Prior to this amendment the housing society definition read: “Housing society means a society, the object of which is providing its members with dwelling houses”
A term is defined to express a basic character of the term so defined. In that till 1986 housing societies concentrated on the object of getting dwelling houses for its members. The very first official Model bye law of housing societies in Maharashtra was approved by the Commissioner of Cooperatives in 1984. The objects as listed in bye-law No 5 are:
a.To obtain conveyance from the Promoter (Builder), in accordance with the provisions of the Ownership Flats Act and Rules made there under, of the right, title and interest, in the land with building/buildings thereon
b.To manage, maintain and administer the property of the society;
c.To raise funds for achieving the objects of the society;
d.To undertake and provide for, on its own account or jointly with a co-operative institution, social, cultural or recreational activities;
e.To do all things, necessary or expedient for the attainment of the objects of the society, specified in these bye-laws.
Subsequent Models 2001 and 2009 did not propose any change in these objects except adding an alternate objects to that as per (a).
The latest Model post historical constitutional amendment number 97th namely
Model 2013 (draft under approval) is posted on official website of Commissioner for Cooperation and Registrar, Cooperative Societies (CC & RCS) Maharashtra State, Pune https://sahakarayukta.maharashtra.gov.in/SITE/PDF/Rules_Acts_Bylaws/Model_ByeLaws_of_Housing_Cooperative_societies.pdf
The Model proposes 6 more objects as under:
1.To promote peaceful co-habitation amongst the members on the Co-operative Principles and ensure Voluntary formation, Democratic Member Control, Member – Economic Participation and Autonomous Functioning
2.To provide co-operative education and training to develop co-operative skills to its members, committee members, officers and employees of the society
3.To initiate Redevelopment of the building as per the norms of the authority
4.To provide co-operative education and training to develop co-operative skills to its members, committee members, officers and employees of the society.
5.To prevent illegal encroachment, illegal alterations in the flat/unit and building without approval of the local authority
6.To undertake repairs of the building once in Five years or as recommended by the licensed Structural Auditor.
The principal Object of a housing society as per its amended definition namely ‘to provide its members common amenities and services’ is conspicuously absent in this list of objects. I dare say that the objects are not set out in accordance with the Society law. This has led to serious consequences.
Co-operative housing society is driven wholly by members’ funds as a non-profit organisation. Members contribute to various funds established as specified under its registered byelaws to attain defined objects in the bye-laws. Besides the main fund a Reserve Fund every housing society has Repair Fund corresponding to the Object per Sub-Clause (b) as stated above. Sinking Fund is contingency fund to ensure long term survival of the society. The principal object namely to provide its members common amenities and services’ having been left out of the objects clauses no requirement of the common amenities and services’ fund came to the attention of drafters of the Model Bye-Laws.
I came in to possession annual report of a fairly mid-sized housing society having 164 flats. It was registered in 2000 with Model 1984.This housing society report has two financial statements Income and expenditure and balance sheet prepared as per bye-law No 145(a) in form N prescribed under Maharashtra Cooperative Societies Rules 1961. I had a re-look at this form to see how the common amenities and services’ were supposed to be reported. I did not find it in either of the Statements.
Income and expenditure of this Society has reported a large amount as income which were the billing amounts on members under various heads like :
Property Tax, Sinking Fund Maintenance Charges, Non Occupancy Charge, Parking Charges Contribution towards Cultural Activities Interest on Late Payment Repair Charges Lift Replacement Fund Building Painting Fund
1.Total amount Billed Rs 100,00,000
2.Interest and sundries RS 25,00,000
3.Thus reported total income of Rs 125,00,000
On the expenditure side of Income and Expenditure statement
1. Expenditure: RUPEES
1. BMC Taxes 30,00,000
2. Property Expenses 38,00,000
3. Building Repairs 12,00000
4. Administrative expenses 8,00,000
Total 88,00,000
2. Transfers:
a. Lift Replacement Fund 15,00,000
b. Building Painting Fund 15,00,000
c. Sinking Fund (interest 8 Lacs) 10,00,000
Total Debits to I & E Account Rs 128,00,000
Thus the total of expenditure side Rs 140,00,000 exceeded income total of 125,00,000 by Rs 3,00,000 which was described as deficit in income as expenses are more than income. How incorrect!!!
•The common amenities and services fund is conspicuously absent.
•The amounts called in against Four Funds are being accounted as Income of the housing society, is beyond comprehension of a layman. On a mutuality principle these are amounts brought from the members in to common kitty for the benefit of members alone. How can it become income of the society since society means these 164 members themselves. How can money moving from one pocket to another changes it character in to income?
•I saw a credit of Rs 15,00,000 directly to Reserve Fund received as Voluntary Donation. This is quite close to income but is accounted as Capital Receipt in to balance sheet to Reserve Fund.
•Income and expenditure also has an item of BMC Taxes. Society collects from members and pays to BMC. How this activity can result in Society income and expenses?
•Property Expenses of Rs 38,00,000 are mainly on common amenities and services. This is by far the largest item of demand from the members. If common amenities and services fund account was opened and members’ contribution were credited to that fund to use on providing common amenities and services it would made it easier to for the members to appreciate the burden to common amenities and services they enjoy. The cost is as high as Rs 1930 per month for every flat.
•If amounts transferred to four funds were directly credited to respective funds without routing them through Income and Expenditure Account, it could have inspired accounting of all funds contributed for amenities and services also directly to that fund.
Let’s see how a correct Income and Expenditure Account looks like, if the amounts collected as funds are in fact accounted to Fund Accounts directly and not routed through Income and expenditure account.
The so called Income of Rs 100,00,000 should be accounted as per Form N under Rule 62(1) as required under bye-law No 145(a).
1.Rs 30,00,000 would be a balance sheet items as Asset and Liability on Account of BMC Taxes leaving 7000000 as Demands on Members for other purposes.
2.Member Demands included Rs 2,00,000 estimated to be NOC, Interest on late payments, parking etc This qualifies tone income as it is not towards any fund.
3.The balance Rs 68,00,000 are to be credited in B/S to respective funds:
a. Lift Replacement Fund 15,00,000
b. Building Painting Fund 15,00,000
c. Sinking Fund 02,00,000
d. Building Repair Fund 12,00,000
e. Common Amenities and Services (Balance) 24,00,000
4.Interest and sundries, Parking Charges Non Occupancy Charges, Interest on Late Payment Amount 2,00,000 Plus Rs 25,00,000. will be used like this:
a. Transfers to Sinking Fund Rs 800,000
b. Administrative Expenses Rs 800,000
a. Excess of income over expenses Rs 11,00,000
c. Appropriations : Rs
a. 25% to Reserve Fund 2,75,000 [ Under Section 62(1)]
b. 25% to Welfare Fund 2,75,000 [Object 5(d)]
c. Balance carried to B/s 5.50,000 [Adds to Reserve]
Incidence of Serious Flaw in Bye Laws
Common Amenities and Services expenses 38,00,000
Demands raised on Members 24,00,000
Annual Shortfall in Demands on members 14,00,000
IMPACT:
1.Untrue picture of Assets and Liabilities presented to members
2.Rs 700 per month per flat short demand raised
3.Violation of section 62(1) of THE M C S ACT 1960 Act 1961
4.Lost Opportunity to avoid illegal collection from members to fund cultural activities
—–I C Naik