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TMI Blog1968 (1) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... atter. The allegations in the petition are traversed by a common affidavit filed on behalf of the company and members of its governing body sworn to by an assistant secretary of the company. Certain facts are not disputed. The Bangalore Turf Club, hereinafter referred to as the "company", was prior to 1962 an unincorporated body of persons running principally horse races in Bangalore. It was incorporated into a company under the Companies Act, 1956, on the 31st of March, 1962. Although the objects are set out in long clauses in paragraph 3 of the memorandum of association, the principal object undoubtedly is the carrying on the business of a race club in all its branches. The paragraph includes or sets out other objects which are really in the nature of powers intended for effective achievement of the main object. Among them may be mentioned the power under clause ( c ) to give moneys either by way of gratuity or towards prizes, cups, stakes and other reward to any club, organisation or association of any kind, private or public, which is or shall be formed having amongst any of its objects the playing of games or racing or sport, and the power under clause ( h ) to enter int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o refer to this matter in some detail at a later stage it is sufficient now to observe that the petitioner and certain other members were strongly of the opinion that further association with the Mysore Club had better be discontinued for the reason that it had all along resulted in the company taking over large losses incurred by the Mysore Club. At the annual general meeting of the company held on the 20th of March, 1967, some reference was made to this question by the petitioner and certain other members of his way of thinking. But, no definite resolution was proposed or adopted at that meeting on the question of continued association between the two clubs. The balance-sheet for the year 1966 which disclosed the Mysore Club losses to the extent of Rs. 30,000 was adopted by the meeting. On the 1st of July, 1967, the petitioner and 43 others sent a requisition to the secretary of the club to arrange for convening an extraordinary general meeting of the company at which the signatories proposed to move the following resolution : "Resolved that in view of the South India Turf Club having been dissolved and the Bangalore Race Club Ltd. having become an independent turf authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he House of Lords in England bearing on the topic. Ultimately after the meeting was adjourned for a short while for tea, the president, K. N. Guruswamy, returned and gave the following ruling : "I have carefully examined the point of order raised by Mr. P. Sreenivasan and the speeches made by way of reply to meet the objections and in support of the point of order. My ruling on the point of order is as follows : The resolution, if passed, has the effect of interfering with the lawful exercise of the discretionary powers vested in the committee under the articles of association, 40( c ) and ( f ), of the Bangalore Race Club. There is no legal warrant or justification for this kind of interference in the management of the day to day affairs of the club. There is no provision in the Companies Act of 1956 which fetters the discretion of the committee in such matters or curbs their authority when once they have acquired that power under the articles of association. Before any directive as embodied in the resolution can be issued, the general body should assume the requisite power by amending the relevant articles of association by a special resolution. The procedure now adopted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -67 from the Hon. Secretary, Mysore Race Club, requesting permission to run Mysore Races in Bangalore during the current year. RESOLVED that permission be granted, subject to the following conditions : (1) Rs. 15,000 advanced during February, 1967, to be recovered in full. (2) The net profits to be realised from the big meetings to be held at Bangalore be shared 50% 50% equally between Bangalore Race Club and Mysore Race Club, after deducting all items of necessary ex penditure. All facilities for con ducting the race meetings including the services of officials, staff, vehicles, equipment, etc., to be ex tended to the Mysore Race Club. Sd. M. Arshad Ali Khan SECRETARY. Sd. J. B. Mallaradhya CHAIRMAN." The petition, after setting out the facts summarised above,...excepting the committee meeting of 6th September, 1967, makes the following prayers : "( a )For the termination or setting aside of any agreement or arrangement between the company and the Mysore Race Club or for setting aside any decision of the board of management for the payment of moneys by way of grant or subsidy for the conduct of the Mysore races. ( b )For an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion should be confined to the said subsequent situation, viz ., that so far as subsidies to or the bearing of losses of the Mysore Club are concerned, they had, as already stated, been displayed in the balance-sheets of the Bangalore Club from year to year and all balance-sheets up to and inclusive of the balance-sheet of 1966 had been placed before the general body of shareholders and adopted by them. There has not been before me any scope for any controversy in regard to those matters. In this view, the questions whether the company may be said to have suffered any prejudice by reason of the previous association between the two clubs and the details of the terms of the agreements between them do not arise for consideration. As there is at present no such long term agreement or arrangement between the company and the Mysore Club, the first prayer will not arise. Whether and if so, what arrangement can or should be or may be entered into between the clubs in future is not a matter on which I need express any specific opinion at present. There could, however, be no doubt that the observations and findings that I may record in this case will govern the conduct of the two clubs in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be filed before the 19th of October, 1967. The said accounts disclosed that the surplus proceeds were sufficient not only to recover the loan of Rs. 15,000 made pursuant to the resolution of the company but also to leave an estimated net profit of the order of Rs. 45,000. After perusing the said accounts, I made a direction for immediate appropriation of Rs. 15,000 towards the indebtedness and also recorded that according to the expectation of the parties, the distribution of surplus profits might not be capable of being completed before the final disposal of the main petition. The company has since filed a consolidated account relating to all the five races. The result disclosed by it is that after recovering the loan of Rs. 15,000, there remains a net profit of just over Rs. 68,000. The prejudice, according to the petitioner, need not necessarily be a financial or monetary disadvantage in the nature of loss ; it may also be, according to him, a course of conduct pursued by the managing committee involving a contravention of certain of the provisions of the memorandum or articles of association of the company which may be regarded as fundamental to the constitution of the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ember of the managing committee after the incorporation of the company under the Companies Act, he was admittedly a person closely associated with both the clubs for a number of years. The expenses incurred or losses met by the company on account of its association with the Mysore Race Club during all the years right down to 1966 had been accepted by the company by its general body adopting the balance-sheets year after year. I have also referred to the fact that under the rules of the Mysore Club, three of its stewards are persons to be nominated by the company itself. I do not, therefore, accept the argument that any association by the company with the Mysore Race Club or any assistance that it may render to it or any arrangement for extending all facilities to the Mysore Race Club for the purpose of running races can be straightaway condemned as an activity beyond the scope of the objects of the company. Two matters, however, which have been the subject of detailed and emphatic arguments before me, are that certain of the directors of the company have had in existing circumstances such interest in the Mysore Club as to disentitle them from taking part in any decision relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inees of the company they are persons interested in the company itself and not in the Mysore Club, their position as stewards in the latter club subserving the interest of the company which, while extending assistance or other facilities to the Mysore Club, is interested in continued and efficient management of the affairs of the Mysore Club. This argument probably is or may be available in the case of Subbanna ; but it may not be clearly available in the case of Mallaradhya and Venkaji Rao, who are not only members of the company but also members of the Mysore Club. In any event, it is not possible in their case to argue that no situation at all would arise in which some conflict arises between their interest and duty. Their participation therefore in the deliberations of the committee at its meeting of 6th September, 1967, may be inoperative or ineffective from the point of view of voting strength. The result, however, is not such as to render the entire resolution totally non-existent or ineffective. Apart from the fact that the rest of the persons might be sufficient to constitute quorum, the resolution of 6th September, 1967, appears to have been confirmed at a subsequent meet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Mysore Club is affected by section 11 of the Companies Act depends upon the further question whether it is an association for gain or not. The argument on behalf of the petitioner is that whereas the memorandum of association of the Bangalore Club contains the the express provisions under paragraph 4 cited above prohibiting the distribution of any profits to its members, the rules and regulations of the Mysore Club do not contain any such provision. The answer on behalf of the respondent is that, ordinarily, the expression "Club" connoted an association not for gain and that therefore the burden is on the petitioner to make out that the Mysore Club is an association for the purpose of gain and that in discharging that burden the petitioner is met with the position that the rules of the club do not provide for any distribution of profits among its members. Though, prima facie , the position taken up by the respondent appears to be more acceptable, I do not think it is necessary to settle this controversy for the purpose of disposing of this petition. Whether the Mysore Club is a lawful association or an illegal association, the one thing that is clear is that it is not an inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is so as already held it is not open, in my opinion, to make any presumption in that regard, except on proof of dishonesty, that the rendering of such assistance by it was an act in derogation of its objects and purposes or was an act motivated by the prospect of gain. As there is no suggestion of any dishonesty, the rendering of assistance by the Bangalore Club must in normal course be regarded as a course of conduct inspired with a desire of achieving the objects of the club and not with a desire to make any profit or gain. Hence, the entire profits are profits earned, or must be regarded as profits earned, by the Mysore Club. If therefore no part of the said profits can be regarded as property or assets or profits of the Bangalore Club, no question of distribution thereof in contravention of paragraph 4 of its memorandum can arise. There has therefore not been established by the petitioner any prejudice to the interests of the company either from the point of view of the financial gain or loss or from the point of view of any departure from its objects or any contravention of the fundamentals to its constitution. The only remaining question is whether there is anything i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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