2019 (12) TMI 1068 - HC - Companies Law

Legal analysis: Writ petition challenges club's amendments under Companies Act

Sanjeev Mohan Ahluwalia Versus Union Of India & Ors.

The court examined the maintainability of a writ petition against a club and governmental authorities, focusing on alleged irregularities and proposed ... Maintainability of petition - memebership in a club - permanent membership sought, as petitioner is son of a permanent member - whether the EGM ought to be permitted to be held? - HELD THAT:- The holding of a EGM is inherent for the functioning of any company including the Respondent Club. All decisions regarding the manner in which the Club is to be run first vests with the members and then the governing bodies. The Court’s intervention ought to be minimal. Unless there is complete perversity or fraud or illegality in the functioning, there ought to be no interference. Moreover, the entertaining of a petition at the instance of a person who is not a member is a serious issue of maintainability that will have to be determined by the Court. Whether prior approval by the Government is required for placing the amended MOA and AOA before the EGM? - HELD THAT:- Whenever the EGM is conducted, the members who are present would be considering the amendments which are proposed and the EGM would pass a resolution, amending, modifying, excluding or adding clauses to the MOA and AOA. After the EGM passes a resolution, the final MOA and AOA would become available to the Club and the Club would then have to submit the same for approval to the Ministry of Corporate Affairs, under Section 8(4) the Companies Act, 2013 - The Explanatory Statement is clear that once the Resolution is passed by the EGM, the same shall be submitted for approval. If the MCA directs any modification or other change in the MOA and AOA, the Resolution shall stand modified accordingly. Thus, it is only after the amended MOA and AOA is approved by the MCA that the amended MOA and AOA would come into effect. The Club is quite clear in its stand that it first places the MOA and AOA before the EGM, after which, it would be seeking approval of the Central Government. Once the EGM’s approval is received and approval is sought from the Central Government. The Government is to look into the entire issue, including the issue of membership etc. - Application disposed off. Issues:1. Maintainability of the writ petition filed under Articles 226 and 227 of the Constitution of India against governmental authorities and a club.2. Allegations of irregularities by the club in its activities and proposed amendments to its Articles of Association (AOA) and Memorandum of Association (MOA).3. Interpretation of Section 8(4)(i) of the Companies Act, 2013 regarding the alteration of AOA and MOA of a Section 8 company.4. Validity of the interim order staying the Extraordinary General Meeting (EGM) proposed by the club.5. Dispute over the requirement of prior approval from the Central Government for amending the AOA and MOA before seeking approval post-EGM.Detailed Analysis:1. The primary issue in this case is the maintainability of the writ petition filed by the petitioner against the club and governmental authorities. The petitioner, seeking permanent membership at the club, alleges irregularities in the club's activities and challenges the proposed amendments to its AOA and MOA. The club contests the petitioner's right to file the petition, arguing it is not maintainable as the petitioner is not a current member.2. The petitioner claims that the club's activities do not comply with applicable laws and procedures, leading to a show-cause notice from the Ministry of Corporate Affairs. The club's decision to hold an EGM to amend its AOA and MOA prompted the petitioner to seek legal intervention. The petitioner argues that such amendments require prior approval from the Central Government, as the club is a Section 8 company.3. The crux of the legal dispute lies in the interpretation of Section 8(4)(i) of the Companies Act, 2013, which mandates prior approval from the Central Government for altering the AOA and MOA of a Section 8 company. The club contends that approval is necessary post-EGM, while the petitioner insists on the requirement of pre-EGM approval. The court must determine the correct legal position to decide on the validity of the club's proposed amendments.4. Regarding the interim order staying the EGM, the court must assess whether the order was justified based on the petitioner's arguments and the club's submissions. The club seeks to vacate the order, emphasizing its compliance intentions and the need for EGM approval before seeking Central Government approval. The court's decision on the interim order's validity will impact the EGM proceedings.5. The conflicting interpretations of the Companies Act provisions raise the question of whether prior Central Government approval is a prerequisite for amending the AOA and MOA before or after the EGM. The club asserts its procedural compliance post-EGM, while the petitioner insists on pre-approval. Resolving this issue is crucial to determine the legality of the club's proposed amendments and the necessity of Central Government oversight.This comprehensive analysis addresses the key legal issues, interpretations of relevant statutes, and the conflicting arguments presented in the judgment.