IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 16TH DAY OF JULY, 2019 BEFORE THE HON’BLE MR. JUSTICE L. NARAYANA SWAMY REGULAR FIRST APPEAL No.938 OF 2012 (IPR) BETWEEN:
M/S.STEP-IN FORUM A COMPANY REGISTERED WITHIN THE MEANING OF SECTION 25 OF THE COMPANIES ACT 1956, HAVING ITS REGISTERED OFFICE AT A-706 & 707, 7TH FLOOR, MITTAL TOWER, M G ROAD, BANGALORE - 560 001 REPRESENTED HEREIN BY ITS DIRECTOR & AUTHORISED SIGNATORY MR.SURESH MITTAL ... APPELLANT (BY SMT.NIDHISHREE B.V. AND SRI.GURUPRASANNA, ADVS.) AND:
1. M/S STEP-IN FORUM NO.732, FIRST FLOOR, 12TH MAIN, 3RD BLOCK, RAJAJINAGAR, BANGALORE - 560 010 REPRESENTED BY ITS CHAIRMAN 2. MR.ARUN KUMAR KHANNUR FATHER’S NAME NOT KNOWN MAJOR NO.732, FIRST FLOOR, 12TH MAIN, 3RD BLOCK, RAJAJINAGAR, BANGALORE - 560 010 ... RESPONDENTS (BY SMT.SURABHI SRINIVAS, ADV. FOR SRI.HARIKRISHNA S HOLLA, ADV. FOR R1 & R2; SRI.M.ERAPPA REDDY, ADV. FOR R1) THIS RFA IS FILED U/S 96 R/W ORDER 41 OF CPC, AGAINST THE JUDGMENT AND DECREE DATED 19.01.2012 PASSED IN O.S.NO.8773/2006 ON THE FILE OF XVIII ADDITIONAL CITY CIVIL JUDGE, BANGALORE, DISMISSING THE SUIT FILED FOR PERMANENT INJUNCTION.
THIS APPEAL COMING ON FOR PRONOUNCEMENT OF JUDGMENT THIS DAY AFTER HAVING HEARD AND RESERVED FOR JUDGMENT ON 26.02.2018, THE COURT DELIVERED THE FOLLOWING:
JUDGMENT This appeal is filed by the plaintiff in O S No.8773/2006 on the file of XVIII Additional City Civil Judge (CCH No.10), Bengaluru City being aggrieved of the judgment and decree dated 19.01.2012 dismissing the suit. The suit was for the relief of permanent injunction.
2. The brief facts of the case are as follows:
The Appellant is a Company incorporated under the provisions of the Companies Act, 1956. Prior to its incorporation the Appellant was an association of persons, carrying out activities for promoting software – related test experiences by bringing together software test professionals, practitioners, experts, academicians, and service/product vendors to share techniques, methodologies, frameworks, experiences, and case studies to perform, manage and automate software testing. Its Organising Committee comprised some of the leading names in the Software and Information Technology sector.
3. Earlier, the Appellant organisation had the Respondent No.2, Mr. Arunkumar Khannur, as one of its founding members. He was also the Managing Director of a Company known as Quality Solutions for Information Technology Pvt. Ltd. for short, `QSIT’.
4. However, in October 2005, the Respondent No.2 resigned from QSIT and immediately thereafter on 23.11.2005, he resigned from the Appellant’s organisation.
5. Subsequent thereto, the Respondent No.2 incorporated a company with the name and business deceptively similar/identical to the QSIT and faced appropriate legal proceedings under the Companies Act and before other forums such as the Civil Court in respect thereof. The suit bearing OS No. 9531/2005 filed against the Respondent No.2 by QSIT was decreed by the City Civil Court, restraining him from carrying on business deceptively similar/identical to that of QSIT.
6. Despite his resignation and being fully aware of the existence of the Appellant, the Respondent No.2 along with other persons, applied for registration of the Respondent No.1 as a society within the meaning of the Karnataka Societies Registration Act, 1960. The Respondent No.1 herein, by misleading the concerned authorities, came to be registered on 27.12.2005 as a society. Soon thereafter, the Respondent No.1 started issuing mischievous mails/notices/communications to various members, associates and well–wishers of the Appellant for alleged programmes being organized by it. The Respondents also mischievously registered a website www.stepinforum.in on 12.01.2006 despite the fact that the Appellant had a pre– existing website under the name www.stepinforum.org as far back as 19.02.2005.
7. Aggrieved by the actions of the Respondents, and in order to protect its trade name and trade mark ‘STeP – IN Forum’, the Appellant herein filed OS No.8773/2006 against the Respondents inter alia seeking to restrain them from using the Appellant’s mark ‘STeP –IN Forum’ in any manner whatsoever.
8. The respondents filed written statement, inter alia contending that the appellant obtained registration on 3.5.2006, whereas the first respondent organization has been duly registered under the Karnataka Societies Registration Act, 1960 with effect from 27.12.2005. The respondents are prior users of the name and the appellant has no locus standi to seek permanent injunction. The prior incorporation of appellant company on non profitable basis since October, 2003 was denied. The organization by name STEP-IN-FORUM was conceived by 2nd respondent along with Srinivasan Desikan during October, 2003. Pursuant to resignation of members of organizing committee on 24.11.2005, the organization when was not registered, the mark STEP-IN-FORUM does not belong to any one. The allegation that the defendants are passing off services as that of the appellant’s trade mark was denied.
9. Based on the pleadings of the parties, the trial court framed the relevant issues consisting of prior user of the mark, plaintiff proving passing off by the 2nd defendant or defendants proving plaintiff’s passing off. The trial court answered all the issues in the negative except the issue relating to plaintiff proving 2nd defendant involving in passing off, which was the second issue. The 2nd issue was answered as it did not arise. Thus the court below dismissed the suit.
10. I have heard the learned counsel for the parties. The learned counsel for the appellant submitted that plaintiff was an unregistered association since 2003 and prior user of mark `Step In’ and after its registration as a company, the company derived reputation and the goodwill. The criteria being prior user, similarity of the mark and similarity of the phonetic sound and registration of the mark or similar mark in point of time being irrelevant for an action on passing off, in view of the judgment of the Hon’ble Supreme Court in Heinz Italia & another v. Dabur India Ltd., reported in (2007) 6 SCC 1, Para-15, the very basis on which the trial court dismissed the suit, is erroneous. The trial court concentrated more on registration and without such a registration, nothing flows from it and person cannot claim any advantage over the later registered user of the mark. The respondent No.2 had himself admitted in Para-3 of the cross-examination that appellant may have continued to function even after November, 2005 and the appellant may be in existence even now. The prior user of the mark thus having established, the court below was in error in dismissing the suit. Though Memorandum of Association has been marked as Ex.P25, the court below observed that the same has not been produced, which is non-application of mind. Thus he prayed for allowing the appeal and to decree the suit.
11. The learned counsel for the respondents supported the judgment and decree passed by the trial court.
12. Having heard the learned counsel for the parties, the only point that arises for consideration is; whether the judgment and decree passed by the court below suffers from irregularity and illegality calling for interference by this Court? My finding would be in the affirmative for the following reasons.
13. As the facts emerge from the pleadings of the parties, the plaintiff before it was registered as a Company on 3.5.2006, was an association of persons, of course one of such person was the 2nd respondent. The plaintiff has been operating with the same name even prior and after its registration as a company. This has been admitted by Respondent No.2 in his cross- examination as DW-1 on 14.07.2009. DW-2 has admitted that appellant may have continued to function even after November, 2005 and the appellant may be in existence even now. It is a fact that respondent No.2 resigned from the plaintiff organization on 23.11.2005 and got registered the first respondent organization under the Karnataka Societies Registration Act 1960 with effect from 27.12.2005. The Trial court on the basis that the first respondent is a prior registered organization, declined the relief in favour of the appellant.
14. The trial court held that earlier the plaintiff was a group of nine members, which was an unregistered entity. The trial court further held that there could not have been any reputation or goodwill to an organization which was unregistered. The plaintiff after formation of new company could not have derived reputation of an unregistered organization to the company formed later on. An unregistered organization, group could not have any reputation of its own, and it could not have assigned any reputation to the plaintiff. The plaintiff’s claim that reputation of unregistered group has fallen to newly established company of him, he is required to show that members of erstwhile unregistered group by resolution or by deed have transferred reputation and goodwill of the unorganised group. It is not his case. Therefore, the e-mails sent and received as per Ex.P7 to 12 will not prove that they were being passed off by 2nd defendant. When the members dissolved the unregistered group, the reputation of their respective companies will begin from the date of starting of their new companies. It will not go back to the date of formation of unorganized group.
15. The above view entertained by the trial court is quite contrary to the law on the point of reputation and goodwill of an unregistered organization and such reputation and goodwill enuring to the benefit of organization being registered later on and action on passing off. It is beneficial to extract Paragraphs No.9 & 10 from judgment of Hon’ble Supreme Court in C.I.T. Bangalore v. B C Srinviasa Setty, reported in (1981) 2 SCC 460 on reputation and goodwill and Para-15 from judgment in Heinz Italia & another v. Babu India Ltd., reported in (2007) 6 SCC 1 relating to action on passing off, which are as follows:
“9. Goodwill denotes the benefit arising from connection and reputation. The original definition by Lord Eldon in Cruttwell v. Lye that goodwill was nothing more than "the probability that the old customers would resort to the old places" was expanded by Wood V.C. in Churton v. Douglas to encompass every positive advantage "that has been acquired by the old firm in carrying on its business, whether connected with the premises in which the business was previously carried on or with the name of the old firm, or with any other matter carrying with it the benefit of the business". In Trego v. Hunt Lord Herschell described goodwill as a connection which tended to become permanent because of habit or otherwise. The benefit to the business varies with the nature of the business and also from one business to another. No business commenced for the first time possesses goodwill from the start. It is generated as the business is carried on and may be augmented with the passage of time. Lawson in his "Introduction to the Law of Property" describes it as property of a highly peculiar kind. In Commissioner of Income-tax, West Bengal III v. Chunilal Prabhudas & Co., the Calcutta High Court reviewed the different approaches to the concept:
"It has been horticulturally and botanically viewed as "a seed sprouting" or an "acorn growing into the mighty oak of goodwill". It has been geographically described by locality. It has been historically described by locality. It has been historically explained as growing and crystalising traditions in the business. It has been described in terms of a magnet as the "attracting force". In terms of comparative dynamics, goodwill has been described as the "differential return of profit". Philosophically it has been held to be intangible. Though immaterial, it is materially valued. Physically and psychologically, it is a "habit" and sociologically it is a "custom". Biologically, it has been described as Lord Macnaghten in Trego v. Hunt as the "sap and life" of the business. Architecturally, it has been described as the "cement" binding together the business and its assets as a whole and a going and developing concern."
A variety of elements goes into its making, and its composition varies in different trades and in different businesses in the same trade, and while one element may preponderate in one business, another may dominate in another business. And yet because of its intangible nature, it remains insubstantial in form and nebulous in character. Those features prompted Lord Macnaghten to remark in Commissioner of Inland Revenue v. Muller & Co.'s Margarine Limited that although goodwill was easy to describe, it was nonetheless difficult to define. In a progressing business goodwill tends to show progressive increase. And in a failing business it may begin to wane. Its value may fluctuate from one moment to another depending on changes in the reputation of the business. It is affected by everything relating to the business, the personality and business rectitude of the owners, the nature and character of the business, its name and reputation, its location, its impact on the contemporary market, the prevailing socio economic ecology, introduction to old customers and agreed absence of competition. There can be no account in value of the factors producing it. It u also impossible to predicate the moment of its birth. It comes silently into the world, unheralded and unproclaimed and its impact may not be visibly felt for an undefined period. Imperceptible at birth it exists enwrapped in a concept, growing or fluctuating with the numerous imponderables pouring into, and affecting, the business. Undoubtedly, it is an asset of the business, but is it an asset contemplated by s. 45?
(2007) 6 SCC 1:
“15. We have also considered the arguments with regard to the prior user of the trade mark “Glocon-D” and the specific packaging. It is the admitted case that the term “Glucose-D” has been used by the respondent from the year 1989 and that the packaging which is the subject matter of dispute in the present suit has been in use from the year 2000. In century Traders, it has been held that in an action for passing off, the plaintiff has to establish prior user to secure an injunction and that the registration of the mark or similar mark in point of time, is irrelevant. This Court in Cadila Health Care case also laid down the tests in the case of passing off and observed as under:
“In other words in the case of unregistered trade marks, a passing-off action is maintainable. The passing-off action depends upon the principle that nobody has a right to represent his goods as the goods of somebody. In other words a man is not to sell his goods or services under the pretence that they are those of another person. As per Lord Diplock in Erven Warnink BV v. J. Townend & Sons, the modern tort of passing off has five elements i.e. (1) a misrepresentation, (2) made by a trader in the course of trade, (3) to prospective customers of his or ultimate consumers of goods or services supplied by him, (4) which is calculated to injure the business or goodwill of another trader (in the sense that this is a reasonably foreseeable consequence), and (5) which causes actual damage to a business or goodwill of the trader by whom the action is brought or (in a quia timet action) will probably do so.”
16. Therefore, the essential criteria to be seen in an action for passing off, is prior user of the mark, similarity of the mark and similarity of phonetic sound. In the instant case, the mark over which both appellant and respondents want to lay a claim is exactly the same mark. It is the case of the appellant that it is the prior user and continued to use the same even after getting registration into a company. The said fact has been admitted by respondent No.2 as DW-1 in his cross-examination. The trial court has erred in declining to grant relief in favour of the plaintiff only on the ground that only on and from the date of registration, one can lay a claim over a `mark’. The said view, and the view that the mark used by an unregistered organization would not enure to the very unregistered organization after its registration unless there is a resolution or deed transferring such a reputation and goodwill of the unorganised group, are contrary to the law on the point in the above two decisions referred to.
17. In the circumstances, I am of the view that judgment and decree passed by the trial court suffer from irregularity and illegality as pointed above and liable to be set aside and consequently the suit of the appellant is entitled to be decreed.
Accordingly, appeal is allowed. The suit of the appellant is decreed as prayed for. The parties to bear their own costs.
akd Sd/- JUDGE