Company Law Board
Shri Rajeev Kwatra vs Shri Sunil Khanna And Chandigarh Club ... on 25 November, 2004
Equivalent citations: [2006]129COMPCAS373(CLB), [2005]60SCL184(CLB)
ORDER
K.C. Ganjwal
1. The petitioner has filed Company Petition No. 22 of 2004 against Chandigarh Club Ltd., Chandigarh under Sections 397, 398 and 399 of the Companies Act, 1956 highlighting the oppression, and mismanagement by the respondent club.
2. Chandigarh Club is a company limited by a guarantee, incorporated on 14.9.1967 and registered with Registrar of Companies, Jallandhar. The main objects of the Club are to promote and to encourage social, cultural and intellectual activities among its members and also to establish, maintain and conduct social and cultural center and to afford member's privileges and advantages, conveniences and accommodation in the Club as also to provide facilities for all types of indoor and outdoor games etc. The present business activities of the respondent company are limning of entertainment sports and meeting club.
3. The petitioner, Mr. Rajiv Kwatra is an advocate by profession and filed this petition in the capacity of a member of the Company.
4. The Learned Counsel for the petitioner submitted that according to Article 3 of the Articles of Association of the club, which was amended at the Extra Ordinary General Meeting of the Company held on 24th Jan. 1998, the membership of the Club was restricted to the maximum of 5000 members with a stipulation that the induction of members shall not exceed 340 in a year in addition to the vacancies which may be available in the normal course and 20% of the vacancies which may be available in the normal course and 20% of the vacancies i.e. ,68 members per year can be filled up from amongst the dependent category. Article 3 of the Articles of Association is reproduced as follows:-
"3 The Company for the purpose of registration is declared to consist of 5000 members of the Chandigarh Club Limited, hereinafter called the Club. The increase of 1700 members to present strength would be spread over to a period of 5 years. The induction of members per year shall not exceed 340 in addition to the vacancies available in normal course. Sixty-Eight vacancies i.e. 20% would be exclusively kept reserved for the dependent category of existing permanent voting members. If in any year, the vacancies to this category are not filled up, this will be transferred to the general category."
5. The Learned Counsel farther submitted that the number of the members of the company has been increased beyond the limit stated in Article 3 of the Articles of Association of the company. The number of members is more than 6500 as on date. The letter received from Registrar of Companies, Jhallandar dated 18.3.2004 stated that the company has not filed any return in respect of increase of the members of the company, thereby violating the provisions of Articles of Association as also the provisions of the Companies Act, 1956. The company has also not prepared annual accounts and balance sheet in terms of Section 210 of the Companies Act, which is statutory duty of the respondent company. The company has not filed its balance sheet as on 31.3.2001, 31,3.2002 and 31.3.2003 as well as the annual returns with the Registrar of Companies, Jhallandur. The Annual General Meeting and the elections of the Executive Committee were held on 3,4.2004 and the acting Executive Committee has thought of covering up its mistakes during the annual genera meeting. The Executive Committee proposed to amend Article 3 of Articles of Association whereby the maximum limit of total members is to increase to 7000 members. The Executive Committee has first increased the number of members and the relevant Article 3 of the Articles of Association is sought to be altered much after that, The functioning of the respondent company is not in accordance with law, equity and sound principles of management. While announcing the election programme, the Executive Committee has not appointed any officer for holding the elections and no person has been appointed who could hear the objections to the nomination papers. This is specially required in the circumstances, when the elections are sought to be conducted on the basis of vague list of members, prepared in anticipation of amendment of Article of Association and ineligible members are made voters, who would participate in the elections. The main points of law in the petition are that the respondent No. 1 has filed in the statutory duty by not filing the appropriate returns under the Companies Act, 1956. The respondents cannot be allowed to proceed with the elections, on the basis of voter list prepared in violation of the Articles of Association and the members made beyond the limit of 5000 members as approved in the last Annual General Meeting and such members should not be allowed to attend the annual general meeting held on 3,4.2004 and vote for the elections. The Executive Committee is bound to maintain its proper account and is required to work in accordance with the constitution of the club while dealing with the public funds and public money. Also the membership of the members enrolled by the Executive Committee in contravention of Articles of association be declared illegal and void. Appropriate action should be taken against the Executive Committee for working the statutory provisions of the Companies Act, 1956.
6. The Learned Counsel for respondent in reply filed application CA No. 130/04 on preliminary objections on the question of maintainability relying on the orders of Hon'ble High Court of Punjab and Haryana dated 5.5.2004 and submitted that the Hon'ble High Court had given liberty to the respondents/applicants to raise an objection with regard to the maintainability of the petition itself Thus the respondent by way of filing application are challenging the maintainability of the petition itself and the same be trested as preliminary objections and be decided in accordance with law.
7. The Learned Counsel for respondent further submitted that the petitioner has no locus standi to maintain the petition itself much less claim the relief with regard to same or any ancillary issue. The petitioner has not complied with the mandatory condition for applying under Section 397/398 and as such, the question of grant of any relief does not arise. The application for impleadment has been filed subsequent to the filing of the petition and the same cannot be treated as consent as envisage under Section 399 of the Companies Act, 1956. Moreover, there are certain consent letters, which are purported to have bee; given by certain alleged members whose membership has been terminated and are otherwise ceased to be a member before the filing of the petition, For instance, the consent letter 232 is shown to be given by Shri Gurpreet Singh, son of Trilok Singh, membership No. 1277. His membership in fact was terminated with effect from 27.11.200 and the said membership now belongs to Shri Anil Khosla. Similarly, the consent letter No. 412 purported to have been given by Shri Vijay Tandon, son of Shri Sohanlal Tandon, Membership No. 2280 stood terminated with effect from 27.11.2003 and now belongs to Shri G.D. Mehta. The Learned Counsel further submitted that the name of members does not tally with the membership number assigned to such a member. For instance, consent letter No. 169 is purported to have been given by Shri J.S. Nalwa, son of Shri D.S. Nalva and his membership No. is shown 799 but as per records of the club the said membership number belongs to Shri Ajay Gulati. Another consent letter No. 176 is purported to have been given by Shri Pushpinder Singh and is shown to be having membership No. 857 but as per clubs record the said membership number, belongs to Mrs. Gurinderjeet Kaur. The Learned Counsel for respondent also pointed out that in case of some persons, double consent letters with different signatures and even different, fathers name have been filed. For instance, two consent letter Nos. 210 purported to have been given by Shri S.K, Bansal with membership No. 1076 and therein the father's name has been given as Shri Ramlal Bansal and Shri J.K. Bansal and in both the consent letters, the signatures are also different. The name of members, in certain cases, do not tally with the name appearing in the membership form. The consent letter No. 140 is shown to have been given by Shri Taranander Singh, membership No. 606 whereas as per records of the club, the said membership belong Shri B.L. Ramsisaria and consent letter No. 205 is shown to have been given by Shri RPS Randhawan, membership No. 1013 whereas the same belongs to one Shri Vinod Kumar Sood. The Learned Counsel further submitted that in some cases, even triple consent letters has been given The consent letters No. 947, 949 and 950 are shown to have been given by Shri Jaskaran Narang, son of Shri A.S. Narang with membership No. 4621, 4627 and 4627 respectively. The signature of the consent letter Nos. 947 do not tally with the signature on the other two consent letters. Further membership No. 4623 as shown in the consent letter No. 427 belongs to Shri Amarpreet Singh Bawa. The Learned Counsel for respondent submitted that there are about 208 members whose signatures as contained on the alleged consent letters do not tally with the signatures on the original application form available with the club. Some members of the club had approached the club that they had not signed the petition purported to have been filed and their signatures had been forged in connivance with the petitioner as much as forty members have given affidavits to this effect.
8. The Learned Counsel for respondent further submitted that the petitioner has intentionally and with ulterior motives withheld vital information/facts and has mislead this Board by suppressing the facts. It is a well-settled law that a person, who does not approach with clean hands, is not entitled to any indulgence whatsoever. The petitioner has given a wrong declaration that he has not filed any suit regarding the matter in respect of petition nor any suit or application is pending except CWP No. 4660 of 2004 before the Hon'ble High Court of Punjab and Haryana. It is submitted that a civil suit dated 9.3.2004 was filed by Shri VST Mallick and Shri Vikas Kumar for declaration to the effect that the membership beyond 5000 contained in the membership list for the year 2004 is illegal, null and void, in which learned civil judge, Chandigarh passed an order dated 29.3.2004. Another suit was filed by the petitioner alongwith the aforesaid Shri VST Mallick and Shri Jaspal Singh Thukral for declaration and injunctions with regard to alleged illegality and validity of the members beyond Serial No. 5000 and for injunction against the membership beyond 5000 for participating/attending the Annual General Meeting, which was going to take place on 03.04,2004. Further, CWP No. 4660 Of 2004 was withdrawn on March, 15 2004 with liberty to approach for taking appropriate action the Registrar of Companies was moved who in turn issued notices 18.3. 2004 the Respondent to which replies had been filed and the same is pending before the said authority, The Petitioner alongwith Shri Rajesh Girdhar, C. M. Munjal and Dr. Anmol Rattan Siddhu had filed yet another civil writ petition No. 5293 of 2004, which was dismissed on 26.3.2004. The facts of the said writ petition has not been mentioned before this Board. However, a copy of the order-dated 26.3.2004 passed in the said writ petition has been annexed. Thus it would be observed that the Petitioner and others have had several rounds of litigations seeking the same reliefs which have been conveniently suppressed with a view to have a favourable order. If the Petitioner would have mentioned aforesaid facts before this Board, the passing of the conflicting ad-interim orders could have been avoided and precious time of the court would have been saved. It is apparent from the order passed by Hon'ble High Court that there is conflict between order passed by the Civil Court and CLB. The Petitioners have been indulging in forum shopping. The Learned Counsel for Respondent relied on the judgement of Hon'ble Supreme Court in the case of Sh. S.P. Chengal Varaya Naidu v. Jagannath By Lrs and Ors. (1994) 1 SCC wherein it is held that if the litigant with holds a vital documents in order to gain advantage on the other side, then he would be guilty of plying fraud on the opposite party, The principal of "finality of litigation" cannot be pressed to the extend of such an austerity that it become an engine of fraud in the hands of the courts of law are meant for imparting justice between the parties. One, who comes to the court, must come with clean hands, A person whose case is based on falsehood has no right to approach the court he can be thrown out any stage of the litigation.
9. The Learned Counsel for the respondent also relied on the judgments: -
1. J.P. Srivastava and Sons (Rampur P. Ltd. and Ors. v. Gwalior Sugar Co. Ltd. and Ors., (2000) 39 CLA 248 (MP)
2. Babu Ram Agrawal v. R.A.M. Earth Movers P. Ltd., (1995) 3 Comp. LJ 356;
10. The Learned Counsel relied on above two judgments to indicate that the law requires that the consent referred to in Section 399(3) is a condition precedent to the making of the petition and must have been obtained prior to the presentation of the application. Such consent has to be in writing, i.e., in the form of a document. It is, therefore, obvious that such document itself should prove that the consent has been given No evidence either by way of affidavit or of oral statement in the court is permissible to be given to prove that such consent was in fact given. The provisions contained in Section 399(1) clearly stipulate that the right to apply under Section 397/398 was made available to only such oppressed member/members of a company who satisfied the minimum eligibility criteria specified in that section.
11. A petition under Section 397 shall be in form No. 43 and a petition under Section 398 in Form No. 44, it was clear from a perusal of Form Nos. 43 and 44 that the name and addresses of the members who had given their consent to the petition had to be mentioned in the schedule and letters of their consent were to be annexed to the petition The Learned Counsel also relied on the judgement of Company Law Board:
S.S. Laxminarayanan and Anr. v. Mather & Platt India Ltd. and Ors.,(1997) 26 CLA 245 (CLB), wherein it is held that the consent contemplated under Section 399(3) of the Companies Act, 1956 is intelligent consent in the sense, that consent given for the purpose of making particular allegation in the petition and for the purpose of claiming a particular relief therein, therefore a blanket consent cannot be a consent as contemplated by Section 399 (3).
12. The Learned Counsel for respondent accordingly submitted that the petition is non maintainable as the petitioners have played fraud on the court and have no: come with clean hands and did not disclose the cases filed in other courts at the time of filing of the petition. Secondly, the provisions of Section 399 have not been fulfilled by the petitioner as they did not file the consent letters at the time of filing the petition and there was non application of mind by these consenters, About 40 consenters have given affidavits that they had not signed the consent letters which have been fabricated by the petitioners. Accordingly, the petition is not maintainable and be dismissed with heavy costs.
13. Before I proceed to discuss the evidence and arguments adduced by both the parties in their submissions, it would be appropriate at this stage to discuss the various events which took place in this case till the final arguments were heard as these events have definite bearing on the outcome of this case.
14. This case was first mentioned on 2.4.2004 by the Learned Counsel for petitioner and the petition was admitted, It was mentioned in the order that Annual General Meeting can be held but only 5000 members admitted by Article 3 of the Articles of Association of the respondent company would only vote. Those inducted beyone 5000 will not be allowed to vote. The consent letters of all applicants to be tiled within two weeks. Mrs. R. Kukreja, Bench Officer was appointed as Observer for Annual General Meeting to be held at Chandigarh on 3.4.2004 at 10 a.m at the request of petitioners.
15. The Learned Counsel for respondent mentioned the applications filed by them wherein they had raised preliminary objections with respect, to maintainability of the petition. The other application CA 129/04 related to necessary directions for declaring the results of the elections of the respondent club held on 3,4.2004, Both the applications were argued at length by the Learned Counsel for respondent and he also sought time to file affidavit of 38 persons out of 1021 that have not given consent letters. In the meantime the respondents had gone to the Punjab High Court and it was mentioned by the petitioners at the hearing held on 21.7.2004 that Hon'ble High court of Punjab and Haryana, Chandigarh has passed the following order dated 3.4.2004 in Company Appeal No. 8 of 2004:-
"Heard Shri Ashwani Kumar Chopra, learned Senior Advocate appearing on behalf of the Appellants in relation to admission of this appeal filed under Section 10(F) of the Companies Act against Order dated 2.4.2004 passed by the Principal Bench, Company Law Board, as also in relation to the grant of interim relief.
2. Having perused Section 29 of the Companies Act read with Table 'C' of Schedule 1 and Articles 2 and 3 of the Articles of Association of the Company limited by guarantee and not having a share capital the Memorandum of Appeal the petition for grant of interim relief and the Annexures attached thereto and heard Mr. Chopra on the question of admission of this appeal as well as grant of interim relief and we admit the appeal,
3. Let notice issue by registered post as well as ordinary mode for which necessary requisites are required to be furnished by Monday failing which this Appeal shall stand dismissed.
4. Coming to the grant of interim relief we issue notice under same mode returnable on April 8, 2004.
Having regard to the peculiar facts and circumstances including the aforementioned two Articles under which the Board of Directors can resister and increase Members whenever the Company or the Board of Directors require it and the assertion that the Board of Directors of the company had increased the Members, we, in view of the fact that the clock has struck 12 Noon and thereby presuming that the election process must have commenced, in the larger interest of justice, permit casting of votes in terms suggested by the Civil Court, but the result of the voting shall not be announced subject to further orders of this Court.
5. We authorize Shri Ashwani Kumar Chopra to inform the substance of this order immediately to the Respondent and all concerned in view of the fact that the Office of the Court is closed today but at the same direct the Joint Registrar (Judicial) to inform Shri Sunil Khanna, President of Chandigarh Club and Shri S.C. Kapoor, Senior Advocate, who is the Returning Officer.
6. Before parting, it is clarified that this order shall not be taken to be any expression of the view of the High Court in relation to the orders passed by the Civil Court, a copy of which has been appended as Annexure P-3."
16. Another order of Punjab and Haryana dated 5.5.2004 is also relevant under which certain further directions had been given and it was mentioned that the results of the elections should not be declared till otherwise directed by Company Law Board. The parties were given liberty to raise an objection with regard to maintainability of the petition itself. The order or Hon'ble High Court of Punjab and Haryana of 5.5.2004 reads as under:-
"The Chandigarh Club Limited being a company limited by guarantee and incorporated under the Companies Act, 1956, hereinafter referred to as the Club, is conducting its affairs at Chandigarh with different objects including to promote and to encourage social, cultural and intellectual activities amongst its members on the lines of community center. The Members of the Executive Committee of the company hold the position as Directors under the provisions of the Companies Act. Article 3 of the Articles of Association of the Company provides the number of members to be 5000, which could be increased in terms of said Article.
According to the appellants before us, the respondent in the appeal, namely, Rajiv Kwatra, approached the Company Law Board, Principal Bench, New Delhi by filling a petition under Sections 397 and 398 of the Act, challenging the affairs of the company, particularly in relation to the induction of Members beyond 5000. Two other persons had also filed a suit for declaration and injunction with regard to alleged legality and validity of the membership of the Members registered beyond Serial No. 5000. While the Additional District Judge, Chandigarh, vide order dated 29.3.2004 granted partial injunction to the plaintiff and subject to the terms and conditions stated in the order, the Members who were in excess of 5000, their ballot papers were ordered to be kept in a. sealed box. The contest in. the election was directed to be at the own risk and responsibility of the contesting candidates. The suit is still pending. After the order was passed by the Civil Court, the petition under Sections 397 and 398 of the Act came up for hearing before the Company Law Board, which vide its order dated 2.4.2004, admitted the petition and directed that the Members inducted beyond 5000 will not be allowed to vote. Against this order, the present appeal has been filed by the appellants.
Apparently, there is conflict between the interim orders passed by the Civil Court as well as the Company Law Board. The Company Law Board is constituted under the provisions of the Companies Act with special jurisdiction, whereas the jurisdiction of the Civil Court is controlled by the provisions of Code of Civil Procedure.
Having heard the learned counsel for the parties at length we are of the considered view that it may not be very appropriate for this Court to decide the merits or otherwise of the respective contentions raised before us in this appeal which itself is against the inter-locutory order afore-referred.
Having regard to the peculiar facts and circumstances, we consider it expedient to dispose of this appeal with following directions to the Company Law Board. These directions are being made without expressing ourselves in regard to the merits of the issues pending before the Company Law Board and without prejudice to the rights of the parties before it:-
i) that the proceeding before the Company Law Board, New Delhi, under Sections 397 and 398 shall be dealt with expeditiously and final order passed in regard thereto, in any case, not exceeding two months from 12th of May, 2004,
ii) The election of the company has already been held under the orders of this Court dated 3.4.2004. The result thereof should not be declared till otherwise directed by the Company Law Board, Interim orders, if any, passed in this regard shall be subject to the final orders which the Board may pass while disposing of the matter finally in terms of the directions contained in this order;
iii) The parties will be at liberty to raise all the pleas in regard to mis-management of the company, oppression of minority and/or even ancillary question relating to accounts before the Company Law Board in support of their principal pleadings. Liberty to the parties to raise an objection with regard to maintainability of the petition itself.
iv) The proceedings before the Civil Court in Civil Suit No. 61 dated March 9, 2004 titled VST Malik Advocate and Anr. v. Chandigarh Club Limited and Ors. shall remain stayed till one month after the pronouncement of the order by the Company law Board,
v) The Executive Committee/Board of Directors of the company are therefore directed to produce all the records before the Company Law Board, including the Balance Sheet for the last five years and Membership Register(s) so as to determine the election of voting rights of the member which was the principal dispute raised before us in this appeal as well.
vi) The parties are at liberty to move application for interim orders before the Board including declaration of results of the election. Such request, if made, shall be considered by the Board independently of the interim orders passed earlier by the Board as well as the Civil Court.
The appeal is disposed of with the above directions while leaving the parties to bear their own costs.
Let a copy of this order be dispatched to the Company Law Board, New Delhi, for its intimation to and follow up action by it."
17. Thereafter, some applications have been moved by intervenes to be impleaded as parties to the case. CA 185/04 has been, moved by Shri Mukesh Bassi, Dr. Sanjeev Goel and Shri Raj Kumar Mittal who are contestants in the election of the Executive Committee of the respondent club for declaration of result of election pursuant to the order dated 5.5.2004 of the Hon'ble High court. Mr. Keshwani arguing for the intervenes stated that proper Annual General Meeting has been held and that results should be declared so that the new Committee can take over. The new Committee can look into and rectify the mistakes/irregularities committed by the previous Committee, Mr. Keshwani submitted that the CLB has no power to go into the Annual General Meeting as the elections in the Annual General Meeting were held as per High Court orders and CLB can only declare the results.
18. CA 322/04 has been moved by Shri Amarjeet Singh Sethi who is a contestant for the post of President for being impleaded as party to the case. Mr. Sethi submitted that at the time of counting of votes a large number of discrepancies have taken place in the election conducted by respondent No. 1 and 2 and as such the entire process initiated by the respondent club is vitiated and illegal, The ballot papers had been changed in the election, process. The total number of votes polled and the number of votes counted do not match in the election of the President, Vice President and Executive Members. The ballot papers were tampered/changed as some ballot papers were tick marked while all others were stamped which clearly shows that some additional ballot papers were put in the ballot box subsequently. Moreover, there were no returning officers present at the time of counting of the votes. Further, that the no due certificates which are mandatory and necessary for each club member to produce before issuance of the ballot papers were not in existence. Mr. Sethi prayed for recounting of votes after verification of no due certificates. He produced the ballot papers found in the Bathroom of the club . He also relied on the letter of the Club dated 17.3.2004 stating that the list of permanent voting members is under printing. He said that the list was never provided to him. He also relied on the letter dated 3.4.2004 given by him to the observer appointed by this board He stated that 411 votes have been wrongly cast in the first 5000 members and 411 eligible members have been stopped from voting. He also stated that his request for video recording and for polling agent was rejected and also that the Annual General Meeting was never concluded so no election could be held.
19. CA No. 154/04 has been moved by Shri C.M. Munjal, Dr. Anmol Rattan Sidhu, Shri Gopal Gupta, Shri Priya Bhusan Sharma and Shri Ajay Bir Singh who are the Executive Committee members of the club for being impleaded as party to the case. They have also moved CA 153/04 and CA 323/04 on financial mismanagement and quashing of the election to the Executive Committee. Shri Priya Bhushan Sharrna has also filed his objections pursuant to the order of the High Court dated 17.10.04. Shri Sanjeev Saraswat, the learned counsel for the intervener filed written submissions and submitted that there is complete and fragrant violation of Article 31 of the Articles of Association of the Club, In terms of the said Article the entire phase of the club are to be managed by the Executive Committee. However, the Respondent No. 1 and in concert with Shri Sandeep Sahni is handling the affairs of the club exclusively. This amounts to breach of the said Article. Huge amounts have been spent by these persons without approval of the Executive Committee members. He further submitted that the Executive Members have been denied access and inspection to the minute book of the meeting of the Executive Committee, balance sheets, register of members etc. despite letters written to the General Managers. In response to the said letters Shri Sandeep Sahni replied that the minute books are in the cupboard and the keys are with the President . The Learned Counsel further submitted that even the agenda for the Annual General Meeting held on 3.4.2004 and the election programme was not discussed and placed before the Executive Committee. The applicants came to know about this through the newspapers. The applicants by letter dated 8.3.2004 requested respondent No. 1 to review the agenda items and the election programme to ensure smooth and fair elections and requested for an emergent meeting. The request was not headed to by the respondent No. 1 . He further submitted that in as much the agenda for the Annual General Meeting and the election programme was not even discussed at an Executive Committee meeting witch is gross act of mismanagement on the part of respondent No. 1 . the alleged Annual General Meeting and the elections held on 3.4.2004 are vitiated.
20. Further the Annual General Meeting in fact never got concluded and no resolution was passed and without such conclusion no election could have been held. The Learned Counsel also submitted that the balance sheet and annual return as on 31.3.2001, 31.3.2003 has not been submitted to the Registrar of Companies and in this regard notice dated 18.3,2004 has been issued to the respondent No. 1 and the present applicants. In terms of Article 31(7 and 8) of the Articles of Association, only the Executive Committee can take decisions in respect of litigation instituted against the club. The present petition was not even placed before the Executive Committee for discussion. The acting president without the authority of the Executive Committee cannot on his own and unilaterally defend the litigation against the club.
21. In the light of the foregoing orders of Hon'ble High Court of Punjab and Haryana, this Bench vide order dated 21.7.2004 directed the President of the respondent club to file the certified copies of the following documents:-
Register of Member Balance sheet of the club for the last 5 years List of members of the Executive committee List of first five thousand members enrolled by the club.
22. After brief discussion on 10.8.2004, with the consent of all parties, a small Committee of one Advocate (Shri Neeraj Chaudhary) and one CA (Shri Naveen Soni) was appointed to go into the list of first 5000 members as well as other documents.
23. The report of the Committee was discussed on 27.9.2004 and the case was adjourned for hearing on 15.10.2004 to decide the question of election of the club which has already been held under the orders of Punjab and Haryana High Court dated 3.4.2004 mentioned above.
24 Keeping in view the directions of High Court of Punjab and Haryana in the above two orders the Committee report was discussed by Learned Counsels of all sides and the following order was passed by this Bench on 15,10.2004.:-
"Heard Learned Counsel of both sides as well as for intervener.
A Committee of two members, one advocate and one Chartered Accountant of Chandigarh were appointed vide this Bench Order dated 10.8.2004 to go into the list o first 5000 members as well as other documents and submit the report as early as possible.
The report of the Committee was discussed on last date of hearing i.e. 27.9.2004 and case was adjourned for hearing today to decide the question of election of the club which has already been held under the orders of Punjab and Haryana High Court dated 3.4,2004. It was also mentioned in the order of Punjab and Haryana High Court dated 5.5.2004 that the results of the election should not be declared till otherwise directed by the Company Law Board.
Keeping in view the directions of the High Court of Punjab and Haryana, the Committee report was discussed by learned counsels of all sides. The learned counsel for petitioner submitted that the report has given list of members bearing Nos. upto 5000 but not forming part of first 5000 life/permanent members (Annexure 'A'') which is 411 in number. Similarly, there is a list of 40 members whose membership numbers have been changed from old numbers to new numbers (Annexure B-2). The third list of four members pertains to duplicate (membership B-3). The next list of four members indicates duplicate admission to membership (Annexure B-4), The last list of six members (Annexure B-5) which indicates transfer of membership number. If all these figures are included they will come to 461, At best the number of doubtful membership on one account or the other, as mentioned in the report is 461 in number as discussed above, which comes to roughly less than 10% of the first 5000 members of the club.
The Learned Counsels for petitioner and intervener submitted that in view of these irregularities of 461 members in the first 5000 members, the election should be declared null and void. The Learned Counsel for respondent submitted that this being a social organization and the irregularities pointed out n the report is only in relation to 5000 members which has been transferred from time to time since 1988-91 etc. There was no malafide intention to allot the vacant slots to the members as and when they applied which had fallen vacant in first 5000 members. Even the petitioners have not sought any relief in regard to elections except that more than 5000 members should not be allowed to vote. The Learned Counsel for respondent also submitted that fresh petition is not an election petition before this Board. As such a workable solution should be found to come out of this situation.
Keeping in view the overall situation and the circumstances of this case as well as the directions of Hon'ble High Court of Punjab and Haryana and in order to find an amicable solution I order and direct the parties as under:-
a. Counting of the votes of the members numbering upto first 5000 members shall commence at the premises of Chandigarh Club at 10 a.m. on 17.10.2004 by the returning officer.
b. The Learned Counsel of both sides are allowed to be present at the time of counting of the votes.
c. Shri Neeraj Chaudhary, Advocate Juris Consultus, Level IV SCO 89-90, City Sub-Centre, Sector-34A, Chandigarh who was Chairman of the report in question, will attend the counting as officer of the Court.
d. Since the list of doubtful members is 461 as stated above which is less than 10%, all results where the margin of winning votes is over 10% shall be declared by the returning officer in the presence of above said advocates and officer of the Court.
e. The winners of the election will take over the management forthwith as per rules of the club and Memorandum and Articles of Association.
f. Where the margin of winning of a candidate is less than 10% all such cases with their details will be handed over to the officer of the court who shall file the same with the Company Law Board for deciding future course of action in their cases.
g. Shri Neeraj Chaudhary shall be paid a sum of Rs. 3000/- by the respondent club.
The case is adjourned to 4.13.2004 at 2.30 p.m. for direction and deciding further course of action in the case of those candidates who are winning with a margin of less than 10% as in (f) above."
25. The parties again knocked the doors of Hon'ble High Court of Punjab and Haryana and the order passed by Hon'ble High Court on 17.10.2004 reads as under:-
"i. the counting as ordered by the Company Law Board continue in the presence of the candidates only with strict orders to the Management of the Club, the Returning Officers and Mr. Neeraj Chaudhary, Observer of the Company Law Board to ensure that the result of the counting is not disclosed to nay one nor published in any manner, with a further direction to the Returning Officers to keep the same in a sealed cover and forward the same to the Company Law Board for its perusal and declaration of the result after the decision of the main petition.
ii. All persons concerned with the counting are directed to strictly comply with the orders of the Court;
iii, the result be declared by the Company Law Board only after the final decision of the main case;
iv. the Company Law Board is directed to take up the main case on 4.11.2004 and after examining whatever material is produced before it by either of the parties on or before 29.10.2004, proceed to decide, the matter after hearing the same on day to day basis;
v. in the event of any party failing to produce any document, which it seeks to rely, on or before 29.10.2004, Company Law Board may draw an adverse inference against that party as would be available in accordance with law;
With the above directions, the appeal is disposed of The parties are directed to bear their own costs.
Mr. Chopra appearing for the Club undertakes to inform the concerned authorities immediately.
An attested copy of the order be given to the counsel for the parties under the signatures of the Reader of this Court."
26. The matter was argued by Senior Counsels for both sides on 4th and 5th Nov. 2004 and the following order was passed by this bench on 5th Nov. 2004:-
"The counterfoils of ballot paper to be examined by the Committee on 7.11.2004 at 10 a.m. of Mr. Neeraj Chaudhary in the presence of any candidates who wish to be present, Written submissions filed by interveners. Petitioner and respondent club may file written submissions by 11.11.04.
Arguments concluded from both sides. Orders reserved."
27. The applicant again appeared before Hon'ble High Court of Punjab and Haryana in miscellaneous application No. 2131 -CII of 2004 and the following order was passed on 9.11,2004:
"The main grouse in this application under Section 24 of the Code of Civil Procedure for seeking transfer of the case it appears is that the Company Law Board has, without deciding the application under Rules 6 and 9 of the Company (Court) Rules, 1959 for issuance of directions to respondent No. 1 to hand over three copies of unaudited balance sheets for the years 2001-2002, 2002-2003 and 2003-2004 and other records, finally heard arguments and reserved the judgement.
It is not disputed before me by the Learned Counsel for the respondents that the application has not been disposed of and the Company Law Board had observed that all these applications would be decided alongwith the main case. The learned counsel for the respondents further states that copies of the aforesaid balance sheets could not be supplied as these have not been audited on account of the failure of the respondents to appoint an Arbitrator in the absence of Annual General Meeting of the Company. He further states that, if the Court directs, these balance sheets can be made available to the petitioner to seek such help as they may be able to glean from them in support of their petition under Sections 397 and 398 of the Companies Act, 1956. Although these records were stated to be available with the respondents for perusal of the Company Law Board at the time of the arguments yet they are prepared to supply a copy of the same to the petitioner. He also states that copies can be handed over to the counsel for the petitioner by noon tomorrow.
In view of this, Learned Counsel for the petitioner does not want to press this petition and says that he would move an application for further hearing by 16.11.2004 before the Company Law Board, which may be disposed of by it in accordance with law.
In view of the stand taken by the counsel for the parties, no further orders need be passed in this petition and the same is disposed of in accordance with the stand taken by the counsel for the parties."
28. Pursuant to above orders of Hon'ble Punjab and Haryana High Court, the learned counsel for intervener Mr. Mukesh Bassi who had filed application for declaration of election result mentioned on 17.11.2004 and prayed for fixing a date for hearing. Accordingly, the following order dated 17.11.2004 was issued for final hearing on 22.11.2004. :-
"Heard the Learned Compel for intervener who submitted a copy of the order passed by the Hon'ble High Court of Punjab and Haryana dated 09.11.2004 in CM. No 21316-CII/2004 and submitted that a date for hearing the parties be fixed in compliance of this order:
The Hon'ble High Court of Punjab and Haryana, Chandigarh vide order dated 17.10,2004 in Company appeal No. 16/2004 (0& M) gave the following directions:-
"the Company Law Board is directed to take up the main case on 4.11.2004 and after examining whatever material is produced before it by either of the parties on or before 29.10.2004, proceed to decide the matter after hearing the same on day to day basis,"
In deference to the above orders of Hon'ble High Court, the patties were heard on the main petition as well as on the applications filed by both sides and interveners on 4 and 5th Nov. 2004 and the following order was passed on 5,11.04:-
"The counterfoil of ballot paper to be examined by the Committee on 7.11.04 of Shri Neeraj Chaudhary, Advocate in the presence of any candidates who wish to be present. Written submissions filed by interveners. Petitioner and respondent Club may file written submissions by 11. 11.04.
Arguments concluded from both sides. Orders reserved. "
The Hon'ble High Court of Punjab and Haryana in their order of 9.11.2004 have directed this Board as under:-
"In view of this, Learned Counsel for the petitioner does not want to press this petition and says that he would move an application for further hearing by 16.11.2004 before the Company Law Board, which may be disposed of by it in accordance with law."
In view of the above said order of High Court dated 9.11.2004, notice be issued to the parties for hearing the main petition as well as the applications with relations to stand taken by the counsel for the parties before the Hon'ble High Court:
List case for hearing on 22.11.2004 at 2.30 p.m. onwards. The counsel for Intervener undertakes to serve a copy of this order on all concerned parties."
29. All the parties argued their case in respect of all their applications as well as main petition. The arguments concluded by Learned Counsel of both sides and the intervener.
30. The Petitioner has also filed written submissions on 24.11.2004 and submitted that the Petitioners had submitted consent letters of 1080 members in compliance of the directions contained in the order of 2nd April 2004 of this Bench. That on 3rd April 2004, Mrs. Richa Kukerja, Bench Officer submitted the report stating therein that there was utter chaos at the time of holding of the Annual General Meeting. The civil court order was read. Similarly, the members were raising objections to the Annual General Meeting and the order of CLB was not followed properly. There was difference between 5000 members as on 31.3.1998 and later 2000 members, The members raised various objections regarding membership number allotted to the persons after 1998 by haphazard manner. The old membership numbers were allotted to the new members, The accounts for the year 2001-02-03-04 were not audited, nor the audited balance sheet were provided. Lot of non-members were present at the Annual General Meeting violating CLB order. The President of the club did not count the hands raised for the agenda items 1,2,3, & 5 nor did he take into consideration the number of members who were against the resolution. The President refused voting on resolutions and no resolution was passed. The Petitioner has further submitted that in fact out of the consent list of 1080, only 41 affidavits of the persons stating therein they have not signed the consent letter. Before the Company Law Board, Principal Bench, New Delhi that as it may be, even then the remaining members are more than 1/5th members of the total 1031 and all the members are eligible permanent voting members. The investigating committee had found 461 ineligible members. Thus by simple arithmetical calculations by taking out 461 members from the eligible 5000 members, only 4539 members remain and in order to comply with the provisions of section 399 of the Companies Act, 1956 only consent letter of 908 odd members is required. Thus the preliminary objection of the Respondent is. totally misplaced. The Petitioner has relied on the following judgments of the Hon'ble Supreme Court wherein it is held that where the opposite party does not file reply/written statement to the petition, then all the pleas taken by the Petitioners are deeded to be admitted;-
(1) AIR 1964 SC 538 -Dadat & Co. v. East India Trading Co.
(2) Sushil Kumar v. Rakesh Kumar (2003) 8 SCC
31. The acting President and the Respondent Club enrolled new members in utter violation of Article 3 of the Article of Association without getting them approved by the Executive Committee. The case before this Board is not with regard to the manner and the procedure in which the elections and the counting have been held but also with regard to financial irregularities amounting to mis-management and oppression. The elections were held despite the fact that the Annual General Meeting was not being held and it is clear from the report of the committee that there is difference of 411 members. Since the committee appointed by this Board has confirmed one aspect of the matter that there was discrepancy in the list of the members and the number of members is not small, it tantamount to depriving them considering their franchise and thus takes away their rights granted to them under Article of Association as well as Constitution of India. Thus the entire election process, polling and the elections held on 3rd April 2004 was totally vitiated without taking the consent of the applicant - sitting executive member of the board and other executive members are required under Article 44 of the Article of Association which prescribed that no decision can be taken without the 3/4th majority of the executive member. Most of the executive members had not been taken into confidence for passing resolution for getting the ballot papers printed for the obvious reason that there was mis-management on the part of acting President and his favorites. The President polled 2800 votes, whereas the Vice-President polled 2900 votes and executive members polled 3200 approximate votes. Thus there is difference of 100 votes which is only an illustration. The apprehension of the contestant candidates has been proved beyond doubt by examining the ballot papers which have been either ticked marked or stamped. It is not possible by a voter to use both the pen as well as stamp for casting franchise.
32. The Petitioner has further alleged that despite the fact that Mr. Neeraj Chawdhary was directed to be present and observe the voting process, there were glaring ambiguities/ favoritism / partiality / ignorance of basis principles of counting process and the counting was basically a farce. The President of the club appointed Sh. Avinash Sharma, Chartered Accountant as counting officer without the consent of the executive committee. The counting officer has a criminal background and is facing criminal trial. The distance of counting was intentionally kept at 30 feet so that the candidates who were counting their votes, could not see whose votes were valid or not, nor was their any visual camera to show transparence in the counting process. The counting officer intentionally read out serial number at such a high pace that it was humanly not possible to read out and note down the serial number of the contesting candidates. The Petitioner further submitted, that the oral request was made to Sh. Neeraj Chawdhary to compare the counter foils with the ballot paper vis-a-vis no objection / no dues slip issued to each voter and mandatory for casting votes, the list of names of voters and members should be prepared and compared from the record of the club and the signatures of members on counter foils should be tallied from the records of the club. However, no due care was taken by the member of the committee for counting the ballots. The Petitioner had been supplied unaudited balance sheet for the financial year 2001-02, 2002-03 and 2003-04 and he has filed a report of M/s Jain K Vrind & Co., Chartered Accountants Chandigarh with a request that this may be read as part and parcel of the written submission which points out glaring ambiguities and irregularities on the part of Respondent proving the allegations of oppression and mis-management. The Petitioner had requested this Board to provide the balance sheet and other documents but no cognizance has been taken of the same. Accordingly, the Petitioner submitted that this petition be allowed.
33. The Committee headed by Shri Neeraj Chaudhary, Advocate perused/examined the counterfoils of ballot papers to the elections of the Committee in the presence of all candidates who wished to be present and to specifically reported on the discrepancies if any in the counterfoils of ballot papers. Also to tally the number of counter foils to that of number of votes polled during the elections. S/Shri Amarjeet Sethi, P. Bhusan Sharma, Praveen Goel and Satpal Garg were present during the examination of the counter foils. As per statement of the club President Shri Sunil Khanna, signatures of members/voters were obtained only on counter foils and not on membership list. As such the committee was constrained in verification of signature of each voter on the total number of counter foil of ballot which was found to be 3094. The committee has pointed out that except for 14 unsigned counter foils were also found in the sealed boxes which form part of the report.
34. The number of 411 members whose membership was cleared invalid by the Committee appointed by the Board, only 262 members have exercised their franchise. This has been found by tallying the counterfoils of ballots with the number of ballots cast on the date of election. By knowing the membership number of each member and comparing the same with the list of 46 members declared invalid in the Committee report of 20.9.04, it has been found that the actual number of invalid votes caste on 3.4.2004 is 262.
35. The Registrar of Companies,. Jullandhar has also submitted a report indicating complaints filed by each other. He has mentioned that there is inter-sc dispute among two group of members of the club. Registrar of Companies has no material either to support or oppose the petition and the same may be considered on its merits.
36. I have heard the learned senior counsel of both sides and also gone through the records/documents of this case as well as the written submissions submitted by the petitioner as also by the intervener on behalf of Executive Committee members. The respondent did not file the reply to the main petition except an application on maintainability of the petition. The other intervenes also filed various applications which have been discussed in detail above. There are only two issues raised in the main petition and the relief sought for:-
a. To restrain the members appointed in violation of the Articles of Association from attending the Annual General Meeting to be held on 3.4.2004 and voting at the elections of the Executive Committee.
b. To declare the membership of members enrolled by the Executive Committee in contravention of the Articles of Association to be illegal and void.
37. Before I examine and discuss the above said main petition, I would like to first discuss the question of maintainability of the petition. The petition had not been Sled with the requisite number of members supporting the same as required under the provisions of Section 399 of the Companies Act, 1956. The Ex-parte stay order had been obtained by the petitioner on the ground that annual general meeting was going to be held on 3,4.04 and it was necessary to stop the non eligible members to vote at the Annual General Meeting. Accordingly, ex-parte stay order was granted on 2.4.2004 by this Board. The petitioners were fully aware that they had already obtained an order from the Civil Judge, Chandigarh on 29,3.2004 on the same issue. The petitioners did not disclose these facts before this Board while mentioning the petition on 2.4.2004. One of the contestant for executive membership Shri VST Mallick was a plaintiff in the civil court and he is consenter in this petition. There could be other similar members in both petitions. I am not going into detans but this clearly indicates that the petitioner obtained ex-parte stay order from this Board on misrepresentation and by hiding the facts which tantamounts to fraud on Court. This has been pointed out by the respondent in their application on maintainability and relying on the judgement of Hon'ble Supreme Court in the case of S.P. Chengalvaraya Naidu (Dead) By LRS v. Jagannath (Dead) BY LRS and Ors.(1994) 1 SCC. On this short issue, the petition is not maintainable. I may also point out that in the first instance the requisite number of consenters as required under Section 399 of Companies Act, 1956 to maintain this petition, were not available at the time of filing the petition. The consent letters were filed subsequently as per the direction of this Board. The respondents have pointed out and filed affidavit of 40 odd consenters who have mentioned that they have not given their consent to file this petition. May be that after deleting their names from the list of consenters the Petitioner would still fulfill the requirement of requisite members but it clearly shows that the petitioners have not come with clean hands before this Board. They chose to file the consent letters at their own of these 40 odd consenters. On this ground also, the petition is not maintainable. Having said so, I have not dismissed the petition because the respondents did not file reply to the main petition. At the same time, club being a social organization, a prima facie case had been established that the Executive Committee had enrolled more than 5000 members without proper authority. Similarly, there were some financial irregularities like not getting the accounts audited for last three years since 2001.
38. The question of declaration of results of the election was never a issue in the petition. This issue has been raised by the directions of the Hon'ble High Court of Punjab and Haryana while passing orders on 3.4.2004 and 5.5.2004. The elections had already been held under the orders of Hon'ble High Court as stated by them in their order of 3.4.2004, 5.5.2004 and 17.10.2004. It is therefore, obligatory on this Board to go into this issue and declare the results of the elections.
39. The learned counsels for petitioner and interveners have stated that the Annual General Meeting was never concluded and therefore the elections are illegal and void. The intervener on behalf of Executive Committee members has also pleaded the same averments. No doubt that the report of the observer of this Court in the Annual General Meeting held on 3.4.2004, has stated that there was chaos in the Annual General Meeting and the same was not concluded but the election process had started. It is mentioned in the report that the members were quoting orders both of Civil Court and Company Law Board which created confusion. As the elections were held under the orders of Hon'be High Court as stated above, I am not inclined to go into the legality of the Annual General Meeting in so far the elections are concerned. The auditors have not been appointed. Obviously, all the resolutions in the Annual General Meeting had not been completed.
40. It is interesting to note that last elections of the Club were held on 3.3,2001. Since then no elections have been held for last three years. The then President Shri Ravinder Chopra expired in August 2003 and the then Vice President Shri Sunil Khanna took over as acting President. During the oral submissions, the Senior Counsel for petitioner submitted that the whole trouble started after the acting President took, over the reins of the club.
41. The learned counsel for intervener for Executive Committee Members submitted that the acting President had taken arbitrary decisions without consulting other members of the Executive Committee. It is amazing that the Executive committee members kept quite for three years and only woke up when this petition was filed. They have been merely enjoying the benefits of being Executive Committee members but did not perform their fiduciary duties. They were duty bound to initiate legal/other remedial actions. They were also party to the enrolment of members beyond 5000 in contravention to Article 3 of the Articles of Association of the Club. They cannot-suddenly turn back and put whole blame on the shoulders of acting President, They are equally responsible and they cannot be allowed to take benefit of their wrongs.
41 In the light of the above discussions and keeping in view the circumstances of the case and the fact that it is inter-group rivalry of the members and Hon'ble High Court of Punjab and Haryana had to intervene 4 limes during the pendency of this petition.
42. It is also clear from the report of the committee constituted by this Board that only 262 members out of 411 non-eligible members participated and voted in the process of the election. At the most, these- 262 members would have voted in favour or against any particular candidate. I,' therefore, feel that in the case of President and Vice President, the difference of 262 votes should be deducted. After deduction of these votes the candidates securing maximum votes be declared as winner. Similarly in the case of Executive Members, there is no other way except to declare the election on the basis of maximum votes polled in their favour. No member had objected at the time of counting of votes. All objections have been raised as a after thought. Accordingly, I am of the opinion that the result of other candidates be declared on the basis of maximum votes polled in their favour.
43. In view of the above discussions, I declare the results of the elections of the respondent Club held on 3.4.2004. The following persons stand elected:-
President Shri Mukesh Bassi Vice President Shri Sandeep Sahni Executive Members 1. Shri Sandeep Bansal
2. Shri Naresh Chaudhary
3. Shri Ajay Bir Singh
4. Shri Sonaal Nurpuri
5. Shri Raj Kumar Mittal
6. Shri Sanjeev Mehan
7. Shri Ravinderpal Singh Palli
8. Capt. Sanjeev Gandotra
44. I also direct the parties as under:-
a) The Committee headed by Shri Neeraj Chaudhary alongwith Shri Ashwani Kumar, CA of M/s A. Kumar Verma and Co. will identify 411 members to complete the list of 5000 members by 15.12.2004. Such list of total 5000 members shall be displayed at the Notice Board of the Club by the new Management Committee after inviting objections etc within a week. The Management Committee will declare and display the list of all eligible 5000 members by the end of December 2004.
b) The committee of Sh. Neeraj Chaudhary will also go into the cases of all members enrolled after 1998 till date and scrutinize their cases and submit the same to the new management committee.
c) After the completion of above list of 5000 members EOGM shall be called by the club in Jan. 2005 to consider the case of additional members enrolled over 5000.
d) Shri Ashwini Kumar, C.A of M/s A. Kumar Verma & Co. Panchkula will conduct a Special Audit of the Club from 1.4.1998 till 31.3.2004. The report shall be submitted to the new Executive Committee who will circulate to all the members and call the Annual General Meeting to consider the same.
e) The Club will negotiate the remuneration to be paid to Mr. Neeraj Chaudhary as well as the Sh. Ashwani Kumar, C.A conducting Special Audit.
With the above directions, the petition alongwith all other applications is disposed, of There are no order as to costs.