Gome Electrical Appliances Holding Ltd has filed a lawsuit in Beijing against former Chairman Chen Xiao for breaching an agreement to protect the company's reputation, China's second-largest home appliance retailer said Tuesday.

Chen was sued for breaking the agreement by giving "untrue and misleading" comments about Gome to a business newspaper. The article damaged Gome's reputation and business operations, which led to economic losses, Gome said in the statement.

On May 10, the 21st Century Business Herald quoted Chen as saying Gome's business model is defective and the stock has no future prospects. The story was on the paper's front page.

The following day, Gome shares fell the most in three weeks in Hong Kong on the report, losing 3.2 percent.

"The lawsuit is to protect the company from vicious attacks and to protect the interests of all shareholders," Gome said.

Chen quit as chairman in March amid a boardroom battle with Gome's jailed founder Huang Guangyu over control of the company.

In the Herald story, Chen also said Gome overcharges home appliance suppliers for display fees and that its pursuit of rapid expansion is "abnormal." Chen was quoted as saying the good days are almost over for electrical appliance retailers under the current business model as prices are high for both suppliers and consumers.

Chen said he was planning to sell his Gome shares because the stock has "no prospects" as many institutional investors had pulled out, according to the Herald report.

On May 11, Chen claimed the article was taken out of context and was based on the reporter's "personal understanding" of a private conversation and he was deeply sorry for the disturbance the report had caused.

The reporter, Lang Lang, apologized on his microblog that the "private talks" should not have been published without Chen's consent.

The newspaper has since deleted the article from its website.

Meanwhile, Gome is trying to expand its reach online as more consumers use websites to shop. In late May, Gome said it plans to expand online sales to more than 10 percent of total revenue in two to three years.