DNA Analysis of forced donation in housing societies

By I C Naik

Of late Co-operative housing societies have been figuring in daily news, the latest being “Forced donations sought by housing societies is illegal”. Alankar Sahkari C H S Pune lost a dispute raised by a former member in Cooperative Court in December 2005 followed by the dismissal of appeal by the Appellate Court.

The dispute was about refund claim of voluntary donation, the former member was allegedly forced by the Committee to pay to the society for approving transfer of his Bungalow Property. He was forced to pay to the society Rs 4.75 lacs over and above the maximum permissible transfer premium of Rs 25000 fixed under the society’s registered bye-laws.

The society’s appeal in Bombay HC was rejected last week by Justice Mridula Bhatkar in recognition of an undue influence deployed by the housing society’s management on a member for donation of such whooping amount. Dispute raised in 2005 was settled after 13 years. The society was ordered to refund excess payment with 8% interest.

A flat in a housing society is a bundle of personal rights attached to the membership of the society available to the flat holder. This includes the right of transfer of share and the member’s interest in the Capital/property of the society (the flat+). De-jure the housing society is the owner of the aggregate interest of all the members in the Capital/property of the society. This right is transferrable to other member of the society, in terms of provisions of registered bye-laws of the society with prior permission of its Management Committee. Such transfers have come to stay as a precious property transaction and over a period, the reality market having caught in to runaway inflation, it’s inherent value has started significantly enhancing year on year.

This right has been officially recognized as a transfer premium by incorporating it in the model Bye-Laws recommended by the Commissioner for Cooperation and Registrar of Cooperative Societies, Pune Maharashtra [CC&RCS for short).For a few years transfers in housing societies used to be a lucrative proposition which had socially acquired a bad name of profiteering by the housing societies. The premium started running in to Corers of Rupees. The State Government’s intervention was sought.

The Office of the CC&RCS used to regulate the transfer premium by virtue of its role as promoter of a healthy growth in the cooperative movement. This Power was later used by the State Government under Section 79A of the M C S Act 1960. The State Government i.e. “Co-operation and Textile Department” has issued mandatory directions fixing a ceiling on Non Occupancy Charges to members sub-letting their flats as also a ceiling on Transfer fees. Validity of Section 79A came under judicial test with reference to Govt.Order No.SAGRUYO-1094/15165/ case No. 317/14-C / Mantralaya Extension, Mumbai- 32 dated 1st August 2001 imposing ceiling of 10% of Service Charges as NOC. The power to State Government u/s 79A has been upheld by the High Court of Bombay by the bench of B Marlapalle, J Bhatia delivered on 2nd March 2007.This judgment extends to ceiling on transfer fees.

The State Judiciary has in the member’s interest lent a plausible credibility by surmising a taint in the voluntary donation on account of the society management’s undue influence on member’s decision; that is perfectly acceptable, but a one side of the storey. The flip side is; in enhancing the value of premium the society has also contributed immensely through maintaining harmony in conducting its affairs over the years. The society management must undoubtedly feel terribly hurt, because, when the opportunity of realizing such value comes up in tits and bits, the State Government intervenes on the pretext of a completely un-supported public interest plea with no documented basis thereof.

The State intervention has artificially frozen this precious value at 1989 level of Prices namely Rs 25000 for every housing society irrespective of actual flat size of the flat and geographical locations in a vast metropolitan region like Mumbai. If a real estate market growth rate in terms of inflation in sqft rate of residential flats is factored in to this frozen value, today it would work out to a whooping figure of Rs 7.5 lacs. Example: Price of flat in 1989 Rs 500 sqft. It  has grown to around Rs 15000 sqft in 2018; 30 times. If this growth rate was built in to the mechanism of automatic revision in maximum transfer premium, the co-operative housing societies would not have to resort to such unethical practice and earn a tainted reputation.

As per one of the recent judgments of the Apex Court delivered post 97th Constitutional Amendment, [ (2015) 42 SCD 494 dated March 19, 2015] known as Amul Dairy Chairman Vipul Chaudhary’s ouster case, the cooperative societies having acquired a constitutional status, new constitutional imperatives and mandates as per Part IX COOPERATIVE SOCIETIES added to the Constitution of India, must be ensured to have a place of prominence in the Statute and Bye-Laws. The Apex Court has charged the entire judiciary with this responsibility in terms of what the Bench Said at Para 53 extracted below:

“53. The cooperative society registered under the Central or the State Act is bound to function as a democratic institution and conduct its affairs based on democratic principles. Democratic functioning on democratic principles is to be reflected in the respective Acts or Rules or Bye-laws both on the principle and procedure. If not, it is for the court to read the democratic principles into the Act or Rules or Bye-laws.

Perhaps post 97th Constitutional Amendment the scenario stares at a crucial reality that cooperative societies and especially the housing societies wake themselves up to ensure that their democratic freedom granted under the Constitution of India is well protected through repeal of obsolete Government Orders, Bye-Laws and laws. The Apex Court judgment in Vipul Chaudhary (supre) has overturned several of past judgments on the same subject, as they conformed to the pre 97th Constitutional Amendment era laws. At Para 44 of this judgment (Vipul Chaudhary Supra) extracted below this aspect has been clearly brought out by the Bench.

44.It may be seen that all these decisions dealt with the pre-Ninety Seventh Amendment status of the cooperative societies. The amendment providing constitutional status to the societies has brought out radical changes in the concept of cooperative societies. Democratic functioning and autonomy have now become the core constitutional values of a cooperative society.

Section 2(27) of the M C S Act 1960 has redefined a cooperative society post 97th Constitutional Amendment era in these words.

“Society” means a co-operative society registered, or deemed to be registered, under this Act which is an autonomous association of persons, united voluntarily to meet their common needs and aspirations through a jointly owned and democratically controlled enterprise and adhering to the co-operative principles and values.

To sum up this long story in short: “Let there be a realization sooner than later that this definition has to be enliven by the cooperators themselves in words and spirit without waiting for the State initiatives.”

Comments ( 3 )

  1. Rameshwarlal Inani

    This article deals with flat type housing societies. Will the writer expand this article by including open plot housing societies where the plots are owned by housing society and given on lease for a long period of say 999 years on yearly rent of Rs.1/- and the member transfer his right in share / property to another member and the bye-laws of the society provides for charging transfer fee at say 5% of the value mentioned in the transfer deed

  2. Ishwer Naik

    The Principle applies to the frozen Transfer Premium in case of Plot Societies also.

  3. Amey

    @Ishwer Naik I truly respect your opinions and the work you’re doing but I’d like to differ with you. How does charging more than Rs. 25000 help in maintaining harmony in conducting affairs of the society? The previous owner of the flat would’ve contributed in helping maintain the society by paying his maintenance dues and the new owner will continue doing so after he becomes a member. A new member joining the society doesn’t affect the society negatively in any way nor does the flat sale transaction cause a loss to the society. Rs. 25000 is the payment for the inconvenience caused to the managing committee to complete the transfer process which seems reasonable. Any amount above that is clearly a bribe which the new member has to pay which other members of the society will equally share among themselves. Is the society an agent to demand a percentage of the transaction? I don’t really understand how you’re trying to justify increasing transfer fees just because property rates have increased.

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