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Common Doubts in Administration of Housing Societies

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, 17A, 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 endeavour 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 inactions.

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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