TaxTMI 
TaxTMI 
2019 (9) TMI 1385
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....ub (MRC) (also referred as Club) since 1998, having membership number : CMM093. Facts of the case : 2. The respondent-company was incorporated on October 13, 1922 under section 26 of the then Indian Companies Act, 1913, having its registered office at post box No. 2639, Race Course Road, Guindy, Chennai, Tamil Nadu-600 032. 3. As per the memorandum of association of the respondent-company, it is a non-profit making company and does not have any share capital. As per the master data of the company available on the website of the Ministry of Corporate Affairs, the company has 7,417 club members. It has been alleged that the respondent-company has not convened annual general meeting(s) as prescribed by the law. Contentions of the petitioner : 4. The petitioner has submitted that as per the master data available on the website on the Ministry of Corporate Affairs (MCA), the last annual general meeting of MRC for the financial year 2014-15, was held on September 22, 2015. Pursuant to section 96 of the Act, the annual general meeting of MRC for the financial year 2015-16 ought to have been held on or before September 30, 2016 (i. e., within six months of the end of the fin....
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....s are interested, before the annual general meeting for inspection by members of the company. The above rights enable the members of respondent-company to reassure themselves of the continuing financial well-being of the company and keep a check on the affairs of company and its management. 10. The petitioner has submitted that failure by a company to convene its annual general meeting is also an offence punishable under law. The continuing refusal of MRC to convene the annual general meeting has raised serious concerns over the corporate governance and financial well-being of MRC. Furthermore, it reveals steadfast refusal of the incumbent management to comply with the provisions of the Companies Act, 2013. 11. The petitioner has submitted that section 97 of the Act states that if any default is made in holding the annual general meeting of a company under section 96 of the Act, the National Company Law Tribunal may, notwithstanding anything contained in the Act or the articles of the company, on the application of any member of the company, call, or direct the calling of, an annual general meeting of the company and give such ancillary or consequential directions as the Trib....
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....ose report would disclose the facts necessary to determine the real status of membership of the club, and the list of persons who had been validly inducted and validly continue as members. This would be particularly relevant to determine the list of persons who would be entitled to receive notice of an annual general meeting, attend the same and vote thereat. 15. The respondent has submitted the last annual general meeting of the club was held on September 22, 2015 and in terms of section 96(1), the respondent was required to hold its annual general meeting on or before September 30, 2016. But in the background of the audit exercise which had commenced, but not been completed, the club through its officer addressed the Registrar of Companies and sought for an extension of time in terms of the proviso to section 96(1) to hold the annual general meeting, which was considered by the Registrar of Companies and vide a letter dated September 1, 2016 the Registrar of Companies extended time, and permitted the club to hold its annual general meeting on or before December 31, 2016. 16. The respondent submitted that the committee bona fide believed that the exercise of the investigatio....
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....low : "(a) The report noted that there were 6 procedures to be followed for a person to be inducted to membership, which the auditors had examined compliance of. These included : (i) availability of application forms ; (ii) name on the member's list for election ; (iii) election by more than 7 members in a ballot ; (iv) name in the declaration letter signed by the additional secretary ; (v) receipt of entrance fee ; and (vi) letter to Guindy Lodge from Members' section. (b) The report classified the non-compliances into 3 categories : (i) those who had fully complied with all procedures ; (ii) those who had complied in part, with one or more of the procedures ; and (iii) those who had not complied with any of the procedures. (c) The report found that out of a total of 924 persons, who had purported to become club Members during the period 2000-15, a mere 53 were found to have complied with all procedures. Shockingly, a total of 277 persons were identified as those who had not complied with any of the procedures. A total of 594 members have been identified as people who have partly complied with the procedures set out, in varying combinati....
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.... will in fact retire, and that too, only at the time of holding of the annual general meeting. Consequently, there is presently a valid and legal committee in place, which comprises 4 Government nominees, who are high ranking officials. This is apart from the others, who are all pre-eminent persons of repute from various sections of society. There is therefore a credible and strong Committee that is more than sufficient to ensure compliances, as also the interest of the club. In fact, it is this Committee which took the decision of cleaning up the membership base, in the interest of the club. The respondent has further sub-mitted that the petitioner while referring to section 189(4), deliberately failed to refer section 189(3) in terms of which the register is kept at the registered office, and is open to inspection within the framework thereof by members. The respondent has submitted that if the petitioner had genuinely been interested, he could have taken recourse to such right. 24. The respondent has submitted that the reference to concern on corporate governance and financial well-being are completely without basis, made causally and without an ounce of substantiation or evi....
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.... very detailed and thorough analysis of the related accounts and their report is very extensive covering all possible manner of checking and cross checking of accounts in the matter of payment of EF. Volume I (entry of fees/ receipts) does not contain statement of accounts relating to the accounts of individual members after becoming a member such as in relation to the annual subscription paid by them and payment towards charges payable to the club for the utilization of the facilities of the club. There is a facility of a lodge, a restaurant and other facilities at Guindy Lodge which is part of the club and the actual expenses incurred by the individual member in utilizing the facility are separately accounted as well as payment of the annual subscription. The scope of this enquiry does not concern them and it is restricted to the payment of EF alone and the accounts/details furnished under Volume I are exhaustive and no part of it is missing nor can be described as incomplete." 27. Paragraph 27 of the report says that mandatory process had not been followed properly after 2012. The paragraph is extracted below for the sake of convenience : "27. Perusal of the records ....
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....also be of some relevance to note that notice to 640 members evoked response only from 50 per cent. of them. For the second notice to the said 50 per cent. for oral enquiry, only 75 members responded some of them by representatives. Many who had appeared in the enquiry fumbled and contradicted them selves and admitted not paying EF. It is true that a small number of them may not have received the notices for whatever reason. For which they have to blame themselves and some may not have been in town on the dates of enquiry. But they were entitled to reply in writing. However, the numerical statistics of the response do not inspire confidence in their defence. 50. As regards their entitlement to continue or not as members in the background of the above facts and whether they are entitled to take part in the annual general meeting, are all matters for the National Company Law Tribunal or any court where any proceeding may be pending, to decide." Response of the respondent/MRC to the report submitted by the hon'ble justice (Retd.) Mr. K. P. Sivasubramaniam : 29. In response to the report of the hon'ble justice Mr. K. P. Sivasubramaniam, the respondent has f....
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....he hon'ble retired judge of the Madras High Court is accepted, in such case the persons, who have been shown to have not complied with the requirements and if are debarred from taking part in the annual general meeting be given notice if necessary by paper publication. The appeal stands disposed of with aforesaid observations and directions. No costs." 32. Based on the direction of the hon'ble National Company Law Appellate Tribunal, this Tribunal vide order dated March 13, 2018 directed the respondent/MRC to issue private notice to the affected persons and cause paper publications. Further, this authority vide its order dated August 30, 2018 directed counsels appearing on behalf of objectors to file vakalath along with the lists of the members giving details thereof and objections, if any. Pursuant to the direction, the followings counsels filed vakalath and objections : Sl. No. Name of counsels No. of objectors 1. J. Raja Rao 73 2. E. Veda Bagath Singh 41 3. D. Prabhakaran 27 4. CIBI Vishnu 17 5. R. Baskaran 14 6. Shree Law Service 2 7. A. Parthasarathy 2 8. Malath Devapriyan 1 9. R.....
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....g to the validity of membership of its club Members database, before the courts and this hon'ble Tribunal, MRC is not in a position to take any action to rectify or update the statutory fillings and returns. The intervenors cannot rely on these provisional fillings to prove compliance with admission requirements. (vii) The intervenors' claim that they have been enjoying the benefits of club for years. The club is therefore legally stopped from cancelling their membership at this stage. (viii) Learned senior counsel for the respondent has contended that no legal estoppel will operate against MRC. The MRC as well as the members are bound by the articles of association of the club. Since the intervenors have not demonstrated their compliance with these articles, MRC is legally bound to take action, and cannot be bound by any principle of estoppel in this regard. (ix) The intervenors' claim that they cannot be removed as members except as provided under the articles of association/bye-laws. (x) Learned senior counsel for the respondent has submitted that when the intervenors did not even lawfully become members of MRC as per its articles ....
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.... the respondent has submitted that MRC is not making any claim or instituting proceedings, therefore there is no question of limitation applying. Independent of this, when these per sons have not validly become members in the first place, the question of any action being barred by limitation, does not even arise. (xviii) Intervenors' claim that the members cannot be removed from the rolls merely because MRC is not in a position to find documents relating to their membership. (xix) Learned senior counsel for the respondent has submitted that the report of the hon'ble justice K. P. Sivasubramaniam clearly finds that the records of the club are complete, and provides an opportunity for per sons to establish their claim to membership by providing relevant documents such as copy of application for membership, and proof of payment of EF. MRC has discharged its burden of proof by showing that there is no record of payment of the EF. Now, the onus is on the intervenor to prove that they complied with the club membership requirements at the relevant time. (xx) Intervenors' claim that members admitted after 2012 have been allowed to participate in annua....
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....ded by a personal hearing that was organised by the hon'ble justice Sivasubramaniam. (xxvi) Intervenors state that the National Company Law Tribunal is not empowered to hold that certain members are not entitled to participate in the annual general meeting under section 97 of the Companies Act, 2013, investigate unconnected issue or appoint the hon'ble justice Siva subramaniarn to determine rights of members. (xxvii) Learned senior counsel for the respondent has submitted that the National Company Law Tribunal is bound by the remand order of the National Company Law Appellate Tribunal, and it is not open to the intervenors who have appeared before this Tribunal pursuant to the saine, to seek to either contend contrary to the remand order, or beyond its ambit. The respondent has further submitted that if it is the intervenor's case that the enquiry into the correctness of the membership and the appointment of a commissioner are outside the scope of the present proceedings, they are free to initiate separate proceedings of their own. (xxviii) Intervenors' state that the term of all the 12 elected members of management committee has expired a....
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....ay the difference in EF between stand and club membership. This intervenor has provided no proof of having validly acquired club membership. (xxxiv) Some of the intervenors have produced the bills, receipt of payments made towards the facilities enjoyed in the club, account statement held with the club, reminder letter sent for payment of bills, the notices issued by MRC after the commencement of the National Company Law Tribunal proceedings and responses sent to it and other general correspondence sent by MRC. (xxxv) Learned senior counsel for the respondent has submitted that the judicial enquiry conducted by the hon'ble justice K. P. Sivasubramaniam is based on the criteria that the parties be given an opportunity to substantiate with records their claims of payment of EF. The respondent has submitted that it is pertinent to note that the intervenors, despite making assertions, have not, till date, been able to provide a single shred of evidence of proof of payment. 34. During the pendency of the main company petition, the respondent/ Madras Race Club has filed C. A. No. 196 of 2017, seeking appropriate directions with respect to the convening and holdin....
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....RC acknowledging and confirming the membership. Out of 640 members, about 320 have sent their respective replies within the stipulated time limit. Thereafter, through an independent person, viz., the hon'ble justice Mr. K. P. Sivasubramaniam, who was appointed by this Tribunal, as mentioned in the preceding paragraphs, an inquiry has been conducted after issuance of the notice to the affected persons, who have already submitted their replies to the club, and found four of them to have complied with the requirements, whose names are stated as below : 1. Mr. Ashwaini Kumar Kamdar (CMA 100) 2. Mr. Bharath Kumar Kamdar (CMB 005) 3. Mr. Harish Vasanji (CMH 014) 4. Mr. Sarath Vasanji (CMS 183) 37. Besides the above, Mr. Mavila Narayanan Nambiar (CMM 110) has clarified that balance of sum of Rs. 25,000 had already been paid in the name of his friend Mr. Josh Methews, who was an erstwhile member and the amount stood transferred in his favour. Consequently, five members were found to have completed the requirements to become the members of the club and the remaining 635 members were found to have not complied with the basic mandatory requirement....
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....on relating to the title of any person who is a party before it to have his name entered upon the company's register, and any question which is necessary or expedient to decide. It may make interim orders." (emphasis sup plied) Besides above, learned counsel Mr. Cibi Vishnu has relied upon the judgment of the Supreme Court given in State of Jharkhand v. Ambay Cements [2004] 5 CTC 515 (SC). The relevant paragraph of which is extracted as below : 27. Whenever the statute prescribes that a particular act is done in a particular manner and also lays down that failure to comply with the said requirement leads to serve consequences, such requirement would be mandatory. It is the cardinal rule of the interpretation that where a statute provides that a particular thing should be done, it should be done in the manner prescribed and not in any other way. It is also settled rule of interpretation that where a statute is penal in character, it must be strictly construed and followed. Since the requirement, in the instant case, of obtaining prior permission is mandatory, therefore, non-compliance of the same must result in cancelling the concession made in favour of the grantee the re....
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....e register of members of the club "without sufficient cause" have already been noted above. Learned senior counsel for the respondent/MRC has already given the plausible reply in preceding paragraphs. However, in support of respondent/MRC's reply, learned senior counsel has referred to the judgment given by the Company Law Board, Kolkata Bench in the matter of Smt. Biva Pyne v. Pyne Properties P. Ltd. reported in [2009] SCC Online 46 (CLB) ; [2010] 153 Comp Cas 49 (CLB), wherein the Company Law Board held that there is no bar in a company altering its register of members provided it is with sufficient cause. The relevant portion of the order is extracted below (page 59 of 153 Comp Cas) : "In other words, it appears to me that there is no bar in a company altering its register of members provided it is with sufficient cause. If a company has to first take recourse to law for altering its register of members as contended by Shri Sarkar, even then, the court has to perforce examine whether the alteration sought is with sufficient cause and the court cannot simply hold that since the alteration was without recourse to law, the alteration was illegal or invalid." 42. Lea....
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.... could not be treated as such and cannot get benefit on the basis of photographs, reports, functions, etc." 45. In the light of the cases referred hereinabove, it is well-settled legal position that it is open to the club to rectify its register of members without seeking an order from this Tribunal provided the names of the persons claiming to be the Members have been entered into the register "without sufficient cause". Here it is fully established that the intervenors'/objectors have not complied with the basic requirements for becoming the members of the club, they could not be treated as such on the basis of the bills, receipt of payments made towards the facilities enjoyed in the club, account statement held with the club, reminder letter sent for payment of bills, the notices issued by the MRC. In short, the objectors have no right to enjoy any of the facilities of the club and take part in the annual general meetings on extraneous pleas. Therefore, the plea taken by the intervenors'/objectors is devoid of merits and stands rejected. Hence, the question framed under paragraph 40 hereinabove, is decided in favour of the club and against the intervenors'/objecto....
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....) Mr. P. K. Sivasubramaniam, within the time as prescribed under section 59(2), before issuance of the notice to the genuine members of the club for holding the annual general meetings. 49. After having concluded as above, this Tribunal has noted that the respondent/MRC has defaulted in holding the annual general meetings of the company for the reasons stated in their reply. Therefore, in exercise of the powers conferred under section 97 of the Companies Act, 2013, this Tribunal hereby directs the Madras Race Club/company to conduct annual general meetings for the years 2015-16, 2016-17, 2017-18 and 2018-19 within a period of two months from the date of this order. 50. The agenda for ordinary business to be transacted in the annual general meetings of the Madras Race Club for the years 2015 to 2018, inter alia, will provide for : (i) Adoption of account of each of the financial years ; and (ii) Appointment/reappointment of auditors. However, for the annual general meeting for the year 2018-19 in addition to the agenda items Nos. (i) and (ii) as noted above, there shall be agenda No. (iii), which shall provide for "the appointment of members to the committee, in place of those....