aforesaid report, the auditor has noted that the defendant had allocated the legal expenses to the „TERAMAX‟ brand in excess and therefore, the auditor has made adjustment for the same to determine the profitability. At page no.14 – 15 of the report, the auditor has made remarks with regard to expenses which are not to be allowed and adjustments to be made so as to arrive at the correct BANSAL profits in respect of the brand „TERAMAX‟. A total adjustment of about Rs.[7] crores has been made by the independent auditor and in view of the above, the loss claimed by the defendant of about Rs.1.81 crores would in fact translate into profits of Rs.[5] crores in respect of sale of „TERAMAX‟ products. Both the plaintiffs and defendant wanted to file objections to the said report.
14. Subsequently, in the order dated 18th July, 2019 passed by this Court, the following observations were made: “6. However in my opinion no purpose will be served in wasting time on permitting objections to be filed and allowing the pleadings to be completed thereon. The procedure prescribed by Code of Civil Procedure, 1908 (CPC), of after passing of decree for accounts, is to relegate the parties to evidence on the accounts.
7. A perusal of the order dated 3rd May, 2017 shows that the accounts were not to be gone into during trial and only the question of entitlement of the plaintiffs to a decree for rendition of accounts was framed.
8. The senior counsel for the plaintiffs and the counsel for the defendant agree that commission be issued to record evidence on the accounts.”
15. In the subsequent order dated 5th August, 2019, a Local Commissioner was appointed to go into to the accounts pursuant to the decree passed by this Court on 26th November, 2018 and the defendant was directed to file its affidavit by way of examination in chief with an advance copy to the counsel for the plaintiffs.
16. An affidavit of evidence was filed on behalf of the defendant on 24th September, 2019. Along with the aforesaid affidavit, the defendant filed the statement of profitability in respect of „TERAMAX‟ for the period 1st BANSAL January, 2017 to 31st August, 2018 and the audited financial results for the Financial Years 2016-17, 2017-18 and 2018-19 showing losses in respect of the aforesaid three Financial Years.
17. Counsel for the plaintiffs sent a notice to produce documents to the defendant‟s counsel on 28th November, 2019 calling upon the defendant to produce documents, including the documents that were submitted to the independent auditor. The defendant, vide its response dated 7th January, 2020 declined to produce the documents. In these circumstances, I.A.2479/2020 was filed on behalf of the plaintiffs seeking direction that the documents in custody of independent auditor be summoned and copies thereof be supplied to the parties as the same would be relevant for the purposes of cross-examination of the defendant‟s witness.
18. I.A.2480/2020 was filed on behalf of the plaintiffs to produce various documents as detailed in paragraph 19(a) of the said application.
19. Both the aforesaid applications were opposed by the defendant on the following grounds:
(i) The documents for which discovery is sought is not material for the adjudication of the present suit and amounts to roving and fishing enquiry.
(ii) The documents sought by the plaintiffs are confidential in nature and in view of the fact that the plaintiffs are competitors of the defendant, the documents cannot be supplied to the plaintiffs.
SUBMISSIONS OF THE PLAINTIFFS
20. Senior counsel appearing on behalf of the plaintiffs has made the following submissions: BANSAL
(i) No secrecy was claimed by the defendant while providing the aforesaid documents to the independent auditor appointed by this Court, and therefore no confidentiality can be claimed at this stage.
(ii) In terms of the license agreement dated 9th April, 2010 entered into between the plaintiffs and the defendant, the plaintiffs had full access to financial information and other records of the defendant company for a period of three years after the expiry of the agreement.
(iii) In terms of the judgment dated 26th November, 2018, the plaintiffs had the right to verify the aforesaid documents. A perusal of the report filed by the independent auditor reveals that the defendant has doctored its accounts so as to show losses despite having a turnover of Rs.69 crores in respect of pens sold under the trade mark „TERAMAX‟.
(iv) In I.A.2480/2020, additional documents have been sought for the check period, being the period before and after the period in question for which the accounts were to be rendered.
SUBMISSIONS OF THE DEFENDANT
21. Senior counsel appearing on behalf of the defendant has made the following submissions:
(i) The proceedings in the present suit came to an end after the judgment dated 26th November, 2018 was delivered by this Court. Therefore, the present applications cannot be filed in a disposed of suit.
(ii) Both the parties have filed appeals against the aforesaid judgment which are pending before the Division Bench.
(iii) There has been no order passed by this Court for the defendant to
(iv) Documents sought in I.A.2480/2020 are beyond the scope of the suit as the documents sought therein are for the years 2013 to 2019.
(v) Once a report has been filed on behalf of the Local Commissioner appointed by this Court, the issue of rendition of accounts cannot be gone into again by the Court as the same would amount to a second trial. Reliance is placed on the following judgments:
(i) State of Uttar Pradesh v. Brahm Datt Sharma and Anr. (1987)
(ii) Narpat Singh v. Rajasthan Financial Corporation, 2007 SCC
(iii) Akhileshwar Prasad Narayan Singh v. Shashi Shekhareshwar
22. I have heard the counsel for the parties and perused the record.
23. At the outset, I do not find any merit in the submission of the defendant that the present applications are not maintainable since the suit has been finally disposed of. A bare perusal of paragraphs no.136 and 137 of the judgment passed by this Court on 26th November, 2018 would show that the suit was only partially decreed. The suit was kept pending for the purpose of determination of the amounts payable by the defendant to the plaintiffs. A perusal of the subsequent orders passed by this Court on 18th July, 2019 and 5th August, 2019 also make it abundantly clear that the present suit insofar as the determination of the amounts payable to the plaintiffs still survived and a Local Commissioner was appointed by the BANSAL Court for recording of evidence. Further, evidence by way of affidavit has also been filed by the defendant in this regard. Therefore, there is no basis to contend that the present suit was finally over and that the present applications are not maintainable. The judgments relied upon by the defendant in this regard are therefore, not applicable.
24. Accordingly, I proceed to consider the aforesaid applications on merits.
25. Senior counsel on behalf of the defendant contends that the documents sought by the plaintiffs by virtue of these applications have no relevance and the plaintiffs are seeking to conduct a fresh trial in the suit which stood completed with the report of the Local Commissioner being filed. However, the aforesaid submission overlooks the fact that in terms of paragraph 126 of the judgment dated 26th November, 2018, this Court had held that the plaintiffs are entitled to verification of the accounts so rendered by the independent auditor in respect of the net revenue earned from the manufacture and sale of the products sold under the trademark „TERAMAX‟ by the defendant. Further, the plaintiffs were also entitled to file objections to the report of the independent auditor appointed by the Court. The aforesaid verification could only be done by the plaintiffs and/or the objections could only be filed by the plaintiffs, on the basis of the documents furnished by the defendant to the independent auditor. Therefore, the intent of the Court in the judgment dated 26th November, 2018 was clear that the plaintiffs be provided the complete accounts of the defendant so that the plaintiffs could verify the net revenue earned on account of sale of writing instruments under the mark „TERAMAX‟
26. In the order dated 18th July, 2019 passed in the present suit, it was BANSAL specifically noted that no purpose would be served by permitting parties to file objections to the Local Commissioner‟s report and therefore, parties were directed to lead evidence on the accounts of the defendant
27. In the affidavit of evidence filed on behalf of the defendant, the defendant has claimed a total turnover of Rs.69,08,80,592/- for the period of January, 2017 to August, 2018, yet a loss of Rs.1,81,40,552/- has been claimed for the aforesaid period in respect of sale of „TERAMAX‟ products. Along with the said affidavit, the defendant has also filed statements of profitability so as to justify the aforesaid loss. However, the defendant has failed to provide any explanation in the affidavit as to how a loss of Rs.1.81 crore was incurred by the defendant despite having a turnover of Rs.69 crores in respect of „TERAMAX‟ pens. It has been observed in the report of the independent auditor, the defendant has loaded various expenses so as to show a loss of about Rs.1.81 crore in respect of „TERAMAX‟ pens. A whole lot of these expenses have been disallowed by the independent auditor.
28. As noted in the order dated 18th July, 2019 passed by this Court, the parties were to proceed for trial on the issue of the accounts of the defendant. Indisputably, once the parties are going for trial on the issue of accounts of the defendant, the plaintiffs would have the right to crossexamine the witness of the defendant on its accounts.
29. In view of the fact that the defendant has supplied the said documents to the independent auditor and on the basis of those documents the auditor has prepared his report means that the said documents are material and relevant for the purposes of determining the amounts payable by the defendant to the plaintiffs in terms of the judgment passed by this Court on BANSAL 26th November, 2018. Therefore, the plaintiffs are justified in seeking access to the documents that were submitted by the defendant before the independent auditor appointed by the Court.
30. In Ellora Industries v. Banarsi Das Goela, 1979 SCC OnLine Del 198, a Co-ordinate Bench of this Court has elucidated one of the principles for grant of account of profits, which is set out below: “50. Thirdly, the courts order an account of profits on the theory that the defendant was constructively an agent of the plaintiff in disposing of goods in a manner infringing the plaintiff's rights [Snell—Principles of Equity (24th ed. 1954) p. 574]. The principle upon which the court grants an account of profits is that where one party owes a duty to another, the person to whom the duty is owed is entitled to recover from the other party every benefit which that other party has received by virtue of his fiduciary position if in fact he has obtained it without the knowledge or consent of the party to whom he owed the duty (Kerly—Law of Trade Marks 10th ed. p. 344)....”
31. In the present case, a decree for rendition of accounts has already been passed in favour of the plaintiffs and against the defendant. Therefore, the defendant is duty bound to offer true and fair rendition of accounts pertaining to the net revenue earned on account of sale of pens under the mark „TERAMAX‟ for the period 1st August, 2018 placed before the auditor.
32. As regards the plea of confidentiality taken by the defendant, in a suit for rendition of accounts where accounts have to be rendered by a defendant, the defendant cannot claim confidentiality in respect of its books of accounts. If such a plea is allowed it would frustrate the whole purpose of the trial. No such plea was taken by the defendant at the time of supplying the aforesaid documents to the independent auditor. Therefore, the defendant BANSAL at this stage cannot claim any confidentiality in providing the aforesaid documents to the plaintiffs. Clearly, the intention of the defendant is to conceal relevant information from the Court. The conduct of the defendant has been noted and deprecated in the judgment dated 26th November, 2018 passed by this Court. In fact, costs of Rs,5,00,000/- were imposed on the defendant and two other respondents for violating the order passed by this Court, by continuing to manufacture and sell the writing instruments under the trademark „TERAMAX‟ despite giving an undertaking.
33. It may also be pertinent to note here that till 1st March, 2016, the defendant was a licensee of the plaintiffs and in terms of the license agreement dated 9th April, 2010, the defendant was obliged to maintain records in respect of invoices, financial information, inventory etc., and disclose the same to the plaintiffs. The said records were to be maintained till a period of three years after the termination of the license agreement. The relevant clause 6.[1] of the license agreement dated 9th April, 2010 is set out below: “6.[1] Records. Licensee shall keep full and accurate books and accounts of all transactions relating to this Agreement and the manufacture and sale of Licensed Products in sufficient detail to enable Paper Mate Licensor to determine and verify Licensee’s compliance with its obligations hereunder, including without limiting the generality of the foregoing Licensee’s payment obligations to Paper Mate Licensor. Such records shall include without limitation documentation to support the information provided in the royalty reports required under Section 5.3, invoices, financial information, inventory, manufacturing, quality control, and approval records. Licensee shall maintain all such records during the Term of this Agreement and for a period of three (3) years thereafter.” BANSAL
34. In terms of the Clause 29 of the aforesaid agreement, the aforesaid clause and the obligations therein were to survive even after the termination of the agreement. Admittedly, in the present case the license agreement was terminated with effect from 1st March, 2016. The records sought by the plaintiffs in I.A.2479/2020 are within 3 years from the date of termination of the license agreement and therefore, fall within the ambit of the aforesaid clause and the defendant cannot claim any confidentiality in respect of the same.
35. In view of the discussion above, I.A.2479/2020 is allowed and the Registry is directed to supply to the plaintiffs the entire set of documents that are a part of the report of the independent auditor submitted to this Court.
36. No justification has been provided by the plaintiffs for supply of documents/information as detailed in I.A.2480/2020. As per the judgment dated 26th November, 2018, the relevant period for which the accounts were to be rendered by the defendant is from 1st August,
2018. Therefore, there is no justification for the plaintiffs to demand information pertaining to the years 2013-14 to 2015-16 from the defendant.
37. Therefore, I do not find any merit in the same and the same is dismissed.
38. List before the Joint Registrar for further proceedings on 2nd March,
2023. AMIT BANSAL, J. FEBURARY 10, 2023/dk BANSAL