2020 (8) TMI 429 - AT - Companies Law

Holding of AGM - Club Membership - members not paid membership fees - It was stated by the appellant that Madras Race Club ( for short MRC ) has two set of members Club Members and Stand Members. Only Club Members have the right to vote at AGM and the present appeal relates to rights of the Club Members - HELD THAT - It is pertinent to mention that Madras Race Club was incorporated as a not for profit company under Section 26 of the Companies Act, 2013 and as per its objects contained in its Memorandum and Article of Associations, Madras Race Club (MRC) has to utilitise its profit and other incomes for promoting its objects. The affairs of MRC is managed by Management committee comprising of 12 members and they are liable to retire by rotation. However, to serve the public interest the Govt. of Tamil Nadu had appointed 4 Management Committee Members who shall not retire by rotation. The MRC had commissioned a special investigation audit by an Independent Auditor viz. Brahmayya Company Chartered Accountant in the year 2016; this was done in order to recover the dues and large number of irregularities observed in MRC. Thereafter, the NCLT Chennai directed that notices issued to the person who were identified as being in default in Chartered Accountant report and also appointed Hon ble Justice K.P.Siva Subramaniyan a retired Judge of the Hon ble Madras High Court to conduct a further independent enquiry to determine the genuineness of the members of the MRC - It is also observed that out of total membership of 1245, 924 members were allegedly admitted during this period from the audit report and from the enquiry conducted by Hon ble Justice K.P.Siva Subramaniyan a retired Judge of the Hon ble Madras High Court. It is very clear that these 635 have not paid the entrance fee . On the intervention of NCLAT, MRC was agreeable to offer the appellants in both the Company Appeals as Stand Member but they refused. The order of NCLT Chennai with an amendment that let the AGM 2018-19 to additionally consider also inter alia the issue of paying entrance fees along with interest at State Bank of India fixed deposit rate for the years of delay in payment, is upheld.

Summary

Issues:
1. Validity of the order of National Company Law Tribunal, Chennai Bench dated 24.09.2019.
2. Convening and holding of Annual General Meetings (AGMs) for the years 2016 to 2019 by the Respondent Club.
3. Appointment of an Independent Chairman for conducting AGMs.
4. Determination of Club Members' rights to vote at AGMs.
5. Alleged irregularities and discrepancies in the membership database of the Club.
6. Management and affairs of the Madras Race Club (MRC) as a not-for-profit company.
7. Removal of certain Club Members from the register of members.
8. Special investigation audit commissioned by MRC.
9. Identification of genuine members by Hon'ble Justice K.P.Siva Subramaniyan.
10. Offer of Stand Membership to the appellants by MRC.
11. Decision on holding AGM for specific years and payment of entrance fees with interest.

Analysis:
1. The appeals arose from the order of National Company Law Tribunal, Chennai Bench dated 24.09.2019, directing the Respondent club, Madras Race Club, to convene and hold its AGMs for the years 2016 to 2019. The Tribunal appointed an Independent Chairman, Hon'ble Justice R.S.Ramanathan, to conduct the AGMs and issued various directions in accordance with the Companies Act and the Club's Articles of Association.

2. The Appellate Tribunal remanded the matter to NCLT Chennai Bench to decide on the case's merit after issuing notices to affected parties. It was highlighted that individuals challenging the impugned order needed to have intervened during the NCLT proceedings. The issue of Club Members' voting rights and the dismissal of certain persons' claims to membership were addressed.

3. The appellants raised concerns about irregularities in the Club's membership database, with discrepancies noted in the admission of members between 2000 to 2015. The Madras Race Club, registered as a not-for-profit company, was required to utilize its profits for promoting its objectives, managed by a Management Committee.

4. A special investigation audit by an Independent Auditor revealed irregularities, leading to further inquiries by Hon'ble Justice K.P.Siva Subramaniyan. The identification of genuine members and the directive to hold AGMs for specific years based on the Auditor's report were emphasized.

5. The Appellate Tribunal upheld the NCLT's order with modifications, including the consideration of entrance fee payment with interest at the AGM for 2018-19. The decision mandated the AGMs for specified years to be conducted promptly based on the genuineness of members identified by the Auditor's report and Justice K.P.Siva Subramaniyan's scrutiny.