Yamini Kapoor

BBA LLB HONS. BATCH 1

500122941

Case Analysis: K. Leela Kumar v. Government of India (1997)

• Case Name: K. Leela Kumar v. Government of India

• Court: Madras High Court
• Bench: Justice D. Raju and Justice A. R. Lakshmanan
• Date of Decision: April 7, 1997

Factual Background

The dispute came as a result of a disciplinary action by a club which was a

company limited by guarantee under Companies Act, 1956. One of the members and the
appellants, K. Leela Kumar, had been vocal about the operations of the managing
committee of the club. Subsequently, the club imposed the two a 45 and 30-day
suspension respectively under Article 28 of its Articles of Association. Article
28 made it very clear that members could be suspended or expelled in the case of
their conduct that was harmful to the club. In 1974, this article had been duly
approved by the Company Law Board and thus it had legal sanctity. The appellants
were aggrieved with the suspension and they petitioned the writ.They claimed that
Article 28 was invalid bearing in mind Circular No. 32 of 1975 issued by the
Central Government which stated that the clauses that allowed expulsion of members
in public limited companies were unlawful and invalid. They argued that the
circular must also extend to their club and Article 28 must be invalidated. On the
single judge rejecting their writ petition, the appellants appealed their writ to
the Division Bench of the Madras high court.

Legal Issues

1. The question was whether or not Circular No. 32 of 1975 issued by the Central
Government was statutory and capable of superseding the Articles of Association of
a company. 2. That the rules of the club (a company limited by guarantee) of a non-
profit club could be considered equal to those of a company limited by guarantee
with respect to expelling its members.
3. The question of whether a writ petition could be maintained to enforce
compliance with an administrative circular, which did not give statutory rights.
4. The issue about whether the court ought to intervene on the internal
disciplinary matters of a voluntary association/company under the writ
jurisdiction.

Arguments of the Parties

Concerns (PHRI and LOTES). The appellants contended that the Articles of
Association Article 28 was against the Circular No. 32 of 1975 that had barred
expulsion clauses. They argued that their suspension was against their core right
to be treated fairly as club members. They also maintained that the government
circular being administrative did contain the policy of the people and therefore
should be imposed.

The Club and Government of India (Respondents)

The respondents rejected the fact that the circular was statutory, but simply
administrative guidelines to the public companies. They emphasized the fact that
the club was not a limited company, but rather a non-profit organisation with a
guarantee limit and therefore the circular did not apply. Article 28 of the
Articles of Association was validly adopted by the Company Law Board and it was
obligatory on all members. According to them, the writ jurisdiction in Article 226
could not be applied to strictly personal disputes of internal management of the
club.

Judgment and Reasoning

The Division Bench of Madras High Court rejected the appeal.

Administrative/Statutory Instructions.

The Court decisively said that Circular No. 32 of 1975 was simply an administrative
directive, and lacked the power of law.Administrative directions, in contrast to
statutory rules which are provided using delegated legislation, have no power to
override the law or accepted articles of a company. The appellants therefore did
not have a right by the circular which can be legally enforced.

Public Limited Company/Clubs.

The Court made a distinction between a public company and its shareholders on one
hand, and clubs that are registered and limited by guarantee as non-profit
companies on the other hand. It was obvious that the circular was designed to
safeguard the shareholders of publicly incorporated firms against being expelled
arbitrarily, as expulsion is a factor to proprietary interests in shares.
Conversely, in a club, membership is a privilege matter and that is managed under
contractual terms of members Articles of Association.So, the circular did not
pertain to the case of the appellants. Articles of Association should be valid.
The Court pointed out that the Articles of the club such as Article 28 had been
passed by the Company Law Board in 1974 and the appellants had voluntarily joined
the club under such Articles. Through membership, they were subject to those
conditions. When they were disciplined they were not able to question their
validity later.

Scope of Writ Jurisdiction

The Court noted that a writ of mandamus can only be sustained to impose statutory
obligations. As the circular was administrative in nature, there could not be a
writ. Also, it was an internal issue in a private association, which did not
contain elements of a public law and public interest. The traditional rule of
courts is that they can interfere in such private management disputes only in case
there is statutory or policy violation.

Ratio Decendi (Legal Principle)

The administrative circulars were not statutory and they did not impose any
enforceable rights on third parties. The approved articles of Association bind all
members as long as they voluntarily join under the articles. Difference between a
public company and a club: regulations are usually designed to safeguard the
shareholders of a public company, and they cannot be unambiguously applied to non-
profit clubs. When no statutory violation is evident, Article 226 Writ jurisdiction
may not be used to enforce administrative instructions or to otherwise interfere in
the internal affairs of voluntary associations.
Obiter Dicta

The Court observed that when the members are not contented with disciplinary rules
of a club, they can always resort to civil action or even amendments in relation to
the rules rather than applying the writ jurisdiction.

Law Implication / Precedent

This case has had a lot of impact on the law of companies in India due to a number
of reasons:
1. It also solidified the legal case on the difference between administrative
directions and statutory rules.
2. It explained that circulars addressed to public companies can not necessarily be
applied to clubs or companies limited by guarantee.
3. It reiterated the fact that in the absence of statutory or other considerations
of interest in the community, courts should not meddle in the inner governance of
businesses/clubs.
4. It reemphasized the contractual quality of membership in clubs - members are
subject to Articles to which they assented when joining.

Conclusion

K. Leela Kumar v. decision. Government of India is also a warning to those in clubs

and associations who have been incorporated as companies. It emphasises on the fact
that the membership of such bodies is voluntary and contractual and members may not
repudiate the Articles they had agreed to follow them later. The case gives a
bright line between administrative advice and statutory law that is binding,
enhancing the freedom of corporations to manipulate matters internally.