GOME Home Appliance Co.,Ltd. is suing former Chairman Chen Xiao for breaching a confidentiality agreement as their dispute looks set to escalate.

Gome, China's second-largest home appliance retailer, sued Chen for violating the 10 million yuan (US$1.6 million) agreement he signed before he resigned in March, a court in Beijing heard yesterday.

The case centered on a media report published in May which quoted Chen as saying that Gome charged suppliers non-standard fees for its grey income, and he would sell off his shares soon as he saw no investment value in them.

The Hong Kong-listed company responded immediately that it would not tolerate Chen's untruthful and misleading remark that may hurt its business. It had warned it would take the necessary action to protect its interest.

In a statement Chen defended that the quotes were part of a private conversation and taken out of context, which didn't reflect the original meaning or his opinion.

Chen was said to have received 10 million yuan from the company to protect its business secret and interest after he resigned, according to Zou Xiaochun, Gome's executive director, who disclosed the agreement details in court.

Chen didn't show up yesterday but his lawyers demanded proof that he gave the interview.

They also challenged the basis for his prosecution. The court adjourned the case till next week.

Chen Xiao's key events at Gome

November 2006: Chen Xiao, chairman of Yongle Eletrical Appliance, joined Gome as CEO after Gome acquired his company.

January 2009: Chen took charge of Gome's board after its founder and Chairman Huang Guangyu was investigated and detained for illegal business dealings, insider trading and bribery. Huang was later sentenced to 14 years in jail.

August 2010: Although in prison, Huang, Gome's largest shareholder, demanded the ouster of Chen as chairman and sought to overturn the board's authority to issue up to 20 percent in new shares, which would dilute Chen's holding.

December 2010: Huang reconciled with the company's directors after the board appointed his two representatives to the board. Chen stayed as chairman.

March 2011: Chen resigned as chairman, and Zhang Dazhong, the founder and chairman of Beijing Dazhong Electrical Appliances Co, which was acquired by Gome in 2007, replaced him and acted as non-executive director of Gome.