Delhi High Court
Vijay Chhibber And Ors. vs Delhi Gymkhana Club Ltd. on 2 July, 2019
Equivalent citations: AIRONLINE 2019 DEL 945, 2019 (4) ADR 794
Author: Rajiv Sahai Endlaw
Bench: Rajiv Sahai Endlaw
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of decision: 2nd July, 2019.
+ CS(OS) 510/2018
VIJAY CHHIBBER AND ORS. ..... Plaintiffs
Through: Mr. Aditya Wadhwa, Ms. Tejaswi
Shetty and Mr. Shreeyash Lalit,
Advs.
Versus
DELHI GYMKHANA CLUB LTD. ..... Defendant
Through: Mr. Deepak Khosla and Ms. Himani,
Advs.
CORAM:
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW
IA No.15121/2018 (of the defendant under Order VII Rule 11 CPC).
1. The five plaintiffs, namely Vijay Chhibber, Anupam Dev, Col.
Sudhir Manchanda, Amitabh Mathur and S.R. Wadhwa, have instituted this
suit for (i) declaration that the Show Cause Notices dated 6 th October, 2018
issued by the defendant to the five plaintiffs are unenforceable, illegal and
void and not binding on the plaintiffs; and, (ii) permanent injunction
restraining the defendant from taking any steps in furtherance of the show
cause notices.
2. The suit came up first before this Court on 10th October, 2018 when
while issuing summons/notice, vide ex parte ad interim order, the
proceedings in terms of Show Cause Notices dated 6th October, 2018 were
ordered to be kept in abeyance.
3. The defendant filed IA No.14868/2018 under Order VII Rule 11 of
the Code of Civil Procedure, 1908 (CPC) and which came up before this
CS(OS) 510/2018 Page 1 of 13
Court on 29th October, 2019 when the counsel for the defendant stated that
the said application was filed only because the plaintiffs had not paid the
requisite court fees but the counsel had subsequently learnt that the
plaintiffs had since paid the court fees and was thus withdrawing the said
application. Accordingly, the application was dismissed as withdrawn.
4. Thereafter the defendant filed this application which came up first
before this Court on 2nd November, 2018 when the following order was
passed thereon:-
"7. The application under Order VII Rule 11 of the CPC
runs into about 93 pages and such a bulky application itself
is an indication that no ground for rejection of the plaint at
the threshold is made out.
8. Be that as it may, the counsel for the
applicant/defendant has been heard. The counsel has handed
over a synopsis of one page containing three heads (I) breach
of sub-rule (a) of Order VII Rule 11 of CPC; (II) breach of
sub-rule (b) of Order VII Rule 11 of CPC; and, (III) breach
of sub-rule (d) of Order VII Rule 11 of CPC.
9. The said synopsis is taken on record.
10. The counsel for the applicant/defendant has argued that
the plaint does not disclose any cause of action. It is argued
that the five plaintiffs have instituted this suit impugning the
notice to show cause dated 6th October, 2018 issued to the
plaintiffs calling upon the plaintiffs to show cause why action
should not be taken against them for misconduct as members
of the applicant/defendant. It is argued that the said Show
Cause Notice has been issued in accordance with the Rules of
the applicant/defendant.
11. On being asked to show the said Rules, attention is
drawn to page 7 of Part III file being the Bye-laws of the
applicant/defendant and to page 39 of Part III file containing
CS(OS) 510/2018 Page 2 of 13
Articles of Association of the applicant/defendant, a company
Section 8 of the Companies Act, 2013.
12. Bye-laws 17 & 18 lay down the guidelines pertaining to
ethics to be observed and interpersonal conduct and Article
19 of the Articles of Association of the applicant/defendant
provides for termination of membership. Clause 5 of Article
19 provides that termination shall be by decision of a
majority vote of not less than two thirds of the members
present at a General Committee especially convened for the
purpose and at which not less than twelve members shall be
present.
13. The counsel for the applicant/defendant has next drawn
attention to the Minutes of the Annual General Meeting
(AGM) of the applicant/defendant held on 30th September,
2018 and which at page 339 of Part IIA file, records the
proposal of Maj. Atul Dev for appointment of an Enquiry
Committee qua the conduct of the plaintiffs and five others
and records as under:
"NOTE: THIS MOTION OF THE HOUSE
WAS PROPOSED BY MAJ ATUL DEV
AND SECONDED BY BRIG SAPRU. IT
WAS READ OUT TO THE MEMBERS
AND A VOTE TAKEN.
President recorded the sense of the house as
a resounding "YES" to the suspension of the
concerned members. He stated that he will
bring this forth in the GC and will take a
decision accordingly at the earliest.
Mr. S.K. Sethi and other members stated to
President to take this decision as passed
since it was the will of the members of the
AGM and has to be enforced immediately."
14. I have enquired from the counsel for the
applicant/defendant that (i) once Article 19 provides for
decision of the majority vote of not less than 2/3rd of the
CS(OS) 510/2018 Page 3 of 13
members present at a General Committee especially
convened for the purpose, how does the decision aforesaid in
the Annual General Meeting satisfy the requirement of a
General Committee convened especially for the purpose; (ii)
on what basis, the Show Cause Notice dated 6th October,
2018 was issued since the decision taken at the AGM held on
30th September, 2018 was for suspension; (iii) once Article 19
provides for a decision of a majority, whether not each step
taken towards termination requires decision of the majority
in a Committee convened for that purpose; (iv) what will be
the procedure followed pursuant to the Notice to show cause
issued; and, (v) who will hear the plaintiffs.
15. The counsel for the applicant/defendant states that he
has only yesterday received new Bye-laws of the
applicant/defendant and needs time to study the same.
16. I have also enquired from the counsel for the plaintiffs,
whether the plaintiffs have taken any such ground impugning
the decision of the applicant/defendant.
17. The counsel for the plaintiffs replies in the negative.
18. List for further consideration on 28th January, 2019.
19. The Joint Registrar to ensure that the suit is ripe for
framing of issues and for hearing of all pending applications
on 28th January, 2019.
20. At this stage, the counsel for the applicant/defendant
states that he gives up the ground of lack of cause of action
for rejection of the plaint and be heard on the other two
grounds.
21. The counsel for the applicant/defendant has next
contended that there is a bar to invoking the jurisdiction of
the Civil Court relating to allegations of oppression and mis-
management and has drawn attention in this regard to Jai
Kumar Arya Vs. Chhaya Devi 2017 SCC OnLine Del 11436
and to SAS Hospitality Pvt. Ltd. Vs. Surya Constructions
Pvt. Ltd. 2018 SCC OnLine Del 11909.
CS(OS) 510/2018 Page 4 of 13
22. I have enquired from the counsel for the
applicant/defendant, whether the plaintiffs, even if members
of the applicant/defendant, are shareholders of the
applicant/defendant.
23. The counsel for the applicant/defendant vaguely states
that a member is a shareholder and if the plaintiffs have
described themselves as members they are ipso facto
shareholders.
24. The counsel for the plaintiffs, on enquiry, states that it is
not the plea of the plaintiffs that the plaintiffs are
shareholders of the applicant/defendant. It is stated that the
applicant/defendant is a company limited by guarantee and
the members of the Club of the applicant/defendant are not
shareholders of the applicant/defendant company.
25. The counsel for the applicant/defendant to, after going
through the provisions of the Companies Act, satisfy this
Court about the same. It is deemed appropriate that the
counsel prepares the matter further and argues it on the next
date."
5. The plaintiffs have filed reply to the application. On 28 th January,
2019, the counsels for the parties were further heard and orders on the
application reserved. The counsel for the defendant subsequently mentioned
the matter and handed over a copy of Taran Jeet Kaur Vs. G.S. Bhatia
MANU/DE/0051/2009 and on enquiry stated that the copy of the said
judgment has been handed over to the counsel for the plaintiffs as well.
6. It is inter alia the case of the plaintiffs in the plaint, that (i) the
General Administration of Delhi Gymkhana Club is under the supervision
of the General Committee headed by the President; (ii) all members of the
General Committee are elected from the General Body on a yearly basis;
(iii) the General Committee operates as the Board of Directors of the Club
CS(OS) 510/2018 Page 5 of 13
which is incorporated as a not for profit company; (iv) in the previous two
years, there have been various allegations of serious misconduct and
financial irregularities in the management of the Club by certain members
of the General Committee which held office during the period 2015-2017;
(v) accordingly several members of the Club had written to the present
General Committee for action against the said members of the previous
General Committee but to no avail except for appointing of an auditing
concern to carry out investigation; (vi) the investigation report confirmed
the irregularities, mismanagement and misappropriation by the members of
the previous General Committee; (vii) again, the members of the Club
sought action on the basis of the report but to no avail except for appointing
another Committee; (viii) the plaintiffs have been continuously petitioning
for action against the members of the erring Committee and upon no action
being taken, wrote to the Serious Fraud Investigation Office (SFIO) on 20 th
August, 2018 to investigate; and, (ix) notices dated 6th October, 2018 were
served on the plaintiffs, to show cause why disciplinary action should not
be taken against them for complaining to SFIO.
7. The counsel for the defendant, as aforesaid, during the hearing on
2nd November, 2018 withdrew lack of cause of action as a ground for
rejection of the plaint and confined the claim for rejection only to the
grounds of the relief claimed being undervalued and the suit, from the
statements in the plaint, being barred by law.
8. The defendant, in this regard has pleaded that (i) the challenge by the
plaintiffs is a challenge to the principles of corporate democracy; (ii) the
defendant is a Private Company Limited by guarantee; (iii) the defendant is
CS(OS) 510/2018 Page 6 of 13
governed by its Memorandum and its Articles of Association and the Bye-
Laws made by the General Committee from time to time under Article 23
of the Articles of Association; (iv) the Memorandum and Articles of
Association of the defendant provide for a General Committee which is of
the equivalence of the Board of Directors of a Company; (v) the General
Committee is an independent Committee conferred with the powers of
making Bye-Laws and regulating the internal management of the Club run
by the defendant Company; (vi) a member of the defendant Company has a
statutory right to air his grievance before the National Company Law
Tribunal (NCLT) and the lis is not amenable to the jurisdiction of the Civil
Court; (vii) Section 430 of the Companies Act, 2013 bars the jurisdiction of
the Civil Court;(viii) essence of the cause of the plaintiffs is that there has
been series of acts on the part of General Committee of the defendant that
constitute mismanagement of its affairs and the plaintiffs are being
victimized by the defendant for exercising their lawful rights; (ix) the rights
being redressed by the plaintiffs are statutory rights and the statute for
redressal thereof provides the remedy before the NCLT; (x) the jurisdiction
of this Court thus stands ousted; (xi) the ouster clause in Section 430 of the
Companies Act applies not only to companies having share capital but by
virtue of Section 244(1)(b), also to companies not having a share capital;
and, (xii) though under the Companies Act, 2013 the plaintiffs do not
qualify to initiate a petition for mismanagement and/or oppression but still
have a right to seek statutory relief from NCLT by invoking first proviso to
Section 244(1) thereof by seeking waiver of the eligibility prescribed.
CS(OS) 510/2018 Page 7 of 13
9. With respect to the undervaluation of the relief claimed in the suit, it
is pleaded (i) the pecuniary jurisdiction of the subject matter of the suit
being Rs.100/-, the Court of minimum pecuniary jurisdiction competent to
entertain the suit is the Court of the Civil Judge and not this Court; and, (ii)
while it is open to the plaintiffs to declare a higher valuation for the
purposes of calculation of court fees, the valuation of a suit for the purposes
of assessment of pecuniary jurisdiction cannot be enhanced at the ipse dixit
of the plaintiffs. It is argued, that under the Memorandum and Articles of
Association of the defendant, the liability of past member of the defendant
for the debts and liabilities of the defendant is not to exceed Rs.100/-; the
valuation of the suit for the purposes of jurisdiction cannot be more than
Rs.100/-.
10. The plaintiffs, in their reply to the application, qua bar of the
jurisdiction of this Court as the Civil Court and the remedy of the plaintiffs
being before the NCLT only, have pleaded (i) that the plaint does not
disclose oppression/mismanagement as contemplated under the Companies
Act; (ii) the plaintiffs are only aggrieved by the Show Cause Notices dated
6th October, 2018 that attempt to take disciplinary action against the
plaintiffs for complaining to the SFIO; (iii) the action of the defendant of
issuing show cause notices for legal right exercised by the plaintiffs is
arbitrary and mala fide and the only remedy thereagainst is a Civil Suit; (iv)
the remedy of the plaintiffs is not of winding up of the defendant but to
protect the civil rights of the members of the defendant; (v) it is not even
the averment of the plaintiffs in the plaint that the defendant is to be wound
up; (vi) ouster of jurisdiction of the Courts is to be strictly construed;
CS(OS) 510/2018 Page 8 of 13
reliance is placed on Dhulabhai Vs. State of Madhya Pradesh AIR 1969
SC 78; (vii) that the suit brought about by the plaintiffs is an anticipatory
remedy against potential future removal from Register of Members and to
which Section 59 of the Companies Act also does not apply; (viii) the
remedy before the NCLT is not an efficacious alternative remedy in the
facts; (ix) the plaintiffs are only five in number whereas the total number of
the members of the defendant are approximately 5600; (x) qualification
prescribed under Section 244 (1)(b) of the Companies Act for approaching
NCLT is, 1/5th of the total number of members i.e. approximately 1120
members out of the 5600 members of the defendant; (xi) waiver granted by
the NCLT of the said qualification is discretionary. The plaintiffs, in their
reply, vis-à-vis the rejection sought on the ground of valuation of the
reliefs, have pleaded, that the argument of the defendant is misconceived;
the correct valuation is Rs.2 crores and on which appropriate court fees has
been paid.
11. The counsel for the defendant, during the hearing drew attention to
Jai Kumar Arya, SAS Hospitality Pvt. Ltd. supra and Shashi Prakash
Khemka Vs. NEPC Micon 2019 SCC OnLine SC 223.
12. Per contra the counsel for the plaintiffs referred to Yusuf Abdulla
Patel Vs. R.N. Shukla MANU/MH/0159/1969, Sheila Devi Vs. Kishan Lal
Kalra ILR (1974) II Del 491, Kuader Kuer Vs. Lachman Prasad Sahu
AIR 1933 Pat 644, Matadin Babadin Vs. State of Vindhya Pradesh AIR
1956 Vindhya Pradesh 16 and Jogani and Sachdev Developments Vs.
Lawrence D'Souza MANU/MH/1287/2005.
CS(OS) 510/2018 Page 9 of 13
13. I will first take up the ground of valuation.
14. Order VII Rule 11(b) of the CPC permits rejection of the plaint
where the relief claimed is undervalued and the plaintiff, on being required
by the Court to correct the valuation within the time to be fixed by the
Court, fails to do so.
15. The suit as aforesaid is for the reliefs of declaration and permanent
injunction.
16. The Court Fees Act, 1870, in Section 7(iv)(c) thereof provides that in
a suit to obtain a declaratory decree or order where consequential relief is
claimed, the plaintiff shall set out in the plaint the amount at which he
values the relief sought and the amount of court fees payable shall be
computed thereon.
17. Section 8 of the Suits Valuation Act, 1887 provides that in suits other
than those referred to in Section 7(v), (vi), (ix) and (x)(d), the value as
determined for the computation of court fees and the value for the purposes
of jurisdiction shall be the same.
18. The present suit, where the plaintiffs as a consequence of declaration
are seeking permanent injunction, qualifies under Section 7(iv)(c) as a suit
for declaratory decree and consequential relief and in accordance therewith
the plaintiffs are required to set out in the plaint the value at which they
value the relief and court fees is to be computed thereon. The Suits
Valuation Act provides for valuation for the purposes of jurisdiction to be
the same as for the purposes of court fees. The plaintiffs have valued the
relief of declaration with consequential relief claimed in the suit, for the
CS(OS) 510/2018 Page 10 of 13
purposes of court fees and jurisdiction, at Rs.2 crores and paid appropriate
court fees thereon.
19. It is not in dispute that the Court of minimum pecuniary jurisdiction
for entertaining a suit, valuation whereof is in excess of Rs.2 crores, is this
Court.
20. The argument of the counsel for the defendant however is that the
plaintiffs under Section 7(iv)(c) have overvalued the relief for declaration at
Rs.2 crores and the valuation should have been of not more than Rs.100/-,
being the maximum liability of each of the plaintiffs towards the debts of
the defendant.
21. I may at the outset state that Order VII Rule 11(b) of the CPC,
invoking which rejection is sought, provides for rejection in the case of
undervaluation of the relief and not in the case of overvaluation of the
relief. Nevertheless a plaintiff cannot buy jurisdiction of the Court by
overvaluing. If the Court finds so, the Court under its inherent power would
be entitled to reject the plaint. Mention may be made of Nandita Bose Vs.
Ratanlal Nahata (1987) 3 SCC 705, Taran Jeet Kaur Vs. G.S. Bhatia
2009 SCC OnLine Del 63 and ARB Inc. Vs. United India Insurance Co.
Ltd. 2017 SCC OnLine Del 11923.
22. The present suit is not for declaration qua liability of the plaintiffs for
the debts of the defendant, for it to be said that the maximum liability of
each of the plaintiffs as member of the defendant under the Memorandum
and Articles of Association having been pegged at Rs.100/-, the statement
required to be made by a plaintiff under Section 7(iv)(c) supra cannot be of
CS(OS) 510/2018 Page 11 of 13
a valuation of more than Rs.100/-. The present suit is concerned with a
declaration qua the process initiated by the defendant against each of the
plaintiffs, for cessation of the membership of each of the plaintiffs of the
defendant. The valuation under Section 7(iv)(c) of the Court Fees Act for
such declaration would be in the discretion of the plaintiffs that is the value
which the plaintiffs give to their membership and once the statute has
conferred a discretion on a plaintiff, it is not for the Court to interfere with
such discretion.
23. Thus no merit is found in the contention qua valuation, for seeking
rejection of the plaint.
24. The only other ground for rejection is, of the jurisdiction of this
Court being barred by Section 430 of the Companies Act, 2013.
25. Though during the hearing on 2nd November, 2018 there was no
clarity about the constitution of the defendant, as is also evident from the
order of that date reproduced above, but the pleadings show both plaintiffs
and the defendant to admit the defendant to be a company within the
meaning of Companies Act, 1956 and the plaintiffs to be the members of
the defendant. Section 241 of the Companies Act, 2013 entitles a member
of a company who complains that the affairs of the company are being
conducted in a manner prejudicial to public interest or in a manner
prejudicial or oppressive to him or any other member or members or in a
manner prejudicial to the interests of the company, to apply to the NCLT.
Thus the remedy for the grievance of mismanagement and oppression
would be before the NCLT. However the grievance in the present suit,
CS(OS) 510/2018 Page 12 of 13
though may have its genesis in the complaints of the plaintiffs of
mismanagement, the subject matter of the present suit is not
mismanagement but the action of the defendant of issuing notice to the
plaintiffs to show cause why the membership of the plaintiffs should not be
terminated. The said grievance is not a grievance of mismanagement and
oppression, even though the cause of action may have its genesis in
complaints of plaintiffs, of mismanagement and oppression.
26. Though this is clear as daylight but the defendant also, by filing an
application under Order VII Rule 11 of the CPC running into as many as 93
pages and by raising all sorts of arguments, did not allow the same to be
seen immediately, resulting in the order being reserved.
27. Before parting, I may deal with another contention and in which
context Shashi Prakash Khemka supra was cited. The remedy under
Section 111 of the Companies Act, 1956 of rectification of Share Register
is also available only after the name has been removed from the Share
Register and as of today the name has not been removed and the only
question is of the legality of the proceedings initiated by issuance of show
cause notice.
28. Thus the need to go into the judgments cited at the bar is not felt.
Resultantly, the application under Order VII Rule 11 of the CPC is found to
be misconceived and is dismissed.
RAJIV SAHAI ENDLAW, J.
JULY 02, 2019/'pp' CS(OS) 510/2018 Page 13 of 13