Resale of Agreement in a Society: Hanuman Vitamin Case
By Advocate S R Agarwal
Usually, there is a misconception that a resale agreement for the purchase of a flat in a registered society does not require registration and such understanding seems to be based on the provisions of Section 41 of the Maharashtra Co-operative Societies Act 1960, which provides that Clause No.(b) and (c) of Sub-Section (1) of Section 17 of the Indian Registration Act, 1908, will not apply to any instrument relating to shares in a society, notwithstanding that the assets of the society consists in whole or in part of immovable property, as the transfer of the property is incidental to the transfer of the share certificate.
However, this question arose in the case of Hanuman Vitamin Foods (P) Ltd. and others v/s State of Maharashtra before the Bombay High Court, reported as 1989-Bank J-377. The said petitioners, as the members of the Dalamal Towers Premises Cooperative Society Ltd. and as holder of 5 shares and as occupier of office premises No.904 at Nariman Point Bombay, purported to transfer the said premises by an Instrument dated 31.3.1986 the said 5 shares of the face value of Rs.50/- each for a consideration of Rs.9,46,900/-. The petitioners sent the Instrument to the Superintendent of Stamps for adjudication under the provisions of Bombay Stamp Act with the contention that, though the said Instrument was wholly exempt from stamp duty, it has been sent for adjudication by way of abundant precaution. The Superintendent of Stamps informed that the document was a ‘conveyance’ chargeable with stamp duty under Article 25 (b) (i) of the said Act on the present market value of the property. The said Order was challenged before the Hon’able Bombay High Court.
After hearing both the parties and examining the relevant clauses of the Instrument of Transfer, the Division Bench of High Court came to the conclusion as under:-
“… There is no getting away from the fact that the form of transfer ….. concerns itself with conveying a right to occupy the office premises ….. and, as such, a right to immovable property. The right to occupy a flat in a cooperative housing society has been held by the Supreme Court to be a “species of property” in the case of R.H.Shah v/s H.J.Joshi reported as, AIR-1975-SC-1470 and that …. there is no absolute prohibition against transfer of a right to occupation of the flat or even to transfer a share ….. What is more, in the instant case, one finds that there is intrinsic material in the document itself to indicate that what has been sought to be transferred is not merely the shares but the right to occupy office premises…… the bye-law D.1.1.(of the said Society), inter-alia, provides “no person shall be admitted as member unless he has entered into an agreement for the purchase of a flat in the building mentioned in bye-law No.2 (a) as per provisions of Section 4 of the Maharashtra Ownership Flats Act 1963, read with Rule No.5 of Maharashtra Ownership Flat Rules 1964,” …. and allotment under (1) above would give only the right of occupancy to the member as a right acquired by him by virtue of his holding shares or agreeing to hold share to the extent of value of flats. It is difficult to visualize a situation where a purchaser paying close to a million rupees is interested merely in the transfer of five shares of the face value of Rs.50/- each for the said consideration and nothing more. What is more, he is not willing to leave other things to the operation of law …… that is why there seems to have been an insistence in mentioning that one of the incidence of the first petitioners’ membership of the society is that as such member, the first petitioner has a right to occupy the office premises…… In the circumstances, we feel that it would be a travesty of the truth to hold the document for an instrument of transfer under the heading “Form of Transfer” purports to transfer only the share and nothing beyond the shares ….. In substance and effect, therefore, this document incorporates along with the transfer of shares the conveyance of the property …..Although the label is one of the transfer of shares only ….. in substance and effect, the document also includes the conveyance of a right to occupy immoveable property which as the Supreme Court has pointed out is a ‘species of property’ …. One finds that the conclusion can be arrived at even on the consideration of the document itself as a whole…..”
When such an instrument has been held as “Conveyance”, the provisions relating to the stamp duty and registration will, automatically, be attracted as per the provisions of law applicable from time to time. Nevertheless, with a view to avoid any such confusion, the State Govt. by way of Amendment dated 5.12.1985, effective from 10.12.1985, added an “Explanation” to Article 25 relating to the payment of stamp duty on a conveyance in the Bombay Stamp Act, whereby an Agreement to Sell an immovable property shall be deemed to be a “conveyance” and stamp duty thereon shall be leviable accordingly. By another amendment by Maharashtra Act No.17 of 1993, effective from 1.5.1993, stamp duty has been made payable as a conveyance on an instrument executed by a society in favour of its member or incoming member whether in consequence of purchase of its share or not or by a member of such society in favour of another member (and incoming member) whether in consequence of transfer of its share to another member or not. The Department of Co-Operation also issued a Circular on 18.2.1994, whereby registration of such an instrument for the purchase of the premises from a member in a registered society has been made compulsory. This Circular cannot be termed as in contravention of Section 41 of the Maharashtra Co-operative Societies Act, as it has been issued in the back drop of the said judgment of the Division Bench of Hon’able Bombay High Court.
Again in the year 2001 by an Amendment Act No.48 of 2001, effective from 24.9.2001, a clause numbered as (1-A) has been added to section 17 of the Indian Registration Act 1908 providing as under:-
“(1-A) The documents containing contracts to transfer for consideration, any immovable property for the purpose of Section 53-A of the Transfer of Property Act, 1882, shall be registered if they have been executed on or after the commencement of the Registration and Other Related Laws (Amendment) Act, 2001, and if such documents are not registered on or after such commencement then, they shall have no effect for the purposes of the said section 53-A.]”
Thus it is amply clear from the judgment of the Division Bench of the Hon’able Bombay High Court in Dalamal Towers case and subsequent amendments to the Bombay Stamp Act and the Indian Registration Act, an instrument of transfer of a flat by a member in a society is not, merely, an instrument to transfer of the share certificate of the society, but it tantamount to conveying right, title and interest in an immovable property bringing it into the category of a ‘Conveyance’, thereby attracting the stamp duty and registration thereof, as per the provisions of law applicable from time to time. Otherwise also, in most of the cases loans are availed of by such purchasers from the Banks and financial institutions, usually, by way of equitable mortgage and in the present day context, it may not be possible for such institutions to advance loans unless the agreements are duly registered. It is, therefore, legally essential and in the interest of purchasers to go for the registration of an agreement for resale of a flat in a registered society.