Transfer / Sale of flats in society in Maharashtra

By Legal Bureau

Q.1. For sale of shares and flat in a Co-operative Housing Society, is it necessary to enter into any written Agreement by and between a member and the intending Purchaser ?

Under the Contract Act there can be an oral agreement which is not in writing. Such an oral Agreement is valid and binding on the parties thereto. Under the Transfer of Properties Act also it is not necessary to enter into an Agreement in writing for the sale of the shares or rights of a member in the properties of the Co-operative Society. Such an Agreement can be an oral Agreement. The Maharashtra Co-op. Societies Act, 1960, Maharashtra Co-operative Housing Societies Rules, 1961 and the Model Byelaws of Co-operative Housing Societies, no where mention or provide that such an Agreement should be in writing.

The relevant Sections of the said Act for transfer of Membership is Section 29, which is negative in form, providing restriction on transfer. Under the said Section certain conditions are prescribed. But no where is it mentioned that there should be an Agreement in writing for the Sale of shares and the rights in property of the Co-operative Society. Rule 24 of the said Rule prescribes procedure for transfer of shares. Under the said Rule also there is no mention of any Agreement or an Agreement in writing. Clause 40 of the Model Bylaws of Co-operative Housing Societies, which provides for the notice of transfer of shares and interest in the capital of the property of the Society. Clause 40 (D) provides for the documents to be submitted along with the application for transfer. There is no reference whatsoever that any Agreement or a copy of any Agreement should be furnished to the Society. Therefore, there is no need for an Agreement in writing or furnishing an Agreement for Sale or a copy thereof to the Society. Under the provisions of Contract Act, Transfer of properties Act, Maharashtra Co-operative Societies Act, 1960, Maharashtra Co-operative Societies Rule 1961 and the Model Bye-laws of Co-operative Housing Society. it has been recently held by the High Court of Judicature at Bombay in its Judgement passed in Writ Petition No. 2094 of 1994, Shri. Harish G. Bulchani V/s. Shri. Subhash Manoharlal Arora and Others reported in 1992 (2) All Maharashtra Law Reporter, Page 349, that if a member or Intending Purchaser does not produce Agreement for Sale and if its not required under the Maharashtra Co-operative Societies Act, Rules or Bylaws then it could not be a valid the ground of refusal to transfer the shares and the rights of a member in a property of the Co-operative Housing Society. Therefore it is not necessary for a transferor or transferee to produce any Agreement or copy thereof to the Co-operative Housing Society.

Q.2) Is it possible to enter into oral Agreement for Sale without executing an Agreement for Sale and paying stamp duty thereon ?

The stamp duty is payable only if an Agreement for Sale has to be executed in writing. In case of Oral

Agreement for Sale of shares and the rights in property by a member to intending Purchaser, if there is no Agreement in writing, then the question of payment of any Stamp Duty does not arise.

Q.3) Is it necessary to Register Agreement for Sale between a member of the Co-op. Housing Society and the Intending Purchaser ?

Section 41 of the Maharashtra Co-op. Societies Act Specifically provides for exemption from compulsory registration of an Instrument relating to shares and debentures of the Society. Nothing in clause (b) and (c) of sub – section (1), of section 17 of the Indian Registration Act, 1908, shall apply to any instrument relating to shares in a society, notwithstanding that the assets of the society consist in whole or in part of immovable property. Therefore, under the said Section it is specifically mentioned that such an Agreement does not require registration. In fact it has been held by Bombay high Court in its Judgement in USHA DONGRE VS. SURESH KOTWAL reported in 1990 Maharashtra Law Journal 306 that such an Agreement does not require Registration . Therefore, such an Agreement is not required registration with the Sub-Registrar of Assurances.

Q.4) Is the second part of the Notification or Circular issued by Commissioner for Co-operation and Registrar, Co-operative Societies dated the 18th February, 1994 valid ? Are Co-op. Societies or members thereof bound to comply with it ?

As stated in answers to earlier questions the Co-operative Societies Act, Rules and Bylaws do not provide for any Agreement for Sale between a member and intending members to be in writing or payment of the stamp duty thereon. As stated in earlier answers it is not necessary to register such an Agreement between a member and the new member of the Society. If the said Act, the said Rules and Bylaws of the Society or Indian Registration Act not require such a Agreement to be in writing, then the question of payment of Stamp Duty on the same will not arise if such an agreement is not in writing. Similarly, neither the said Act nor the Indian Registration Act requires Registration of such an agreement.

In fact the 2nd part of the said circular amounts to imposing of tax on the citizens. Citizens will have to pay Stamp Duty and Registration fees even though the Acts and Rules do not provide the same. Under Article 265 of the Constitution of India no taxes can be levied or collected except by authority of Law. Stamp Duty and Registration charges can be imposed only by legislation. The Commissioner cannot levy taxes which he has purported to do through his circular. The said Circular is bad in law and against the provisions of the said Act, the said Rules, the Indian Registration Act and against the Judgements of Bombay High Court which have been referred in answers to earlier questions. It is ultra-vires of Article 265 of the Constitution of India. It is respectfully submitted that 2nd part of the same is, therefore, illegal, unlawful, invalid and not binding on the Society or the members or the intending Purchasers.

Q.5) Is Commissioner’s aforesaid Circular is valid because it is issued after the judgement of the Bombay High Court in USHA DONGRE VS. SURESH KOTWAL ?

By Circular, Commissioner cannot validate which is unconstitutional or invalid under any Act or Rules. Section 41 of the Maharashtra Co-op. Societies Act and the Judgment in USHA DONGRE VS. Suresh KOTWAL make it abundantly and absolutely clear that such an Agreement for Sale does not require registration. The Commissioner, Circular dated the 18th February, 1994 is beyond jurisdiction and it is contrary to and inconsistent with the provisions under the said Act, the said Rules, the said Bylaws, Indian Registration Act and Article 265 of the Constitution of India.

Q.6) In a case of Sale of Flat by Builder or Developer to Flat Purchaser, can there be an Oral Agreement ?

The aforesaid questions and answers are with reference to sale of shares and flat by a member of a Co-op. Hsg. Soc. To an Intending Member. The law relating to purchase of a flat from a builder is not governed by Maharashtra Co-op. Societies Act but is governed by The Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale , Management and Transfer) Act, 1963. Under Section 4 of the said Act it is necessary that Agreement has to be in writing and it must be duly registered. Therefore, such an Agreement between the Builder and Flat Purchaser has to be in writing and has to be stamped as per Bombay Stamp Act 1958 and needs to be registered.

Q.7) Is it necessary to register an Agreement for Sale of purchase of a Flat from Flat Purchaser (and not builder) wherein a Society is not registered ?

The Agreement between the Flat Purchaser and another purchaser is not governed by the provisions of the Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act, 1963 and therefore, it is not necessary to have such an Agreement registered with the Sub Registrar of Assurances.