By I C Naik
I came in to possession of the latest Bill of Society Charges raised by a 21 Story twin towers housing society (flats 164) in Mumbai. Break down of the amount charged is reproduced below. It is a question of a legality of a grant of subsidy of Rs. 759 (1259-500) per month?
The Society is regulated by 1984 Mode bye-laws registered in 97-98.
It’s Bye-law No 71(a) is no less than a law for the managing committee: “(a) The Committee shall apportion the Share of each member towards the charges of the society on the following basis.” There are 13 heads of Society Charges as listed below. All the flats are being uniform in carpet area,the aggregate Society Charges are apportioned equally.
(1) Property taxes (2) Water Charges (3) Common Electricity Charges (4)
(5) Expenses on repairs and maintenance of the building/buildings of the society
(6) Expenses on repairs and maintenance of the lift, including charges for running the lift (7) Sinking Fund, (8) Service Charges (9) Car Parking Charges (9) Interest on the defaulted Charges (10) Non-occupancy charges (11) Insurance Charges (12) Non-Agricultural tax and the last head No (13) is about other charges as may be decided in the general body Meeting.
Bye Law No 72 mandates that “The Secretary of the Society shall prepare demand notice in respect of the charges of the society payable by members on the basis of the bye-laws-law No. 71(a).”
There are glaring inconsistencies in the Bill vis-à-vis Bye Law No 71(a). Though our focus is on the Subsidy, a mention of three inconsistencies is irresistible namely:
(1) Repair fund Contribution (Bye Law No 13(a)) is missing in the bill.
(2) “Contribution to festival expenses” is missing in Bye Law No 71 (a).
(3) Item 6 on Lift Expenses, are payable equally by all the members and not per flat.
All (Budgeted) expenses for 2016-17 having been apportioned on every flat, budgeted Society Charges add up to Rs 6,279 per flat Per month [Net payable Rs. 5,520+(Subsidy added back) Rs.1,259 Less Rs 500 being the Bill item (9) of deficit recovery]. Net Subsidy works out to Rs 759 p.m. per flat (Annual Rs 9108) Rs 14,93,712 for 2016-17.
Section 64 of the MCS Act 1960 lays down a very important restriction namely: “No part of the funds, other than the net profits of a society, shall be paid by way of dividend, or otherwise distributed among its members”
Section 65(1) and Bye Law No 146 (a) both provide that “A society shall construct its relevant annual financial statements and arrive at its consequent net profit or loss in the manner prescribed in the MCR 1961.
Rule 62 provides (1) The balance sheet and the profit and loss account to be laid before the annual ‘general body meeting of a society by the committee shall ordinarily be in Form N. In Profit & Loss statement in form N interest received on investments is to be credited to P& L Account as income ( Income & Expenditure Account as clarified vide explanation II to Section 75(2) in case of Cooperative Societies not engaged in commercial activities].
Section 65 (2) of the MCS Act 1960 is a mandates to every Cooperative Society that 25% of Net Profits shall be appropriated to Statutory Reserve Fund. Moreover following appropriations are also binding on the Society as per Bye Law No 148 relevant parts of which are extracted below.
(a) “xxxxxx 25 per cent of the net profit of all the business carried on by or on account of the society, shall be placed at the credit of the Reserve Fund of the society.”
(b) The remaining 75 per cent of the net profit of the society shall be utilized as follows viz.;
(i) To pay dividend not exceeding 15 per cent/annum, on the paid up share capital.
(ii) To pay honorarium to the office-bearers of the society not exceeding 15 per cent of the net profit.
(iii) To allocate to a common welfare fund, such part of the profit, as the annual meeting of the general body may determine, to be utilized in furtherance of the objects specified in the bye-law No. 5(d).
(iv) The balance, if any, shall be carried forward or dealt with in such manner as the annual meeting of the general body, on the recommendations of the Committee, may determine.
Appropriations are to be approved by the general body meeting.
So important question to be answered is: whether subsidizing the Society Charges by apportioning a part of the interest and other income of the Society does not amount to distribution of profits and whether it is in consonance with provisions of the housing society law [i.e. the MCS Act 1960/ the MCR 1961/registered bye- laws]?
In the financial statements of 2016-17 when made and placed in A G M it will be interesting to see if the appropriations of profits (Excess of Income over Expenditure) are proposed as required under Bye Law No 148 are made or not?
If any reader is curious to know how this happens and how it can prevented, are most welcome to mail their specific questions on firstname.lastname@example.org .