Vijay Chhibber And Ors. vs Delhi Gymkhana Club Ltd.
2019 Latest Caselaw 2976 Del

*      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

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 Accordingly, the application was dismissed as withdrawn.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

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

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.

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

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

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.

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;

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.

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

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

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,

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'