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TMI Blog2019 (9) TMI 1385X X X X Extracts X X X X X X X X Extracts X X X X ..... aving membership number : CMM093. Facts of the case : 2. The respondent-company was incorporated on October 13, 1922 under section 26 of the then Indian Companies Act, 1913, having its registered office at post box No. 2639, Race Course Road, Guindy, Chennai, Tamil Nadu-600 032. 3. As per the memorandum of association of the respondent-company, it is a non-profit making company and does not have any share capital. As per the master data of the company available on the website of the Ministry of Corporate Affairs, the company has 7,417 club members. It has been alleged that the respondent-company has not convened annual general meeting(s) as prescribed by the law. Contentions of the petitioner : 4. The petitioner has submitted that as per the master data available on the website on the Ministry of Corporate Affairs (MCA), the last annual general meeting of MRC for the financial year 2014-15, was held on September 22, 2015. Pursuant to section 96 of the Act, the annual general meeting of MRC for the financial year 2015-16 ought to have been held on or before September 30, 2016 (i. e., within six months of the end of the financial year 2015-16 on March 31, 2016). 5. The petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by members of the company. The above rights enable the members of respondent-company to reassure themselves of the continuing financial well-being of the company and keep a check on the affairs of company and its management. 10. The petitioner has submitted that failure by a company to convene its annual general meeting is also an offence punishable under law. The continuing refusal of MRC to convene the annual general meeting has raised serious concerns over the corporate governance and financial well-being of MRC. Furthermore, it reveals steadfast refusal of the incumbent management to comply with the provisions of the Companies Act, 2013. 11. The petitioner has submitted that section 97 of the Act states that if any default is made in holding the annual general meeting of a company under section 96 of the Act, the National Company Law Tribunal may, notwithstanding anything contained in the Act or the articles of the company, on the application of any member of the company, call, or direct the calling of, an annual general meeting of the company and give such ancillary or consequential directions as the Tribunal thinks expedient. Besides this, the petitioner has submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lub, and the list of persons who had been validly inducted and validly continue as members. This would be particularly relevant to determine the list of persons who would be entitled to receive notice of an annual general meeting, attend the same and vote thereat. 15. The respondent has submitted the last annual general meeting of the club was held on September 22, 2015 and in terms of section 96(1), the respondent was required to hold its annual general meeting on or before September 30, 2016. But in the background of the audit exercise which had commenced, but not been completed, the club through its officer addressed the Registrar of Companies and sought for an extension of time in terms of the proviso to section 96(1) to hold the annual general meeting, which was considered by the Registrar of Companies and vide a letter dated September 1, 2016 the Registrar of Companies extended time, and permitted the club to hold its annual general meeting on or before December 31, 2016. 16. The respondent submitted that the committee bona fide believed that the exercise of the investigation and special audit would be completed well within time, and would enable the club to determine its l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the auditors had examined compliance of. These included : (i) availability of application forms ; (ii) name on the member's list for election ; (iii) election by more than 7 members in a ballot ; (iv) name in the declaration letter signed by the additional secretary ; (v) receipt of entrance fee ; and (vi) letter to Guindy Lodge from Members' section. (b) The report classified the non-compliances into 3 categories : (i) those who had fully complied with all procedures ; (ii) those who had complied in part, with one or more of the procedures ; and (iii) those who had not complied with any of the procedures. (c) The report found that out of a total of 924 persons, who had purported to become club Members during the period 2000-15, a mere 53 were found to have complied with all procedures. Shockingly, a total of 277 persons were identified as those who had not complied with any of the procedures. A total of 594 members have been identified as people who have partly complied with the procedures set out, in varying combinations. In this regard, it is relevant to note that a mere 285 members out of the total of 924 members, have paid the entrance fee for the purpose of bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which comprises 4 Government nominees, who are high ranking officials. This is apart from the others, who are all pre-eminent persons of repute from various sections of society. There is therefore a credible and strong Committee that is more than sufficient to ensure compliances, as also the interest of the club. In fact, it is this Committee which took the decision of cleaning up the membership base, in the interest of the club. The respondent has further sub-mitted that the petitioner while referring to section 189(4), deliberately failed to refer section 189(3) in terms of which the register is kept at the registered office, and is open to inspection within the framework thereof by members. The respondent has submitted that if the petitioner had genuinely been interested, he could have taken recourse to such right. 24. The respondent has submitted that the reference to concern on corporate governance and financial well-being are completely without basis, made causally and without an ounce of substantiation or evidence. The respondent contended that there is no default whatsoever in the present case, therefore, the question of section 97 being invoked, does not arise. Proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of payment of EF. Volume I (entry of fees/ receipts) does not contain statement of accounts relating to the accounts of individual members after becoming a member such as in relation to the annual subscription paid by them and payment towards charges payable to the club for the utilization of the facilities of the club. There is a facility of a lodge, a restaurant and other facilities at Guindy Lodge which is part of the club and the actual expenses incurred by the individual member in utilizing the facility are separately accounted as well as payment of the annual subscription. The scope of this enquiry does not concern them and it is restricted to the payment of EF alone and the accounts/details furnished under Volume I are exhaustive and no part of it is missing nor can be described as incomplete." 27. Paragraph 27 of the report says that mandatory process had not been followed properly after 2012. The paragraph is extracted below for the sake of convenience : "27. Perusal of the records shows that these mandatory processes had not been followed properly after 2012 from when no election had been conducted at all. This is also an issue which will have effect on the enrolmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed some of them by representatives. Many who had appeared in the enquiry fumbled and contradicted them selves and admitted not paying EF. It is true that a small number of them may not have received the notices for whatever reason. For which they have to blame themselves and some may not have been in town on the dates of enquiry. But they were entitled to reply in writing. However, the numerical statistics of the response do not inspire confidence in their defence. 50. As regards their entitlement to continue or not as members in the background of the above facts and whether they are entitled to take part in the annual general meeting, are all matters for the National Company Law Tribunal or any court where any proceeding may be pending, to decide." Response of the respondent/MRC to the report submitted by the hon'ble justice (Retd.) Mr. K. P. Sivasubramaniam : 29. In response to the report of the hon'ble justice Mr. K. P. Sivasubramaniam, the respondent has filed an affidavit stating therein that both the independent audit as well as the process carried out by the learned judge has come to the conclusion that these 635 persons are clearly in default and have been enjo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice if necessary by paper publication. The appeal stands disposed of with aforesaid observations and directions. No costs." 32. Based on the direction of the hon'ble National Company Law Appellate Tribunal, this Tribunal vide order dated March 13, 2018 directed the respondent/MRC to issue private notice to the affected persons and cause paper publications. Further, this authority vide its order dated August 30, 2018 directed counsels appearing on behalf of objectors to file vakalath along with the lists of the members giving details thereof and objections, if any. Pursuant to the direction, the followings counsels filed vakalath and objections : Sl. No. Name of counsels No. of objectors 1. J. Raja Rao 73 2. E. Veda Bagath Singh 41 3. D. Prabhakaran 27 4. CIBI Vishnu 17 5. R. Baskaran 14 6. Shree Law Service 2 7. A. Parthasarathy 2 8. Malath Devapriyan 1 9. R. Ravindra Ram 1 10. Subbiah-CMS-189 (in person) 1 Total 179 33. A total number of 179 intervenors/objectors in response to the notice issued have filed their objections. It is seen that pertinently, all of these have uniformly adopted one of the various stands. The summary of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim that they have been enjoying the benefits of club for years. The club is therefore legally stopped from cancelling their membership at this stage. (viii) Learned senior counsel for the respondent has contended that no legal estoppel will operate against MRC. The MRC as well as the members are bound by the articles of association of the club. Since the intervenors have not demonstrated their compliance with these articles, MRC is legally bound to take action, and cannot be bound by any principle of estoppel in this regard. (ix) The intervenors' claim that they cannot be removed as members except as provided under the articles of association/bye-laws. (x) Learned senior counsel for the respondent has submitted that when the intervenors did not even lawfully become members of MRC as per its articles of association and memorandum of association in the first place, the question of removing them as provided under the articles of association/bye-laws does not arise. The intervenors cannot be seen to rely on provisions of articles of association to argue that the present proceeding is unlawful, when they did not comply with its provisions to begin with. (xi) The intervenor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a position to find documents relating to their membership. (xix) Learned senior counsel for the respondent has submitted that the report of the hon'ble justice K. P. Sivasubramaniam clearly finds that the records of the club are complete, and provides an opportunity for per sons to establish their claim to membership by providing relevant documents such as copy of application for membership, and proof of payment of EF. MRC has discharged its burden of proof by showing that there is no record of payment of the EF. Now, the onus is on the intervenor to prove that they complied with the club membership requirements at the relevant time. (xx) Intervenors' claim that members admitted after 2012 have been allowed to participate in annual general meetings although their admission itself may be improper as commented by the hon'ble justice Sivasubramaniam. (xxi) Learned senior counsel for the respondent has submitted that the intervenors while referring to paragraph 27 of the hon'ble justice K. P. Sivasubramaniam's report have clearly misquoted and misrepresented its contents. The report states that the mandatory process that ought to be followed by the club for i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that the National Company Law Tribunal is bound by the remand order of the National Company Law Appellate Tribunal, and it is not open to the intervenors who have appeared before this Tribunal pursuant to the saine, to seek to either contend contrary to the remand order, or beyond its ambit. The respondent has further submitted that if it is the intervenor's case that the enquiry into the correctness of the membership and the appointment of a commissioner are outside the scope of the present proceedings, they are free to initiate separate proceedings of their own. (xxviii) Intervenors' state that the term of all the 12 elected members of management committee has expired and therefore this scrutiny, and any other action taken by the management is illegal. (xxix) Learned senior counsel for the respondent has submitted that management committee is validly constituted and operating. The requirement of retirement of directors by rotation would not arise in the light of the interim relief granted by the High Court of Madras and the pendency of the issue of holding annual general meetings for successive years before this hon'ble Tribunal. In any event, it is not the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nior counsel for the respondent has submitted that the judicial enquiry conducted by the hon'ble justice K. P. Sivasubramaniam is based on the criteria that the parties be given an opportunity to substantiate with records their claims of payment of EF. The respondent has submitted that it is pertinent to note that the intervenors, despite making assertions, have not, till date, been able to provide a single shred of evidence of proof of payment. 34. During the pendency of the main company petition, the respondent/ Madras Race Club has filed C. A. No. 196 of 2017, seeking appropriate directions with respect to the convening and holding of the annual general meeting, for the year 2016-17 and I. A. No. 244 of 2018, seeking appropriate directions with respect to the convening and holding of the annual general meeting, for the year 2017-18. Therefore, C. P. No. 31 of 2017, C. A. No. 196 of 2017 and I. A. No. 244 of 2018 wherein a direction to respondent/MRC for convening and holding the annual general meetings for the years 2015-16, 2016-17 and 2017-18 is sought, are taken together for passing a common order. It is noted that annual general meeting of respondent/MRC is also due for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kumar Kamdar (CMA 100) 2. Mr. Bharath Kumar Kamdar (CMB 005) 3. Mr. Harish Vasanji (CMH 014) 4. Mr. Sarath Vasanji (CMS 183) 37. Besides the above, Mr. Mavila Narayanan Nambiar (CMM 110) has clarified that balance of sum of Rs. 25,000 had already been paid in the name of his friend Mr. Josh Methews, who was an erstwhile member and the amount stood transferred in his favour. Consequently, five members were found to have completed the requirements to become the members of the club and the remaining 635 members were found to have not complied with the basic mandatory requirements for becoming members, whose names are found in annexure 14 to the report of the hon'ble justice K. P. Sivasubramaniam. 38. As mentioned in the preceding paragraphs, this Tribunal in the light of the direction of the hon'ble National Company Law Appellate Tribunal has directed the respondent/MRC to send individual notices to the affected persons claiming to be the members of the club and to publish the notice in the newspapers. The respondent/MRC has complied with the directions given and pursuant to that, 179 person filed objections either by himself or through their counsels. Their objections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erve consequences, such requirement would be mandatory. It is the cardinal rule of the interpretation that where a statute provides that a particular thing should be done, it should be done in the manner prescribed and not in any other way. It is also settled rule of interpretation that where a statute is penal in character, it must be strictly construed and followed. Since the requirement, in the instant case, of obtaining prior permission is mandatory, therefore, non-compliance of the same must result in cancelling the concession made in favour of the grantee the respond entherein." (emphasis supplied) The ratio laid down in Canara Bank v. Nuclear Power Corporation of India Ltd. [1995] 84 Comp Cas 70 (SC) ; [1995] (Supp) 3 SCC 81 is an admitted legal position. However, a reference to State of Jharkhand v. Ambay Cements [2004] 5 CTC 515 (SC) is misplaced, because in the said case the hon'ble apex court was dealing with the exemptions provided under taxing statute and it was held that taxing statute should be construed strictly. But in the case on hand this Tribunal is not dealing with taxing statute. Therefore, reference to the above case is not helpful to the intervenors' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is extracted below (page 59 of 153 Comp Cas) : "In other words, it appears to me that there is no bar in a company altering its register of members provided it is with sufficient cause. If a company has to first take recourse to law for altering its register of members as contended by Shri Sarkar, even then, the court has to perforce examine whether the alteration sought is with sufficient cause and the court cannot simply hold that since the alteration was without recourse to law, the alteration was illegal or invalid." 42. Learned senior counsel for the respondent/MRC has also made a reference to the Halsbury's Laws of England, Fourth edition, Volume 7, paragraph 306, page 176, which states that "where after the name of any person was entered in the register ; it was found that the allotment to him was illegal and void or that the entry was for any other reason invalid and there was no dispute about the matter, the board of directors itself could rectify the register and there was no need to apply to the court for rectification. The section, it may be noted, requires that only in cases where, without sufficient cause, the name of any person is entered in or omitted from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facilities enjoyed in the club, account statement held with the club, reminder letter sent for payment of bills, the notices issued by the MRC. In short, the objectors have no right to enjoy any of the facilities of the club and take part in the annual general meetings on extraneous pleas. Therefore, the plea taken by the intervenors'/objectors is devoid of merits and stands rejected. Hence, the question framed under paragraph 40 hereinabove, is decided in favour of the club and against the intervenors'/objectors. 46. However, in the facts and circumstances of the case, this Tribunal cannot lose sight of the real controversy involved in the matter, i. e., the names of hundreds of persons have been entered in the register of members of respondent/MRC "without sufficient cause" and their names need to be removed from the register of members before any notice is issued to genuine members of the club for participation in the annual general meetings. It is noted that in order to determine the genuineness of the membership of the persons, whose names are entered in the register of members "without sufficient cause", three enquiries have been conducted, i. e., first, by M/s. Bra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he agenda for ordinary business to be transacted in the annual general meetings of the Madras Race Club for the years 2015 to 2018, inter alia, will provide for : (i) Adoption of account of each of the financial years ; and (ii) Appointment/reappointment of auditors. However, for the annual general meeting for the year 2018-19 in addition to the agenda items Nos. (i) and (ii) as noted above, there shall be agenda No. (iii), which shall provide for "the appointment of members to the committee, in place of those who retire by rotation". 51. As has been suggested during the course of hearing, the hon'ble justice Mr. R. S. Ramanathan (Retd.) judge of the hon'ble High Court of Madras is hereby appointed as the Chairman for conducting all the annual general meetings, for which notice shall be issued by him providing a time period of 21 + 2 days prior to the date(s) to be fixed by him for holding the annual general meetings. The notice shall be issued to individual members through registered post with acknowledgment due. In addition to this, notice may also be sent through e-mail provided the e-mail addresses of the members are available with the club. The notice shall also be pu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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