Delhi Gymkhana Club perpetuating apartheid, doors shut for common stock: NCLAT directs appointment of Centre-nominated Administrator

The Delhi Gymkhana Club (Club) by restricting membership to select few and conferring benefits on chosen members is perpetuating apartheid in violation of Constitutional goals of social justice and equality, National Company Law Appellate Tribunal (NCLAT) said [Delhi Gymkhana Club vs UOI].

The NCLAT, therefore, directed the appointment of a Central government-nominated administrator to manage the affairs of the Club.

"Under the garb of the distinctive character of the Club which is a relic of the Imperial past, the doors for membership are virtually limited to people having blue blood in their veins thereby perpetuating apartheid and shattering the most cherished Constitutional goal of securing social justice and equality of status and opportunity," the NCLAT said.

In this regard, it upheld National Company Law Tribunal's (NCLT) prima facie finding that the affairs of the Delhi Gymkhana Club were being conducted in a manner prejudicial to public interest, and, therefore, stayed the acceptance of new membership or fees and disposal of waitlist applications at the Club.

A three-member bench of Acting Chairperson, Justice Bansi Lal Bhat, Member (Judicial) Justice Anant Bijay Singh, and Member (Technical) Dr. Ashok Kumar Mishra accordingly modified the NCLT order which had directed the appointment of two "nominees" in the General Committee of the Delhi Gymkhana Club.

NCLAT opined that the appointment of two nominees was inadequate and of no consequence as they formed a minority in the General Committee, making their appointment meaningless.

The NCLAT was dealing with two appeals arising out of the NCLT order passed in Central government's petition under Section 241 and 242 of the Companies Act, 2013.

While the Central government assailed the NCLT order only to the extent of the relief granted, the Club challenged the legality and correctness of the order.

The Club argued that there was non-application of mind by the Central government as there was no material to show that a valid opinion was formed in terms of Section 241(2) of the Act, 2013.

Considering the order passed by the Ministry of Corporate Affairs for the inspection of the Club under Section 206(5) and statutory violations that were borne out of the inspection reports, the NCLAT observed that the club members had been acting in a manner to confer benefit on chosen members of the Club at the expense of general public.

"It is upon consideration of such material that the Central Government directed initiation of action culminating in filing of the Company Petition under Section 241(2) of the Act, 2013. Viewed in this factual background, it is futile on the part of Club to contend that there was no material before the Central Government for formation of opinion with regard to the affairs of Club being conducted in a manner prejudicial to public interest," the judgment said.

The NCLAT further ruled that the sufficiency or otherwise of material considered by the Central government to arrive at an opinion would not be subject to review, more so when no malafides were attributed.

With respect to the existence of a prima facie case warranting grant of interim relief, the NCLAT opined that there is violation of the restrictions as regards objects in Memorandum of Association (MOA) and Articles of Association (AOA).

"Prima facie it appears that there is violation of the restrictions as regards objects in MOA and AOA and the Government’s land given on perpetual lease primarily for sports-related activity has been converted into recreational Club for a chosen few with doors virtually shut for an aspirant belonging to the common stock.

It also said there was a clear misuse of the Club to jeopardise interest of prospective members.

"It is abundantly clear that misuse of the Club meant for pastime and sports activities and denying access of membership even after accepting the enhanced membership fee and putting them in queue for decades together with utilization of the component of interest admissible on their invested membership fee for the benefit of permanent members and users seriously jeopardized interest of such prospective members and involved public interest."

The NCLAT concluded that the the Central government was able to demonstrate that "fair questions requiring probe" were raised in the plea before the NCLT for replacement of the directors of the Club.

Dismissing the Club's appeal, the NCLAT said:

"..we are of the considered opinion that the impugned order, in so far as finding in regard to existence of a prima facie case demonstrating that the affairs of the Club are being conducted in a manner prejudicial to public interest, does not suffer from any legal infirmity. We accordingly uphold the same."

Delhi Gymkhana Club was represented by Senior Advocates S N Mookherjee, Arun Kathpalia, Gaurav M. Liberhan and Advocate Ash Khanna.

Centre was represented by Additional Solicitor General K M Nataraja with Advocate Vatsal Joshi.

[Read Judgement]