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Friday, July 10, 2020

Explained: How the NCLT ruling on Delhi Gymkhana Club could set a precedent

The Delhi Gymkhana Club has been accused of becoming a den of nepotism and giving preferential treatment in membership to existing members and their children.

Written by Aashish Aryan , Edited by Explained Desk | New Delhi | Updated: June 28, 2020 6:32:06 pm
NCLT ruling on Delhi Gymkhana Club, Delhi Gymkhana Club, Delhi Gymkhana Club nepotism, Delhi Gymkhana Club news Delhi Gymkhana Club. (Express Photo/File)

The Principal Bench of National Company Law Tribunal (NCLT) has ruled that the Delhi Gymkhana Club was acting in a manner prejudicial to “public interest” and therefore must be probed. A single member bench of acting president B S V Prakash Kumar ruled that a five-member central government-appointed panel should look into the affairs of the club, including the land usage and various policies on member admissions it has had over the years.

Where is the Delhi Gymkhana Club?

Located in the heart of Lutyens’ Delhi, the 107-year-old Delhi Gymkhana Club is a colonial era insitution spread over 28 acres. The club has always been extremely limited and exclusive, with waiting periods for membership stretching as long as 45 years. The club, registered as a company under Section 8 of Companies Act, claims a perpetual lease over the premises it is currently housed in and pays a nominal rent of Rs 1,000 per year.

Class I officers of the government who wish to be members of the club must submit an application with a demand draft of Rs 1.5 lakh, while private citizens not working for the government must submit a crossed demand draft of Rs 7.5 lakh. The club is run by a 16-member governing body, which consists of various retired government and army officers as well as other private citizens.

In April this year, the Ministry of Corporate Affairs (MCA) moved the NCLT claiming that the club was being run in a manner which was “prejudicial to public interest”.

Why does the MCA want to take over the Delhi Gymkhana Club?

Among various other charges, the MCA alleged that the club had over the course of time become a den of nepotism and gave preferential treatment in membership only to existing members and their children. Due to various complex rules around admission to club, the membership was consistently denied to applicants, while the application fee they submitted was used by the club for its activities, the MCA had alleged.

This, the ministry had claimed, was in violation of Companies Act, under which the club was registered and functioning. The MCA had then petitioned the NCLT that a 15-member body should replace the existing general committee of the club. It had then also suggested that the new committee would also undertake a “restructuring” so that the club “functions as per the terms of its memorandum and articles of association.

NCLT ruling on Delhi Gymkhana Club, Delhi Gymkhana Club, Delhi Gymkhana Club nepotism, Delhi Gymkhana Club news Located in the heart of Lutyens’ Delhi, the 107-year-old Delhi Gymkhana Club is a colonial era insitution spread over 28 acres. (Express Photo: Amit Mehra)

‘Facing harassment as we denied membership to MCA official’

In its reply to the petition moved by the MCA, the Delhi Gymkhana Club had alleged that they were facing harassment at the hands of the central government as they had denied membership to Navrang Saini, a high-ranking official of the ministry. Saini, currently a whole-time member of the Insolvency and Bankruptcy Board of India, was serving as a Director-General during his last stint at the MCA.

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The Delhi Gymkhana Club also alleged that the report based on which the government claimed mismanagement by the general committee of the club was signed in a hurry by the official concerned “without application of mind”. Asserting that there was “no element of public interest” as the Delhi Gymkhana Club was a “private club formed for the use of its members or other permitted persons”, the management committee of the club had requested the NCLT to dismiss the management takeover petition filed by the MCA.

What the NCLT says in its order?

Apart from holding that prima facie the club was conducting its affairs in a manner which was prejudicial to public interest, the NCLT also said that club should have “left its doors ajar for many if not all” so that everyone could take benefit of the bar, ballroom, the swimming pool, library and other sports facilities.

The NCLT, in its order, also said that though the club had right to function as it chose to under Article 19 of the Constitution of India, the same could not supersede rights of common public under Article 14, which promises equality to all. “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 said.

The NCLT has, until further orders, barred the club from undertaking any construction on its premises, take any policy decisions or deal with the funds received for admission of new members.

Are other similar clubs also under any threat?

Though it is too early to say that, the order by NCLT does set a precedence, which gives the government the power to appoint committees to probe the affairs of such private clubs. Clubs like the Delhi Gymkhana Club, which run on lands leased to them by various state governments and the central government, are likely to be more careful in their approach to membership being denied to people and officials. The land usage and patterns, membership and other fee policies of such exclusive clubs could also come under public scrutiny in case the central or state governments decide to probe them for irregularities.

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