K. Leela Kumar Vs. Government of India - Court Judgment

Ar. Lakshmanan, J.

1. The above writ appeals are directed against the common order of T. Somasundaram J., dated 30-7-1991, in W.P. Nos. 667 and 769 of 1989, dismissing both the writ petitions filed by the appellants holding that Circular No. 32 of 1975, dated 1-11-1975, issued by the first respondent is not a statutory circular, that it is only an administrative instruction given at department level and that the appellants, who are third parties, cannot seek to enforce the same.

2. The appellants are members of the third respondent club, which is a company registered under the provisions of the Companies Act, 1956 ('the Act'). The Secretary of the third respondent on 3-1-1989, issued a notice to the appellants stating that the appellants in their letter to the members had commented about the functioning of the committee of the third respondent, that the same was not conclusive to the interest of the third respondent and that, therefore, the appellants should show cause why appropriate action as the committee of the third respondent thinks fit should not be taken against them for such prejudicial conduct. Both the appellants sent replies to the show-cause notice. On 9-1-1989, the third respondent issued orders suspending the appellants from the membership of the third respondent, viz., the appellant K. Leela Kumar for a period of 45 days from 11-1-1989 to 24-2-1989 and the appellant M. Subbiah for a period of thirty days from 11-1-1989 to 9-2-1989, in exercise of the power conferred on the management under article 28 of the articles of association of the third respondent club.

3. Aggrieved by the order of suspension, the appellants filed W.P. Nos. 667 and 769 of 1989 to issue a writ of mandamus directing respondent Nos. 1 and 2 to take appropriate action to enforce Circular No. 32 of 1975 dated 1-11 -1975, issued by the first respondent for deletion of article 28 from the articles of association of the third respondent without any further delay. According to the appellants, respondent Nos. 1 and 2, who are the authorities empowered under the Act to regulate the affairs of the companies registered with the statutory authorities, have failed to discharge the duties ordained on them under the Act insofar as the third respondent is concerned. It is submitted that when the articles of association contravene the provisions of the Act, as per section 9 of the Act, the provisions of the Act shall have the effect of overriding the memorandum and articles of association of the registered company and that the second respondent is not taking appropriate steps to correct the anomaly especially when the instructions of the first respondent are specific. It is also submitted that if the articles of association of the company or the resolutions passed at the meeting or by the board of directors are repugnant to the provisions of the Act as envisaged under section 111 of the Act, the authority constituted under the Act can refuse registration of the articles of association or the resolution.

4. Our attention was drawn to Circular No. 32 of 1975, dated 1-11-1975, issued by the first respondent which contains specific instructions. Placing reliance on the above circular, it is submitted that the specific instructions contained therein have to be strictly enforced by the jurisdictional authorities empowered under the Act. The said circular reads thus:

'Recently a case has come to the notice of the Central Government where a public limited company has amended its articles of association by including a clause by a special resolution passed at the extraordinary general meeting of the company empowering the board of directors of the company to expel a member in a case where the board is pritna facie of the view that activities or conduct of the member is detrimental to the interest of the company or that by reason of his continuance as a member, it would be prejudicial to the future of the company. The question whether such an amendment of the articles of association of a company is valid has been under consideration of the Department. After considering the scheme of the Companies Act, the Department is of the view that amendment of articles of association of a company providing for expulsion of a member of the management is opposed to the fundamental principles of the company's jurisprudence and is ultra vires the company. Such a provision is repugnant to the various provisions in the Companies Act pertaining to the rights of a member in a public limited company and cuts across the scheme of the Act as it has the effect of rendering nugatory the very powers of the Central Government under Section 111 of the Companies Act, 1956, and the powers of the courts under sections 107 and 395 of the Act and is, therefore, void by the operation of the provisions of section 9 of the Act. The articles of association is a contract between the company and its members setting out the rights of members inter se under the contract, and expulsion of a member is not only a violation of this contract but it is also opposed to the principles of natural justice. Moreover, under section 23 of the Indian Contract Act, any agreement which is contrary to any law or opposed to public would be deemed to be unlawful and void. The Supreme Court in the case of Bajaj Auto Ltd. v. N.K. Firodia [1971] 41 Comp. Cas. 1 has laid down the law as to the condition on the basis of which directors could refuse a person to be admitted as a member of the company. The principles laid down by the Supreme Court in this case, even though pertaining to the refusal of a company to the admission of a person as a member of the company, are applicable even with greater force to a case of expulsion of an existing member. As under Article 141 of the Constitution the law declared by the Supreme Court is binding on all courts within the territory of India, any provision pertaining to the expulsion of a member by the management of a company which is against the law as laid down by the Supreme Court will be illegal and ultra vires. In the light of the aforesaid position, it is clarified that assumption by the board of directors of a company of any power to expel a member by amending its articles of association is illegal and void.'

It is submitted that Article 28 of the articles of association of the third respondent, which empowers the committee to suspend the member and the general meeting by special resolution to expel a member is not sustainable in law and the same is contrary to the provisions of the Act. Article 28 of the third respondent reads as follows :

'In the event of the conduct of any member in the club or outside, when he is representing the club, being in the opinion of the committee, injurious to the prestige of the club, or on the happening of any event which in the opinion of the committee would render the continuance of the member injurious to the prestige and interest and character of the club, or in the case of any infraction by the member of any of the rules of the club, or any bye-laws as the committee may frame from time to time, the committee may, after giving the member concerned reasonable opportunity to show cause, suspend such member for a period not exceeding three months in respect of such prejudicial conduct of the member: Provided, however, that if the committee should considerit advisable that themember should bere moved from the rolls of the membership of the club, such removal of the member will take effect if, and only if, the same is approved by a special resolution, passed at general meeting where the quorum for such a general meeting will be at least 50 members present in person. Such removal shall take effect from the date on which the general body passes the special resolution and the same is notified to the member by the club. The member concerned shall be given an opportunity to explain his case to the general body, if he desires to do so.'

5. It is also alleged by the appellants that in the third respondent club, a few persons are controlling the affairs of the club and these persons in order to have absolute control in the affairs of the club and the dissent voice, started to invoke the powers under Article 28. When they want to amend Article 5 of the articles of association in regard to the voting pattern at the annual general meeting, they called for an extraordinary general meeting on 28-11-1988. On that date, the appellants and a few others openly criticised the above move. The President and other committee members who were present at the meeting, on seeing the appellants and other dissent members, decided to postpone the extraordinary general meeting specially convened at the instance of the management. When the appellants asked the President that when there was requisite quorum for the meeting to be held, why the meeting had to be postponed, the President without answering left the place along with the other committee members. Since requisite quorum was present, the members present electing a president conducted the meeting and the proposed amendment to article 5 was unanimously rejected by the members attending the meeting.

6. It is, therefore, submitted by the appellants that the conduct of the management conclusively shows that the persons controlling the affairs of the third respondent have no regard for the rule of law and that they would do anything to suit their convenience. It is submitted that the appellants had expressed their views on the matter. The said Act has been construed as a prejudicial act and the other members who have similarly expressed their views about the same were not proceeded against and the appellants alone had been singled out and Article 28 had been invoked to suspend them from the membership of the third respondent. According to the appellants, Article 28 can never be deemed to be a valid article in law since it contravenes the provisions of the Act and that the action of the third respondent management in invoking Article 28 is illegal and, therefore, respondent Nos. 1 and 2, who are the statutory authorities under the Act, are bound to interfere and set right the illegality perpetuated on the appellants. The appellants request to the second respondent to take appropriate action under law to delete Article 28 from the articles of association of the third respondent was of no avail. Therefore, the appellants have filed the above two writ petitions to direct respondent Nos. 1 and 2 to take appropriate action to enforce Circular No. 32 of 1975, dated 1-11-1975, issued by the first respondent by ordering deletion of article 28 from the articles of association of the third respondent.

7. The writ petitions were resisted by the respondents. On behalf of respondent Nos. 1 and 2, the Additional Registrar in the office of the Registrar of Companies has filed a counter-affidavit. On behalf of the third respondent, its honorary secretary has filed a separate counter-affidavit.

8. Respondent Nos. 1 and 2 contended that the existing article 28 of the third respondent was approved by the Regional Director, Company Law Board, Madras, by Letter No. 2/M.506/72 dated 8-5-1974, by virtue of the powers conferred on him under Section 25 of the Act, which has been delegated to him by the Government of India in Notification No. G.S.R. 71, dated 1-1-1966. In the said letter the company was specifically informed that the said alteration in the articles of association will take effect after a special resolution amending the articles is passed and after the compliance with Sections 31, 189 and 192 of the Act, which were also complied with.

9. The third respondent club contended in its counter-affidavit that Article 28 in its present form was in existence on the date when the appellants became members of the third respondent club and that Circular No. 32 of 1975, referred to by the appellants merely represents the department's view in a case of amendment of the existing articles of association of a public limited company for expulsion of a shareholder. It is further averred in the counter-affidavit that the postponement of the extraordinary general meeting was perfectly valid and, consequently, the meeting held on that day after such postponement would not be valid and that the action of the committee is not in violation of the fundamental rights guaranteed under the Constitution of India.

10. In view of the rival contentions of the parties, the principal question to be decided in these appeals is, whether Circular No. 32 of 1975 dated 1-11-1975, issued by the first respondent can be enforced at the instance of the appellants and whether article 28 of the articles of association of the third respondent is liable to be deleted on the ground that it runs counter to Circular No. 32 of 1975.

11. We have heard the arguments of Mr. N.S. Sivam for the appellants, Mr. T. Srinivasamoorthi for respondent Nos. 1 and 2 and Mr. A.S. Chandrasekaran for the third respondent and perused the entire records and also the order of the learned single Judge which is impugned in these appeals.

12. Mr. N.S. Sivam, the learned counsel for the appellants, while reiterating the contentions raised in the writ petitions and of the arguments advanced before the learned single Judge, invited our attention to certain passages and sections in the Companies Act by A. Ramaiya, Eleventh Edn. Our attention was drawn to the definition of 'Registrar' occurring in section 2(4) and also to sections 25, 25(5), 31, 33, 41 of the Act under which Circular No. 32 of 1975, has been issued, Sections 609 and 637A of the Act and also the Companies Regulations, 1956, particularly to condition No. 6 in annexure I and condition No. 7 in annexure III and also as regards the department's instructions in regard to the procedure for grant of licence.

13. The learned counsel for the respondents contended that the writ petitions filed by the appellants have no merit, that the writ of mandamus will not lie to enforce administrative instructions and that Circular No. 32 of 1975, which contains clarifications issued by the first respondent, which are administrative in character, cannot confer any enforceable rights on third parties like the appellants. It is also contended that a writ of mandamus does not lie to enforce a departmental instruction not having any statutory force and which cannot give any legal right to the appellants.

14. We have given our anxious consideration to the rival contentions made by the counsel appearing on either side.

15. The third respondent is a sports and recreational club without any profit motive. It was registered under Section 26 of the Indian Companies Act, 1913, under a Certificate of Incorporation No. 26 of 1925. The third respondent has also affiliation with other clubs in various parts of India and in a few other countries. The third respondent club is different from the companies incorporated under the Act for commercial activities having only a profit motive as their sole aim. The members of the third respondent are not issued with any shares. Therefore, the third respondent club cannot be equated with public limited companies having profit motives, which is their sole aim.

16. Article 28 of the articles of association of the third respondent originally provided for termination of membership under certain contingencies. After obtaining the prior approval of the first respondent acting through the Regional Director, Company Law Board, Madras, the third respondent in its extraordinary general body meeting held on 29-6-1974, resolved, inter alia, to amend Article 28 conferring power on the committee to suspend a member of the club up to a period of three months if, in its opinion, the member concerned had acted in a manner prejudicial to the interest, character and conduct of the club. It is also not out of place to mention that the Company Law Board had raised some queries, applied its mind to the replies sent by the third respondent and after satisfying itself had accorded approval to the proposed amendment. Both the appellants became members of the third respondents when article 28 in its present form was in existence.

17. As already seen, the appellants are seeking to enforce Circular No. 32 of 1975 issued by the first respondent which has been extracted above. A perusal of the said circular would show that it merely represents the department's view in a case of amendment of the existing articles of association of a public limited company providing for expulsion of a shareholder. The circular also refers to the judgment of the Supreme Court decided in Bajaj Auto Ltd. v.N.K. Firodia [1911] 41 Comp. Cas. 1. That was a case of refusal to register the transfer of shares effected by a shareholder of a public limited company. The Apex Court laid down the principles applicable to the board of directors dealing with the application for registration of transfer of shares. Thinking that the Supreme Court decision will equally apply to an expulsion of a shareholder, the Company Law Board had opined that any modification of the bye-laws and articles of association of the company creating a provision for expulsion of any shareholder should not be accepted.

18. A.S. Chandrasekaran, the learned counsel for the third respondent, made some submissions with reference to Circular No. 32 of 1975. They are:

(a) The circular is merely recommendatory in nature and must be confined to the facts and circumstances under which the circular came to be issued and has no effect whatsoever unless legally implemented.

(b) The circular is not a statutory direction, legally enforceable and no writ will lie for the enforcement of the said circular.

(c) The circular deals with only expulsion of a shareholder of a public limited company as the various provisions of the Act mentioned in the circular indicate and it does not deal with a case of suspension for a short period.

(d) The circular cannot at any rate be applicable to clubs, associations, etc., incorporated under Section 25.

He further contends that the suspension of a member of a social club on the ground that he has acted in a manner injurious to the prestige, interest and character of the club, is not opposed to public policy and is also not opposed to law.

19. The above submissions of A.S. Chandrasekaran merit acceptance. The provisions of the memorandum and articles of association of the third respondent club are perfectly legal and they are not void ab initio, as contended by the learned counsel for the appellants. In any event, the validity of the proceedings of the impugned meeting is not in issue in the writ petitions. It is a matter of record that the third respondent sent a letter dated 3-1-1989, calling upon the appellants to show cause as to why appropriate actions should not be taken against them for their prejudicial conduct. Since the appellants did not give any explanation, the third respondent, after due consideration of the facts and circumstances, by letter dated 9-1-1989, suspended the appellants from the membership of the club, the appellant K. Leela Kumar for a period of 45 days and the appellant M. Subbiah for a period of thirty days, since, in the opinion of the committee, the conduct of the appellants was injurious to the prestige, interest and character of the club. We are of the view that the action of the committee is perfectly valid, legal and proper being also a matter pertaining purely to the internal administration of the club. We have already seen that the amendment was approved by the Regional Director of the Company Law Board, Madras, by letter dated 8-5-1974, by virtue of the power conferred on him under Section 25, which has been delegated to him by the Government of India in Notification No. GSR 71, dated 1-1-1966. The appellants having been aggrieved by the order of suspension, have filed the writ petitions, challenging the validity of Article 28 which confers power on the third respondent to suspend a member.

20. It is the case of the appellants that the said article cannot be enforced in view of the provisions of section 9 and Circular No. 32 of 1975 issued by the first respondent. We are unable to appreciate the above contention for the following reasons. Necessary approval for amendment of Article 28 was given by the Regional Director, Company Law Board, Madras, by his letter dated 8-5-1974, by virtue of the powers delegated to him by the Government of India, whereas Circular No. 32 of 1975 was issued by the first respondent only on 1-11-1975. As rightly pointed out by the learned counsel for the third respondent. Circular No. 32 of 1975 contains the mere opinion of the department. It is not a statutory order issued pursuant to any statutory provision. The said circular contains only certain adminis-trative instructions and, therefore, it will not bind third parties like the third respondent. Therefore, in our opinion, the writ petitions filed by the appellants to enforce those administrative instructions by filing a writ of mandamus invoking Article 226 of the Constitution are not maintainable. Circular No. 32 of 1975 deals with only expulsion of a shareholder of a public limited company and it does not deal with a case of suspension of a member for a short period. In any event, the said circular is not applicable to clubs, associations, etc., incorporated under Section 25. It is settled by a catena of decisions of this Court and also of the Supreme Court, that the petition for issue of a writ of mandamus will not lie to enforce administrative instructions. The circular in question, which contains clarifications issued by the first respondent, which are administrative in character, cannot confer any enforceable rights on third parties like the appellants. As already mentioned, the circular in question is not a statutory order passed in exercise of any statutory power and, therefore, it has no legal effect or sanction.

21. The following passage in Durga Das Basu's Administrative Law, Second Edn., at page 144 can be usefully noticed :

'Administrative instructions, rules or manuals, which have no statutory force, are not enforceable in a court of law. Though for breach of such instructions, the public servant may be held liable by the State and disciplinary action may be taken against him, a member of the public who is aggrieved by the breach of such instructions cannot seek any remedy in the courts. The reason is, that not having the force of law, they cannot confer any legal right upon anybody, and cannot, therefore, be enforced even by writs under Article 226.'

Since the appellants being third parties to Circular No. 32 of 1975, cannot enforce the same by approaching this Court under Article 226 of the Constitution, they are not entitled to any relief in the present writ proceedings. We agree with the opinion expressed by the learned single Judge. There are no merits in the writ appeals.

22. The need or necessity for the retention of a clause of the nature impugned in the articles of association, in order to maintain internal discipline among members of a private club and protect the fair image and status of the club is a matter pertaining to private law or personal matters and no public law aspect or any violation of statutory rights or fundamental rights is involved therein. The wisdom or otherwise of the policy behind the bye-law of a private club is not a matter for consideration in a writ petition under Article 226 of the Constitution. Respondent Nos. 1 and 2 are not in any manner obliged to the appellants or to anyone to enforce their administrative circular, which does not confer any rights in law upon any one. What the appellants cannot get as a matter of right by making any claim in the court cannot be indirectly claimed by camouflaging the prayer and making it appear as though some rights are claimed against public authorities. There is no public interest also involved in the guidance sought to be espoused. The appellants have no legal right against the respondents nor do the respondents have a legal duty to oblige with the demand made and, consequently, there is no scope for seeking any relief by invoking the extraordinary jurisdiction of this Court under Article 226 of the Constitution. In our view, the appellants have wholly misconceived their remedies in law.

23. For the foregoing reasons, we dismiss both the writ appeals. The third respondent club is at liberty to give effect to the order of suspension passed against the appellants if the same has not already been given effect to. There will be no order as to costs.