Dharam Pal Bhasin vs B.N. Khanna and others

D.P. Wadhwa, J.—This is a petition filed u/s 155 of the Companies Act, 1946 (for short� the Act"), The petitioner has prayed that the register of members of the company be rectified by deleting the names of all the persons who became members of the company beyond the figure of 1,500. The company is the Delhi and District Cricket Association Ltd. (for short "DDCA") and respondent No. 16. There are 18 responded in all. Respondents Nos. 1 to 15 are stated to be the directors of the DDCA having been elected in the annual general meeting held on September 30, 1983. Respondents Nos. 17 and 18 have been nominated by the Central Government under the provision of section 408 of the Act. These directors constitute the general committee or the executive committee, as it is now called, of the DDCA. The Central Government has issued direction from time to time under sub-section (6) of section 408 of the Act.

The petitioner, who claims to be a member of the DDCA, states that the DDCA is a company limited by guarantee without share capital. Though is wa contended on behalf of the DDCA that it was not a company registered u/s 25 of the Act, yet that fact was denied by the petitioner. Reference was made in this connection to a letter dated by the petitioner. Reference was made in this a connection to a letter dated June 28, 1985, of the Regional Director, Company Law Board, Kanpur (annexure I to the affidavit dated September 13, 1985, of Mr. L. N. Tandon, general secretary of the DDCA filed by was of evidence). Mr. Mehra, learned counsel for the petitioner, however, submitted that certain conditions were stipulated in this letter for the DDCA to be registered as a section 25 company, as is now popularly known, but that those conditions were never fulfilled. During the course of arguments, a further affidavit of Mr. L. N. Tandon dated March 12, 1987, was filed with which a letter dated September 25, 1986, of the Company Law Board to the DDCA was annexed. IN this it was mentioned that the Company Law Board "also took note of registration of the company u/s 25 and co - option of all the five Government directors on the working committee of Delhi and District Cricket Association". I, however, need not of into this question any further inasmuch as it was submitted by Mr. Vanay Basin, learned counsel for respondents Nos. 1 to 16, that for the purpose of the decision of this petition, DDCA might be treated as a company limited by guarantee without share capital

Article 2 of the articles of association of the DDCA is as under:

"For the purpose of registration, the number of the members is 1,500. This may be reduced or increased from time to time by the general committee."

Based on this article, the principal submission of the petitioner has been that DDCA could not control any member beyond 1,500 and that the appearance of the names of the persons thereafter on the register of members was wrong and the register of the members has to be rectified by deleting the names of the members from Serial No. 1,501 onward. It was submitted that the petitioner has no knowledge about the exact number of members enrolled beyond 1,500 and that the petitioner estimated that number also as 1,500. The petitioner thus contends that the names of all those Person who have been shown / entered in the register of members of the DDCA beyond the figure 1,500 have been so entered without any sufficient cause and that they cannot be treated as members and the register of members, Therefore, needs rectification.

Before I discuss this case further, it would be necessary to refer to the proceedings in Suit No., 1587 of 1982 filed by the petitioner and others in this court. In this suit, there were 15 plaintiffs and 27 defendants, the DDCA being defendant No. 1. This suit was filed on November 26, 1982, and was for declaration and an injunction, A declaration was sought in favor of the plaintiffs and against the defendants declaring that the annual general meeting of the DDCA held on September 30, 1982, and the election of the executive committee ant as office - bearers of the DDCA in that meeting were all illegal and of no consequence. The plaintiffs wanted to have that elect9ion set aside and also sought a permanent injunction restraining the defendants from acting as office - bearers or as members of the executive committee of the DDCA. Some of the grounds on the basis of which the relief of declaration and injunction was sough, and which are relevant to the present petitioner as well, were:

"VII. That inasmuch as article 2 of the articles of association of the DDCA fixed the number of members as 1,500, as change in the said article could have only been done by a special resolution of the general meetings of the DDCA and, Therefore, the purported addition of new members in any event was illegal and without any authority."

"IV. That the enrollment of more than 400 new members during the six months proceedings the election was illegal and mala fide and had been done in order to manipulate a majority in favor of those who were then controlling the affairs of the DDCA."

V. That no decision was taken in any meeting to increase the number of registered members of the association and even assuming without admitting that any such decision was taken, the same was not valid inasmuch as no notice u/s 97 of the Act of the said increase has been given to the Registrar. Moreover, the proper procedure was not followed in enrolling new members."

If reference is made to the title of this suit, Mr. K. K. Mehra who is now appearing as counsel for the petitioner was also a plaintiff (plaintiff No.) in that suit and most of the defendants in that suit are now respondents in the present petition. That suit was settled, and the statements of the parties and the order thereon are as under:-

"17-8-1983 Present: Mr S. C. Malik with Mr. K.K. Mehra, K .N. Kataria and Vijay Kishan, counsel for the plaintiff.

Mr Lalit Bhasin and Vinay Bhasin, counsel for the defendant.

I.A.No. 4531 of 1982:

Counsel for the parties have arrived at a settlement. Let the same be recorded.

August 17, 1983

J.D. Jain

JUDGE

Statement of Shri S. C .Malik, counsel for the plaintiff and Mr. Lalit Bhasin, counsel for the defendant.

It is agreed between the parties that the number of directors, viz., members of the general committee shall be 15, as prescribed in the articles of association of defendant No.1. However, it will be open to the general body at an annual general meeting or extraordinary meeting to enhance or decrease the number of directors/members of the general committee in accordance with the provisions of law. The next annual general meeting/election of the association defendant No.1 shall be held on or before September 30, 1983, without fail. The present general committee shall chalk out program for the next election and shall fix dates for (i) filing of nomination papers,. (ii) date for scrutiny of nomination papers, (iii) date for withdrawal of nomination, and (iv) date for filing proxies in accordance with law and articles of association. The filing of nomination papers, scrutiny thereof and withdrawal of nominations and the filing of proxies shall be done in accordance with law and the rules of the association subject to the supervision of the observer-cum-supervisor to be appointed by this court.

Parties agree that Shri M .S .Joshi, a retired judge of this court, be appointed observer-cum-supervisor. He shall ensure that the entire process of election and holding of annual general meeting is carried out under his supervision. He will be competent to sign all the relevant papers including ballot papers and proxies and ballot papers will be duly Serialised and initialed by him. The general committee shall extended full-cooperation and assistance to him in the discharge of his functions.

Each member shall be entitled to one proxy only. Proxy form and notice of annual general meeting shall be sent by registered post only. The ballot papers and proxies will be issued by the supervisor himself.

The right to cast vote shall be available to all the members of the association who had been enrolled up to November 29,1982, i.e., the date when the interim order was made by this court. It is admitted that there has been no enrollment of members thereafter. One the completion of election of the committee, the suit shall be dismissed as withdrawn.

RO & AC J. D. Jain, August 17,1983. Judge,

In view of the joint statement made by the counsel for the parties. i direct that the annual general meeting/election of the association, defendant No. I shall be held by or before September 30, 1983, without fail. The present general committee shall decide upon the necessary steps towards holding of annual general meeting and election, etc., as is appointed observer-cum-observer shall be competent to sing all the relevant papers relating to the holding of any annual general meeting and election including the ballot papers and proxies, etc. The general committee shall extend all co-operation and assistance to the observer-cum-supervisor in the matter. If there is any difficulty or controversy, the parties as well as the observer-cum-supervisor will be entitled to seek directions from this court. Fee of the observer- cum-supervisor is fixed as Rs. 5,000. It will be paid by defendant No.1. A copy of this order as also the joint statement be sent to the observer-cum-supervisor for information and necessary action.

This . I.A. stands disposed of accordingly.

Suit No. 1587 of 1982.

Adjourned to October 6, 1983, for further orders.

August 17, 1983 J.D. Jain Judge."

It appears that in pursuance of the aforesaid order in the suit, elections were held on September 30, 1983, and the report of the observer was submitted on October 10, 1983. The plaintiffs then filed an application (IA No. 2980 of 1984) in the suit purportedly under Order 39, rules 1 and 2, and section 151 of the Code of Civil Procedure, 1908 (for short "the Code"), but in fact raising certain objections to the report of the observer as well. It was prayed that the defendants be restrained from enrolling new members till the decision of the suit and further restrained from postponing the annual general meeting beyond September 30, 1984. It was again mentioned in the application that membership of the DDCA could not be increased without the approval of the general house and that too by an amendment of the articles by a special resolution. The court, however, by order dated September 6, 1984, dismissed this application holding that the order dated August 17, 1983, was specific and the plaintiffs could not go behind that order and they would be held bound to the settlement arrived at between the parties and recorded in the proceedings of August 17, 1983. The court then observed :

"It may also be pointed out here that by the holding of the fresh elections of the DDCA on September 30, 1983, suit as laid stands virtually decreed. No attempt was even made by the plaintiffs to amend their plaint suitably in case the plaintiffs were not satisfied by the fresh elections as held on September 30, 1983. They may seek appropriate remedy, i.e., by way of a fresh suit or other proceedings. The present suit, however, does not survive any longer. In conclusion, I hold that the suit is liable to be dismissed forthwith."

The aforesaid observations of the court in Suit No. 1587 of 1982, it appears, led to the filing of the present petition. Obviously, the petitioner and his group lost the elections held on September 30, 1983, and September 30, 1984. Elections for subsequent years were stayed by this court by order dated August 28, 1985, and respondents were also restrained from admitting new members.

Respondents Nos. 17 and 18, who are nominees of the Central Government as directors in the DDCA, did not choose to appear in these proceedings. Reference to the respondents would, Therefore, mean respondents Nos. 1 to 16.

The respondent,s in their reply, denied the allegations of the petitioner and submitted that members had been enrolled validly under article 2 of the articles of association. It was admitted that membership exceeded the figure of 1,00 and at present it was 3,200. It was stated that nobody, not even the petitioner, raised any objection when the members were enrolled. Reference was made to the proceeding in Suit No 1587 of 1982 mentioned above. It was stated that all the members whose names were sought to be removed by rectifying the register of members were necessary parties and that in the absence of those member, the present petition was not maintainable and no relief could be granted to the petitioner. it was also submitted that when settlement was arrived at in Suit No. 1587 of 1982, at that time also, admittedly the number of members of DDCA exceeded the figure 1,500 and they all participated in the annual general meeting of September 30, 1983, when elections were held and the respondents elected to the executive committee of the DDCA. The petitioner did not think that the members, whose names were sought to be removed from the register of members of the DDCA after rectification were necessary parties and stated that new member were being enrolled indiscriminately to perpetuate the hold of the respondents in the DDCA.

Evidence in the case was led by means of affidavits. In support of his case, the petitioner filed only is own affidavit. The respondents filed the affidavit of Mr. L.N. Tandon general secretary of the DDCA and also a respondent in these proceedings. This affidavit of Mr. Tandon was filed on September 13, 1985.

On March 4, 1986, the petitioner filed an application (CA No. 344 of 1986) under Order6, rule 17 read with Order 1, rule 10 and section 151 of the Code. In this, it was mentioned that the respondents had taken an objection that all the persons numbering more than 1,820 be added as parties and that this was a technical objection and further that in order to meet this technical objection, the petitioner might be allowed to sue all these 1,820 new members "in representative capacity and the respondents already on record may be directed to defend the suit on behalf of all such persons". It was further mentioned that "even otherwise, the details, viz., names and addresses of these persons, are within the exclusive knowledge of the respondents, and the defense is bound to be the same as they have identical interest". It was also mentioned that it was not reasonably practicable to effect personal service on all these members as their number was large and that they could be served by a public advertisement. The prayer in the application was that the petitioner be allowed to amend the petition by suing the members beyond 1,500 in the representative capacity and that the respondents be directed to defend the suit on their behalf and further that notice of the institution of the petition be ordered to be published in some newspaper as required under Order 1, rule 10 of the Code. The respondents opposed this application. It was submitted that the application was much too belated as the respondents had taken the objection about the non-impleading of the members in their reply to the petition and thereafter the petitioner even filed his rejoinder and then an affidavit by means of evidence wherein he had taken the stand that the members beyond 1,500 were not necessary parties to these proceedings. Then the respondents stated that the petition had been set or hearing on many occasions and that this application was filed to delay the proceedings inasmuch as the annual general meeting of the DDCA had been set for hearing on many occasions and that this application was filed to delay the proceedings inasmuch as the annual general meeting of the DDCA had been stayed by an order of the court and that the annual general meeting was urgently required to be held to meet certain requirements of the license granted u/s 25 of the Act. Then it was submitted by the respondents that the petitioner had not given the names of the members whom he wanted to implead, nor was there any averment in the application as to what amendments the petitioner was seeking. The averment in the application that the respondents might be directed to defend the petition on behalf of other persons was termed as "strange". It was stated that the respondents could not defend the interest of other persons unless and until they were duly served and the respondents authorised to defend on their behalf. On May 22, 1986, the court, while adjourning the matter, passed the following order:

Present : Mr. K. K. Mehra, advocate

Mr. Vinay Bhasin, advocate.

CP No. 100 of 1984, CA No. 883 of 1985 and CA No. 344 of 1986. Adjourned to July 14, 1986.

In the meanwhile, the petitioner shall publish the notice of hearing in the Hindustan Times of India and Tribune (Delhi & District Cricket Association Ltd). The office may draft the notice on the lines of the notice to the creditors in Form No.6 of the Companies Act. There is urgency in the matter as there is already a stay order issued by the court in holding the general body meeting. Counsel for the respondent states that the meeting of the general body is overdue according to the requirements of the Companies. Act.

S. B. Wad, Judge."

May 2, 1986.

In terms of this order, the following notice was published:

"In THE HIGH COURT OF DELHI AT NEW DELHI CP. No. 100 of 1984.

In the matter of : Delhi and District Cricket Association Ltd.

Dharam Pal Bhasin ... Petitioner.

B. N. Khanna and Others ...... Respondents.

To All Members of the Delhi and District Cricket Association Ltd. Willingdon Pavilion, New Delhi.

TAKE NOTICE that a petition u/s 155 of the Companies Act, 1956, for rectification of the register of members presented by Shri. K. K. Sharma, advocate, on 22nd May, 1986, was admitted and the said petition is fixed for hearing before the company judge on 14th day of July, 1986. If you desire to support or oppose the petition at the hearing, you should give me notice thereof in writing so as to reach me not later than two days before the date fixed for the hearing of the petition and appear at the hearing in person or by your advocate. If you wish to oppose the petition, the grounds of opposition or a copy of your affidavit should be furnished with your notice. A copy of the petition shall be furnished to you if you require it on the payment of prescribed charges for the same.

(Sd/-) (K .K. Mehra) Advocate for the Petitioner. B-6, Asaf Ali Road. New Delhi."

Dated the 28th May, 1986.

In pursuance of this notice, four members, namely, Mr. Sneh Prakash Bansal (membership No. B-153), Mr. Ratan Lal (membership No. R-57), Mr. Shravan Kumar Lodha (membership No. L-31) and Mr. Satish Soni (membership No.S-500), appeared and filed their replies. They all opposed the petition. The matter rested at that. The petitioner did not seek any further orders on his application (CA No. 344 of 1986). Rather, I would say that the application was not pressed further. As I understood, according to Mr. Mehra, learned counsel for the petitioner, nothing more was required on his application and that the provisions of Order 1, Rule8, of the Code, had been complied with. It was submitted by Mr. Vinay Bhasin, learned counsel for the respondents, that the notice published in pursuance of the order dated May 22, 1986, did not meet the requirements of Order 1, Rule 8, of the Code in that it could not be said that the provisions of this rule were complied with and that it could not be said that the petition had been filed against all the members of the DDCA in a representative capacity. Thereafter, on subsequent dates, arguments were heard and during the course of hearing, it was brought to my notice that respondent No. 7, Mr. Gulshan Rai, had since expired and this fact was recorded in the proceedings. I will also note that the parties did not with to cross-examine any of the witness.

I am of the view that on the preliminary objections raised by the respondents, this petition has to fail. The question whether the DDCA could enroll members beyond the figure 1,500 in contravention of the provisions of the Act, as has been contended in the petition, was very much in issue in Suit No. 1587 of 1982. After a settlement was arrived at in that suit on August 17, 1983 (see the proceedings reproduced above), the plaintiffs, the petitioner being one of them, abandoned their claim on the issue whether the executive committee could increased the membership beyond 1,500. The petitioner did not seek any leave of the court in the suit for filing fresh proceedings on the same issue. Applying the principles as contained in sub-rules (1) and (4) of rule 1 of Order 23 of the Code, the present petition would be barred. Then, in a petition u/s 155 of the Act, the member who is sought to be removed from the register of members is certainly a necessary party, though it was contended to the contrary by Mr. Mehra. It is unthinkable to dispose of a petition u/s 155 of the Act without notice to the party affected. This is perhaps what led the petitioner to file an application seeking impleading of the members beyond 1,00 as parties to the present petition in spite of his crying hoarse that those members would not be necessary parties. The question that arises is whether all those members who are to be affected have been made parties in the petition or not.

On the arguments of Mr. Mehra, the DDCA can have members up to 1, 500 at a given time. Article 16 of the articles of association of the DDCA provides for termination of membership. It can be terminated in various ways. Then, of reference is made to the replies of the four members mentioned above, the members are not allotted numbers Seriatim .For, example, Mr. Soni has been allotted membership No. S- 500. It is not possible for any member to know at a given time whether his number exceeds the figure of 1,500. Also the articles provide for different types of membership like life member, ordinary member, for different types of membership like life member, ordinary member, honorary member etc. Still, enrollment of a member beyond 1,500 cannot be challenged after three years of his becoming a member inn view of the bar of limitation. It is thus an ever-changing scenario. In such a circumstance of limitation. It is thus an ever- changing scenario. In such a circumstance, it cannot be said that the interest of all the members would be common. The petitioner had not sought to implead all the members against whom he had a cause of action. Rather he wanted to invoke the provision of Order 1,rule 8, of the Code though styling his application (CA No.344 of 1986) as one under Order 6, rule 17,, and Order 1, rule 10, of the Code. For the provision of rule 8 of Order 1 to be applicable, it has to be shown that (1) there are numerous persons having the same interest, and (2) one or more persons with permission of the court be sued or may defend such suit on behalf of or for the benefit of, all persons so interested or the court may direct one or more of such persons to defend such suit on behalf of, or for the benefit of, all persons so interested. It is only when these two conditions are fulfilled that a court interested. It is only when these two conditions are fulfilled that a court is to give notice of institution of the suit to all persons so interested either by personal service or where such service is not reasonably practicable, by public advertisement as the court may consider appropriate.

No argument is needed to show, firstly, that all the persons beyond the figure of 1,500 have not the same interest, and secondly, there is no permission or direction of the court for any person or persons to defend the suit on behalf o, or for the benefit of, all the persons so interested. The notice which is to be given to all the persons either personally or through public advertisement has to show that any person or persons have been so nominated by the court to defend the suit. The order dated May 22, 1986, could not be said to be an order under Order 1, rule 8, of the Code. It was merely an interim order. The present petition cannot, Therefore, be said to have been instituted against the members beyond the figure 1,500 in a representative capacity as is commonly understood. In the absence of members who are likely to be affected, not being parties, no relief can be granted to the petitioner in the present petition.

It was the submission of Mr. Bhasin that jurisdiction u/s 155 of the Act is of a summary nature and the parties in the present case should be relegated to a civil suit inasmuch as complicated questions of law and fact arise. I do not think I can agree with him. Assuming his argument to be correct, the points involved in the present proceedings are not such as cannot be decided by a judge exercising jurisdiction under the Act.

Having held that the present petition is not maintainable, I think I should nevertheless give a finding whether the executive committee (general committee) is competent to increase the membership beyond 1,500 at a time as considerable arguments were addressed on this question. My answer is simple. The committee has no such power and I would say that article 2 of the articles of association of the DDCA which says that the number of members can be reduced or increased from time to time by the general committee is void to that extent.

Under sub-section (2) of section 27 of the Act, the articles, in the case of a company limited by guarantee, shall state the number of members with which the company is to be registered. This number is 1,500. A company u/s 31 of the Act may, be special resolution, alter its articles. As to how a special resolution is passed, reference may be made to section 189 of the Act. Sub-section (2) of section 173 requires that a statement of all material facts concerning the reduction or increase in the membership should be annexed to the notice of the meeting for the purpose of passing a special resolution. Section 9 of the Act prescribes that the provisions of the Act would have overriding effect ant anything to the contrary either in the memorandum or articles of a company would be void and the provisions of the Act would have effect. u/s 97, where a company has, as in the present case, increased the number of its members beyond the registered number, it has to file with the Registrar notice of increase of members within 30 days after the passing of the resolution authorising the increase, and the Registrar shall record the increase and also make any alterations which may be necessary in the company''s memorandum or articles or both. Then, the Act also prescribes the form in which notice is to be given to the Registrar. It is Form No. 5.

Under this form, notice is to be given to the Registrar of Companies in accordance with section 97 of the Act that by a special resolution of the company of the particular date "the number of members in the company has been increased by the addition thereto ...... members beyond the present registered number of ..... ". Mr. Bhasin, however, referred to Table C of Schedule I to the Act which sets out the memorandum and articles of association of a company limited by guarantee and not having a share capital in which article 2 is as under:

"2. The number of members with which the company proposes to be registered is 500, but the board of directors may, from time to time, whenever the company or the business of the company requires it, register an increase of members."

He said that article 2 of the articles of association of the DDCA is couched somewhat in the same language as article 2 in Table C set out above. I do not think Mr. Bhasin is right in his contention that under article 2 of Table C, the board of directors may increase the number of members with which the company was registered. Increase in the number of members calls for an amendment of the articles and can only be done by a special resolution by the general body but the actual enrollment of the members up to the limit set by the general body can be done by the board of directors i.e., the executive committee or the general committee in the present case. Articles 2 of Table C does not authorise the board of directors to usurp the functions of the company for the purpose of increasing or decreasing the number of members. Mr. Mehra also said that in any case the action of the executive committee in increasing the number of members was mala fide inasmuch as members were enrolled on the eve of an election to perpetuate the hold of the executive committee for all times to come. Mr. Mehra then said that the executive committee as now constituted was not legal inasmuch as under sub-section (5) of section 408 of the Act, a change in the executive committee had to be confirmed by the Central Government. Both these arguments do not merit consideration. It will be seen that when the petitioner and his group were in power earlier to the respondents, they were also enrolling members and even beyond the figure 1,500 on the eve of elections. The very argument which Mr. Mehra has now advanced would have applied to the petitioner and his group. It is not the case of the petitioner that at that time when he and his group were in power, the action of the executive committee in enrolling new members was not bona fide. It is the petitioner who has shown the way to the present executive committee and he cannot be heard to complain though one would suspect the bona fides of the purpose of winning elections. Along with the affidavit dated March 12, 1987, of Mr. L.N. Tandon, general secretary of the DDCA, there is an annexure "D" which is a letter dated August 4, 1986, of the DDCA that the Company Law Board in exercise of the powers conferred on it u/s 405(5) of the Act approves the co-option of Mr. Manmohan Sood, National Selector, in the board meeting held on JUly 4, 1986. This clearly shows that the Central Government did approve the constitution of the executive committee of the DDCA as constituted.

In the result, the petition is dismissed. In the circumstances, how ever, there will be no order as to costs.

Petition dismissed.