NCLAT Upholds Central Govt's Takeover Of Delhi Gymkhana Club Over Allegations Of Mismanagement
The NCLAT bench of Justice Ashok Bhushan (Chairperson) and Arun Baroka (Technical Member) has upheld the NCLT's order which allowed the Central Government to take over the management of the Delhi Gymkhana Club, and directed the existing committee to take remedial steps and hold the election. The NCLAT held that Union of India's intervention in the affairs of the Delhi Gymkhana...
The NCLAT bench of Justice Ashok Bhushan (Chairperson) and Arun Baroka (Technical Member) has upheld the NCLT's order which allowed the Central Government to take over the management of the Delhi Gymkhana Club, and directed the existing committee to take remedial steps and hold the election. The NCLAT held that Union of India's intervention in the affairs of the Delhi Gymkhana Club, which resulted in the erstwhile management of the Club being superseded by a 15-member general committee appointed by Union of India to take over the management of the club, was necessitated due to the rampant mismanagement by the erstwhile general committee.
Brief Facts:
The Delhi Gymkhana Club Limited (the Company) was incorporated under Section 26 of the Companies Act, 1913 (Section 8 of the Companies Act 2013) on 14.07.1913. A perpetual lease of land was granted to the Club on 20.02.1928.
The Ministry of Corporate Affairs, in 2016, directed an inquiry under Section 206(4) of the Companies Act, 2013. An inspection was carried out from January to July 2019, and a report was submitted, detailing violations and instances of mismanagement within the Club.
Union of India filed a petition under Sections 241-242 of the Companies Act before the NCLT. Certain interim directions were issued by the NCLT directing the Club to neither take any policy decision nor accept any new application of membership. On 26.06.2020, the NCLT passed an order directing Union of India to appoint two members to monitor the Company along with other General Council Members and give suggestions to the General Council. It also directed Union of India to inquire into the affairs of the Company.
On 01.04.2022, the NCLT allowed the petition filed by the Union of India. Aggrieved against the said judgment, the appellants (erstwhile members of the Club) filed the appeals.
Observations:
The NCLAT held that the Delhi Gymkhana Club being a company under Section 8 of the Companies Act, 2013, was incorporated for a “useful object”, which is wide enough to include “sports”. The NCLAT stated that if a non-profit company, which is incorporated to serve a public purpose, is found not to be promoting its main objective, it doesn't mean there is no public purpose in the management and affairs of the company. The management and affairs of the company should be guided by the objects for which it was incorporated.
The NCLAT observed that:
“When a company, which is registered under Section 8 of the 2013 Act, and its affairs are being conducted in a manner prejudicial to the public interest, the Central Government is entitled to file an application under Section 241 of the 2013 Act.”
The NCLAT held that the affairs of the Company/Delhi Gymkhana Club were being conducted in a manner prejudicial to the public interest which enabled the Central Government to file an application under Section 241(2) of the 2013 Act. Thus, NCLT had rightly exercised its jurisdiction. The NCLAT further held that the requisite conditions precedent within the meaning of Section 241(2) of the Act in the application filed by the Union of India under Section 241-242 were met, i.e. (i) formation of opinion by the Central Government under Section 241(2) and (ii) that the affairs of the Company are being conducted in a manner prejudicial to the public interest. There were sufficient materials on record for the formation of requisite opinion under Section 241(2) of the Act by the Central Government.
Thus, the NCLAT upheld the order passed by the NCLT. It directed the committee nominated by the Central Government to complete all remedial measures and conduct the election of the President and Members of the General Council within 3 months after 31.3.2025.
Case Title: Major Atul Dev (Retd.) & Ors. vs. Union of India, Ministry of Corporate Affairs Through Regional Director (North Region) & Ors.
Case Number: Company Appeal (AT) No.93 of 2022 with Company Appeal (AT) No.141 of 2022
For Appellants:
Mr. Krishnendu Datta, Sr. Advocate with Mr. Gaurav M. Libehran, Mr. Arun Singh Rawat, Mr. Angad Mehta, Mr. Akhil Nene, Mr. Arsh, Mr. Rahul Divedi, Mr. Komal Gupta, Ms. Akariti, Advocates for Major Atul Dev (Retd.) & Ors.
Mr. Kailash Vasdev, Sr. Advocate with Ms. Ruchi Singh, Ms. Aastha Advocates for Rajeev Sabharwal.
For Respondents:
Mr. U.K. Chaudhary, Sr. Advocate with Mr. Raunak Dhillon (Partner, ), Ms. Isha Malik (Senior Associate), Mr. Jeezan Pakliwal (Associate) from Cyril Amarchand Mangaldas; Mr. Sanjay Shorey and Mr. Vinod Sharma, Advocates for R-1/UOI.
Mr. Prateek Kumar, Ms. Raveena Rai and Ms. Moha Paranjpe, Advocates for Delhi Gymkhana Club. Col.
A Khanna (Retd.), SM, Advocate for R-18.
Ms. Niji Sapra, SFIO Complainant.
Date of Judgment: 21.10.2024