NCLT allows govt to take over management of Delhi Gymkhana Club

The National Company Law Tribunal (NCLT) on Friday allowed the central government to take over the management of the prestigious Delhi Gymkhana Club, nearly two years after a plea was submitted by the Centre citing "violations" of companies law by the club.

Passing a 149-page order on the petition filed by the corporate affairs ministry, a two-member bench of the NCLT, headed by President Justice Ramalingam Sudhakar, said there was "sufficient material" for holding that it is a case of mismanagement of the affairs of the club.

Earlier, the tribunal had allowed the ministry to nominate 15 persons as directors on the club's general committee as well as manage the affairs of the club.

"They (ministry) are directed to take all the actions for restructuring of the respondent no 1 (Gymkhana Club) in terms of memorandum and articles of association and take corrective measures, which are in violation," the order passed on Friday said.

Further, it asked the present administrator or any other person in charge of the affairs of the club, to "hand over the charges to the newly appointed directors forthwith".

"The new directors of the general committee appointed by the government in terms of this order shall file a report before this tribunal immediately after taking over charge of the club," the tribunal said.

Advocate Namit Saxena, who was representing the Delhi Gymkhana Club through its administrator, said the government has already filed a caveat in the National Company Law Appellate Tribunal (NCLAT) over this order.

Referring to some members continuing to be part of the previous general committee for a long period, the bench said "some have been continuing from one period to another giving credence to the stand of the central government the club is run in the nature of 'parivarvaad' (nepotism) which cannot be countenanced in the light of the provision of the Companies Act".

Also, the tribunal asked the government directors to file a report before it once in three months or whenever it is required.

In April 2020, the government through the Ministry of Corporate Affairs (MCA) had moved NCLT under sections 241 and 242 of the Companies Act, 2013, seeking to supersede the club's general committee.

Sections 241 and 242 of the Companies Act deal with oppression and mismanagement and give wide powers to the tribunal, which include removal of the managing director, manager or any of the directors of the company and recovery of undue gains.

Delhi Gymkhana Club, initially registered as Section 8 company with specific objectives related to sports and pastimes, obtained land on lease from the government.

The government had alleged that over a period of time, it had slightly started drifting away from the permitted objectives which may also impact subsistence of lease.

The Supreme Court had on September 30, 2021 directed the NCLT to decide the matter expeditiously within a period of four months over a plea filed by the management of the club.

Later on March 11, 2022 the apex court had granted four more weeks to the tribunal.

While noting down its finding, the tribunal in its order said the primary objective of the club was sports and related activities, which also served the public interest.

However, "the facts and the figures stated in the inspection report said "gross irregularities" committed by the Delhi Gymkhana Club and the persons who are conducting affairs of the company (club)," said NCLT.

During the course of the inspection by the MCA, various acts of mismanagement were unearthed.

"For the period beginning from 2014-15 onwards the club adopted the method of increasing the registration fee, additional registration fee, application processing fee etc and invested this amount on the interest-bearing investment/mutual fund and the amount of income generated then become part of the income of the club," it said.

Moreover, the amount received as registration fee was also subsumed as income, the NCLT order pointed out.

"The increase in the number of members namely green cards and UCP which we find... clearly establish the allegation that the General council has been increasing the numbers to enhance its revenue by way of registration gee and penalty, which is a breach of the MOA and AOA," the order said.

The club gives 'preference' to Green Card Holders (GCH) or UCPs (Users of Club Premises) -- a term used for adult children of existing members -- while granting permanent membership.

The NCLT also noticed that even the dependent's green cards are issued for the age of 21 onwards up to 56 years by collecting penalty.

As per the MoA, the club is a non-profit company and such income "will amount to unjust enrichment for no justifiable reason."

"We are therefore of the definite opinion that the affairs 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 application stands justified," it said.

The government in this case has established the "various acts of mismanagement and financial arbitrariness in collecting various amounts, which are contrary to AOA to enrich the club and its members at the cost of third parties," it said.

The tribunal further said such violations are "very serious in nature" and the company can be required to be wound up.

However, the government's petition has been filed only for the purpose of correcting Delhi Gymkhana Club in terms of the Memorandum of Association (MoA).

"Therefore, this tribunal is of the view that at present there is no requirement of passing an order for winding up," it said.