TaxTMI 
TaxTMI 
2020 (6) TMI 736
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....tral Government to nominate 15 (fifteen) persons as Directors on the General Committee of the Club to manage the affairs of it and report to this Tribunal on such matters as it may direct, including restructuring of the Club to function as per the terms of its Memorandum and Articles of Association inter alia seeking interim reliefs - 1) to suspend the General Committee and to appoint Administrator nominated by the petitioner to manage the affairs of the Club and report to this Bench and 2) 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. 2. At this stage I must say that at first hearing, the Respondents side was given time for filing reply despite Union of India sought for hearing on interim reliefs, when time came for filing reply, the Answering Respondents filed reply questioning the maintainability of this Company petition, instead of filing Reply to the main petition. The answering Respondents put up their challenge on two points, one - formation of opinion is not supported by grounds, and cognizance has not been taken into at the time of formi....
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.... with other objectives, those objectives have never been changed nor is any other objective practiced. With this defence, it says that this case shall be dismissed in limini because the opinion upon which this case filed is bereft of reasons showing prejudice to the public interest. 6. This Club was incorporated on 14.07.1913 as a company (limited by guarantee) u/s 26 of the Companies Act, 1913 (corresponding to Section 25 of Companies Act, 1956/Section 8 of Companies Act, 2013 ("the Act")) with a name called Imperial Delhi Gymkhana Club Limited, with its Registered Office now situated at 2nd, Safdarjung, Road, New Delhi as a non-profit company with licence of the Central Government u/s 26 of the Act 1913 to carry its functions subject to the conditions and regulations binding on the Club. R2 to 17 are General Committee ('GC') Members for the year 2019-20 and this Committee is akin to the Board of Directors. Out of these 17 members, R2 (Lt. Gen. D R Soni) is currently acting as President of the GC and R18 (Col. Ashish Khanna (Rtd)) is working as Secretary/CEO of the Club and is one of the Key Managerial of the Club u/s 2 (51) (v) of the Act and has been appointed on 12.04.2018 to ....
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....r. Amar Sinha, Mr. Arjun Sawhny, Mr. Arjun Kapur, Mr. AJ Singh, Ms. Neelam Kapur, Mr. Krishna Varma and Mr. B S Brar gave a compliant on 12.09.2018 to the Ministry of Corporate Affairs, alleging that illegal adoption of the Accounts for the financial year ended as on 31.03.2018, has taken place in the Club. 4. During the course of inspection, it has come out that one Dr. Navrang Saini, Mr. Lakshay Kumar and Mr. S.K. Goswami complained regarding demand by the Club for revision of registration fees with retrospective effect. 5. The Inspectors held inspection from January 2019 to July 2019 for the financial years 2012-13 to 2017-18 and submitted their report to the Regional Director (Northern Region) of the Ministry of Corporate Affairs, on 31.07.2019 and the same was further submitted to the Petitioner on 05.08.2019. 9. The violations borne out from the inspection report are as follows: (i) Violation of Section 58A of the Companies Act, 1956 read with Companies (Acceptance of Deposit) Rules, 1975 along with Section 74 and Section 76 of the Companies Act, 2013 read with Companies (Acceptance of Deposit) Rules, 2014; (ii) Violation of provisions of Section 5, 166 and 179 of the Co....
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....lub under Section 227 of the Companies Act, 1956 and Section 143 of the Companies Act, 2013; penal action for violation of Sections 5, 166 (1) & (3), 129, 179, 209, 211, 128 of the Companies Act, 2013; penal action for violation of Section 628 of the Companies Act, 2013 and Section 448 of the Companies Act, 2013; penal action against the auditors for violation of Section 141 (3) (d) (i) of the Companies Act, 2013 and matter to be forwarded to the Institute of Chartered Accountants of India (ICAI) for appropriate action for professional misconduct; for revocation of license of the Club, for action u/s 241 read with 242 of the Companies Act, 2013 for removal of present management and for appointment of government directors; and for carrying out supplementary inspection to take up issues related to allotment of membership; over the money received from new applicants as registration fee for membership; accounting treatment of the amount received from new applicants for membership (membership fee received was treated as revenue before instead of showing it as long term liabilities as it is a refundable item); over the investments made by the Club from the amounts received from new appli....
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....orary residents of Delhi may become Temporary Members (no limit). 4 Casual Members (not specified as to voting rights) Only persons ordinarily resident out of Delhi may become casual members (no limit). 5 Special Category Members (Corporate Members) (not specified as to voting rights) Upto three persons occupying top managerial positions in companies and corporate bodies with turnover more than Rs. 100 crores, (corporate to be member and membership is for a period of ten (10) years to the corporate subject to the condition that the corporate can have 3 designated users at one time and upto 3 request for change in designated users is allowed in the span of 10 years as mentioned in article 10(5) of AoA). (b) As per Article 13(1) of the AoA, the company is only entitled to charge entrance fee for memberships on the following basis, which is to be paid in lump sum: S. No. Particulars of members Entrance Fee (Amt. in Rs.) 1 Permanent (non-govt.) 25,000 2 Permanent (government officers) 10,000 3 Use of Club Premises pending election (UCPs) 10,000 4 Special category members (i.e. corporate members) (membership for a per....
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....gible to apply for Green Card at the age of 21 to 22 years (iii) However, article 13(3b) prescribes that on becoming 21 years of age, the son of a permanent member to apply for full membership i.e. they have to apply afresh and stand in the existing waiting list of members. (iv) GC has also issued Green Card apart from dependents of permanent member to children of Lady subscribers, UCPs and to dependents beyond the age of 21- 22 years for reasons irrespective of their age on charging penalty amount from them at the discretion of the GC. (v) Green Card has been given to daughters of permanent member, Lady subscribers, UCPs etc. which is not allowed as per AoA. (vi) These are those members who have simultaneously applied for permanent membership and are in queue but have been given the rights to use all the benefits and privileges of the Club at subsidized rates except voting rights. AoA 13(3c) prescribes that on reaching the age of 21, the unmarried daughter of a member may use the Club as a dependent till the time she stays with her parents i.e. unmarried daughters till they stay with parents can use the benefits of the Club. NRI There....
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....ortion of the non govt. permanent members (having voting rights) which is 50% of total active members as per AoA. These UCPs are in queue for permanent membership through their UCP membership which may take 6 to 7 years to become a permanent member. The GC is well aware that there is a waiting list for the non-govt. category for a period of almost 37 years. Culling out the proportion from non-govt. category and giving it to a new category of waiting list i.e. UCPs, is an illegal way of inducting people for permanent membership. Further to say that UCPs include those members coming from another self-created category i.e. Green Card Holders who were dependents of the permanent members. To conclude, the company maintains different lists of Green Card holders, different waiting list for UCPs, Eminent, Govt. and Non-Govt. categories, for permanent membership. (e) The Company has a prescribed form for inviting new applications for the membership of the Club and it is open all through the year. (f) Article 13(1) states that on admission as a member, a person has to pay the following fees: S. No. Particulars Entrance Fee(Amt. in Rs.) 1 For permanent membership (non....
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.... 197 195 2 Permanent Government (V) 5560 5510 5470 5464 5505 3 Permanent Non-Government (V) 4 Temporary (NV) - - - - - 5 Casual (NV) - - - - - 6 General (NV) - - - - - 7 Foreigner (NV) - - - - - 8 Special category (Corporate) (NV) - - - - - 9 Green Card (NV) 4962 5238 5200 5252 5333 10 NRI (NV) 5 5 5 11 Diplomat (NV) 20 20 24 18 17 12 Lady Subscriber (NV) 13 Lady Subscriber Government Category (NV) 1525 1567 1606 1635 1663 14 Lady Subscriber Non- Government Category (NV) 15 Life Member (V) 29 29 29 29 29 16 UCP (NV) 2332 2423 2616 2807 2878 17 UCP to Permanent - - - - - 18 Divorcee - - - - - 19 Foreign National - - - - - Total Number 14830 15180 15311 15560 15774 14. Out of the information above, some actions may be in violation of the Companies Act 2013, some may not. But systemic prejudice is imminent deep down in the DNA of this Club, may be it does not overtly apparent perhaps for the reason it has been being practiced ov....
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.... had it in a different way. Of course, King is King, whichever country it is. After English left this country, this ruling elite culture has seeped into independent India through usage of this club, once get into, it is always relishing. It is hardly possible to come out of this kind of culture. It could be that this Club must have come into the hands of Indian Officers after English left this Country. After Independence, democracy governed by Constitution has set in. Since the democracy has become reality, this club should have left its doors azar for many if not all, because not only has it bar and ball room and swimming pool with roof, but has wonderful library and many other sports facilities. 18. The Club counsel has argued that right to form associations and clubs is a fundamental right under Article 19, therefore any interference with the affairs of the club is violation of fundamental right endowed upon this association, whether it is right or wrong we can see later, but there is another article, that is Article 14 speaks volumes about equality, when any organisation is basking in the past glory on the State largess, whether shade of Article 14 will fall upon the said orga....
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....rticles for opening of new windows to the children of the permanent members and their children to using the benefits of the Club through green card, then UCP, and finally membership. The children of members, whether they are alive or late, their children will fit in one or other slot, but whereas persons deposited lacs and lacs of rupees dozing at the entry gate for decades hoping entry gate will open to them one day. For decades this money has been lying in the company, not as liability but as income and users enjoying. The state case is, it is a club built on the land of the State, it is a club registered under section- 8 with an avowed object for promoting sports and other activities including pastimes, but no perceptible work or dedication towards promotion of sports. Mostly on pastimes such as drinking wine and whisky. No doubt it is for relaxing, but relaxing for a few selected people. May be some of them teetotallers, but the Club itself having stated that income and expenditure is mostly from drinks, and the petitioner having highlighted it, I cannot escape from mentioning it. The petitioner has categorically stated that in the garb of running it as a public club, the manag....
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....ason for travel-back is one episode of the club cannot be torn out of its robust life to decide a case u/s 241 to know whether actions of the club are equitable or inequitable. Because in chain of actions, every link is as important as every other link, nothing could be missed out. If any link is seemingly missing, then it is the duty of the judge to search for the misplaced link to link the chain. If it is a civil case - no links - it is limited to a point, whether a specified action is in violation of law or not, no matter whether it is equitable or not. Here converse situation, no matter whether actions are lawful or unlawful, if the actions lead to inequity causing prejudice, in this case, to the public, then, as a course correction, court (NCLT) can invalidate it, or arrest it or mandate structural changes to the company. Another point essential is company law is in stricto sensu not governed by CPC, it has its own procedure, of course guided by principles of natural justice such as Rule against bias and fair hearing. As to section 241 cases, reasoning is mixed bag of subjective and objective conclusions. With regard to subjective conclusions based on objective inferences, the....
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....which an organization or an activity is managed or directed, if it is taken as a verb, it is defined as to organize or carry out the duties. So actions over a period of time reveals what the conduct is, it says whether such conduct is for equity or against equity. Behavioural line can only be ascertained when we know the facts in totality. In Section 397, 398/241-242, it is not important who has done it, important is, whether affairs conducted are prejudicial or not, it could be by the erstwhile management or by the present management or by successive managements. 28. If prejudice is against Members of the company, for they are notified about the actions of the company on annual basis, complaining members cannot be called as aggrieved or having substantial case against the company over past actions if they keep on acquiescing the actions of the company in every annual general meeting that takes place in a company. 29. But when it comes to Central Government, it is one way regulator of the Company Affairs and also custodian of the assets of the State. State is given a right to question the affairs of the company when it is found that the affairs of the company are being conducted ....
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.... little more, it is a section deals with something that is unfair, may be it is seemingly right, but at the bottom of it manifesting prejudice to the public at large or a member or company, in this case it is public. It could be said that how does it matter to the public when members of the Club makes rules to themselves notifying everything to the Regulating Agency and when no member complained about the affairs of the Club. It could be right from the perspective of the Club and its members to the extent to say that neither oppression nor prejudice to the members or to the company. But if you see the other side of the coin, the club is sitting on the monies of the public in the name of entrance fees or registration fees, on the contrary 24 x 7 opening to the family members of permanent members, generation to generation, besides all this, the club enjoying 27acres of land of the state in the prime area of Lutyen's Delhi, now after all this is seen, can it be still said that how does the club affairs matter to the public. But public, no matter whether poor or rich, paying tax on everything that is bought or sold. But resources of the country are unilaterally enjoyed by a few with di....
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....on. The club has taken a stand that this hearing through video conferencing is a closed hearing which is against the long established principle of open justice because justice should not only done but also seen to be done, therefore to maintain public confidence in the administration of justice, this hearing shall be taken up as soon as physical hearing has been reinstated. It has further been stated that since the club is shut due to lockdown owing to Corona Virus, especially when enormous issues at hand arising from pandemic, including the helpless migrants, the economic fallouts, the Club says, the State has no business in the Club, therefore the State ought not to have taken it as an exception to move the petition exparte to proceed u/s 241 (2) of the Act against this Club over the decisions taken in 1976, 1994, 2005 (qua membership and qua application fee in 2013 and 2016), to which the present committee is not connected because those decisions were taken before this committee has come into the seat of governance. This point already answered saying the person acting is not important because we cannot invoke penal action under section 241, it is only to curtail if prejudice is ....
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....stive writ for access to viewing, in the writ also, it was not for viewing physical hearing - only for public viewing, to which Apex Court held that it would make arrangements to provide access for public viewing by giving several directions to install infrastructural arrangements. In any event, about physical viewing to the court hearings is not the subject matter in the writ nor the mandate of honourable Apex Court, therefore this argument has no basis from the citation supra. 38. Another point intriguing is, the Club stated that during COVID time, when helpless migrants undergoing lifetime pain and some losing their lives in the journey of their destiny, the state, instead of attending to most impending migrant labour issue, has darted out at this Club with this petition, especially when the Club is shut. 39. At the outset, since the Club counsel himself has brought the issue of migrants to take adjournment, I say it is good that the Club has concern for the migrant labour walking hundreds of kilometres to reach their loved ones for whom migrant labour toiling throughout their life to ensure their families do not die out of hunger. In their life, they are not here nor there. D....
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....said in these two paras may not have direct bearing over the merit of this case, it has been said because the Club itself has mentioned about migrant labour. What is public interest is lucidly explained in the judgement below: 41. In one case (N.R. Murty vs Industrial Development Bank of India and Others- (1977) Vol. 47 Comp Cas 389), Honourable High Court of Orissa has held as follows: 27. The words "in a manner prejudicial to public interest" were added to the statute by Central Act 53 of 1963 by way of amendment. The expression is an elusive abstraction meaning general social welfare or regard for social good and predicating interest of the general public in matters where a regard for the social good is of the first moment. As was once pointed out by Frankfurter J. of the United States Supreme Court, the idea of public interest is a vague, impalpable, but all-controlling consideration. Common good or general welfare of the community is conducive to public interest. A thing is said to be in public interest where it is or can be made to appear to be contributive to the general welfare. Mahajan C.J., in the case of State of Bihar v. Kameshwar Singh AIR 1952 SC 252 indicated that ....
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....t within 24 hours looking at 4000 pages report, which is humanly impossible within 24 hours to form an opinion and recommend MCA to proceed against the Club u/s 241 (2 & 3) of the Act. The Club and its Committee members submit that since the material not being specifically asserted as pleading and there being no answer to their reply flagging this issue, this Company Petition shall be dismissed without going into merit of the case for want of opinion as illustrated by the Constitutional Courts on forming opinion before initiating proceedings. The Club counsel relied upon N, Sampath Ganesh vs Union of India & Ors (Bombay High Court Paras 85, 204 and 205), Khudi Ram Das vs State of West Bengal 1975 (2) SCC 81, Bhikubhai Vithalbhai Patel vs State of Gujarat and 63Moons Technologies Ltd vs Union of India & Ors Para 59 to say unless opinion manifestly demonstrates the grounds indicating that the affairs conducted are prejudicial to the public interest, the petition shall be dismissed without going into merit of the case. Here I must say after RD gave his suggestions, the competent authority took sufficient time to form an opinion. 44. R1 Counsel has relied upon J. Daulat Singh v. Delhi....
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....n of law comes in, there case u/s 241 of the Act is not made out. It all depends upon the factual situation existing in a case. There is a chance for unfairness or prejudice is laced in it, nobody knows, it will open out only when facts are examined. 48. He then relied upon Union of India & Ors. v. Modiluft Ltd., (2013) 6 SCC 65 & Raja Khan v. Uttar Pradesh Sunni Central Waqf Board & Anr., (2011) SCC 741 to say that if interim relief is same as that of permanent relief, then it is not permissible because no case would be left for adjudication at the time of final hearing, in such a situation, the court shall not grant any interim relief unless case is fully heard. It is right that if final relief is granted as an interim order then definitely it is hit by the ratio set out in the aforesaid cases. If the relief sought becomes an order and if the order is such covering the main relief asked in the company petition, then it will be against the ratio decided above. 49. As long as final relief is not granted as interim order, this principle will not be applicable. If the party has rightly or wrongly asked a relief as mentioned above, if the Court takes care of it in not granting final....
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....ef through court of law, it will initiate a proceeding against wronging party to discharge its fiduciary duty on behalf of the public. And initiation of court action cannot be seen on par with an order of the Government, therefore incisive scrutiny of the opinion is not essential in the cases where it is only to initiate action like any other private person. This indeed will frustrate the State proceeding against wronging party. 53. The club counsel has relied upon The Joint Commissioner, Commercial Tax Officer, Harbour Division, II-Madras v. The Young Man Indian Association (Registered) (1970) 1 SCC 462, Madras and Ors., State of West Bengal v. Calcutta Club Ltd. (2019) SCC Online 1291, Bangalore Club v. Commissioner of Income Tax and Anr. (2013) 5 SCC 509, Income Tax Officer, Mumbai v. Venkatesh Premises Corporative Society Ltd. (2018) 15 SCC 37) to say that by virtue of doctrine of mutuality, the money coming to the company cannot be treated as profit therefore the club shall not be subjected to payment of tax upon the profits or income of the company. Since the issues involved in this case are not directly related to tax payments by the Club, I believe the concept of Doctrine ....
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....f Gujrat and Ors. (2008) 4 SCC 144 to say that formation of opinion is a condition precedent and it shall be based on facts but not on imaginary grounds. 58. It's an issue decided on the action of State Government in making substantial modification falling under Gujrat Town Planning and Urban Development Act, 1967, as per this Act, the Development Authority designated a parcel of lands of the appellants as part of the residential zone in the draft development plan prepared by it and submitted the same to the State Government for sanction. The State Government by exercising its powers u/s 17(1)(A) (II) proviso of the Act sanctioning the plan in a modified form reserving the appellants' lands for "Education Complex of Gujrat University". Accordingly, development plan was brought into Court, but that land was not used for the designated purpose for more than ten years. As the land was not used for that purpose for 10 years, the land owners (appellants) after expiry of ten years gave a notice calling upon the authority to acquire the land but no steps were taken. Instead, the development authority by exercising powers under Section 21 of the Act, sought to revise the development plan ....
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....e people is directly affected by an order of the Government but in this case it is only an opinion to file a case therefore the ratio held in the case above is not applicable to the opinion falling under Section 241 (2) of the Act, 2013. However, in this case, a load of 5000 thousand pages material is there, out of which, two three points demonstrating prejudice to the public interest are highlighted, therefore the ratio decided in the case above is not applicable to this case. 60. At last icing on the cake with regard to formation of opinion and public interest, the Club counsel referred is the judgment in 63 Moons Technologies Ltd. & Ors. v Union of India and Ors. (2019) SCC Online SC 624), to state that if the opinion does not disclose the facts essential to form an opinion, action taken based on such opinion will become invalid. Though this Judgement has elaborately discussed about formation of opinion, the Honourable Supreme Court ultimately held that opinion of the Government is not subject to objective test, the only requirement is there must be factual material for arriving to such opinion. It is not for the Court to sit in judgment on the sufficiency of those reasons. In ....
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.... of dispute in various suits that have been filed and are pending adjudication. FTIL could have responded giving reasons as to why NSEL is not its alter ego. Also, whether the amalgamation is, in fact, to restore or safeguard public confidence in forward contracts and exchanges is a subject matter on which FTIL, its shareholders and creditors, could have commented. Equally, whether NSEL's exchange was an essential and integral part of the Indian economy and financial system, and whether this defunct business could be consolidated so as to impact the economy are all matters for comment by FTIL and its shareholders and creditors. For all these reasons, we cannot accede to the respondents' arguments on this score. On this ground alone, even assuming that these two grounds obtained and can be culled out from the final order, not being contained in the draft order, the said grounds would be in breach of Section 396(3) and (4), and therefore, cannot be looked at to support the order. 59.3. It is important to note that grounds (a) and (b) are both culled out in answer to objections raised by FTIL. The precise objection raised and the answer given are quoted herein below: ...................
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...." contained in the answer to objections does not contain "by consolidating the businesses of FTIL and NSEL", nor does it contain "and preventing FTIL from distancing itself from NSEL, which is, even otherwise, its alter ego". On the contrary, the High Court itself mentions, in paragraph 355, that "this is also not a case where the Central Government has, in fact, lifted the corporate veil, despite the alleged non-existence of the circumstances justifying lifting of such corporate veil", and further, "this is not a case where the Central Government has lifted the corporate veil and sought to apportion any liability upon either NSEL or FTIL". For all these reasons, we find that no reasonable body of persons properly instructed in law could possibly arrive at the conclusion that the impugned order has been made in public interest. Para 75 ............ (last lines of this para) The order of "non-assessment" of compensation has thus been challenged by FTIL in proceedings under Article 226 of the Constitution of India. Even otherwise, this is a case where there is complete non-application of mind by the authority assessing compensation to the rights and interests which the shareholders....
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....Government, but here it is an opinion to file a case against the Respondent club based on the inspection report and on the opinion based on facts, rather on the facts provided by the Club during inspection. Therefore, I hold that the ratio decided in the above case is not applicable to this case, indeed in a way it makes it clear that if opinion is based on facts, then it is a valid opinion. Demonstration of all facts in the opinion will not make any sense when annexures disclosing what all said in the opinion is present before the Court. Grounds in the order of Preventive detention, order affecting the rights of land owners, etc are not akin to the opinion in this case. 62. It is a case saying section-8 Company, running on Government owned land, is run by a coterie of people bringing in the children of permanent members and children's children for using facilities of the club despite several members remaining outside for decades together, when Government Officer retires taking him into private members quota, and using crores of rupees collected from waitlist members as its own money, and using public property of 27 acres of land in the Lutyen's Delhi adjacent to Prime Minister re....
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....rt. But in this case, material available is clearly indicating mess is created in the club affairs causing prejudice to the public interest, therefore there is no merit in saying that filing is not based an opinion demonstrating reasons. 64. The Petitioner Counsel relied upon Zenit Metaplast Private Limited v. State of Maharashtra, (2009) 10 SCC 388 to say that at the stage of interim relief prima facie case, probabilities and irreparable loss and injury to the petitioner is to be seen, not other aspects. 65. He further relied upon Anns v. Merton London Borough Council, 1978 A.C. 728 & P.L. Lakhanpal v. Justice A.N. Ray, ILR (1974) I Delhi 725 to say that the Court has to treat the facts as alleged in the petition at the stage of preliminary objections. 66. He then relied upon Gullapalli Nageswara Rao v. APSRTC, AIR 1959 SC 308 to say that in Governments, the process of examination of a case will follow the hierarchy and the participation of its functionaries, it is long recognized as a valid practice, the emphasis shall be on as to whether opinion has been formed on relevant material facts or not. 67. He then relied upon Saraswati Sugar Mills. Commissioner of Central Excise, (....
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....the poor and the needy who require the facilities to improve themselves, are denied access and the entire facility becomes the domain of a chosen few. What started as a multipurpose stadium for the benefit of citizens become partly a private recreational club and partly a neglected unused stadium. What started as a club then goes into private hands for commercial exploitation for a hotel or for conducting marriages and other functions. The only "sports" activity regularly held is in the card room. Unfortunately, all this is done under the nose of the District Administration, in a centrally located property belonging to the Municipal Corporation and controlled by District Sports Council. Creating a sports ground, encouraging sports is a part of human resource development which is the function of the State. No part of the stadia or sports grounds can be carved out for non-sport or commercial activities to be run by recreational club or by private entrepreneurs. Recreational clubs are not sports clubs." 70. He then relied upon Lok Prahari v. State of Uttar Pradesh, (2016) 8 SCC 389 to say that usage of the club cannot be passed on from generation to generation through dubious routes ....