The issue of Associate Membership is the trickiest area where it is found that most of the Housing Societies are ill-driven over the issue and construe this term according to their suitability rather than lawful applicability.

Prior to the Directives bearing Ref. No.SAGRUYO-2011/PRA.KRA 360/14-SA, dated 15th October 2011 issued by the Govt. under Section 79(A) of the Maharashtra Co-operative Societies Act, 1960 (MCS Act, 1961), the rights of an Associate Member were as under:

(a) A person could make an application for membership by paying an entrance fee of Rs.100/-. On receipt of such an application, the Society could admit such a person as an Associate Member;

(b) Prior to the aforesaid Directives it was not necessary that such a person who was desirous to be an Associate Member should be a part of the Agreement for Purchase relating to the concerned flat or that such a person should have contributed towards the purchase price of the concerned flat. Hence any person could make an application to be admitted as an Associate Member in case the original member grants his/her/its consent for such a person to be admitted as an Associate Member in respect of the concerned flat;

(c) Further, an Associate Member was permitted to contest election and be elected as a member of the Managing Committee and also be appointed as one of the Office Bearers.

Pursuant to the aforesaid Directives being passed, the rights of the Associate Member have undergone a noticeable change. It may be noted that the aforesaid Directive has been passed under Section 79 (A) of the Maharashtra Co-operative Societies Act, 1960 and hence since the Directive has been passed under the statute, it is binding on all Co-operative Housing Societies. All Co-operative Housing Societies are statutorily bound to accept the aforesaid Directives and implement the same.

According to the aforesaid Directive, the rights of an Associate Member have undergone a change in the manner as following:-

(a) Only such a person shall be permitted to be admitted as an Associate Member who has contributed monetarily in purchasing the concerned flat and whose name appear in Purchase Agreement and the Share Certificate as well. In case a person who has not contributed towards purchasing the concerned flat makes an application before the Society for being admitted as an Associate Member then in that event, the Society has a right to reject such an application;

(b) It is important to note that the aforesaid Directive does not state that the rejection of an Associate Member on the aforesaid ground and shall be made applicable retrospectively. In the absence of such a provision, the Society should not take steps to cancel the membership of such Associate Members who have been admitted as members prior to the aforesaid Directives being passed and who have not contributed towards the purchase of the concerned flat.

(c) However, in case any application for membership as an Associate Member has been made after the aforesaid Directives have been passed and such a person has not contributed in the purchase of the concerned flat, then in that event, the Society can take steps to pass necessary resolutions to cancel the membership of such an Associate Member;

(d) Pursuant to the aforesaid Directives being passed, an Associate Member who has not contributed to purchase the concerned flat and has been made a member of the Managing Committee and/or is an Office Bearer should step down as a member of the Managing Committee and/or as the Office Bearer by tendering his resignation to the Society;

(e) Associate Members who have not contributed to purchase the concerned flats have been disqualified from being members of the Managing Committee and being Office Bearers.

What Housing Manual, 2012 says:

“A person, who becomes an Associate member by paying only admission fee, shall not get any rights in voting or election on behalf of the original member. It is necessary for the Associate member that his share/name is included in the ownership of property for holding share jointly. In case of Co-operative Housing Societies promoted under the Authorities like MHADA, SRD and SRA, the persons whose name appears as eligible persons in annexure II only becomes the member of that Society and the house provided by such Authorities given on ownership will remain in the name of original member for the period of ten years and that cannot be transferred. Therefore, only whose name appears in Annexure II they are expected to take part in the election. Therefore, the provisions of Associate Members have been excluded in case of SRA/SRD and MHADA Societies.”

In one of the Societies, the elections were held in the year 2010. Further, several Associate Members who had not contributed in purchasing their concerned flats were elected as members of the Managing Committee and also elected as Office Bearers.

In light of the aforesaid Directives that have been passed, such an Associate Member should resign as a Managing Committee Member and as an Office Bearer. In case such a member is not coming forward to tender his resignation, then in that event, the Society can take necessary steps by making a formal application to the Registrar of Co-operative Societies and request him to pass necessary orders directing the disqualification of such an Associate Member and ordering such an Associate Member to resign.

With regards to the rights of such an Associate Member to contest elections and to vote at the meetings that are held by the Society, the Directives clearly provide that an Associate Member will have no right to vote at the meetings held by the Society and also shall not have a right to contest the Managing Committee election.

It should be noted that the aforesaid provision of an Associate Member not having a right to vote or contest elections are applicable only in respect of those Associate Members who have not contributed in purchasing their concerned flats. Such provision shall not be applicable to such Associate Members who have made contributions in purchasing their concerned flats and their names appear in Purchase Agreement and the Share Certificate as well.

There is prevalent lack of knowledge among the members of Co-operative Housing Society all across the State when it comes to the issue of Associate Members contesting Managing Committee elections. To set the record right, an article appeared in Times of India on 2nd August, 2014 with a caption “An Associate Member is not eligible to be part of a Managing Committee”. The full text of the said article is given hereunder:

http://epaperbeta.timesofindia.com/Article.aspx?eid=31804&articlexml=Associate-member-cannot-be-mangaging-committee-member-02082014308035

Given below are the situations in which an Associate Member may not be a part of the Managing Committee. The detailed conditions on nomination of candidate for Housing Society’s election under the Maharashtra Co-operative Societies Rules, 1961 (MCS Rules, 1961), Rule 56-M is given hereunder:

Rule 56-M. Nomination of candidates:- (1) Any person may be nominated as the candidate for election to fill a seat if he is qualified to be chosen to fill that seat under the provision of the Act, these rules and the Bye-Laws and if his name is entered in the list of voters.

Provided that in case of Joint or Associate Members, only the member whose name stands first in the Share Certificate shall be eligible to be nominated as candidate for the election. Where the seats are reserved on the Committee of any notified Society as provided under Section 73-B of the Act, any individual belonging to the categories provided under Sub-Section (3) of Section 73-B shall be eligible for being nominated as candidate even if his name does not appear in the list of voters.

(2) Every nomination paper presented under Rule 56-N shall be completed in Form M-4: 

Provided that, a failure to complete or defect in completing the declaration as to symbols in a nomination paper shall not be deemed to be a defect of a substantial character within the meaning of these rules.

(3) Any person whose name is entered in the list of voters may be a proposer or seconder for nominating a candidate for election:

Provided that, in the case of election from constituency of Societies, the proposer and the seconder shall be from the same constituency.

(4) A nomination paper shall be supplied by the Returning Officer to any voter on demand and on payment of such fees as determined by the District Election Officer:

Provided that, such nomination paper shall be supplied by the Returning Officer to any person desirous of contesting from the constituency under Section 73-B even if his name is not included in the list of voters

Now, the law is relaxed when it comes to individuals belonging to categories provided under Sub-Section 3 of Section 73-B of the Maharashtra Co-operative Societies Act. Where the seats are reserved on the Committee as provided under Section 73-B of the Maharashtra Co-operative Societies Act, any individual belonging to the categories provided under Sub-Section (3) of Section 73-B shall be eligible for being nominated as candidate even if his name does not appear on the voters’ list.

The provisions in the Maharashtra Co-operative Societies Act and Maharashtra Co-operative Societies Rules clearly state that the nomination of an Associate Member for election gets disqualified if his name does not appear first in the share certificate and such member cannot contest an election. Maharashtra Co-operative Societies Act’s Section 2 (19) (b) clearly defines that the Associate Member, as a member who holds jointly a share of a Society with others, but whose name “does not stand first in the Share Certificate”.

As per the Rule 56-M of Maharashtra Co-operative Societies Rules, 1961 and Section 2 (19) (b) of Maharashtra Co-operative Societies Act, 1960, an Associate Member can only cast his votes and participate in the election process but never become an office bearer in the Society, where his name appears as an Associate Member in the Society Register.

This further renders the Appendix – 10 (A) of the Model Bye-Law of Co-operative Housing Societies redundant as Section 56-M prohibits such Associate Members from being nominated for election. Provision of Appendix – 10 (A) is in direct conflict with Section 56 M of the Maharashtra Co-operative Societies Rules, 1961 which renders the said appendix ineffective.

As per Section 56-M, any joint holder whose name appears after the first holder in the share certificate – whether he has paid for the flat or not - also stands disqualified to be appointed as an Office Bearer.

Under the circumstances, it is a vital question whether all Joint Owners, Co-Owners, Associate Members or Nominal Members whose names do not appear first in the Share Certificate cannot be appointed as members of the Managing Committee or Office Bearers.

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Managing Committees of several Co-operative Housing Societies regularly ignore many Bye-Laws and Rules that affect their administration procedures. This could be plain ignorance or deficiency in time to devote for the Society. In such situations, it is the duty of the Members of the Society to point out the erring ways of the Members of the Managing Committees of the society. Very often, Members are not aware of the Society’s blunders. Listed below are some common doubts persist in many Housing Societies:

 Why Nomination is necessary?

Nomination by a Member in a Co-operative Housing Society is an important responsibility to be essentially carried out to ensure smooth transfer of Membership after his/her death to the heir/legal representative. A Member, when alive, can nominate one or more persons of his choice and can revoke or vary the Nomination as many times as felt necessary.

The Society should encourage the Members to submit the Nomination at the earliest to safeguard the interest of the immediate family or dependents as the case may be. Sub-Section(1) of Section 30 of The Maharashtra Cooperative Societies Act 1960 specify that on the death of a Member of the Society, the Society shall transfer the share or interest of the deceased Member to a person or persons nominated in accordance with the rules. Rule No.25 and 26 of Maharashtra Cooperative Rules 1961 specifies the procedures for Submission / Revoking of Nomination and registration of such Nomination/Revocation in Society records.

A Nominee as a minor can be admitted as a Member of the Society only through his guardian or legal representative. The guardian or legal representative should make an application for Membership for and on behalf of the minor.

Bye-Law Nos.32 and 33 of Model Bye-Laws specify similar conditions for submission and registration of nomination in cooperative housing societies. The Managing Committee is required to consider the application for Nomination from a Member, approve the same and record it in the Nomination Register.

The Member should be provided with the approved copy of the Nomination form for his record. On the death of a Member, the Society after receiving the Death Certificate and application for Membership from the Nominee/s in format under Appendix-15; following the provisions of Bye-Laws Nos. 34, 17-A, 19 and Section 30 of MCS Act, 1960, shall transfer the shares and interest in the capital/property of the Society to the Nominee/s.

It shall be kept in mind that the intention of specification under section 30 of MCS Act is only to provide for who the Society has to deal with on the death of a Member and not to create a rule of succession. Though in law, the Society has no power to determine the heirs or legal representatives, in order to obviate difficulty and confusion, the Section for a limited purpose confers the right to determine to whom the Society can transfer the shares of the deceased Member as legal representative/heir.

The admission of the Nominee as a Member is only to provide for interregnum between the death and the full administration of the estate and not for the purpose of conferring any permanent right on such person who in fact shall act as a Trustee on behalf of the successors /heirs. The legal heirs or the persons entitled to the estate are decided in a court of law. The Society will be bound by such Court Orders. It is to be noted that a will executed under law will supersede a Nomination.

Rules for removal of chairman from the Managing Committee:

The Chairman, Secretary or Treasurer can be removed by a No-Confidence Motion in a Special Meeting of the Managing Committee called and presided by the Registrar or under delegated authority by an Assistant Registrar or an Officer above his rank.

The notice for such Meeting will have to be given by one-third Members of the Managing Committee and motion of no confidence is to be passed by three-fourth Members present at such meeting. Attendance at such meeting will have to be two-third of the Managing Committee Members.

For example, if 5 out of 9 Members of the Managing Committee resign, the strength of the Managing Committee would reduce to minority and apparently, functioning of the Managing Committee becomes questionable. However, the apprehensions about the validity of the Managing Committee are ill conceived. It is true that to transact business at a Managing Committee Meeting, Members present should form quorum agenda. 

However, such requirement of quorum would not be applicable for the purposes of filling in vacancies caused by death, resignation, disqualification or removal of Managing Committee Members. Period of office of a co-opted Member would be co-terminus with tenure of the Managing Committee, i.e. 5 years from the date of election. Tenure of the Managing Committee can be reduced by an amendment to the Bye-Laws.

Should Model Bye-Laws be registered when adopted?

In terms of Section 13 of the MCS Act, read with Rule 12 under the said Act, Registration of the Bye-Laws is essential and till then, these are not valid. For expediting the Registration, the matter should be followed up with the Office of Registrar of the Societies and in case of undue delay Co-operation Department at Mantralaya may be approached.

What is the procedure for name transfer in MHADA property?

In the case of a Society in respect of MHADA property, any change in the Membership by way of any addition or deletion therein would need the prior permission from MHADA. After obtaining the NOC from the Society, Buyer and the Seller may approach MHADA with the said NOC of the Society for approving the name of the Buyer as the Member of the Society in lieu of the Seller. The transfer, prescribed form etc. for this purpose would be available in the Office of the Society or these may be obtained from the office of MHADA as also the charges payable, because the transfer charges differ from location to location, area of the flat, age of the building etc.

Does fixing box grill for air conditioner require consent?

It has to be ensured that fixing box grill for air conditioner should not cause any annoyance or inconvenience to the other residents by way of muddy water from the flower-pots or throwing waste material etc. in the compound or the water dripping from the wet cloths hanged in the box grill.

Can Society disallow parking for lessees and levy fines?

Parking slots, whether stilt or open, have to be allotted by the Society as per the provisions of the Bye-Laws of the Society (refer Model Bye Law No.78 to 85). There should not be any discrimination in the charges payable by the Members and the lessees (who could also be enrolled as nominal Members) for parking the vehicles allotted by the Society. However, the Society shall allot parking slots first to the Members of the Society as per the said Bye-Laws and, thereafter, to the lessees.

The decision as per the Bye-Laws has to be taken in the General Body Meeting of the Society and the Managing Committee is not competent to take such a decision. Even the General Body Meeting cannot take a decision in violation of the Rules, Regulations and Bye-Laws. Any violation may be taken up with the Dy. Registrar of the Co-operative Societies for the redressal of grievance.

Who has to bear the cost of Society building terrace leakage?

As per the Bye-Laws of the Society it is the responsibility, of the Society to carry out proper repair of the terrace to stop leakage and in case of the failure of the Society to maintain the building in a good condition, Member may take up the issue with the Dy. Registrar of the Societies; but Member cannot retaliate by stopping the payment of the maintenance charges. Similarly Member cannot claim the amount from the Society, if Member carries out the same without the prior written permission of the Society.

Can more area be given in redevelopment after signing agreement?

The Builder and the Members will have to strictly adhere to the Building Plan sanctioned by the Local Authority i.e. Municipal Corporation Greater Mumbai and inclusion of any extra area within the constructed area in contravention of such plan would amount to unauthorized construction liable to be demolished by the Municipal Corporation. Therefore, neither the Builder nor Member can include such an area within the sanctioned Built-Up Area, without having the revised Building Plan approved by the Municipal Corporation.

Can a Society on lease-hold land augment income without NOC from Plot Owners? 

A lease-hold land shall always remain lease-hold irrespective of the term, unless it is converted into a free-hold and, therefore, the plot of the Society shall remain as a lease-hold plot on the execution of the lease for a term of 99 years, with the automatic renewal clause for another term of 99 years. The Society shall be bound by all the terms and conditions of the lease and breach of any term or condition may give rise to the cancellation of the lease and the right of re-entry to the plot owners.

If there is a condition of prior permission of the Owner of the land in the lease for putting up the hoarding or ATM in the open compound, NOC from the Land Owner will be necessary, in addition to the previous permission of the Local Authority, if provided in the rules. After obtaining all these permissions, hoarding or the ATM etc. may be permitted by the Society with the approval of the General Body and on the terms and conditions, as may be decided in the General Body Meeting of the Society.

Does residing with Flat Owner make one an exclusive heir?  

A Member is one of the Class-I legal heir of his / her parents. If no other legal heir has been left by them, Member is entitled for full share in the property left by his / her parents. Any other legal hair, by simply residing with Member’s parents, will not have the exclusive right to the ownership of the flat, unless a Member relinquishes his proportionate share in title and interest therein by way of duly registered Relinquishment Deed or a Gift Deed. If Member wants to continue his full claim of his / her share in the flat, Member should not sign any papers for the transfer of the right, title and interest in the name of any other legal hair and Member should lodge his / her claim with the Society and serve a notice to it not to transfer the flat in the name of your brother or any other legal hair without his / her prior written consent.

Can the Society prevent Shop Owners from parking personal cars?

Any Resolution passed by even the General Body, which is contrary to the provisions of Bye-Laws of Society, MCS Act and the Rules or the Government Notifications are not legally valid and binding on the Members. There cannot be any discrimination amongst the Members on the basis of the ownership of the flats or shops. The parking spaces have to be allotted by the Society, as per the provisions of Model Bye-Laws No.78 to 85.

What is the limit for levying Non Occupancy Charges on a Member? 

The Society can charge Non-Occupancy Charges as per the decision of the General Body, but subject to a ceiling of 10% of the Service Charges, the break-up of which is given in Model Bye-Law No.68, which include the expenses running for the Society, Electricity Charges, Audit Fee etc., but these charges do not include the Property Tax or the expenses on the Maintenance and / or Repairs of the building of the Society.

What are the Transfer Norms if the flat is purchased by a Trust?

It is a case of a private Family Trust and the transfer of the flat can take place only as per the provisions of Trust Deed and the procedure mentioned therein. If such sale is permitted as per Trust Deed, then the Trustees will have to execute a Deed of Transfer in favour of the Member which would attract Stamp Duty as per the provisions of Article 61 of the Bombay Stamp Act and to be registered as per the provisions of the Indian Registration Act. However in terms of Model Bye-Law No.38, no Transfer Fee will be payable to the Society, when the transfer of the property in the Society and the Share Certificate is in favour of the Family Member/s of the Trust.

Can a Society insist on transacting all matters in only one language?

Society may use Marathi Language in its working, but the Chairman or the Secretary or the Members of the Managing Committee cannot refuse to entertain letters from the Members or the suggestion written either in English or Hindi. It is advisable that an extreme position should not be taken in such matters and it should be the endeavor of all to further cooperative spirit which is possible by active participation of all the Members. The Majority should take Minority Members along for healthy atmosphere in a Society.

A Member can conduct audit of his own Society? In Mumbai, is it possible for a Member to do Statutory Audit of his own Society? 

Unlike under the provisions of the Companies Act, 1956, there is no such restriction under the provisions of Maharashtra Co-operative Societies Act, 1960 that a Shareholder or a Member cannot conduct audit of a Co-operative Society. Therefore, in the absence of any such bar, a Member of a Co-Operative Housing Society can conduct Internal or Statutory Audit of the Society in which he is a Member, but he should not be a part of its Managing Committee or Sub-Committee because in that case he would be reporting inter alia on his own actions and inaction.

Can a Society allow a flat to be used for commercial purposes by charging extra amounts?

Use of a flat for particular purposes and change of use is allowed by Local Authorities, primarily the Municipal Authorities. A Co-operative Housing Society has no power to allow change of use and charging extra amounts for allowing such change would be illegal. However, while permitting change of user, the Municipal Authorities may require of a Member desirous to obtain no-objection from the Society.

Is it correct to say that a flat purchased in joint names is owned equally by two persons?

For the purpose of Property Rights under the Property Laws as well as for the purpose of Income-Tax Act, 1961, unless otherwise specifically decided between joint purchasers, the rights of co-owners in an immovable property would be with reference to funds contributed by each joint purchaser in acquisition of such property.

Since in most cases, the Agreements for purchase of immovable properties are silent about Co-Ownership Rights of Joint Purchasers and since such Co-Owners do not have specific Agreement with regard to their proportions of Co-Ownership Rights, therefore the above analogy of Co-Ownership Rights with respect to funds contributed by each of them will apply in most cases.

What are the provisions about Non-Occupancy Charges and interest from Members in the hands of a Co-Operative Housing Society?

Non-occupancy charges are collected by a Co-Operative Housing Society from a Member who lets out his flat. Such charges are to be collected under the provisions of the approved Bye-Laws and subject to upper ceiling of 10% of Service and Maintenance Charges excluding Rates and Taxes. The Non-Occupancy Charges collected by the Co-Operative Housing Society from its Members would be covered by concept of mutuality and therefore, would not be its taxable income. Similarly, interest on defaulted dues collected from Members is also covered by the concept of mutuality and therefore would not be a part of the taxable income of a Co-Operative Housing Society.

In a redevelopment, amounts are received by the Society as Corpus and by the Members as consideration/compensation from the developer. Who would be taxed? If TDR is purchased in the name of Society, what safety precautions may be needed?

In transactions of redevelopment, like in any commercial transaction, legal aspects are more important. In redevelopment, the Developer is the business risk taker and therefore no risk should fall upon the Society or its Managing Committee Members / Members and the Redevelopment Agreement should reflect this position. The Redevelopment Agreement should be drafted by the Society’s Consultant and besides being legally tenable, it should take due precaution against practical irregularities and defaults happening in redevelopments so that a wrongdoer should suffers more than the honest.

Further, for safety of the Members, in addition to Redevelopment Agreement, a separate Agreement with each Individual Member should be entered into. Documentation should be done on due consideration of the provisions of the Transfer of Property Act, 1882, MOFA, 1963, Maharashtra Co-operative Societies Act, 1960, various Construction Laws And Regulations, eligible FSI, TDR - FSI and the possible increase in FSI or TDR entitlements after Redevelopment Agreement is signed.

Rights of existing Members and the incoming Members would have to be balanced on consideration of Property Laws and the Society laws. Mere purchase of TDR in the name of the Society is not sufficient as the same should be properly documented in municipal records before the building is vacated and Stamp Duty aspects should be complied with; or the Society and its Members may have to suffer at a later stage.  

The manner in which a transaction is structured and documented would have impact on taxability under various Laws. Income tax department would insist that taxable entity is the Society and not the Members. However, in an appropriately structured and documented transaction, it is possible to contend that the taxable entity is not the Society but its Members.

This would provide double safety from Income-Tax point of view as it can be contended firstly, that the tax liability is nil and secondly, that Individual Members are entitled to various exemptions. Recently, in case of Raj Ratan Palace Co-op. Hsg Soc. vs. DCIT (ITAT Mumbai) - The Assessee-Society had merely given permission to the Developer to redevelop on the Society’s Land. No part of the land was ever transferred by the Society. The Society continued to be the owner of the land and no change in ownership of land had taken place. Mere grant of consent for redevelopment will not amount to transfer of land/or any rights therein. The amount of Rs. 3.02 crores received by the Members was not assessable either u/s 2(24) or as capital gains

While structuring the deal, one should also strive to keep the burden of Service Tax and VAT liabilities away from existing Members of the Society. In appropriately structured transaction, Stamp Duty would be attracted only on the Redevelopment Agreement and the same can be avoided on individual agreements unless, an extra Carpet Area in addition to their existing one is offered by the Developer to the Members.

No AGM has been held by the Society for the last two years

The Chief Promoter is under an obligation to convene the first General Body Meeting within three months of the date of the registration of the Society, failing which the Registering Authority may take steps to convene the same. Thereafter, the AGM has to be held on or before 14th August of each year or within the maximum extended period of six months as per Section 75 of the Maharashtra Co-operative Societies Act and the Annual Report of the Managing Committee with the statement of the accounts etc. have to be circulated in the General Body Meeting. In case of failure, the matter may be taken up with the Dy. Registrar of the Societies for necessary action (Refer to Model Bye-Law No.86 to 96).

Confusion in Society over the levy of Non-Occupancy Charges

A flat may be given on leave and license basis only with the prior written permission of the Society and the Member will have to pay Non-Occupancy Charges to the Society, as may be decided in the General Body Meeting of the Society but only in accordance with the Circular dated 1st August 2001 (issued by the State Government) @ 10% of the Maintenance/Service Charges, as per the details given in Model Bye- Law No.68 (excluding Property Taxes, Expenses on Repairs etc.). The validity of the said Circular has been upheld by the Hon'ble Bombay High Court in the case of Palm Beach Riviera CHS declared on 2nd March 2007 and the said petitioner could not get any stay against this order on the SLP filed before the Hon'ble Supreme Court of India. Therefore, the non occupancy charges cannot be levied more than 10%, as said, even with the Resolution passed in the General Body Meeting.

Does the name of the Associate Member have to be endorsed on share certificate?

The name of the Associate Member, after the approval by the Society, may be endorsed on the back of the Share Certificate and the first named Member and the Associate Member may be formally informed of the same so that on the authority of the first named Member, there may not be any objection by the other Members for attending the General Body Meetings etc. of the Society by the Associate Member.

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This article deals with certain naked and stunning facts about the Economic and Fiscal Mismanagement in many Housing Societies about the wilful suppression of various financial affairs which are never brought by any of the Office Bearers to the knowledge of the innocent and gullible Members of the Society.

The Audit and Inspection of such Housing Societies indicate the signals of serious and major irregularities in ill-handling of Society’s Fund resulting in to the economic and financial fraud allegedly committed by the Office Bearers i.e. Chairman, Secretary and Treasurer of the including stray incidents of misuse of cash received from the Members by way of huge arrears in Maintenance Charges. The cash amounts of arrears received from the Members are retained by the Office Bearers for the misuse instead of depositing the fund in the Bank’s account.

 In addition to this at times, the Office Bearers in connivance with each other, unlawfully, illegally and fraudulently withdrew huge cash at intervals by self-bearer cheques from the Society's Bank account. Such acts amount to an intentional and well planned attempt of Office Bearers with ulterior motive to defraud the Society and its Resident Members and siphon away their hard earned money paid to the Society towards the Maintenance and Other Charges.

There are neither Minutes nor any mention in any of the Managing Committee Meetings with regard to all these withdrawals and they surprisingly go undetected for long. In absence of such information, the Members present in the various Special General Meetings are also unaware as such withdrawals are neither noticed, nor discussed to ascertain the reasons for such huge retention and withdrawals of cash.

It is also observed that the vouchers maintained are neither properly drawn nor initialed/signed. In many vouchers, the supporting bills are not attached and signatures of recipients are neither taken nor affixed. The actual bill amounts are inflated or cash is withdrawn by altering the amount of bills. The filing of the vouchers is irregular and maintained in slipshod manner.

The most poor status and daylight lapses prevail in procedural aspects in inconformity of the Bye laws of the Housing Societies with regard to the maintenance of Society’s/members’ important Records, Registers, Files as also the Records of holding of Meetings of the Managing Committee and Special General Body.

To recourse such fraudulent management of Society’s fund, once the audit is done the Members can appoint outside chartered accountant to scrutinize the Audited Accounts if they feel that there is any misappropriation. To prevent frauds, Members should meet Office Bearers at least once a month for informal discussions on Society matters. The Members can approach the Managing Committee and ask for explanations if the responses are unsatisfactory, they can approach the Dy. Registrar Joint Registrar or approach Registrar. As a last resort they can approach the Co-operative Court.

The Section 83 of MCS Act stipulates that the financial loss incurred by the Society on account of fraudulent acts of the Office Bearers is recoverable and punishable offence. The Members can complaint to Dy. Registrar of Co-op. Dept. under Section 83 for investigation and recovery of losses caused to the Society. To complain under Section 83, 1/3rd of the Members signature is required as per the Act on the complaint letter.

Thus, if one third of the Members of a Society make request to the Dy. Registrar to hold an inquiry regarding its financial mismanagement, the Officer or his Nominee is duty bound to conduct such an inquiry. The Dy. Registrar may direct the complainants to deposit a sum of nominal amount with him and this amount can be forfeited if the allegations made against the Office Bearers turns out to be malicious.

If the inquiry discloses substance in the charges made then the amount shall to be refunded to the complainants yet if the allegations are not false but yet cannot be proved then the State Government would bear the cost of inquiry.

The Maharashtra Co-operative Society Act, 1960 (MCS Act) provides that all Office Bearers and Committee Members of the Society past and present are supposed to co-operate with such inquiry and produce any document that is needed and is in their possession. The Dy. Registrar is supposed to inform the Society as to the findings arrived at through the inquiry.

Under the Act, the Dy. Registrar has the power to himself (suo-moto) to initiate an inquiry into the financial position of the Society. This means that even a single Member can in an appropriate case, persuade the Dy. Registrar to initiate proceedings. (Vyankage Vs. Girmaji, 1996 C.T.D. 150, 151) Madhav vs. Samrudhi C.N. Society, 1968 C.T.D. 30, 35).

An application by a single Member of a Society alleging the mismanagement of the funding affairs of the Society by the Ex-Chairman which had caused loss to the Society, the Dy. Registrar had to decide whether it is a dispute under Section 91(1), or an inquiry under Section 83 is necessary (Vyankaje V/s. Girmaji, 1966 C.T.D. 150, 151) [Ravindranath T.S.G.N.S. Deopur Dhule Vs. Bajirao Bhll Patil, reported in 1991 C.T.J. 61 (Bombay High Court) (DB)]

In this case the society had passed resolution in the general meeting to expel the former Chairman and Secretary of the Society, as they were guilty of falsification of accounts and misappropriation of large sums. The Bombay High Court held the same.

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The Maharashtra Co-Operative Societies Act, 1960 provides that every Housing Society has to maintain up to date record/documents and accounts for smooth working of the Society. There are different issues of disputes arises in every Society between Managing Committee and Members. It is advisable to solve the disputes amongst the Members only and not to hand over the Management of the Society to the Administrator. Sometime none of the Members are interested in doing the administrative work then the Society should employ a paid employee as an Administrator.

The major decision should be taken by Members themselves. When the Management of the Society is not functioning as per the provisions of the Maharashtra Co-Operative Societies Act, 1960, Maharashtra Co-Operative Societies Rules, 1961 and the Bye Laws of the Societies, then in such cases the Dy. Registrar has the discretion to appoint an Administrator to carry out the Management of the Society.

The Managing Committee is responsible to maintain smooth functions of the Society. If any Member aggrieved by the Managing Committee for inspection of any document or record of the Society can file an application to the Dy. Registrar of Cooperative Societies. If Dy. Registrar is satisfied that the record of the Society is not maintain properly then under Section 78 (1) of MCS Act, 1960, the Administrator is appointed. The Administrator enjoys all the powers of the Managing Committee. He is also entitled to call a Special General Body Meeting to reconsider the decisions of the earlier Committee.

The remuneration of the Administrator is fixed by the Dy. Registrar. At the end of the tenure of six months the Administrator should hand over the charge either to another Administrator if directed by the Dy. Registrar or he should conduct an election and hand over the charge to the new Managing Committee. All acts done by the Administrator in good faith are binding on the Society irrespective of the amount of the expenses incurred by the Administrator.

The Dy. Registrar takes in response to the persistent complaints lodged by Society Members against the Society’s Committee Members. The Committee Members when perform several illegal functions during their term which are not in conformity with the Laws. They conduct illegal elections to vote themselves on the Managing Committee.

The cases of appointment of Administrators in Co-Operative Housing Societies are now rising. Generally the Deputy/Assistant Registrar of Co-Operative Societies (“the Registrar”) appoints an Administrator upon complaints from Members of the Society, if he finds that it is a fit case to expel the Managing Committee of the Society.

The powers enabling the Registrar to expel a Committee are to be exercised only sparingly and to bring erring Societies and their Committees to book. Such powers have to be exercised by the Registrar after giving the Committee an opportunity of being heard and an opportunity of stating objections and by application of principles of natural justice.

Section 78 of the MCS Act, 1960 confers the Dy. Registrar with such powers to be exercised upon the specified grounds including when the Managing Committee has committed defaults or which has been found negligent in performance of duties or which has committed an act prejudicial to interests of the Society or Members of the Managing Committee or which has willfully disobeyed directions of Co-Operative Authorities or which is not discharging its functions properly and diligently or the business of the Society has come to or is likely to come to a halt.

When the Committee is removed, the Registrar has two options: 1. to appoint 3 or more Society members, who should not be the members of the Committee being removed, or 2. to appoint Administrator(s) in place of the expelled Committee. However, in practice the first option is hardly exercised. On the contrary the same person is appointed as an Administrator of more than one Society.

Remuneration payable to an Administrator is to be fixed by the Dy. Registrar. The Act and the Rules are silent about the basis for or methodology of fixing such remuneration. On equity and reasonableness such remuneration has to be with reference to the nature and quantum of functions performed by the Administrator. In some cases, the Administrator, in turn, appoints a private individual and remotely functions through such private appointee.

The Bank Account of the Society is operated by the Administrator himself. The Administrator or the private appointee, as the case may be, does not devote more time for managing the affairs of the Society. Under the circumstances, the remuneration should be based on these aspects. The quantum of time spent by the Administrator or his appointee may be noted on day to day basis. The Society or its members may keep such records if they want to take up the issue of reasonableness of remuneration at a later date. In fact, the entire practice of appointing such private persons by the Administrator and remuneration to him is questionable under the law.

In Maharashtra, an Administrator is appointed in the Society by the Deputy Registrar of that particular ward. The law provides for appointment inter alia of the Administrator for a maximum period of 6 months which may be extended for a further maximum of 3 months. However, suffice to emphasize that such an extension has to be for the reasons to be recorded in writing and under proper intimations to the Society. All powers whether judicial, quasi judicial or administrative are to be exercised objectively and reasonably.

The spirit of the law is that the Administrator should set the things right and hold the elections at the earliest. The Administrator is like a guest to manage the affairs of the Society on ad-hoc basis till new Committee is constituted by due process of law. Problems may arise when the guest overstays and beyond the need.

Being an ad-hoc appointee, the powers of an Administrator are quite restricted. Legally speaking, the Administrator replaces the Managing Committee and therefore the powers of an Administrator, under no circumstances, can exceed the powers of the Managing Committee.

As per the MCS Act, Administrator has to fill the M-20 Bond to be maintained in Society's records and a copy is to be submitted to the Deputy Registrar under whom he is working. Thereby, the administrator is liable for any loss sustained by a Society during the term of his office in respect of any act or omission in the management of the Society.

In the cases where the Redevelopment of Society is proposed, he is not even authorized to negotiate with the Redevelopers/Builders nor he has necessary powers to permit the commercial activity within residential complex and would be the process for the same.

Mumbai High Court has held that a person appointed to look after the daily affairs of a cooperative housing society cannot implement major decisions, until a regular general body comes into existence and considers the matter.

The order was passed by Division Bench of Justices P. B. Majmudar and A. A. Sayed in the case of Vasant Kunj Co-Operative Society. The Dy. Registrar of Co-operative Societies had appointed an Administrator for the Society after it was found that the then Managing Committee was not following By Laws.

A Special General Body Meeting took the decision to go for redevelopment and the Administrator ratified the proposal. One of the Members moved the Mumbai High Court contending that the Administrator had no power to ratify a major policy decision such as this, as he was appointed basically to conduct the elections and appoint a new Managing Committee.

Upholding the Petitioner's contention, Mumbai High Court held that Administrator should not implement the decision to redevelop until a new General Body considers it a fresh.

An Administrator replaces the Committee and therefore, the supremacy of the General Body continues. There is no provision in the Act, Rules or the Bye Laws prohibiting holding of General Body Meetings during continuance of Administrator. Very rightly so, because upon appointment of Administrator the functions and affairs of the Society do not come to a standstill and the powers which are reserved and vested in General Body can be exercised by General Body only. The decision of General Body, subject to the framework of the law, would be binding upon the Administrator being in place of the Committee.

Since, an Administrator is appointed in the place of a delinquent Committee; manner of functioning of Administrator should be exemplary so that the Society, its members and incoming Committee can observe good governance by functioning objectively and transparently. As part of the minimum requirement of such good governance the Administrator should disclose to members complete details of income and expenditure and receipts and payments for each month. Similarly decisions taken by the Administrator from time to time should be communicated to the members with reasons.

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