Delhi Gymkhana Club (DGC)
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Irregularities
=Violations of the Companies Act
Dipak Dash, Probe red flags club earnings from high fees, April 10, 2019: The Times of India
An investigation by the corporate affairs ministry has red-flagged violations of the Companies Act in the elite Gymkhana Club, in particularly the manner in which it has been continued to earn interest from accumulation of membership entrance fees deposited by applicants who can, given the long waiting period, become members currently only after 15 years and which can also stretch up to 30-35 years.
The club has been increasing the entrance fee for applicants under government and non-government category, which they need to deposit at the time of submitting application. There has been an increase in the entrance fee for nongovernment category. The preliminary findings refer to an increase from Rs 5,000 in 2000 for the government category to Rs 1.5 lakh in 2016. On the other hand, the registration fee of non-government applicants was increased from Rs 5,000 in 2000 to Rs 7.5 lakh in 2016.
Gymkhana Club is registered as a company under the Companies Act. The ministry in its report said that the receipt of money by the company from the applicants for more than 365 days “tantamount to acceptance of deposits” and amounts to violation of provisions of the Companies Act. The report also says that the company was collecting or accepting “huge registration fees” over the years and investing them in interest bearing securities or for earning income from the fee of those who are yet to be admitted as members. “In view of the same the directors of
the company have failed to act in accordance with the articles of the company and also failed to exercise their duties with due and reasonable skill and diligence and violated provisions,” the report said. The ministry has shared the findings with the club last month and had sought its response.
When asked, a senior functionary of the club said, “We will give a comprehensive reply and we have sought some more time since we have to get response from all the board members since 2000. We are contesting the deposit of entrance fees which the ministry has said in the report. These are not deposits.” He pointed out that almost every club charges such fees from applicants.
While the club has said that the general committee (Board of Directors) has been revising the entrance fee by passing resolutions, the ministry has said the article of association (AoA) does not provide for revision of registration fees for the membership of the club. “The revision of fees by the GC by passing resolution in Board Meeting over the years is ultra vires to the AOA of the company and voi ab initio, thus bad in law”.
Membership
Court restrains “out of turn“ permanent membership
Restrains It From Giving Out-Of-Turn Membership
A court has restrained Delhi Gymkhana Club (DGC) from giving “out of turn“ permanent membership to children of sitting members.
Saying it is the duty of a club to follow doctrine of “fairness“ in all its actions, additional district judge Vineeta Goyal held in an interim order that grant of such membership to green card holders UCPs (children of members) violates provisions of DGC's foundational rules -Article of Association (AOA).
In an order delivered in November but made public last week, the court ordered the club to “adhere to the terms of AOA “, making it clear that permanent membership granted to green card holders UCPs “prima facie“ is against AOA of the club, which it is bound to follow since it is a company incorporated under the Companies Act.
The court said the club could not make rules, regulations, bylaws or act arbitrarily , emphasising that strict implementation of AOA and bylaws is imperative. Though the club maintained it is a private entity being governed by its own rules, hence not amenable to court's jurisdiction, the judge disagreed.
“This prestigious club has been conceived to cater to a very selective group of people and even in that group, there is a long waiting list. This has created two classes. One who got membership became part of an elite group, while others were left waiting. Now, by creating a category of members under green card holder UCPs, meant for dependants of members, another elite class has been created. They have got membership...only because they happen to be the legal heirs of a member,“ the court noted.
On average, the waiting period for membership is over 50 years. Though, the AOA provides for a dependant of a permanent member, who has used the club earlier, to apply for full membership once she is of 21 years, it doesn't mention any special treatment for her.
The court passed the interim order on a civil suit filed by a group of private members of the club led by Alok Mehndiratta. The suit countered the club's claim of being a private entity by noting that “it has been granted land by the Government of India in the heart of Lutyens' Delhi, therefore it needs to observe the highest standard of transparency.“
While the club maintained it is sticking to the rules, the court said it is “evident from record“ that the concept of grant of membership out of turn evolved only through decisionsbylaws made in the general committee meeting.
“It is extremely unfortunate that the club is in news for wrong reasons. We must all adhere to the AOA,“ said Vijay Chhibber, former president of the club.
Officials of DGC said that they have been issuing membership as per the AOA provisions. The club is likely to hold an emergency general body meeting on this interim court order.
