NCLAT upholds order to allow govt to takeover Delhi Gymkhana Club, asks to conduct election

The National Company Law Appellate Tribunal set aside the petition filed by the erstwhile management members against the order passed by the Principal Bench of the National Company Law Tribunal.

New Delhi: Appellate tribunal NCLAT has upheld an order to allow the central government to take over the management of the Delhi Gymkhana Club and directed the existing committee to conclude remedial steps and hold the election.

The National Company Law Appellate Tribunal (NCLAT) set aside the petition filed by the erstwhile management members against the order passed by the Principal Bench of the National Company Law Tribunal (NCLT).

"There were sufficient materials on record for formation of requisite opinion" under Section 241(2) (harmful to the public interest) as "affairs of Delhi Gymkhana Club were being conducted in a manner prejudicial to the public interest, which enabled the Central Government to file an application under Section 241(2)" of the Companies Act, as per the order.

On April 1, 2024, the NCLT allowed the plea filed by the Ministry of Corporate Affairs for taking over the Delhi Gymkhana Club management, citing "violations" of the Company Law and said there was "sufficient material" for holding that, as it is a case of mismanagement.

In its 149-page order, the NCLT had also allowed the ministry to nominate 15 persons as directors on the club's general committee and manage the affairs of the club.

The said order was challenged before the appellate tribunal, which has been now upheld by a two-member bench, comprising Chairperson Ashok Bhushan and Member Arun Baroka.

"The order dated 01.04.2022 passed by the NCLT in Company Petition No... is upheld," the NCLAT said.

The appellate tribunal also directed the committee nominated by the Central Government in pursuance to the order dated April 1, 2022, passed by NCLT to complete all remedial measures.

"The Committee nominated by the Central Government in pursuance of the impugned order dated April 1, 2022, is directed to conduct the election of President and Members of the General Council in accordance with Clause 20 of the Article of Association within three months after March 31, 2025, and install the duly elected General Council accordingly," the NCLAT said.

The appellate tribunal, in its 108-page-long order, said the General Council of the Club, with whom management is entrusted, shall act in accordance with the Memorandum of Association and Article of Association and conduct its affairs accordingly.

In April 2020, the government through the Ministry of Corporate Affairs moved the 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, including removal of the managing director, manager or any of the company's directors and recovery of undue gains.

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

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

The NCLAT, in its order, said: "Application filed by Union of India under Sections 241 and 242 of the Companies Act, 2013, the Union of India was fully maintainable, and NCLT has rightly exercised its jurisdiction under Sections 241 and 242 on the basis of materials on record."

It further observed that the Committee, appointed by the central government, has already taken various steps and filed eight Status Reports to expedite the conclusion of the remedial actions within the time frame.