Govt may look at having public interest directors for non-profit companies using govt properties

By: |
April 26, 2020 6:33 PM

Delhi Gymkhana Club was incorporated in July 1913 and was given 27.03 acres of land on perpetual lease in 1928. Then, known as Imperial Delhi Gymkhana Club, the name was changed to the current one in 1959.

Citing the case of Delhi Gymkhana Club, a source in the government said time has come for clubs also to do good governance.Citing the case of Delhi Gymkhana Club, a source in the government said time has come for clubs also to do good governance.

The government might look at having public interest directors for non-profit companies like clubs that are utilising government properties. While there is no formal proposal in this regard, the idea comes against the backdrop of the corporate affairs ministry seeking to supersede the current management of the more than 100-year-old Delhi Gymkhana Club in the national capital.

Citing the case of Delhi Gymkhana Club, a source in the government said time has come for clubs also to do good governance.

“Clubs and Section 8 companies, which are enjoying government properties, should have some public interest directors on their boards to protect public interest,” the source told PTI.

Such a provision can also be brought in through changes in rules under the companies law, the source added.

The practice of having public interest directors is already in force in many classes of entities, including stock exchanges.

Generally, Section 8 companies are those set up for charitable objectives and among others, intends to prohibit payment of any dividend to its members, as per the Companies Act, 2013.

The club, set up during the British rule, is a Section 8 company under the Companies Act. It is functioning on 27.3 acres of land on perpetual lease from the central government. Following an inspection wherein multiple violations of companies law and irregularities were noticed, the ministry has moved the National Company Law Tribunal (NCLT) for superseding the club’s current management.

According to the source, there are serious issues of mismanagement, corruption and profiteering from collection of deposits for membership at the club.

Delhi Gymkhana Club was incorporated in July 1913 and was given 27.03 acres of land on perpetual lease in 1928. Then, known as Imperial Delhi Gymkhana Club, the name was changed to the current one in 1959.

The club was established with the main objective of promoting various sports and pass times.

In its petition before the NCLT, the ministry said frequent violation of rules is nothing but a thin curtain to cover the malpractices which are rampant in nature starting from admission of a member or privilege holder to use the services and facilities of the club, misuse of public fund, award of preferential third party contract to related parties.

“These cannot be just covered under ‘innocence of negligence or lack of knowledge or experience,” it noted.

Further, the ministry said that grant of privileges to use the club premises by arbitrarily chosen individuals has become a norm, which is nothing short of hereditary succession or ‘parivaar-vaad’. Similar modus operandi is also being used for accommodating superannuated government officers who were members of the club in the category of government members.

On Friday, the NCLT issued notices to the club and its general committee managing its affairs over the petition.

A two-member NCLT bench headed by Acting President B S V Prakash Kumar has asked the club to file its reply by May 8 and directed to list the matter on May 13 for next hearing.

While noting that the club was formed during the British rule, the ministry in the petition said during that era, majority of officers in the Armed Forces and civil service officers were British.

But in the present scenario, the club is not working in the trusteeship mode being a Section 8 company and the membership of the club is being used by the elite and concentrated class for their own benefits, it added.

According to the ministry, the company and its properties were used like personal fiefdom of a selected few persons who have been controlling the General Committee.

Also, it has been observed that internal contracts in the company are in majority given to sons, daughters or relatives of the GC members who are appointed in that financial year, the petition said.

“Thus, while allotting membership of the club, the company has been treated like a Riyaasat of the persons especially the GC members by misusing the MoA (Memorandum of Association) and the AoA (Articles of Association) of the company,” it added.

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