Question And Answer
Subject: Can a co-op housing society compel members to pay donation?
Category:  co-op housing societies
Asked by: Narendra Rajput
Answered by:
Tags: ,
Date: September 14, 2018
Query asked by Narendra Rajput

A flat owner in a co-operative housing society has decided to sell the flat to a third party.

As per the bye-laws No. 38 and section 38(e)(ix)of the Cooperative Housing Society, i.e., Notice of transfer of shares and interest in the capital/property of the Society, the Society cannot demand any transfer fees more than Rs.25,000.

There is also Circular issued on 9th August, 2001 by the Government in respect of transfer fee by which the transfer fee of the immovable property within the Corporation limit is fixed as Rs.25,000. The said circular is still in force.

The flat owner is willing to pay transfer fees of Rs.25,000/- to the Society @Rs.25/- per sq.ft.

However, the Society is demanding Rs.5,00,000/- for regularizing the transfer.

The Society is stating that the said sum of Rs. 5,00,000 for permission to transfer the flats should be paid as a “donation”.

Is the action of the Cooperative society legal? Is a member liable to pay any amount in excess of Rs. 25,000 as transfer charges for sale of his flat?

Answer given by

Section 79A of the Maharashtra Cooperative Societies Act reads as follows:

“79A. Government’s power to give directions in the public interest, etc.

(1) If the State Government, on receipt of a report from the Registrar or otherwise, is satisfied that in the public interest or for the purposes of securing proper implementation of cooperative production and other development programmes approved or undertaken by Government, or to secure the proper management of the business of the Society generally, or for preventing the affairs of the Society being conducted in a manner detrimental to the interests of the members or of the depositors or the creditors thereof, it is necessary to issue directions to any class of societies generally or to any Society or societies in particular, the State Government may issue directions to them from time to time, and all societies or the societies concerned, as the case may be, shall be bound to comply with such directions.

(2) The State Government may modify or cancel any directions issued under subsection (1), and in modifying or cancelling such directions may impose such conditions as it may deem fit.

(3) Where the Registrar is satisfied that any person was responsible for complying with any directions or modified directions issued to a Society under sub sections (1) and (2) and he has failed without any good reason or justification, to comply with the directions, the Registrar may by order

(a) if the person is a member of the committee of the Society, remove the member from the Committee and appoint any other person as member of the committee for the remainder of the term of his office and declare him to be disqualified to be such member for a period of six years from the date of the order:

(b) if the person is an employee of the Society, direct the committee to remove such person from employment of the Society forthwith, and if any member or members of the committee, without any good reason or justification, fail to comply with this order, remove the members, appoint other persons as members and declare them disqualified as provided in clause (a) above:

Provided that, before making any order under this subsection, the Registrar shall give a reasonable opportunity of being heard to the person or persons concerned and consult the federal Society is affiliated. Any order made by the Registrar under this section shall be final.”

The Division Bench of the Bombay High Court in the case of Mont Blanc Cooperative Housing Society Limited v. State of Maharashtra, 2007 (2) Bom.C.R. 533 was considering validity of similar government notification dated 1st August 2001 issued under section 79A of the said Act thereby imposing ceiling of 10% of non-occupation charges.

The Division Bench observed thus:

“17. Having given our anxious considerations to the grounds on which the impugned order came to be challenged, we are satisfied that the same is issued to secure the proper management or the business of the cooperative housing societies in general and for preventing the affairs of such societies being conducted in a manner detrimental to the interests of the members of such societies. The order does not suffer from the vice of arbitrariness and it cannot be termed as an unfair or unjust act by the State Government so as to deprive the societies from their legal, just and proper levies.

It is a bonafide exercise by the State to avoid litigations/disputes and to bring in a uniform levy of nonoccupancy charges without linking the same to the income derived by the concerned member who cannot occupy the premises/flat. It is also an action of the State Government preventing the exploitation of minority members who were called upon to pay exorbitantly high nonoccupancy charges.

The cooperative housing societies concerned were using the power under the byelaws to hike the nonoccupancy charges at their whims and fancies and, in fact, the societies used this as the source for revenue collections and profits. To bring in an orderly situation, the Government stepped in and exercised its statutory powers under Section 79A by issuing directions to levy nonoccupancy charges at 10% of the service charges.

However, in clause 3 of the impugned order there appears to be no justification in granting exemption from non occupancy charges if the flat is occupied by the son in law, brother in law (sister’s husband), sister in law (wife’s sister) and sister in law’s (wife’s sister) husband. None of these could be called as the members of the family as legally defined. At the same time, the brother’s widow could be termed as a member of the family, but the sister’s husband or for that matter a deceased sister’s husband cannot be treated as a member of the family.

We are, therefore, of the view that the exemption granted in clause 3 of the impugned order cannot be made applicable to such relations of the member concerned. 18. In the result, we hold that the challenge to the impugned order dated 1/8/2001 raised in this petition is devoid of merits and the same must fail. The petition is, therefore, dismissed.

However, we clarify that Clause 3 of the impugned order regarding exemption from the payment of nonoccupancy charges will not be applicable to the near relations like soninlaw, brotherinlaw (sister’s husband), sisterinlaw (wife’s sister) and sisterinlaw’s (wife’s sister) husband and the same exemption shall be applicable only to the members of the family, including a married daughter and grand children.

The Division Bench of the Bombay High Court in another judgment in the case of Vinod Subhashrao Shinde v. State of Maharashtra, 2008 (1) Bom.C.R. 485 also taken a view that the directions issued by the State Government under section 79A have a statutory effect and, therefore, binding on the society.

Another Division Bench of this Court in the case of Matru Ashish Coop. Hsg.Soc.Ltd. v. State of Maharashtra, 2011 (6) Bom.C.R. 307 also taken a similar view.

Learned single Judge of this Court in the cases of Twin Star Venus Coop. Housing Society Ltd. v. G.N.Sainani, 2006 (Supp.) Bom.C.R. 423 and Sunanda Janardan Rangnekar v. Rahul apartment No.11 Coop. Housing Society Ltd., 2006 (Supp.) Bom.C.R. 254 have also taken a similar view.

It can, thus, clearly be seen that the Division Bench of the Bombay High Court in Mont Blanc Cooperative Housing Society Limited v. State of Maharashtra (supra) in an unequivocal terms held that notification dated 1st August 2001 which imposes ceiling in respect of non-occupancy charges was a bona fide exercise by the State to avoid litigations/disputes and to bring in a uniform levy of non-occupancy charges without linking the same to the income derived by the concerned member who cannot occupy the premises/flat.

The Division Bench also held that it is also an action of the State Government preventing the exploitation of minority members who were called upon to pay exorbitantly high non-occupancy charges.

The Division Bench in clear terms has held that the cooperative housing societies were using the power under the bylaws to hike the nonoccupancy charges at their whims and fancies and, in fact, the societies used this as the source for revenue collections and profits.

17. In the present case also the Government vide notification dated 9th August 2001 has directed the uniform rates to be charged for effecting transfer of the tenements/flats. In so far as municipal corporations are concerned, the premium has been determined as Rs.25,000/. It is to be noted that clause (2) of the said notification specifically provides that the said charges are towards transfer of ::: Downloaded on – 14/09/2018 11:44:43 ::: skn 17/21 4567.07-wp member’s tenement/flat and his share and rights in the share capital/ property in the said society. The perusal of the said notification dated 9th August 2001 would reveal that the said notification is applicable to all cooperative housing societies. I am unable to accept the contention of Shri Dani, learned counsel for the petitioner that the said notification is not applicable to the Tenants Owners Cooperative Housing Society. The observations made by the Division Bench in the case of Mont Blanc Cooperative Housing Society (supra) would equally be applicable to the facts of the present case. In order to grab exorbitant money from the new members, who are trying to become member of the society, they are being subjected to exploitation at the hands of the society.

In The New India Co operative Housing Society vs. The State of Maharashtra, 2013 (2) MHLJ 666, the challenge by the aggrieved was to the transfer fee levied by the society in excess of that specified in the notification, which is a completely different cause of action having no relevance to the present controversy. It is not the case of the Revenue that such receipts have not been utilised for the common benefit of those who have contributed to the funds.

The notification dated 09.08.2001 in the relevant extract reads as follows:

ORDER In the exercise of the powers conferred upon the State Government under Section 79A of the Maharashtra Cooperative Societies Act, 1960 following orders are hereby issued in the larger interests of the people in the State.

1) Xxxxxx

2) The rate of premium to be charged for the transfer Flat/Premises as well as the rights and share in the share capital/property of the Cooperative Housing Society by a member in favour of another, should be determined at the General Meeting of the Society.

In Bharatiya Bhavan Cooperative Housing Society Ltd. & Anr. vs. Smt. Krishna H. Bajaj & Ors., pronounced on 17th February, 2010, the Bombay High Court held that if at all the member of the Housing Society voluntarily agrees to pay money to the Society, then it is not to be covered as a restriction under the bye- laws.

However, in Sind Cooperative Housing Society vs. Income-tax Officer, reported in (2009) 317 ITR 47, it was held that there is no question of payment of donation voluntarily by the flat owners.

In the case of Sind Cooperative Housing Society (supra), the Division Bench has held that –

“Firstly, whether it is voluntary or not would make no difference to the principle of mutuality. Secondly, payments are made under the bye-laws which constitute a contract between the society and its members which is voluntarily entered into and voluntarily conducted as a matter of convenience and discipline for running of the society. If it is the case that the amounts more than permissible under the notification had been received under pressure or coercion or contrary to the Government directions, then considering section 72 of the Contract Act, that amount will have to be refunded.

At any rate if the society retains the amount in excess of the binding Government notification or the bye- laws that amount will be exigible to tax as it has an element of profiteering.”

In Alankar Sahkari Griha Rachana Sanstha Maryadit vs. Atul Mahadev Bhagat WRIT PETITION No. 4457 OF 2014 WITH CIVIL APPLICATION No. 2589 OF 2015 IN W.P. No. 4457 OF 2014, the Bombay High Court held that different ways are invented by the Society to earn more money other than legally permissible like the maintenance charges or transfer fees under the bye-laws.

It was noted that the incoming and outgoing member both are having a subordinate position and the Society enjoys a dominant status in transfer of the premises. The incoming member somehow wants the possession of the premises and share certificate to be transferred in his name without any hassle.
So also outgoing member, who is in need of money, wants to get rid of further complications and is interested in smooth transaction. For this reason, the consent of Managing Body by passing necessary resolution to that effect is required. Under such circumstances, it cannot be inferred that the outgoing/incoming member has paid the donation voluntarily.
The Court also held that even though the flat owner has given admission that they paid Rs.5,00,000/- towards donation to the Society, it cannot be further read that it was paid voluntarily without any pressure.

It was noted that when persons come together with common object of housing, after formation of a Cooperative Society, they are governed under rules and bye-laws of Maharashtra Cooperative Societies Act. So far as the members are concerned, the Cooperative Housing Society can collect or increase its funds only by legally permissible charges or fees.

It was held by the Bombay High Court that a Society is not expected to indulge into profiteering business from the members and if such amount is earned, then it is taxable under the law. There is no bar for any member to pay donation to the Society, however, it should be voluntary without any compulsion and coercion. No manner the transfer fees can be charged under the pretext of donation.



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