Full Text
HIGH COURT OF DELHI
Date of Decision: 19th December, 2019
SANJEEV MOHAN AHLUWALIA ..... Petitioner
Through: Mr. Sanyam Khetarpal, Mr. Nitesh Goyal and Mr. Jahanvi Sharma, Advocates. (M:9873674225)
Through: Mr. Gaurav M. Liberhan, Advocate for R-5. (M:9810955779)
Mr. Ripu Daman Bhardwaj and Mr. Anirudh Shukla, Advocates for R-1 to
4.
CM APPLs. 33296/2019 & 42706/2019
JUDGMENT
1. The present writ petition has been filed by the Petitioner under Articles 226 and 227 of the Constitution of India, against various governmental authorities, i.e., Respondent Nos.[1] to 4 and the Delhi Gymkhana Club Ltd, i.e., Respondent No.5.
2. The case of the Petitioner is that he is an applicant seeking permanent membership of the Delhi Gymkhana Club Ltd. (hereinafter, “Club”) and that he had made an application in 1993, seeking membership of the Club. Since 1993, the Club has called upon him to pay additional sums to continue to be in line for permanent membership. In the year 2017, an additional amount of Rs.7.[5] lakhs was sought, however, thereafter, when the Petitioner pointed out that he is the son of a permanent member, the fee was reduced to 2019:DHC:7132 Rs.1.[5] lakhs, which has since been deposited.
3. Ld. Counsel for the Petitioner submits that the activities at the Club have not been running in accordance with the requisite laws and procedures applicable and there are various irregularities being committed by the Club. In view of these irregularities, it is the Petitioner’s case that a show-cause notice, dated 15th March, 2019, was issued to the Club by the Ministry of Corporate Affairs (hereinafter, “MCA”), seeking a reply from the Club. While the said show-cause notice is under consideration of the governmental authorities, the Club issued a notice for holding an Extraordinary General Meeting (hereinafter, “EGM”) on 10th July, 2019. The Petitioner submits that the Club is intending to amend and replace the existing Articles of Association (hereinafter, “AOA”) and Memorandum of Association (hereinafter, “MOA”) of the Club. The Petitioner has sent representations to the Club and to the Government, however, since there was no response, the present writ petition was filed.
4. The further case of the Petitioner is that the MOA and AOA cannot be altered under Section 8(4)(i) of the Companies Act, 2013, without prior approval of the Central Government, as the Club is a Section 8 company. Reliance is placed upon the provisions of the Companies Act, 2013 to submit that since no approval has been sought, the placing of the amended AOA and MOA before the EGM is itself contrary to the scheme of Sec. 8. When the writ petition was listed before this Court on 26th July, 2019, after hearing the Petitioner, an interim order was passed directing that the proposed EGM shall remain stayed. The operative portion of the said order reads as under: “Till further order, EGM dated 04.08.2019 proposed to be conducted by respondent No.5 and the process of electronic voting to be commenced on 30.07.2019 on the agenda of 04.08.2019 shall remain stayed.”
5. The Club has, thereafter, entered appearance and filed CM APPL. 42706/2019, seeking vacation of the said ex parte ad interim order. The stand of the Club is that the Petitioner has no right to maintain the present writ petition. It is submitted that the explanatory memorandum, which was attached to the proposed AOA and MOA, clearly stipulates that after the EGM considers the amendments to the MOA and AOA, approval shall be sought from the Central Government, which the Club intends to follow to the tee. It is submitted that the Petitioner has misled the Court on Section 8, the argument of the Petitioner is untenable and the Petitioner has no case to challenge the right of the Club to hold an EGM, inasmuch as the Petitioner is not even a member. It is thus submitted that the writ petition itself is not maintainable and, in any case, the interim order is liable to be vacated.
6. Mr. Sanyam Khetarpal, ld. counsel for the Petitioner, submits that the silence of the Government is to be noted by the Court, inasmuch as despite sufficient opportunity having been provided to the Government authorities, including the Ministry of Corporate Affairs, to reply to the writ petition, no reply has been forthcoming till date. It is submitted that while the Club is under investigation, amendment to the AOA and MOA in this manner, to provide benefits to other categories of members, is completely improper and illegal. Thus, the EGM ought not to be permitted to be held by the Club.
7. On the other hand, Mr. Gaurav M. Liberhan, ld. counsel appearing for the Club, submits that the interim order was obtained by completely misleading this Court. The stand of the Club is clear - it has to obtain the approval of the Central Government. The interim order records the contention of the Petitioner in the manner that the amendment cannot be considered by the EGM, without prior approval of the Central Government. This is not the correct legal position. The correct position is as is contained in the explanatory statement i.e., once the amended MOA and AOA is placed before the EGM and the amendments are approved by the EGM, only then is it required to be placed before the Central Government for approval. Until that procedure takes place, the writ petition itself is premature.
8. Ld. Counsel further submits that the allegations about the UCP cards and the children of permanent members being given benefits is incorrect. All that the proposed MOA and AOA seeks to do is to give dependant cards to children of permanent members who are between the ages of 13 and 21. In any event, the said children are enjoying the facilities of the Club even today. He submits that children of permanent members are also being issued cards to use the facilities of the Club, even upon attainment of the age of 21.
9. On behalf of the Government, it is submitted that the prayer in the writ petition is for seeking investigation against the activities of the Club and, at this stage, there is no requirement to file a counter-affidavit.
10. Having heard the ld. counsel for the parties, the first and foremost contention that needs to be considered is whether the EGM ought to be permitted to be held. 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.
11. The issue has been raised as to whether prior approval by the Government is required for placing the amended MOA and AOA before the EGM. Section 8(4) reads as under:
except with the previous approval of the Central Government.
(ii) A company registered under this section may convert itself into company of any other kind only after complying with such conditions as may be prescribed.”
12. The admitted position is that the Club is a company which has obtained registration under Section 8 (1) of the Companies Act, 2013. The MOA and AOA contain an explanatory statement to the following effect: “Item No.1: ALTERATION OF MEMORANDUM OF ASSOCIATION (MOA)
OF THE COMPANY It is proposed to alter the existing set of Memorandum of Association (MOA) of the Company by substituting it with the new set of Memorandum of Association, so as to align it with the provisions of the Companies Act, 2013 as applicable to Section 8 Companies. None of the Objects of the Club are being altered and the liability of members remains the same as given in the erstwhile MOA. Our club was incorporated around a 100 years ago, under the Companies Act, 1882. Over the years, the Companies Act, has seen tremendous changes. All the relevant changes are applicable on the club, whether or not incorporated in the MOA. The Board of Directors a.k.a General Committee (GC) endeavours to update the MOA so that members and the management are aware of the applicable law and do not miss complying with the letter of law. The General Committee in its meeting held on Thursday, 27th June 2019 has approved the said proposal, subject to approval of the Members and In terms of the provisions of Section 13 of the Companies Act, 2013, the Company is required to obtain approval of the members by way of a Special Resolution and pursuant to provisions of Section 8 of the Companies Act, 2013, a Company registered under this Section shall obtain approval of the Central Government(Power delegated to ROC), for alteration of the Memorandum of Association. Accordingly, the resolution is being proposed as a Special Resolution. Kindly note that the Club, being a Section 8 Company, any modification/ alteration in the Memorandum of Association of the Club requires prior approval of the be filed with Registrar of Companies and in case of any direction/ instruction/ alternation/ modification(s) is/ are directed by the concerned Registrar of Companies (Central Government), the proposed resolution stands modified accordingly. Nature of concern or interest of Directors: None of the Directors, promoters and the relatives of the mentioned persons is concerned or interested, directly or indirectly, in the proposed resolution save and except to the extent of their membership in the Company. Your Directors recommend this resolution for the approval of members.”
13. The above is a part of Item No.1 of the Agenda to be considered by the EGM, if and when the EGM holds a meeting. Along with the said Agenda, the proposed MOA and AOA and the amendment thereto, are also to be placed before the EGM. 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. Thus, at this stage, it would not be correct to hold that prior approval of the Central Government needs to be taken prior to the same being considered by the EGM. Such a stand would be premature and contrary to the procedure.
14. 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.,
15. Accordingly, at this stage, the stay granted in respect of the EGM, vide order dated 26th July, 2019, deserves to be modified in the following terms: a) The EGM is permitted to be held with the agenda items mentioned in the booklet that has been placed before the Court including the proposed MOA and AOA. b) The EGM shall consider the amended MOA and AOA and pass a resolution in respect of the same. c) The Club shall then upload the approved MOA and AOA on the MCA website, which shall process the same in accordance with law. Only upon approval being received from the MCA, the amended MOA and AOA would take effect.
16. The applications are disposed of in the above terms.
17. Once the processing of the new MOA and AOA takes place, the Government shall file a counter-affidavit. In any event, insofar as the showcause notice and the replies thereto are concerned, the Government shall place its stand on record, in order for this Court to consider the same.
18. Mr. Liberhan, ld. Counsel, submits that if the Petitioner wants to seek a refund of the money which he has deposited, the same would be refunded immediately upon a request being made by the Petitioner. The question of refund is not being asked in this Petition, by the Petitioner. It is for the Petitioner to respond to this submission, if he wishes to seek refund.
19. The writ petition be listed for hearing on 6th May, 2020. At the time of hearing, the question as to the maintainability of the writ petition at the behest of a person who is yet to become a member of the Club, shall be considered first.
PRATHIBA M. SINGH, J. DECEMBER 19, 2019 dj/T