2020 (6) TMI 736 - Tri - Companies Law

Tribunal Orders Investigation into Club's Affairs

Union of India, MCA Versus Delhi Gymkhana Club Limited

The Tribunal found a prima facie case that the Club's affairs were conducted prejudicial to public interest. It directed the Union of India to appoint ... Seeking suspension of General Committee and to appoint Administrator nominated by the petitioner to manage the affairs of the Club and report to this Bench - seeking to ban, with immediate effect, acceptance of new membership or fees or any enhancement thereof till the time waitlist applications are disposed of as per the orders of this Tribunal - HELD THAT:- Imperial Delhi Gymkhana Club was incorporated on July 3, 1913 and it was established at Coronation Grounds, Delhi, it was almost immediately after capital was shifted from Calcutta to Delhi for use of the ruling elite comprising officers of the Indian Civil Service, Armed Forces and Civil Residents of the then Delhi. That time present New Delhi was nowhere. When New Delhi was built, the Imperial Delhi Gymkhana Club was allotted 27.3 acres of land in the new city in 1928 on perpetual lease. It is found prima facie case demonstrating that the affairs of the Club are being conducted in a manner prejudicial to the public interest therefore the Union of India is directed to appoint two of its nominees of its choice as Members in the General Committee to monitor the affairs of the Club along with other GC Members and give suggestions to the GC, and direct the Union of India to constitute a Special Committee with five Members of its choice to enquire into the affairs of the Club, utility of the land leased out by the State, with regard to constructions in progress without requisite approvals or with approvals, suggestions for changes in Articles and Memorandum of Association, membership issues including waitlist and about accelerated membership, adherence of the Club to the Rules governed by Section 8 of the Companies Act 2013 and other miscellaneous issues if any and file report of recommendations suggesting for better use of the club premises for the larger good in a transparent manner on equity basis within two months hereof. This Bench further directs the general committee that it shall not proceed with construction or further construction on the site, it shall not make any policy decisions and it shall not make any changes to the Memorandum of Association or Articles of Association and it shall not deal with the funds received for admission of Members and it shall not conduct balloting until further orders. The GC is given liberty to carry day to day functions of the Club by using funds of it other than fee collected from applicants. All these directions shall remain in force until further orders. List this application for hearing on company petition on 07.09.2020. Issues Involved:1. Maintainability of the Company Petition.2. Formation of opinion by the Central Government.3. Allegations of prejudicial conduct to public interest.4. Interim reliefs sought by the petitioner.5. Legal precedents and doctrines applicable.Detailed Analysis:1. Maintainability of the Company Petition:The respondents challenged the maintainability of the Company Petition, arguing that the formation of the opinion by the Central Government was not supported by grounds and lacked cognizance. They contended that the petition should be dismissed for want of a valid opinion. The Tribunal clarified that the Central Government, as a regulator and custodian of state assets, has the right to question the affairs of a company if they are conducted in a manner prejudicial to public interest. The Tribunal emphasized that the formation of opinion is a subjective satisfaction based on available material, and it is not within the court's realm to scrutinize the sufficiency of those reasons.2. Formation of Opinion by the Central Government:The respondents argued that the Regional Director formed an opinion within 24 hours of receiving a 4000-page report, which they claimed was humanly impossible. The Tribunal noted that the main report was only 100 pages, and the opinion was formed with the assistance of a team. The Tribunal held that the presence of relevant material is sufficient for forming an opinion, and the process followed by the government, involving multiple functionaries, is a recognized and valid practice.3. Allegations of Prejudicial Conduct to Public Interest:The petition alleged that the Club's affairs were conducted in a manner prejudicial to public interest, highlighting issues such as selective membership, misuse of public land, and financial irregularities. The Tribunal found that the Club's practices, including fast-tracking membership for dependents and using public property for private recreation, were prejudicial to public interest. The Tribunal emphasized that the Club's conduct was inequitable and insensitive to democratic principles, as it restricted access to a privileged few while the public remained on long waiting lists.4. Interim Reliefs Sought by the Petitioner:The petitioner sought interim reliefs, including the suspension of the General Committee and the appointment of an Administrator. The respondents argued that interim reliefs should not be granted as they were similar to the final reliefs sought. The Tribunal clarified that suspension and appointment of an administrator are temporary measures, distinct from permanent replacement, and do not cover the final relief. The Tribunal directed the Union of India to appoint two nominees to the General Committee and constitute a Special Committee to investigate the Club's affairs and make recommendations.5. Legal Precedents and Doctrines Applicable:The respondents relied on various legal precedents to argue against the petition, including cases on the formation of opinion, public interest, and the doctrine of mutuality. The Tribunal distinguished these cases, noting that they involved different contexts, such as preventive detention and land use, and were not directly applicable to the present case. The Tribunal emphasized that the opinion to file a case is different from an order passed by the government and should not be subject to the same level of scrutiny.Conclusion:The Tribunal found a prima facie case demonstrating that the Club's affairs were conducted in a manner prejudicial to public interest. It directed the Union of India to appoint nominees to the General Committee and constitute a Special Committee to investigate the Club's affairs. The Tribunal also imposed restrictions on the Club's activities, including construction and policy decisions, until further orders. The respondents were given time to file a full-fledged reply, and the case was listed for further hearing.