NCLT allows Central government to take over affairs of Delhi Gymkhana Club

The National Company Law Tribunal (NCLT) on Friday allowed the Central government to take over the affairs of the Delhi Gymkhana Club, appointing a 15-member committee to manage its affairs [Union of India, MCA v Delhi Gymkhana Club]..President Justice Ramalingam Sudhakar and Member Narender Kumar Bhola passed the order in a petition moved by the Central government under Sections 241 and 242 of the Companies Act, 2013 alleging that the affairs of Delhi Gymkhana Club were being conducted in a manner prejudicial to public interest.“We hold that it will be just and equitable to allow the prayer of the Union Government to nominate 15 persons to be appointed as directors on the general committee," the NCLT stated..The Court held that the Central government had established mismanagement and financial arbitrariness in collecting various amounts by the club which was contrary to the Articles of Association and therefore, was in violation of the provisions of the Companies Act.Further, it was found that the acts were against public interest and prejudicial to the conduct of the company’s affairs.“We are therefore of the definite opinion that the affairs of the company are being conducted in a manner prejudicial to the public interest as also in the manner prejudicial to the interest of the company and therefore, the application stands justified,” the order said..In its petition before the NCLT, the Central government had said that pursuant to several complaints received by it, the affairs of M/s Delhi Gymkhana Club Ltd were inspected by it under Section 206(5) of the Companies Act.During the course of the investigation, the Central government alleged that there was rampant mismanagement by the General Committee of the Club, in violation of the Articles of Association and the Companies Act.It was alleged that the members of the General Committee of the Club were acting for the benefit of a few chosen members, and at the expense of the general public..It was further alleged that over the years, the successive General Committees of the Club had "perversely twisted" the objects of the company and functioned in a manner so as to remain in control of the Club through an "unauthorised and complicated succession mechanism"..The admission process could only be described as 'parivaar-vaad' (dynastic), the Central government alleged..To bring an end to the said mismanagement of the affairs of the Club as well to "arrest the long-standing artificial hereditary succession mode of membership", the Central government had sought a direction to appoint 15 persons as directors to the General Committee of the Club/Company to manage its affairs..Admission process to Delhi Gymkhana Club can only be described as 'parivaar-vaad': NCLT notice in Centre's plea to take over affairs of Club.The NCLT rejected the argument advanced by the respondents that the action of the Central Government was based on irrelevant complaints of members.It was the tribunal's stand that the argument was incorrect since a proper enquiry was carried out once the complaint was received which was when the Central government unearthed a number of issues regarding mismanagement..The Court placed reliance on the case of In Re: Bengal Luxmi Cotton Mills wherein the Calcutta High Court had said, “It is not enough for an applicant to allege that the company's affairs are being conducted in such a manner that a winding up order would be appropriate, but he must also show that such an order would unfairly prejudice the applicant and other members.”With this, the Court found that there was no requirement to pass an order for winding up since the petition had also only sought correcting the respondent company in terms of the MOA..The Central government was represented by Solicitor General Tushar Mehta, Additional Solicitor General KM Nataraj, Advocates Vatsal Joshi, Vinayak Sharma, Dr Raj Singh, DK Singh and Kusum Yadav while the Delhi Gymkhana Club through its administrator was represented by Senior Advocate Krishnendu Dutta, Advocates Namit Saxena, Gaurav M Liberhan, Swapnil Gupta, Angad Mehta and Mehak Khurana..[Read Judgment]