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2020 (6) TMI 736

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....lic interest, therefore - to allow the Central 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 ....

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....s land was allotted to the club for pastimes along 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)....

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.... the irregularities in the management of the Club. 3. One Mr. 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, 2....

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....76 of the Companies Act, 2013 read with respective Companies Rules; penal action against the auditors of the Club 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 liabiliti....

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....Only officers in units in Delhi garrison may become Garrison Members (no limit). 3 Temporary Members (not specified as to voting rights) Temporary 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.)....

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....& 03.02.2020 that they appoint Green Card Holders under article 13(3a) & (3b) which is actually for dependents i.e. children of the permanent members between the age of 13 to 21.   (ii) A dependent card holder becomes eligible 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(3....

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....eriod of granting UCP should not be the difference between two successive General Committees.   On examination of records and by record of statement of Col. Ashish Khanna, Club Secretary, it is found that the UCPs Holders are given non-voting membership culling out 25% of the proportion 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 Comp....

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.... persons occupying top managerial positions in companies and corporate bodies with turnover more than Rs. 100 crores (membership for a period of 10 years.) (d) The following are the details of class of members and with their counts as furnished by the company: Table 1 Member Count Report as on 31st March......     (Figures in nos.) S. No. Category Financial Years     2015 2016 2017 2018 2019 1 Eminent (Tenure) (NV) 203 198 190 197 195 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 ....

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....truction of the swimming pool. Her "munificent gifts" were not going to go unrecognized and the general committee soon ordered the suitably inscribed tablets be put up in recognition of her generosity. The gleaming tablets, "Lady Willingdon Swimming Bath" and "The Willingdon Squash Courts" would be quickly ordered and put up well in time before the Viceroy Lord Willingdon and Lady Willingdon would visit the Gymkhana Club for their farewell on 16 March 1936." 17. On reading the above, anybody can infer the club has come into existence for the then ICS officers. That time it was mostly for English to chill out in the evenings. Obviously, it is their culture; therefore they cherished their culture wherever they ruled. That's why bar and ball rooms have come up, of course Indian kings 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. ....

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....t appears that whiff of imperialism has not gone off, rather it has been ingrained in it. By this, knowingly or unknowingly, a class of people, in the name of privilege, have erected an unbuilt wall around the club not permitting the people to have that whiff which they have been having for about decades. Given the scenario, the reason for this undying urge to become members and remaining in wait list for decades, to my reason is, this unbuilt wall erected is multiplying the urge to become members. It is like grass is always greener on the other side of the fence. It is a psychological game making rounds and rounds around this Club. 20. There are many allegations and indeed statements of the Club, reflecting it has violated many provisions of the Companies Act 2013, primarily changing Articles 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 ....

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....nt. Till date rush to the cities, increasing and increasing. Like above, many enactments have come in and they will keep coming as long as society has remained uneven. This quantum jump to the population has changed the priorities according to the needs of the people. So is the case with public interest also. State priorities are the needs of the people, what becomes public interest, when that becomes public interest, are decided by time and growing needs. Accordingly, State acts. 23. Another important aspect is, to understand grievance under section 241 of the Act, many a times the court deals with a case under this section has to necessarily run through the historical facts, and the reason is, it is the conduct that decides existence of prejudice. Not one action like in a civil case. The reason 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....

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....lainant shall be the Central Government, (2) the complaint shall be against a company incorporated under the Companies Act, and such complaint (3) shall be over the affairs of such company (4) conducted in a manner (5) prejudicial to the public interest. 26. There is no dispute over the legal status of the complainant, it is a case against the company, and it is also not in dispute that issues are in relation to the affairs of the company. Now the issues before this Bench are as to whether the Central Government formed an opinion that the conduct of the affairs of the company is prejudicial to the public interest. 27. If we see the dictionary meaning of the word 'conduct', if it is taken as a noun, it is defined as general behaviour in actions, reactions or inactions of an entity or the manner in 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 impor....

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....into because the dependents become members through fast tracking leaving behind the persons applied for membership. This behaviour is nowhere changed by change of managements. By seeing admission process, it appears only big people in essence those who are in top position in the government and outside the Government become members. As I said above, this club has been enjoying 27 acres of the land of the State which costs around thousands of crores. All this shows imperial behaviour and insensitiveness of the Club against the tenets of democracy. It may be said I am speaking of about fundamental rights in section 241 & 242 case, it is not so, the whole discussion is about inequity and prejudice. 32. Prejudice under section 241 (2) may not be violation of something from law book, the relief under this rule has a 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 whe....

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....tchdog to peep into the affairs of a company through various provisions of the Companies Act through its regulating agency. It does not end there, it can even take into cognizance of the reflections of the inside affairs upon the public and ramifications causing prejudice to the public interest through section 241 (2) (3) of the Act. To take this into cognizance, State need not remain waiting for any compliant from public, for which the mandate is, facts shall be in existence and the state shall form an opinion to take action, nothing more nothing less. One more fact I shall say that use of the state land through lease for about hundred years will not make any difference, because lease will not make lessee owner of the leased land over efflux of time. 34. The Respondent Club has argued that it is a Malafide Petition. 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 reinsta....

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....n various factors, merely because a matter is taken up for hearing despite objection is put forth, it does not mean merit of the matter will take back seat. As any other matter is being heard in the COVID crisis, this matter is also heard. Yes, NCLT, in the past issued a circular to hear only urgent matters hoping lockdown would end, but thereafter lockdown has become lockdown -1, 2, 3, 4 and so on. This was not known to NCLT or for that matter to anybody that lockdown would bring lifetime changes which we are now passing through. Moreover, this case was filed during the period of lockdown-2.0, by that time we have already started hearing matters as they come before us. This matter was heard during lockdowns- 3.0 & 4.0. But these lockdowns have not halted hearing of matters. 37. As to Mr Swapnil writ, it is only a suggestive 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 matte....

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....ers have shelter in cities to live with their family, would they go back? If cities are occupied with clubs and recreation centres side-lining carriers of the economy, where is the place for these people to live in? Land of the State is the land of the people of the country. Government is only an agent of its people. Wherever state has interest, public has interest over there. Whether club figures are intact or not is secondary, the point here is, having this club for the purpose above is whether essential for larger good of the public or not. May be it is there for a century, it does not matter because it does not have free hold right over that land. Now it is worth of thousands of crores. As time goes by, something that was not prejudicial to the public interest in the past would become prejudicial in the present. All that is 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 Cour....

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....ve the clause "acting in a manner prejudicial to the public interest". Therefore, Central Government can proceed not only over the conduct prejudicial to the public interest but also over any issue that falls within the ambit of Sub section (3) of the Act. "Public interest" is an expression which is wide and amorphous and takes colour from the context in which it is used. We cannot keep it within four walls either by giving a definition or by taking an illustration from a case law. 43. The Club has raised two preliminary issues, one saying that the Central Government of India (Regional Director) has not applied its mind in forming an opinion that the affairs of the Club conducted prejudicial to the public interest, the reason cited for raising this issue is, the Regional Director, upon receipt of inspection Report, prepared the report 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 is....

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....ies India Ltd. & Ors. v. Needle Industries Newey India Holding Ltd. & Ors., (1981) 3 SCC 333 & Sidharth Gupta & Ors. v. Getit Inforservices Pvt. Ltd. & Ors., MANU/CL/0010/2016 to say that even if there is any violation of law, it would not be ipso-facto lead to attraction of section 241 of the Companies Act, 2013 much less under Section 241 (2) of the Companies Act, 2013. Yes, he is right to the extent mentioned. But I must add that violation or no violation of any provision of law will not make any difference to a case filed u/s 241 of the Companies Act, 2013, the only point to be seen is as to whether the action is prejudicial against a Member or Company or to the public interest. Therefore if anywhere it is said that violation of law will not tantamount to making a case u/s 241 of the Companies Act, 2013, it does not mean that where violation 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 Kha....

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....nt and then follow the procedure of notification, then assessment of compensation to the shareholders and creditors in the event of sustaining any loss to their interest, the same shall be assessed and shall be paid to the concerned by the company resulting from the amalgamation and then gazette publication, after expiry appeal period by the aggrieved members or the creditors as the case may be, copy of the order shall be laid before both Houses of Parliament. 52. Under section 396, government will not apply to any court of law for an order, the Central Government itself will prepare scheme of amalgamation when it is of the opinion that it is essential in the public interest that two or more companies shall amalgamate. It is nowhere required to put it to the scrutiny of a court of law. If a procedure is carved out mandating the Government to seek relief 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....

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....rrested and detained without communicating grounds to him. As to preventive detention the authority making such an order shall communicate the grounds enabling the detenu to protest against such order. Like we all know, if any right is there more precious than any other right existing in the word, that is right to life covered by Article 21 of the Constitution of India. If such right is interfered with inflecting the procedure laid down, it is obvious that effect of the order shall be invalidated, but in the present case it is only about an opinion to file a case against a company like any other person, these two situations are not comparable, therefore the observations made in preventive detention cannot be applicable to a case like this. 57. On the same point of formation of opinion, the club counsel relied upon Bhikhubhai Vithlabhai Patel and Ors. v. State of 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 p....

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....under Section 21 of the Act sought to revise the plan by reserving the land for same purpose when it was struck down by Hon'ble Supreme Court, the State Government again modified draft development plan under proviso to section 17 (1)(a)(II) without explaining the necessity with requisite material, against which the Apex Court held that necessity shall be demonstrated by forming an opinion stating that modification is required for the said purpose. 59. In the present case no such stringent law has been set out to form an opinion, it has only been stated that if the Central Govt. is of the opinion actions of the company are prejudicial to the public interest, the Central Govt. at best can ask relief from a Court of law unlike in the case supra where State Government modified the draft plan in deprivation of the right of land owners. In the case above, the right of the 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 whi....

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....ions and suggestions would have been made by all stakeholders, which the Central Government would then have been bound to consider before passing the final order. However, it was argued on behalf of the respondents that the first and second grounds are, in reality, inferences drawn from facts which are already stated in the order and these inferences do not need to be stated in the draft order. We are afraid that this argument is incorrect inasmuch as grounds contained in reasons (a) and (b) are important grounds which have a vital bearing on the amalgamation in question. If these grounds were contained in the draft order, there is no doubt that the shareholders and creditors of FTIL, and FTIL itself would have had an opportunity to comment on the same. For example, the "business realities" of the case are facts known to FTIL; and NSEL, being FTIL's alter ego, is the subject matter 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 whic....

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....iven to the objections that are contained in the order itself. "Restoring/safeguarding public confidence in forward contracts and exchanges, which are an integral and essential part of the Indian economy and financial system, by consolidating the businesses of NSEL and FTIL," is not contained in the answer given to objections in the order. First and foremost, restoring public confidence is no part of the order. What is mentioned is only the fact that public confidence has been shattered, as is reflected by the FMC order dated 17.12.2013. Secondly, the entire expression, "which are an integral and essential part of Indian economy and financial system, by consolidating the businesses of NSEL and FTIL" is no part even of this answer given, but a gloss given by the High Court itself relatable to this answer. Similarly, when it comes to reason (b), "giving effect to business realities of the case" 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, tha....

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....ck of facts to arrive to a conclusion that the impugned order has been made in public interest. There are many other issues such as compensation to the shareholders, therefore as to satisfaction of central government, the ratio decided in the case supra cannot be applied to this case because here it is an opinion to file a case, and it is not like an order passed under 396 of the Act 1956. When order is passed by the Government, it will have direct effect upon the parties, but an opinion to file a case, it is a kind of right to bring forth inequities in the company to the notice of this Bench for appropriate orders so as to arrest the prejudice to the public interest. The respondent club shall not try to thwart the Central Government exercising its legal right given in the Act, it is something preposterous. In almost all cases relied upon by the Respondent Club, all of them are orders passed by the 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 t....

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.... it is shown that certain officer has personally done something against somebody to settle personal score. No such material before this Bench. To elaborate this logic, the State has relied upon Gullapalli Nageswara Rao v. APSRTC (AIR 1959 SC 308), to say that when facts are available to arrive to an opinion, it is sufficient to proceed further. In this case, no doubt supplementary report dated 03.03.2020 runs into 5000 pages, but whereas main report prepared basing on supplementary report is of only 100 pages, upon which the Central government along with the assistance of its team, formed an opinion, which cannot be denied. The bottom line is whether material is there or not. Here the material is very much present to the satisfaction of the authority, it is a subjective satisfaction based on the material available, if opinion is based on the material, as to sufficiency, it is not in the realm of the court. 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 Zeni....

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....n the land given on minimal rent by the State. The relevant para is as follows: "15. Whenever nepotism, favouritism and unwarranted government largesse to private interests, threaten to frustrate schemes for public benefit, it is the duty of High Courts to strike at such action. The stadium is meant for improving and developing sports and sports persons. But slowly and steadily these are ignored by stating that the funds are not available for maintenance or people are not coming to use the facilities. The standard refrain is that a part of the stadia or sports facility can be used for non77 sports activities generating funds for the upkeep of the stadium. In no time, an exclusive recreational club is established for those in power, those who have access to power and those who can afford to pay hefty sums to access the facilities by way of membership. Thus valuable state resources meant for the general public, for 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....