Personal surnames cannot be used as a justification for misleading branding
Introduction:
The case of K.G. Khosla Compressors Ltd. vs. Khosla Extrakting Ltd. & Ors., decided by the Delhi High Court on June 19, 1985, dealt with an important question of trademark and business name protection. The plaintiff, K.G. Khosla Compressors Ltd., sought a permanent injunction restraining the defendants from using the name "Khosla" in their business entity, arguing that it caused deception and unfairly leveraged their established goodwill. The case revolved around the issues of passing off, corporate misrepresentation, and whether the defendants' use of the name "Khosla" was legitimate or an attempt to mislead investors.
Factual Background:
K.G. Khosla Compressors Ltd. was a well-established company engaged in the manufacturing of air compressors in India. It was part of the Khosla Group, which consisted of several reputed companies operating in the capital market. The name "Khosla" had become synonymous with the group, and its shares were actively traded on stock exchanges. The plaintiff claimed that the word "Khosla" was associated exclusively with their business and was recognized as their trademark.
The dispute arose when the defendants, two former employees of K.G. Khosla Compressors Ltd., formed a new company named Khosla Extrakting Ltd. in 1984. The defendants attempted to launch a public issue under this name, promoting themselves as being associated with the "famous Khosla Group of New Delhi." The plaintiff alleged that the defendants had no legitimate claim to the name and were deliberately misleading investors to capitalize on the plaintiff’s goodwill.
The plaintiff further contended that the use of "Khosla" in the defendants’ company name was fraudulent, as only one of the defendants bore the surname "Khosla." It was alleged that the defendants had adopted this name to confuse the public into believing that their company was part of the established Khosla Group. The plaintiff approached the court, seeking an injunction to prevent the defendants from using the name and launching their public issue.
Procedural Background:
The plaintiff initially approached the Regional Director of the Company Law Board under Section 22 of the Companies Act, 1956, requesting that the defendants be directed to change their company name. The Regional Director issued a directive requiring the defendants to change their name, but the defendants challenged this order before the Delhi High Court. Following certain technical objections, the Regional Director withdrew the order, stating that the matter could be reconsidered if necessary.
Having failed to obtain relief from the Company Law Board, the plaintiff then filed the present suit before the Delhi High Court, seeking a permanent injunction against the defendants. The court also considered an application under Order 39, Rules 1 and 2 of the Code of Civil Procedure for interim relief, restraining the defendants from carrying on business under the disputed name while the case was pending.
Issues Involved in the Case:
The primary issue before the court was whether the defendants’ use of "Khosla" in their company name amounted to passing off and whether it created confusion among investors and consumers? The court also examined whether the plaintiff had exclusive rights over the name "Khosla" and whether the defendants had any legitimate basis for using the name? Another key issue was whether the suit was maintainable in light of the plaintiff’s previous approach to the Company Law Board. The defendants argued that since the plaintiff had already sought relief under Section 22 of the Companies Act, they were barred from pursuing the matter in a civil court? The court had to determine whether the civil suit was maintainable despite the previous proceedings before the Company Law Board?
Submissions of Parties:
The plaintiff argued that the name "Khosla" had become exclusively associated with their business, and the defendants were attempting to deceive the public by using the same name. The plaintiff contended that the defendants’ advertisements falsely suggested that they were part of the "Khosla Group," misleading investors into believing that their shares were associated with the well-known Khosla brand. The plaintiff also submitted that the defendants had no prior industrial base and had formed the company solely to exploit the goodwill of the Khosla Group. It was further argued that the defendants’ use of the name was in bad faith, as they had previously attempted to establish a company under a different name but had failed to attract investors.
The defendants countered by arguing that one of their directors bore the surname "Khosla," giving them the right to use the name. They contended that they had independently established their business and were not attempting to pass off their company as part of the plaintiff’s group. They also pointed out that there were other companies in India with the name "Khosla," arguing that the plaintiff did not have an exclusive monopoly over the name. The defendants also submitted that the plaintiff’s attempt to restrain them was motivated by a desire to eliminate competition. They contended that since the plaintiff had already approached the Company Law Board under Section 22 of the Companies Act, they could not pursue the same relief in a civil court.
Discussion on Judgments Cited:
The court referred to several landmark judgments in the area of passing off and corporate misrepresentation. In Exxon Corporation v. Exxon Insurance Consultants International Ltd. (1981) 2 All ER 495, the court had restrained a company from using the name "Exxon" on the ground that it created confusion with the well-established brand. This case was cited to emphasize that a well-known corporate name should be protected from unauthorized use.
The case of Joseph Rodgers & Sons Ltd. v. W.N. Rodgers & Co. (1924) 41 RPC 277 was also considered, where it was held that a person could not use their own name in a way that caused confusion with an established business. The court found that even if one of the defendants bore the name "Khosla," it did not justify using the name to mislead the public.
The court also referred to Simatul Chemical Industries Pvt. Ltd. v. Cibatul Ltd., where it was held that a later company could be restrained from using a name deceptively similar to an existing company if it led to public confusion. The principle of passing off was emphasized in this ruling, reinforcing the plaintiff’s claim.
Reasoning and Analysis of the Judge:
Justice D.P. Wadhwa found that the plaintiff had established a prima facie case for injunction. The court observed that the defendants had deliberately used the name "Khosla" to mislead investors and create an impression of association with the plaintiff. The fact that the defendants had previously attempted to establish a company under a different name but failed to gain public interest further suggested an intent to exploit the goodwill of the plaintiff’s brand.The court rejected the defendants’ argument that the use of "Khosla" was legitimate simply because one of them bore the surname. It noted that in corporate law, the registration of a company name must not create confusion in the market, and personal names cannot be used to mislead the public.The court also ruled that the civil suit was maintainable despite the plaintiff’s previous approach to the Company Law Board. It held that the jurisdiction of the civil court and the Company Law Board operated in different spheres, and the plaintiff was entitled to seek relief in court.
Final Decision:
The Delhi High Court granted an injunction restraining the defendants from using the name "Khosla" in their business and from entering the capital market under the name Khosla Extrakting Ltd. The court found that allowing the defendants to continue using the name would cause irreparable harm to the plaintiff’s reputation and mislead the investing public.
Law Settled in this Case:
The judgment reaffirmed that a company cannot use a name deceptively similar to an established business if it creates confusion in the market. It clarified that personal surnames cannot be used as a justification for misleading branding. The ruling also confirmed that civil courts have jurisdiction to hear passing-off claims even when the Company Law Board has been approached under the Companies Act.
Case Title: K.G. Khosla Compressors Ltd. vs. Khosla Extrakting Ltd. & Ors.
Date of Order: June 19, 1985
Neutral Citation: AIR 1986 DELHI 181, ILR (1985) 2 DELHI 416
Court: Delhi High Court
Judge: Hon’ble Mr. Justice D.P. Wadhwa
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Written By: Advocate Ajay Amitabh Suman, IP Adjutor [Patent and Trademark Attorney], High Court of Delhi
