Can flats in society be attached?
By S.R. Agarwal
In the state of Maharashtra, sale and purchase of flats, on ownership basis, is regulated by the Maharashtra Ownership Flats (regulation and promotion of Construction, Sale, Management and Transfer) Act, 1963(hereinafter referred to as MOFA). In terms of Section 4 of MOFA, a promoter/ builder has to, necessarily, enter into an agreement for sale of flat wherein, interalia, he has to specify the precise nature of the organisation to be constituted of the persons, who have taken or are to take flats. He is under an obligation, as per Section 10 thereof, to take steps for the formation of a co-operative housing society or a company, as the case may be, as soon as the minimum numbers of persons, required for this purpose, have taken flats.
Rule No. 10 of the Maharashtra Co-operative Society Rules, 1961, contains classification and sub-classification of co-operative societies. Classification at Sr. No. 5 thereof relates to ‘ housing society’, which is again sub-divided into three categories viz., (a) tenant ownership housing society; (b) tenant co-partnership housing society; (c) other housing societies. The first category (a) includes housing societies, where land is held either on leasehold or are freehold basis by the societies and houses are owned or are to be owned by the members; the second category (b) includes housing societies, which hold both land and buildings either on leasehold or freehold basis and allot them to their members and the third category (c) includes housing mortgage societies and houses construction societies, with which we are not concerned herein.
Though in the nomenclature of this sub-classification term ‘tenant’ has been used, its true import vis-à-vis relationship between a member and co-operative housing society (hereinafter referred to as a CHS ) has been nicely described in the following words in Full Bench judgement of Bombay High Court in the case of Dr. Manohar R. Sarfare V/S. Konkan CHS reported as, AIR-1962-BOM-154:-
“ The mutual rights and obligations of a co-operative housing society and its members are, therefore, quite different from those of a landlord and a tenant. The relationship is of a special type, which is governed by special laws made for this purpose viz. the Co-operative Societies Act and the rules, bye-laws and regulations made thereunder. Even though, therefore, a member to whom a tenement is given for occupation is described in the bye-laws and the regulations as a tenant, he is not a tenant in the sense in which this term is used in the transfer of Property Act or in the Rent Act, nor is the society his landlord.”
In the context of acquiring a flat on ownership basis through a tenant
Co-partnership CHS, Hon’ble Mr. Justice Mukhi tried to ascertain the legal connotation of the expression ‘ Flat Owner’ in the following words in Division Bench judgement of the Bombay High Court in R H Shah Vs. H J Joshi reported as, (1674)76-BOM –LR -375:-
“ It would, therefore, appear that the ‘Flat Owner’ who is necessarily a member of the society and who has contributed to the construction cost of the building by either making a deposit or subscribing to the loan-stock gets in return merely the right of occupation of the particular tenement allotted to him, subject ofcoures to the bye-laws and regulations of the society. The totality of these three ingredients, which I have referred to, constitute the interest of the ‘Flat Owner’.
About the title of the property under a tenant co-partnership CHS, observations of the Full Bench of Bombay High Court in AIR-1962-BOM-154, as under; are worth noting:-
“…….. the property in the whole estate remains absolutely with the society as a whole. The member contributes in the first instance by shares and then pays rent so calculated as to cover not only the economic rent of his tenement or house but also an amortisation or sinking fund payment, which at the end of 25 years or 40 years, as the case may be, repays whole value of the building. At the end of that period, he is credited further shares in the society equivalent to the value that he has paid up and the normal interest on these shares is equal to economic rent which he has to pay. At the end of the period he is, therefore, in a position to occupy the building free of rent or merely so as the tenant of the society, of which he is himself a member and, a controlling authority”.
A controversy arose whether the usufructuary interest in a flat of such a society is transferable and/or saleable and whether an owner of such an interest has disposing power without previous consent of the co-operative housing society and whether such interest is capable of being attached and sold in execution of a decree in a court sale. The property, which is liable to attachment or sale in execution of a court decree, has been defined under Section 60 of the Civil Procedure Code as follows:-
“ The following property is liable to attachment or sale in execution of a decree, namely, lands, houses or other buildings, goods, money, bank-notes, cheques, bills of exchange, handies, promissory notes, govt. securities, bonds or other securities for money, debts shares in a corporation and save as hereinafter mentioned, all other saleable property, movable or immovable belonging to the judgement debtor or over which, or the profits of which, he has a disposing power which he may exercise for his own benefit, whether the same be held in the name of the judgment-debtor or by another person in trust for him or on his behalf”.
In an unreported judgement dt. 11.9.1971 in OOCJ Suit No.507 of 1964, Hon’ble Mr. Justice Vimadalal of Bombay High Court held that a member of a CHS had only the right to occupy the flat and such right was incapable of being sold in a court auction. In the case of H.J. Joshi Vs. R.H. Shah, reported as, AIR-1974-BOM-87, Hon’ble Mr. Justice Vaidya, examined this question in the light of the provisions of Section 29(2) of MCSA, the relevant portion of which is as follows:-
Section 29(2)
“………a member shall not transfer any share held by him or his interest in the capital or property of any society, or any part thereof, unless-
(a) he has held such share or interest for not less than one year;
(b) the transfer is made to a member of the society or to a person whose application for membership has been accepted by the society………”
While agreeing with the view taken by Vimadalal J, he observed:-
“ ……… that there is an absolute prohibition on a member of a CHS from selling the flat in the CHS to any person other than the person whose application for membership has been accepted by the society …….. It is true that the word saleable property’ under Section 60 of the CPC is interpreted in some of the cases as meaning saleable by court auction at a compulsory sale. But this necessarily implies that the property must, in law, be capable of being transferred. The property cannot be saleable unless it is transferable. The property in which the judgement debtor has no legally transferable interest or transfer of which is prohibited by any law for the time being in force cannot be sold in court auction and will not be saleable property…… Having regard to the provisions of Sec.29, the auction purchaser cannot get any right or interest whatsoever of the judgement debtor as a member of the CHS…… He has no saleable interest or disposing power in respect of the flat without the consent of the society”.
When this matter came up before the Division Bench of the Bombay High Court by way of Letters Patent Appeal in (1974)74-BOMLR-375, Hon’ble Mr. Justice Bhole and Hon’ble Mr. Justice Mukhi, while referring to the provisions of Section 29 of the MCSA, examined the provisions of Section 31 and the Bye-Law 71(D) (reference to bye-law 71(B) appears to be a typographical error), which are as under:-
“Section 21:
The share or interest of a member in the capital of a society, or in the loan-stock issued by a housing society, or in the funds raised by a society from its members by way of saving deposit, shall not be liable to attachment or sale under any decree or order of a court for or in respect of any debt or liability incurred by the member; and accordingly, neither the Official Assignee under the Presidency-towns Insolvency Act, 1909, nor a Receiver under the Provincial Insolvency Act, 1920, nor any such person or authority under any corresponding law for the time being in force, shall be entitled to, or have any claim, on such share or interest”.
“ Bye-Law 71(D)
A member to whom a tenement is allotted shall occupy it himself and shall not assign, underlet, vacate or part with the possession of the tenement or any part thereof without the previous consent in writing of the Managing Committee”.
They observed that under Bye-Law 71(D) he shall not assign, underlet, vacate, or part with the tenement or any part thereof without the previous consent in writing of the Managing Committee”….. under Section 29 there are restrictions on transfer of share or interest ….. There is yet, again, a prohibition under section 31. The share or interest of a member in the capital of the society or in the loan-stock issued by the society shall not be liable to attachment or sale under any decree or order of a court for or in respect of debt or liability incurred by the member…. his right to occupy a flat in the building of the society flows by reason of his status as a shareholder and, therefore, a member. The rights to occupy the flat allotted to him are all bundled together and they are indivisible. One cannot be divorced from the other”.
The Division Bench, thus, upheld the view taken by Hon’ble Mr. Justice Vaidya in the aforesaid Single Bench judgement and dismissed the appeal.
Being aggrieved by said judgement, the Appellant went to the Supreme Court by way of Special Leave Petition under Article 136 of the Constitution of India. The Supreme Court minutely examined all the aforesaid provisions vis-à-vis, Section 47 of MCSA, (reference) which, so far as material for this purpose, is quoted below:-
Section 47(1)
“Notwithstanding anything in any law for the time being in force, but subject to any prior claim of Government in respect of land revenue or any money recoverable as land revenue and to the provisions of Section 60 and 61 of the Code of Civil Procedure, 1908,
…………….
(c) any outstanding demands or dues payable to a society by any member or past member or deceased member, in respect of rent, shares, loans or purchase money or any other rights or amounts payable to such society, shall be a first charge upon his interest in the immovable property of the society.
(2) No property or interest in property, which is subject to a charge under the foregoing sub-section, shall be mission of the society; and such transfer shall be subject to such conditions, if any as the society may impose.
(3) Any transfer made in contravention of sub-section (2) shall be void”.
Hon’ble Mr. Justice A. Alagiriswami, Hon’ble Mr. Justice P.N. Bhagawati
(As he then was) and Hon’ble Mr. Justice P.K. Goswami, who constituted the Bench, in AIR-1975-SC-1470, observed as under:-
“ ……. While Section 29(2) refers to the transfer of a member’s share or his interest in the capital or property of any society, Section 31 in contrast speaks of “ the share or interest of a member in capital of a society”. The Act, therefore, makes a clear distinction between the share or interest in the capital and share or interest in property of the society…. There is no reason to suppose that if the qualifications under the Bye-laws are fulfilled an application for membership may be rejected. It is admitted that the flat is owned by the society and the judgment debtor has a right to occupation which is the right to be sold in auction is not attachable in execution of the decree…. Once Section 31 is out of the way, we are left with Section 29 wherein we do not find even a provision of prior consent for transfer of share or interest in such property. The only restrictions under Section 29(2) are that the member may not transfer is made to an existing member of the society or a person whose application for membership has been accepted by the society. It is true that Bye-Law 71(D) says that a member to whom a tenement is allotted shall not assign or underlet or vacate or part with the possession of the tenement or any part thereof without previous consent in writing of the Managing Committee, but there is nothing to show that the contravention of this by-law makes the assignment void under the Act unlike in the case of a transfer being void under Section 47(3). There is no impediment to ratification of the assignment by the committee particularly inv view of the legal position arising out of the conjoint effect of Section 29, Rule 24 and By-law 9. Section 29 read with Rule 24 shows that there is no prohibition as such against transfer of a share to a member or even to a non-member if he consents to be a member and makes an application for membership by purchasing five shares are provided under Bye-law 9. Reading the aforesaid provisions there is no reason to think that there is any question of refusal of membership of the society to a non-member if he is qualified otherwise and makes an appropriate application in which case the transfer of shares will be operative and thus the assignment of the right to occupation will hold good. Now that attachment and sale have been held to be valid, it will be for the auction-purchaser first to obtain membership of the society and the court before the confirmation of the sale will insist upon his membership of the society, which it would not be unreasonable to assume, will be granted by the society in the ordinary course unless there are cogent and relevant reasons for not doing so. The fact that at the time of auction sale purchaser was not a member of the society would not in law affect the salability or prior attachment of the property in execution of the valid decree….. The auction-purchaser is presumed to know the limitation under which he has purchased the right to occupy the flat in court auction. If ultimately the society turns down his application for membership (which ofcoures cannot be done except for valid reasons) it is upto him to take such course of action as available under the law. Such a remote contingency, per se, will not make the particular right of the judgement debtor in the flat non-attachable or non-saleable…….. Section 60 being not exhaustive as such ……. It refers also to any other saleable property, movable or immovable; we have held that the right to occupation of a flat is property both attachable and saleable. Specific non-inclusion of a particular species of property under Section 60 is, therefore, not of any consequence if it is saleable otherwise”.
This land-mark judgement handed over by the Hon’ble Supreme Court has lain down in unequivocal terms as under:-
“We, therefore, unhesitatingly come to the conclusion that this species of property, namely the right to occupy a flat of this type, assumes significant importance and acquires under the law a stamp of transferability in furtherance of the interest of commerce. We have seen no fetter under any of the legal provisions against such a conclusion. The attachment and the sale of the property in this case in execution of the decree are valid under the law”.
The ratio descend of all the said judgments of Bombay High Court has all along been that an allottee of a flat in a tenant co-partnership housing society has occupancy right cut termed it as incapable of being sold in either a voluntary sale or a court sale as a consequence of attachment because of the restrictive legal provisions referred to hereinabove. These so-called restrictive provisions have been interpreted by the Supreme Court in such a constructive manner that all the doubts about the fetter on the right of transferability have vanished. When this is the position with regard to a tenant co-partnership housing society, there can, hardly, be any doubt,
exfacie, in relation to a tenant ownership housing society or where a society has yet to be incorporated for the simple reason that the cost of the flat is paid for at the time or acquisition and an owner is always legally entitled to occupy it or transfer his interest therein.
The pragmatic approach, with which such a conclusion has been arrived at by the Supreme Court, can in no better way be described than to quote this touching passage from the judgement itself herein below:-
“Multi-storied ownership flats on co-operative basis in cities and big towns have come to stay because of dire necessity and are in the process of rapid expansion for manifold reason. Some of these are: ever growing needs of an urban community necessitating its accommodation in proximity to cities and towns, lack of availability of land in urban areas, rise in price of building material, restrictions under various rent legislations, disincentive generated tax laws and other laws for embarking upon housing construction on individual basis, security of possession depending upon fulfillment of the conditions of membership of a society which are none too irksome. In absence of clear and unambiguous legal provisions to the contrary, it will not be in public interest nor in the interest of commerce to impose a ban on saleability of these flats by a tortuous process of reasoning. This prohibition, if intended by the legislature, must be in express terms. We have failed to find one”.
Keeping in view the national objective of providing shelter to the shelterless and, thereby, adding to the housing stock of the country, a number of agencies, both in private and public sector, have come out in the market with various schemes to provide finance for this purpose. So long this judgement holds field and such agencies obtain, as a matter of abundant precaution,
‘ NO OBJECTION’ from the housing societies or in the transitory period from the promoters/builders, there may not be any iota of doubt left about the security of their funds for the purpose of recycling this process for the betterment of the quality of the lives of the teeming millions of a developing country like ours.