Madras High Court Says 2003 MoU Did Not Permit Additional Beardsell Companies To Use Corporate Name

The Madras High Court has upheld a permanent injunction restraining two companies incorporated as sister concerns of Beardsell Eastern Pvt Ltd from using the corporate name "Beardsell".

The court held that a 2003 Memorandum of Understanding (MoU) permitted the establishment of only "a new company" and did not authorise the incorporation of additional entities using the name.

A Division Bench of Justice P. Velmurugan and Justice K. Govindarajan Thilakavadi dismissed an intra-court appeal filed by Beardsell Polymers Pvt Ltd, Beardsell Equipments Pvt Ltd and others. The appeal challenged a single judge's decree that restrained all appellants except Beardsell Eastern Pvt Ltd from carrying on business under the corporate name "Beardsell" or any deceptively similar name and directed them to surrender infringing materials. The Bench also affirmed the award of ₹2 lakh in costs.

The bench held, "Further the MoU has to be read by the Court as to the intention of the parties. The Court cannot interpret on its own. When clause 14 of the MoU clearly reveals the intention of the parties, the contention of the learned counsel for the appellants that the 4th appellant is entitled to establish any number of companies, is not acceptable, as the 4th appellant cannot go beyond the terms of the MoU"

The dispute arose from a MoU dated April 29, 2003. Under the agreement, Beardsell Limited agreed to transfer its expanded polystyrene (EPS) business in the East India region to Bhagawan Das Mohta.

Clause 14 of the MoU required Beardsell Limited to issue a no-objection certificate to facilitate the conduct of the transferred business through a new company. Pursuant to that arrangement, Beardsell Eastern Pvt Ltd was incorporated.

According to Beardsell Limited, it later discovered that Mohta had incorporated Beardsell Polymers Pvt Ltd and Beardsell Equipments Pvt Ltd as sister concerns using the Beardsell name. The company contended that the MoU permitted only one new company and did not authorise the establishment of additional entities using the name.

The appellants argued that the sale of the EPS business as a going concern, together with goodwill, entitled them to use the Beardsell name. They also contended that Beardsell Limited had knowledge of the incorporation of the additional companies years before filing suit. According to them, the company had therefore acquiesced in their use of the name.

Rejecting those submissions, the Division Bench agreed with the interpretation adopted by the single judge. It held that the language of Clause 14 contemplated only one new company.

The Bench observed,"A reading of Ex.P4 and Ex.P5 would clearly show that nowhere the MoU has given the right to the 4th appellant to establish any number of companies, more so, when the language/word employed in the MoU is only singular i.e, a new company."

The court also rejected the defence of acquiescence. It noted that Beardsell Limited had objected to the incorporation of the additional companies. The Bench held that delay in initiating proceedings did not amount to acquiescence.

On the plea of acquiescence, the bench held, "Though there is a delay in filing the suit and also laches attributed on the part of the respondent, however, that would not amount to acquiescence. Acquiescence has to be proved in the manner known to law."

Dismissing the appeal, the bench affirmed the decree restraining all appellants except Beardsell Eastern Pvt Ltd from passing off their goods and services as those of Beardsell Limited by carrying on business under the corporate name "Beardsell" or any deceptively similar name.

The court also upheld the direction requiring all appellants except Beardsell Eastern Pvt Ltd to hand over infringing materials bearing the Beardsell name for destruction. It further affirmed the award of ₹2 lakh in costs.