The former chief minister had made it clear to V K Sasikala, who was expelled and then re-inducted into the AIADMK, that none of her family members, including Dhinakaran, could be taken back into the party.
This was the position until her untimely demise on December 5, 2016, Palaniswami said in his rejoinder to Dhinakaran's counter.
Dhinakaran, who recently launched the Amma Makkal Munnetra Kazhagam (AMMK), had earlier submitted that the ruling AIADMK cannot claim monopoly over the colours red, black and white.
Palaniswami said the use of the colours of the AIADMK flag and 'AMMA' in his outfit's name "is misappropriation of the goodwill and reputation" of the AIADMK.
The chief minister made the submissions on the civil suit moved by the party to restrain Dhinakaran from using his party flag with black, white and red colours as it was deceptively similar to the AIADMK's flag.
"The use of the term Amma or the use of Jayalalithaa's bust on his flag is nothing more than dishonest misrepresentation..," Palaniswami said.
"The term Amma to refer to Jayalalithaa has been in vogue for decades. The AIADMK has used this term of endearment and respect in its promotional materials, and for many schemes introduced while it has been in power," Palaniswami said.
"Therefore, the use of the term and the image of Jayalalithaa is evocative of not only the AIADMK's ideology, but also the welfare schemes of the party," he added.
The Election Commission by its order dated November 23, 2017 had stated that the Dhinakaran faction was not the real AIADMK, and hence his use of the term 'Amma' and Jayalalithaa's bust on his flag was illegal, Palaniswami submitted.
Recording the submissions, Justice N Sathish Kumar posted the matter for further hearing on June 3.
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