Formation of Co-operative Housing Society

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By Adv. Vinod Sampat
a) Formation of Co-operative Housing Society
Practically every developer has to form a Co-operative Housing Society at one point of time or another. With the limited amount of options available with regard to management of the affairs of the building i.e. (a) Condominium (b) Private Limited Company and (c) Co-operative Society, (excluding the unrealistic rental housing), it will not be an exaggeration to state that in atleast 90% cases particularly in Mumbai the Promoters and/or the Builders have formed a Co-operative Housing Society. The basic requirements for Registration of Co-operative Housing Society normally is not known to the flat purchasers. It is here that apart from the statutory obligations cast upon the builder, the builder as a friend, philosopher and guide of promoters helps in forming a Co-operative Housing Society.
There are basically four types of Co-operative Housing Societies connected with the housing.
(a) Open Plot Societies
(b) Flat Owners Societies
(c) Tenant Societies
(d) Housing Board Societies.
In Open Plot Societies, members purchase or take one lease a plot of land and themselves construct the building. Due to bureaucratic formalities and lack of specialised knowledge, a few societies are formed under the head of open Plot Societies. When a builder constructs flats and sells them to Flat Owners, the Society when formed is called Flat Owner’s Society. When Landlord forms a Society of tenants, it is called Tenants Society. When a Society is formed by Allottees of flats and building is constructed by the Housing Board Authorities, i.e. Mumbai Housing and Development Board, then the Society so formed is of the type of Housing Board Society. The procedure that should be followed for formation of societies of the above said types is different for different types of Societies. Members who wish to form Co-operative Housing Societies are generally ignorant of the procedural aspects and as a result of the same they have to run from place to place and get entangled in bureaucratic delays.
The procedure for Registration of a society begins with electing a Chief Promoter in a meeting of the Promoter. The builder under the Flat Owners type of co-operative society has the first right to act as the chief promoter. The developer/flat purchasers should call for a meeting of the Promoters by issuing the notice under Agenda of the meeting given at least 14 days notice to the Promoters. In this meeting, a Chief Promoter is elected who can exercise such powers and carry out such functions as are mentioned in the minutes of the Promoters of the proposed Co-operative Society. After electing the Chief Promoter, the proposed name of the society has to be decided by the Promoters.
Normally, the name reservation proposal should be accompanied with the signature of atleast 10 Promoters who have attended the meeting. It is a common belief that the Society should consist of atleast 10 members. If the number is less than 10 then special permission from Governmetn has to be taken. In such cases, the garages/car parking may be allotted to other relatives of the promoter to reach number of 10. It would be of interest to note that the model byelaws define flat as a ‘Flat means a separate set and self-contained set of premises used or intended to be used or intended to be used for residence, or office or show-room, or shop, or godown and includes a garage, or dispensary, or consulting room, or clinic, or flour mill, the premises forming part of a building and includes an apartment’. On allotment of name and permission to open a bank account by the Registrar, the Chief Promoter has to collect Share Capital, Entrance Fees from promoters and deposit the same in the branch of the bank permitted by the Registrar. It should be noted that the amount cannot be withdrawn from the Bank till the Society is Registered or its Registration is refused, except with prior written permission of the Registrar. The Chief Promoter should submit Registration Proposal to the Registering Authority within a period of 3 months from the date of issue of Letter of Reservation in the name of the proposed Society. The documents that are normally to be submitted to the Registering Authorities are as under :-
1. Application for registration of Society in Form A along with Statement A. Enclosure to application for Registration as per Rule 4(1) of Maharashtra Co-operative Societies Rules, 1961.
2. Information about proposed society in Statement ‘B’ (vide Govt. Circular dated 2-5-1980).
3. Information about promoter members of the proposed society in Statement ‘C’ (vide Govt. Circular dt. 2-5-1980).
4. A Statement of Accounts as per Form D.
5. Model Bye-laws.
6. Bank Balance Certificate.
7. R.B.I. / Treasury Challan for payment of Registration Fee of Rs. 500/-.
8. Title Clearance Certificate from an Advocate
9. A true copy of the approved Building Plan.
10. Letter of Authority Granting permission to commence construction work/Completion Certificate (if applicable).
11. Affidavit on Rs. 20/- Stamp Paper from atleast 10 promoter members to the effect that they are residing in the area of operation of the Society (Proposed), made before a Competent Authority.
12. Affidavit from the Chief Promoter on Stamp Paper of Rs. 20/- executed before the Competent Authority in form ‘Y’.
13. Certified True Copy of agreement made on Stamp paper and registered between the builder, promoter and purchasers of flat.
14. Where the promoter members are firms/ companies, a letter of authority from such firms/companies authorising the promoter to sign on behalf of firm/company.
15. In case of such proposed societies, names of 60% of the flat holders of the total number of flats constructed or proposed to be constructed as per the plan approved, must be included in Statement ‘A’ to be attached to the Registration Proposal.
It is the duty of the Registrar to register the society and on registration of the society it becomes a separate legal entity. Thereafter, the management of the affairs of the society is carried out by the managing committee which is elected by the general body meeting of the society. It may be of interest to note that in a co-operative society the principle is one member one vote. In a co-operative society the right to be exercised in the general body meeting is a personal right. This is one of the reasons why even a person holding a power of attorney cannot attend the general body meeting of the society. THE quantum of the capital being introduced by the member is not of much importance. Preference should be given for formation of a private limited company if one member propose to acquire majority of the flats in the building.
b) Stamp duty
Present rates of stamp duty for residential premises in the city of Mumbai are RS. 38,750/- on Rs. 10,00,000/-. Thereafter it is @ 8% for the additional value. The rate of stamp duty for shops/Galas/office Premises and Garage even if used for car parking is 10% in Mumbai Stamp duty has to be paid on the agreement Value or the market value of the property whichever is higher. Stamp duty has to be paid every time the flat is being sold. Stamp duty has to be paid even if it is a transfer within family. If the authorities are demanding more stamp duty than the agreement value then a representation should be made to the authorities emphasising the below mentioned points (as may be applicable)
(a) Possession of the premises will be acquired at a later date. (10% reduction in the market value is normally given by the town planners if possession is not given to the purchaser at the time of execution of the agreement)
(b) The duty has to paid on built up are and not super built up area.
(c) If payments have been made in say 1995 and the agreement has been executed in 1998 then the market value of the year 1995 has to be taken as per the principles of Land Acquisition Act.
(d) There are reductions in the market value if the size of the shop is big.
(e) The area is lacking in infrastructural facilities.
(f) There is a defect in the title of the property and therefore, market value will also be reduced.
(g) The officer should be told to inspect the premises and the only the market value should be fixed.
Inspite of a fall in the property prices in the last few years the market value as mentioned in ready reckoner by government has increased by more than 50%. Earlier, for old buildings, land plus construction cost method of valuation was followed by many officers. On account of the different systems of valuations the stamp duty liability could differ substantially as can be seen from the following example.
As per land plus construction cost system of valuation for a commercial property in a building which is six years old situated at A-ward Sr. No. 4(a) (i.e. Madam Cama Road) the market value would be (land cost Rs. 4,200 + 50% Rs. 2,100/- for commercial and Rs. 250/- for construction) Rs. 6,550/-. However as per another system the same would work out for the same year to (Rs. 14,000/- less 20% depreciation) Rs. 11,200/-. For the same premises for the year 1998 the market value would be (Rs. 28,750/- less depreciation 5%) Rs. 27,312/-. Presently, land plus construction cost system of valuation has been stopped. Secondly the market value per sq.foot has been increased and thirdly the quantum of depreciation given for old buildings has been reduced thereby.
At times, it is advisable to file an appeal. The benefit of filing an appeal as per the provisions of the Bombay Stamp Act 1958 is that as of date one can file an appeal without paying any amount as stamp duty. Only a sum of Rs. 300/- has to be paid as appeal fees. The recurring amnesty schemes being introduced by the government helps the duty payers in paying the amount at a later date. As of date the penalty irrespective of the period of default is just 2% per month till the time the appeal has been finalised. The prevailing market value for the year 1999 as is being planned for the city of Mumbai is almost same as in 1998. Marginal relief is given in some of the suburban areas. The recovery figures from stamp duty and registration for the last few years for the state of Maharashtra are as under :
Year Amount in Crores
1990-91 293.93
1990-92 363.56
1990-93 478.12
1990-94 613.08
1990-95 1,157.60
1990-96 1,239.97
1990-97 1,305.17
1990-98 1,658.53
c) Registration of Documents
d) There is a proposal to simplify the Indian Stamp Act & the Indian Registration Act. With the introduction of computers in the stamp offices, the recovery notices are being received faster b the stamp duty payers. AS per section 17 of the Indian Registration Act 1908, if the value of immovable property exceeds RS. 100/- if subject to the exemptions if any right is proposed to be created or extinguished then the instrument has got to be compulsorily registered. The documents has to be registered. The documents has to be registered within a period of fours months from the date of its execution. The parties can go to the office of the Joint Sub-Registrar individually /collectively to register the document. If for certain reasons the parties cannot attend the office of the sub- Registrar within a period of the four months then in such cases the parties can execute a deed of confirmation and complete the registration formalities. The parties should carry their voter card/ passport along with the Alternately, they will have to ensure that two witnesses accompany the. Th registration fee is 1% of the market value of property or Rs. 20,000/- whichever is less. If the value of the document exceeds Rs. 5,00,000/- and the possession has been parted then in such cases the Joint Sub-Registrar can insist for Income Tax Clearance Certificate of the Vendors. It may be emphasised that the courts have held that if the confirming Party has not received financial consideration then in such circumstances the income Tax Clearance Certificate of the Confirming Party cannot be insisted upon by the Joint Sub-registrar. The reasons for the parties not getting back their original documents are
(a) not paying the stamp duty on market value of property
(b) not submitting the Income Tax Clearance Certificate
(c) not submitting the ULC Clearance and
(d) one of the parties not going to the Sub-Registrar’s office to register the document.
After completion of the abovesaid formalities the documents gets indexed. Earlier after indexing the documents used to go to Pune for microcilming. Now the documents are handed over much faster. As per the government guidelines, if all the formalities are completed then the documents should be returned to the parties as far as possible within a period of fifteen days. As far as possible the parties should insist for the certified true copy of the document. THE same is available on payment of a nominal fee after the document has been indexed. It may be of interest to note that the parties can register as many copies of the agreement as they desire with the Joint Sub-Registrar. The documents have to be registered with the Joint Sub-Registrar of Assurances in whose jurisdiction the property is situated. If there is a document for exchange of property then the document can be registered with any of the Joint Sub-Registrars who is entitled to register the document. Apart from the same, for a property situated anywhere in India the same can be registered at any of the four metro offices (i.e., Bombay, Delhi, Calcutta and Madras) of the Joint Sub-Registrar. If a Joint Sub-Registrar refuses to register the documents then the aggrieved party has a right to appeal against such a decision. If one of the parties has not remained present for registration then the aggrieved party can request the Joint Sub-Registrar to issue a summons to ensure that the party attends the Joint Sub-Registrar’s office.
A question that is regularly asked by the person purchasing the property is what is the time limit within which the authorities can recover stamp duty. If an individual had paid the adjudication fee and also paid stamp duty as demanded by the stamp authorities, whether the same is binding upon the department? Well, as per the provisions of the stamp Act even if an individual had adjudicated the document and had also paid the stamp duty as demanded by the authorities then also as per section 53 A, the said matter could be reopened by the authorities within a period of six years. If one has lodged the document for registration without getting the same adjudicated then the authorities can reopen the same at any point of time. As per law as it stands today as per section 32A(5) of the Bombay Stamp act 1958, the time lag is eight years since the date of indexing.

e) Stamp paper
As per the amendment of section 34 of the Bombay Stamp Act 1958, the stamp paper should be in the name of one of the parties executing the document.

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