CS(OS) Nos.1805/2010 & 1861/2010 Page 1 * IN THE HIGH COURT OF DELHI AT NEW DELHI Date of Reserve : 30.11.2010 Pronounced on : 17.01.2011 + CS(OS) 1805/2010 S JAGTARAN SINGH ANAND & ORS ..... Plaintiff Through: Mr.Harish Malhotra, Sr. Advocate with Mr. Rajiv Kumar Garg and Mr. Ashish Garg, Advocates. versus CHELMSFORD CLUB LTD ..... Defendant Through: Mr. P.V. Kapur, Sr. Advocate with Ms. Vijay Lakshmi Menon, Mr. Pawan Sharma, Ms. Ekta Sikri, Ms. Mehak Khanna and Mr. Madhumeet Chauhan, Advocates. + CS(OS) 1861/2010 S.S. SYAL & ORS ..... Plaintiffs Through: Mr. Prabhjit Jauhar with Ms. Anupama, Advocates versus CHELMSFORD CLUB LTD ..... Defendant Through: Mr. P.V. Kapur, Sr. Advocate with Ms. Vijay Lakshmi Menon, Mr. Pawan Sharma, Ms. Ekta Sikri, Ms. Mehak Khanna and Mr. Madhumeet Chauhan, Advocates. CORAM: MR. JUSTICE S. RAVINDRA BHAT 1. Whether the Reporters of local papers Yes. may be allowed to see the judgment? 2. To be referred to Reporter or not? Yes. 3. Whether the judgment should be Yes. reported in the Digest? MR. JUSTICE S.RAVINDRA BHAT % 1. This common judgment will dispose of two suits. The plaintiffs in CS (OS) 1805/2010 CS(OS) Nos.1805/2010 & 1861/2010 Page 2 are referred to as “the plaintiffs in the First suit” and the plaintiffs in CS (OS) 1861/2010 are referred to as “the plaintiffs in the Second suit”. The defendant in both the proceedings is common, i.e. Chelmsford Club Ltd., (hereafter called “the Club”). 2. The relevant claims in the first suit are for declaration that the nomination forms submitted by the plaintiffs in the suit are valid and that they were entitled to participate in the elections held on 15.09.2010. Consequent mandatory injunction and permanent injunction, directing the Club, not to reject the nomination forms and also restrain it and its office bearers etc. from holding the election on 15.09.2010 is sought. In the second suit, a declaration that a Circular of 04.09.2010, issued by the Club and a letter dispatched on that date, on 06.09.2010, rejecting the plaintiffs‟ nomination in the second suit as void, and a further declaration that the said plaintiffs are entitled to participate in the elections on 15.09.2010 with consequential mandatory and permanent injunction of the kind sought in the first suit are claimed. 3. The undisputed facts of both the cases, emerging from the pleadings, i.e. the plaint and the written statements are that the Club is registered as a Company in terms of Section 29 of the Companies Act (hereafter referred to as “the Act”). The plaintiffs in both the suits are members of the said Club, the affairs of which are to be managed by a Committee constituted under Article 42 of the Memorandum and Articles of Association (“the Memorandum”). The Committee is to comprise of 25 members whose election is to be conducted in accordance with Article 39. 4. Article 39 of the Memorandum governing the Club‟s election reads as follows: “XXXXXX XXXXXX XXXXXX 39. Election of the members of the Managing Committee shall be conducted in the following manner: (a) Along with the notice for holding the Annual General Meeting the Secretary shall cause a circular to be issued to all members of the club who are entitled to vote under these Articles, inviting them to state, not less than four teen clear days before the meeting, whether they are desirous of serving on the Managing Committee of the club for the year following. Any member may even propose any other member as a candidate in which case the proposal with the consent of the proposed candidate be delivered to the office of the club within the time above mentioned. Proposals received after the date shall not be valid. CS(OS) Nos.1805/2010 & 1861/2010 Page 3 (b) A member who is not a retiring member of the committee and who is desirous of serving on the committee or whose name has been proposed as a candidate as provided in the last foregoing paragraph must file his consent in writing in the following form, with the Registrar of companies, Delhi. To, The Registrar, Companies, Delhi. Consent to act as a member of the committee under Section 264 of the Act I, the undersigned hereby testify my consent to act as a member of the Managing Committee of the Chelmsford Club Ltd..‟ pursuant to Sec. 264 of the Companies Act, 1956. --------------------------------------------------------------------------------------------------- Signature Address Description -------------------------------------------------------------------------------------------------- Date this ---------------------day of ------------------------ (c) All replies received in the club office till the prescribed day and time as specified in the notice shall be arranged alphabetically and circulated to all Life, Permanent and corporate members of the club. This circular shall be termed as Ballot paper. (d) Such ballot paper shall be serially numbered and signed by the Secretary and will be sent under postal certificate to all members. The duplicate shall only be issued on a written requisition from the member. Such ballot paper shall bear the same number as the original one., (e) The ballot paper will state the manner in which the votes are to be recorded and any ballot paper not in strict conformity with the instructions will be treated as invalid and will not be counted for. (f) Simultaneously with the posting of the ballot papers, the Secretary shall cause a ballot box duly locked and sealed to be placed in the office of the club in which all ballot papers shall be deposited not later than 24 hours before the annual general meeting. (g) Every member will file the ballot paper sent to him in strict conformity with the instructions and in the manner stated on the ballot paper. (h) Any deviation therefrom shall invalidate the ballot paper. (i) All ballot papers shall be deposited in the ballot box not later than 24 hours before the time the annual general meeting is to be held. (j) At the said annual general meeting the names of every candidate whose name has been circulated on the ballot paper shall be individually proposed by the chairman unless any other member wishes to do so. CS(OS) Nos.1805/2010 & 1861/2010 Page 4 (k) After the proposals have been so made at the said general meeting, the chairman of the meeting shall on his own motion, unless already demanded by any other member order the poll to be taken simultaneously on various motions moved under (j) in the following manner: (a) The Chairman shall appoint two scrutineers of his choice who shall always be the members of the club not being officers or employees of the club, present at the meeting. (b) The chairman shall than hand over the ballot box to the scrutineers. (c) Any member who for sufficient reason if and only if, he has not already deposited his ballot paper, may recorded his vote at the meeting itself by submitting his list of those whom he was voting for which list too shall be handed over to the scrutineers. Such voting too shall be regulated by the Chairman. (d) All the ballot papers taken out of the ballot box and the votes if any recorded at the meeting as provided in © above shall by the Chairman be handed over to the scrutineers. The scrutineers after due scrutiny and counting shall submit their report to the chairman regarding the number of votes secured by each candidate. Candidates securing the largest number of vote shall be deemed to have been elected. (e) The result of this poll as ascertained shall be deemed to be the decision of the meeting on various motions referred to in sub clause (j) above regarding the election of the members of the managing committee and in pursuance thereof the chairman shall announce which of the motions referred to in (j) above have been carried…. XXXXXX XXXXXX XXXXXX” 5. The suits allege that the affairs of the Managing Committee of the Club have been, for the past two years, conducted in a manner prejudicial to the members and the Club generally. It is alleged that the Memorandum was not made available to the members with the motive of the incumbent Committee members continuing to enjoy their position and perpetuating their own rule. The suit mentions 11 such alleged committee members, who were responsible for such state of affairs; however, they are not impleaded. It is also alleged that such members of the committee perpetuated a self-rule by ensuring the election of their relatives, virtually in rotation. The suits further contend that pursuant to the proposed Annual General Meeting, a notice of 13.08.2010 was dispatched to the members, intimating that the election for the Club were to be held on CS(OS) Nos.1805/2010 & 1861/2010 Page 5 15.09.2010 with the Agenda of electing the President and 25 members. The said notice has been extracted in both the suits and is in the following terms: “XXXXXX XXXXXX XXXXXX In conformity with Article 39(a) of Articles of Association of the Club, Members are requested to signify by notice in writing left at the office of the Club not less than 14 clear days from the date of meeting, whether they are desirous of serving on the Managing Committee of the Club for the year following. Any member may even propose any other member as a candidate in which case the proposal with the consent of the proposed candidate be delivered to the office of the Club within the time above mentioned along with the Security Deposit of Rs. 500/- (Rupees five hundred only). The amount of security shall be refunded if the member is elected, otherwise the security amount will be forfeited under S. 257 of the Companies Act, 1956. Proposals received after the said date shall not be valid. A member who is not a retiring member of the Committee and who is desirous of serving on the Committee or whose name has been proposed as a candidate, as provided in the last foregoing paragraph, shall not be entitled to act as a member of the committee unless he has within 30 days of his appointment signed and filed with the Registrar of Companies, Delhi his consent in writing to act as such Member as provided under Section 264 of the Companies Act. XXXXXX XXXXXX XXXXXX” 6. It is alleged that the Club had mala fide intent, as is evident by inclusion of the following Clause: “XXXXXX XXXXXX XXXXXX I hereby give consent to act/propose name of __________________ as Member of the Managing Committee for Chelmsford Club Ltd., for the following year. Signature………… Name…………….. Dated Membership No…………………. XXXXXX XXXXXX XXXXXX” 7. The plaintiffs allege that the said notice was not circulated to all the members and that they came to know about it only very late. Consequently, the plaintiffs in the first suit went to the club on 01.09.2010 at 01.00 PM to submit the form to contest the election for members, along CS(OS) Nos.1805/2010 & 1861/2010 Page 6 with the requisite fee. It is alleged that the Club illegally refused to accept the forms. Initially the money was allegedly accepted but later the plaintiffs were informed that unless the Secretary instructed acceptance of the same, it could not be taken on the record. The plaintiffs in the second suit allege that they had approached the Club on 27.08.2010 and were told that a sample form, evidencing the intention of the proposed candidate to hold himself out as a nominee had to be furnished along with the payment of ` 500/-. They further allege that accordingly Demand Drafts were prepared along with the forms, evincing interest of the members contesting the election but that the Secretary of the Club refused to accept the forms and eventually on 31.08.2010, after persuasion, the Administrative Officer reluctantly agreed to accept the forms/proposal of candidates to contest the election, and agreed to accept the sum of `500/- tendered by each of them. It is contended that the furnishing of receipts is evidence that the forms were accepted within the time and the requisite amount had been deposited. 8. The grievance of the plaintiffs in the first suit is that rejection of their Nomination Form, on the pretext that it was belated and that was not accompanied by consent of the proposed candidate, is illegal; likewise, the grievance of the plaintiffs in the second suit is that the proposals or forms submitted by them for election, scheduled for 15.09.2010, rejected through the impugned letters/circulars of 04.09.2010 and 06.09.2010 on the ground that consent of the candidates had not accompanied the nomination forms and that the sum had to be deposited on or before 31.08.2010, with such consent, are illegal and unsustainable. The plaintiffs rely upon Section 257 of the Companies Act to say that rejection of the nomination forms is contrary to the said provision. It is further contended that the stipulation in Article 39A, requiring the consent of the proposed candidates and the further need for delivery of the said consent within the time mentioned is ultra vires Section 257. The plaintiffs submit that the law on the subject is that for an election to the post of Director in a company, a nomination by any member without the consent of the candidate can be filed and that such elected Director has to give his consent within 30 days after the election. The insistence by the defendants, of fulfillment of the condition, of having to furnish the consent of the proposed candidate prior to the election, it is stated, is contrary to provisions of the Companies Act, and, therefore, void. The plaintiffs have also argued that the Club is a company in terms of Section 25 of the Companies Act, and without grant of any license, which in turn implies that the provisions of the Companies Act apply in full force today. CS(OS) Nos.1805/2010 & 1861/2010 Page 7 9. The second important argument or contention urged and pleaded by the plaintiffs is that the requirement of having to give 14-days notice stood satisfied – in the case of the first suit when the forms were submitted on 01.09.2010. It is claimed that while recounting the 14-days period, the day on which the form is submitted, also has to be taken into account and not excluded. 10. The written statements in both suits are almost identical, excepting a few details. The club contends that Article 39(a) of the Memorandum provides that written consent of the proposed candidates should also be filed not less than fourteen clear days before the meeting. However, the Plaintiffs did not file their written consent within that period and therefore, their nominations were liable to be, and therefore were rejected. It is submitted that rejection of the Plaintiffs‟ nomination is in accordance with the provisions of Article 39(a) of the Articles of Association of the Defendant which is binding on the Plaintiffs and the Defendant under Section 36 of the Act. Permitting invalid nominations is prejudicial to the interests of the other candidates who have filed the valid nominations and if this is permitted they will object to such permission on the ground that the club has violated the Articles. It is therefore urged that the suit must necessarily fail, on this score. 11. The Club states, without prejudice to above, that a fair construction of provisions of Section 257 read with provisions of 264(1) of the Act also meant that the nominations were liable to be rejected, as the consent, required under Section 264(1), was not filed with the Defendant along with the nominations. 12. The Club next avers that the plaintiffs‟ claim for declaration that Article 39(a) is null and void on the ground that Section 257 of the Act does not require the consent of the proposed candidates, is misconceived, because Section 264(1) of the Act requires consent of the proposed candidate to be filed. Unless any provision of Articles is void under Section 9 of the Act, the same has to be complied with, by the members of the company and the company, and also, the same cannot be ignored/superseded by the Court. Therefore, Article 39(a) is binding and has to be enforced and cannot be superseded. It is stated therefore, that the nominations of the Plaintiffs were correctly rejected. CS(OS) Nos.1805/2010 & 1861/2010 Page 8 13. The Club avers that the requirement of written consent of the proposed candidate (to the Company) is not a mere formality, the non-compliance of which is not a mere irregularity, resulting in vacancy of the non-consenting member, which can be filled later on. In the case of companies like the Club, the Articles of which provide for election by ballot, not filing the consent with the company actually vitiates and jeopardizes the whole election process and does not result merely in a vacancy. It is stated that if a proposed candidate who does not file his consent is permitted to contest the elections his name would also be included in the ballot sent to the members for voting along with the names of other consenting candidates. The members unaware of his lack of consent, may vote (for him also), which vote they could cast in favor of the other contesting candidates. In that case there may be two possibilities, he may get elected or though he is not elected but may get some votes. If he gets elected and later he refuses to act a casual vacancy is created, which under the provisions of the Articles is to be filled by the remaining elected members of the managing committee. This, states the Club, takes away the right of its members to elect all the 25 members and instead the new member is co-opted by the managing committee. 14. It is urged, additionally, that this adversely affects the chances of the other consenting candidates who might lose the elections due to votes given to a non-consenting member, which would have been cast in their favor and they could have won the election. Similarly, the non- consenting candidate upon coming to know about his nomination may withdraw before the elections but after issue of ballot paper like in the present case some have so withdrawn. In that case even they may also get some votes, which could be given to the other consenting candidates. Therefore, in either case the whole election process will get vitiated or will result in deprivation of rights of the members to elect all the 25 members. There may be another eventuality also. For example, the non-consenting member may be a very busy person not able to devote his time for the Defendant‟s functioning or may be ill or otherwise not at all interested in participating in the managing committee or even he may be having any other disqualification for being elected, as a member of the managing committee under the provisions of Section 274 of the Act. If he gets elected, then even if he may not refuse to act, but he would not be able to devote his time to the Defendant, which will not be in the interest of the functioning of the Defendant. Therefore, the requirement is not a mere technicality or a formality but absence of CS(OS) Nos.1805/2010 & 1861/2010 Page 9 consent will have serious adverse repercussions on the whole election process, right of the members to elect all the 25 members and will be prejudicial to the interest of the Defendant. 15. The Club states that the plaintiffs, being its members, are presumed to have constructive notice, of the Articles of having read and understood its provisions and therefore, they cannot allege lack of awareness of the consent requirement, provided in the Articles. Further, the requirement of consent is also provided under Section 264(1) of the Act. In any event the said requirement was also mentioned in the Notice of AGM, which was sent to each member by UPC on 21.08.2010. 16. The Club also submits that any relaxation from the requirement of Articles and the Act in the present case will also set a bad precedent for future not only for consent and time line for nominations but also for other matters as well. 17. The Club alleges that the present suit was filed with malafide intent to jeopardize its smooth functioning and the plaintiffs, some of whom are club members for over 20 years, have leveled allegations for the first time. The plaintiffs have not approached the Court with clean hands as they have suppressed that at the time of becoming members they were given copies of the Memorandum and Articles of the Club and that elections of the Managing Committee of the Club are held each year. The Club disputes allegations in the suit regarding manipulation in the elections and averments pertaining to perpetuation of rule of a few committee members. 18. The Court, on 13th September, 2010, made the following order: “Learned counsel for the parties submit that since the question which arise for determination are narrow and can be addressed and that the Court may appropriately consider them finally. It is also submitted by counsel for defendant company that it would be bound by the decision of the Court and any declaration of election results which are subject matter of these proceedings would be subject to the final judgment.” On 20.10.2010, the Court made the following order, framing issues: “1) Whether the proposal form submitted by a member in respect of candidature of another member, of the defendant club has to be accompanied by the candidate‟s consent and whether the condition condition is valid, legal and enforceable; 2) The true meaning and interpretation of the expression “14 clear days” (notice) occurring in Article 39 (a) of the Articles of Association of the defendant company; CS(OS) Nos.1805/2010 & 1861/2010 Page 10 3) Whether the managing committee possesses the power and authority to reject the nomination form of any of the plaintiffs; 4) Has the suit been valued correctly for purposes of court fees and the requisite court fee paid; In view of the above developments, and orders, parties, through their learned counsel, addressed arguments finally, in the suit, and orders were reserved thereafter. Issue No. 1 19. The contentions in this regard involve an interpretation of Sections 9 and 29 of the Companies Act. The plaintiff argues that the overriding effect of Section 9 of the Act mandates that the Articles of Association of the defendant company could not contravene any part of the Act. Therefore, under Section 264, the club‟s Articles of Association would be void to the extent that they are repugnant to Section 264 in so far as the Articles of Association require consent of the nominated members to be submitted along with the nomination, not less than 14 days prior to the general meeting. Under Section 264, however, such consent may be submitted by the nominated member, within 30 days after appointment. The plaintiffs contend that the Club is subject to the provisions of Section 264 of the Act. The plaintiffs rely on the decision of this Court, in Pramod Chopra v. Apparel Exports Promotion Council, ILR 1984 Del 717 to say that provisions of Sections 257 and 264 are binding, as they prescribe non-derogable standards. They also rely on L.C. Kapadia v. L.B. Desai, AIR 1972 Bom 276 to explain the object of Section 264 to say that consent of the candidate is inessential, at the stage of lodging the application form, and can be furnished within 30 days after the election. 20. The Club argues that under Section 29 of the Act, its Articles of Association are merely required to conform to the form prescribed in Table C, D and E in Schedule 1 to the Act. Under this provision their contention is that the nature of Section 29 of the Act is merely directory as opposed to being an imperative condition and therefore, the degree of compliance necessitated by this provision is „substantial compliance‟. The statutory provision does not require undeviating conformity. According to the Club, its articles of association only consist of minor variations