New Delhi: The National Company Law Appellate Tribunal (NCLAT) Monday upheld the central government’s takeover of the Delhi Gymkhana Club, setting a 31 March 2025 deadline for a government-nominated committee to take remedial measures to restructure the club and bring it in line with the Companies Act, 2013, as well as its memorandum and articles of association.
The 108-page order passed by an NCLAT bench comprising chairperson Justice (retd) Ashok Bhushan and technical member Arun Baroka also directed the 15-member committee to hold an election for the club’s president and members of the general council within two months after the 31 March 2025 deadline.
“We are thus satisfied that there was (sic) sufficient materials before the central government to form an opinion that the affairs of the company are being conducted in a manner prejudicial to the public interest,” the NCLAT observed.
However, noting that the club management cannot be superseded for an indefinite period by the government-nominated committee, the tribunal added, “We, thus, are of the view that ends of justice will be served in directing the existing committee nominated by central government to conclude remedial steps and conduct the election of Delhi Gymkhana Club in accordance with clause 20 of Articles of Association.”
Clause 20 says that the club’s management is to be vested in a general committee consisting of a President and 16 other members, and talks about the election of these members.
Legal troubles
The Gymkhana Club’s legal troubles began in April 2020 when the Ministry of Corporate Affairs (MCA) approached the National Company Law Tribunal (NCLT) under sections 241 and 242 of the Companies Act, 2013, which allows members of a company or the government to seek relief if the affairs of an entity are being run in a manner “prejudicial to public interest”, or are deemed “oppressive”, among other things.
Before this plea, the government conducted inspections and filed two detailed reports in July 2019 and March 2020, highlighting various violations of the Companies Act 1956 and the Companies Act 2013 by the club. The inspection came after complaints by 12 people, including two members, alleging various irregularities in the club’s management.
Among other things, the government had said that even though the land was leased to the club by the Ministry of Urban Affairs for sports activities, its total expenditure on sports was just 2.77 percent from 2014-15 to 2018-19. An extraordinarily higher sum was spent on catering, wine, beverages and cigarettes instead, it had said.
The NCLT said the Gymkhana was being run in a manner prejudicial to the public interest after noting violations of the memorandum of association and articles of association as well as financial irregularities and mismanagement.
The tribunal had also found substance in the government’s allegations that the club was being run on the lines of parivarvaad (nepotism).
The NCLAT was now hearing appeals challenging an April 2022 NCLT order that permitted the central government to nominate 15 people as directors on the club’s general committee.
The NCLT order had directed these directors to take action to restructure Gymkhana according to its memorandum and articles of association, and to bring it in line with the provisions of the Companies Act, 2013.
A few members of the club’s former management, represented by senior advocate Krishnendu Dutta and advocate Gaurav M. Liberhan, challenged the NCLT order.
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Gymkhana’s primary object
The Delhi Gymkhana Club is spread over 27 acres on Safdarjung Road in Lutyens’ Delhi adjoining the Prime Minister’s residence. It was initially called the Imperial Delhi Gymkhana Club, but post-Independence, the word ‘imperial’ was dropped.
It was incorporated under Section 26 of the Companies Act, 1913, which corresponds to Section 8 of the Companies Act, 2013. These provisions envisage a company formed not for profit, but for promoting commerce, art, science, charity or any other useful object.
Gymkhana’s primary object was to promote sports. According to the memorandum of association, the club’s main object is “to promote polo, hunting, racing, tennis and other games, athletic sports and pastimes”.
In its April 2022 judgment, the NCLT noted that the government land was granted through a perpetual lease to the club, and there would be no problem as long as the leased land was used for the purposes mentioned in the Memorandum of Association.
Apart from little expenditure on sports, the government had also alleged that from 2014-15 onwards, the club increased its registration fee, additional registration fee and application processing fee.
This amount was received by the club as an interest-free refundable deposit and was treated as income for a certain period, and as liability for a certain period, because it was refunded when demanded.
However, the club invested this amount in interest-bearing investments or mutual funds. The income generated from these investments became a part of the club’s income.
“The two reports and the answers given by the general committee members make it evident that the affairs of the company have been mismanaged. The affairs of the company have not been properly handled besides being prejudicial to public interest,” the NCLT had observed.
Course of action
One of the arguments before the NCLAT was that the NCLT order was for an indefinite period and that the tribunal ought to have directed a course of action to bring the complaints to an end.
The NCLAT said the object of the 15-member committee was to bring an end to complaints and remedy the situation to protect the public interest.
It noted that more than two-and-a-half years had elapsed since the passing of the NCLT order and that the 15-member committee (at present only eight members are functioning) had acted in pursuance of the impugned order and taken certain steps.
The NCLAT also agreed with the club’s former management that the management cannot be superseded for an indefinite period, and that the object of Sections 241 and 242 proceeding is only to bring to an end the matters that were the subject of the complaint.
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Under government scanner
In an interim order passed in June 2020, the NCLT had placed the club under the government scanner, citing irregularity in its functioning.
The tribunal had said that the affairs of the club were prima facie being conducted in a “manner prejudicial to the public interest” and had directed the government to appoint two members to its general committee.
The NCLT had also passed several other remarks against the exclusivity of the club’s membership, saying that even though it has a right to function as it chooses under Article 19 of the Constitution, it cannot supersede the rights of the common public under Article 14, which guarantees the right to equality.
The club’s members include top politicians like Rahul Gandhi and Suresh Prabhu, along with civil servants, armed forces officers and industrialists.
“The shadow over the club is it is so obsessive of its privilege. Maybe it is because the club is of the view that its privilege will remain intact only if people of certain stature become members. Privilege and privileged are misconceived notions and they are all nothing but a reminiscence of earlier legacy, which is a vanity in a democratic society,” the NCLT had observed.
The Gymkhana had then challenged this NCLT order in the NCLAT. The MCA had also challenged the NCLT order in the NCLAT, saying that the tribunal did not grant it “effective safeguard and efficacious remedy”, by not suspending the club’s general committee.
In February 2021, the NCLAT rejected the appeal by Delhi Gymkhana General Committee members against this June 2020 NCLT order, but dissolved the governing council of the Delhi Gymkhana and appointed an administrator to oversee and check “mismanagement” even as the case continued at NCLT.
The general committee members of the club then approached the Supreme Court challenging the suspension of the club’s general committee by the NCLAT.
In September 2021, the apex court directed the NCLT to decide the matter expeditiously and gave it four months to decide on the MCA’s petition. This deadline was extended by another four weeks in March 2022.
The NCLT decided on the Centre’s petition on 1 April 2022, permitting the central government to nominate 15 people as directors on Gymkhana’s general committee to manage its affairs.
(Edited by Sugita Katyal)
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The govt must retain control over the club. It should be a forum for the babus to socialize and have a good time.
If handed over to private citizens, it would invariably become an exclusive haunt of the rich and the famous.
One would prefer the babus over the elites of our society any day.