2019 (9) TMI 1385 - Tri - Companies Law

Rectification of register of members - removal of name of members from the register - Failure by a company to convene its annual general meeting - section 129 of Companies Act - Whether the respondent/MRC is legally entitled to remove the names of the members, from the register of members, entered without sufficient cause? HELD THAT - It is well-settled legal position that it is open to the club to rectify its register of members without seeking an order from this Tribunal provided the names of the persons claiming to be the Members have been entered into the register without sufficient cause . Here it is fully established that the intervenors'/objectors have not complied with the basic requirements for becoming the members of the club, they could not be treated as such on the basis of the bills, receipt of payments made towards the facilities enjoyed in the club, account statement held with the club, reminder letter sent for payment of bills, the notices issued by the MRC. 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. The question is decided in favour of the club and against the intervenors'/objectors. However, 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. Brahmayya and Co., second, by the hon'ble justice Mr. P. K. Sivasubramaniam, and third, by this Tribunal - In all the enquiries conducted, 635 persons failed to prove the genuineness of their membership. The prayer made in the present application is for seeking direction to respondent/MRC for holding the annual general meetings, on the ground that the club defaulted in holding the annual general meetings under section 96 of the Companies Act, 2013. However, the respondent/MRC has contended that the annual general meetings could not be held for valid and genuine reason, as the club has taken a decision to conduct an audit to determine the correct list of members, to whom the notice is to be issued for holding the annual general meetings. The present application is also treated as an application/appeal under section 59 of the Companies Act, 2013 and the respondent/MRC is hereby directed to rectify the register by removal of the names of 635 persons from the register of members of the club - Petition allowed.

Summary

Issues Involved:
1. Non-convening of Annual General Meetings (AGMs).
2. Validity of club membership and compliance with membership procedures.
3. Rectification of the register of members.
4. Legal consequences of non-compliance with Companies Act provisions.
5. Appointment of an independent observer and auditor.
6. Directions for holding AGMs and related procedures.

Detailed Analysis:

1. Non-convening of Annual General Meetings (AGMs):
The petitioner, a member of the respondent-company since 1998, filed Company Petition No. 31 of 2017 under Section 97 of the Companies Act, 2013, alleging that the respondent-company failed to convene AGMs as required by law. The last AGM was held on September 22, 2015, and the AGM for the financial year 2015-16 was due by September 30, 2016. Despite an extension granted by the Registrar of Companies until December 31, 2016, the AGM was not convened.

2. Validity of Club Membership and Compliance with Membership Procedures:
The respondent-company discovered irregularities in its membership database and engaged M/s. Brahmayya and Co. for a special audit. The audit revealed significant non-compliance with membership procedures, including the payment of entrance fees (EF). Out of 924 purported members, only 285 complied with all procedures. The Tribunal appointed Hon'ble Justice (Retd.) Mr. K. P. Sivasubramaniam to further investigate, confirming that 635 members did not meet membership requirements.

3. Rectification of the Register of Members:
The Tribunal noted that the respondent-company could rectify its register of members if entries were made "without sufficient cause." The Tribunal directed the respondent-company to remove the names of 635 persons from the register of members, as these individuals failed to provide evidence of compliance with membership requirements, including the payment of EF.

4. Legal Consequences of Non-compliance with Companies Act Provisions:
The respondent-company argued that non-holding of AGMs was due to the ongoing audit to determine genuine members. The Tribunal acknowledged this but emphasized the need to comply with legal requirements. The Tribunal invoked Section 59 of the Companies Act, 2013, to rectify the register of members and directed the respondent-company to hold AGMs for the years 2015-16, 2016-17, 2017-18, and 2018-19 within two months.

5. Appointment of an Independent Observer and Auditor:
The Tribunal appointed Hon'ble Justice (Retd.) Mr. K. P. Sivasubramaniam to determine the genuineness of membership claims. The audit and subsequent investigation confirmed that many individuals did not meet the membership criteria. The Tribunal also appointed Hon'ble Justice (Retd.) Mr. R. S. Ramanathan as the Chairman for conducting the AGMs.

6. Directions for Holding AGMs and Related Procedures:
The Tribunal directed the respondent-company to issue notices for AGMs, including individual notices to members and publication in newspapers. The agenda for the AGMs was specified, including the adoption of accounts, appointment/reappointment of auditors, and election of committee members. The Tribunal set a quorum of 200 members and outlined procedures for voting and other AGM-related activities.

Conclusion:
The Tribunal allowed the petitions, directing the respondent-company to rectify the register of members and convene AGMs within a specified period. The Tribunal emphasized the importance of compliance with legal provisions and the need for transparency in membership procedures.