Non Occupancy Charges can not be more than 10% of Service Charges

By Legal Cell

After the consideration of the Committee’s Report, the state Government issued an Order dated 1.8.2001 in Public Interest under Section 79 A of the said Act, there by directing the Societies not to charge non-occupancy charges beyond 10% of the service charges (excluding Municipal Taxes)

The levy of non-occupation
charges has been a controversial issue for a long time, which resulted into disputes between members and the Societies flooding the offices of the Deputy Registrar and the Courts. Therefore, attempts have been made by the State Govt from time to time to regulate it. The commissioner for Co-operative Societies, Maharashtra State, issued a Circular on 13.3.1992 laying down that the Societies could levy non-occupation charges upto a maximum of 25% of service charges and, accordingly, clause No: (C) of Bye-law No: 45 (2) (iii) of the old bye-laws was replaced by the following words.

“He shall pay non-occupancy charges to the Society at a rate of not exceeding 25% of the service charges as will be determined by the meeting of General body of the Society.”

This Circular was challenged in Writ Petition No: 1618 of 1993, but it was disposed off as the said Circular was withdrawn. In exercise of the powers vest in the State Government under Section 79 A of the Maharashtra Co-Operative Societies Act, the State Government issued an Order on 9.3.1995 laying down that the non occupation charges shall not be fixed beyond 100% of the maintenance charges. But this Order was also challenged in Writ Petition No: 1398 of 1996. Therefore, the State Government appointed a Committee on 19.6.1997 to look into the whole gamut of non-occupancy charges. The Committee submitted its report to the State Govt. on 31.7.1998 and when the said Writ Petition came up for hearing in January 2000, it was dismissed as withdrawn, as the State Govt submitted that the report of the said Committee was under consideration of the State Government and, in the meanwhile, the earlier Order dated 9.3.1995 was not being applied.

After the consideration of the Committee’s Report, the state Government issued an Order dated 1.8.2001 in Public Interest under Section 79 A of the said Act, there by directing the Societies not to charge non-occupancy charges beyond 10% of the service charges (excluding Municipal Taxes). Again a number of the Societies led by Palm Beach Riviera CHS Ltd. challenged this Government Order dated 1.8.2001, fixing the non-occupacncy charges not more than the 10% of the service charges, before the Hon’ble High Court during the years 2002 and 2006 on various grounds such as, that this Order was against the interest of the Societies, arbitrary, not in public interest and unwarranted interference in the affairs of the Societies and there is no legislative policy enabling the Govt or Registrar to override the bye-laws of the Societies duly approved by the Registrar enabling the General Body to fix the non-occupancy charges payable by the members and that the said Order may enable a member to use the flat as a vehicle for carrying out the object of earning money, thereby defeating the spirit of the co-operative housing.

The State Government, justifying the Order dated 1st August 2001, submitted before the Hon’ble High Court that it has been issued in exercise of statutory powers under Section 79 A of the said Act in public interest as it serves the interest of the Societies, as well as the members, because by virtue of a brute majority and with a view to extract more money from the members not occupying the flats, non-occupancy charges were being imposed whimsically and at exorbitant rates and on the basis of the income earned by such members, which amounted to levying the tax on income of the members and in some cases at the rate of per sq. ft. of the area of the Flat and the complaints were received by the Govt. that in case of a few Societies, the non-occupancy charges recovered in respect of two flats were being utilized towards the property taxes for the remaining 47 members, who were not required to pay anything towards the Property Tax and the non-occupancy charges recovered from three to sex flats were more than the property tax bill of the entire Society, which levied these charges @ of Rs. 9/- per sq.ft. per month. Therefore, the Government constituted a Committee and after due consideration of its recommendations decided a uniform rate of non-occupancy charges throughout the state, without linking the same with the rateable value of the flat or the rental income derived by such members and to achieve the objective of stopping the Societies from profiteering and to prevent unjust enrichment and acting to be detriment of the members, who gave their flats on rent or on leave and license basis and to protect such minority members from the oppression by majority in as much as a flat is a property of the member and he is entitled to return from the same sa he has invested the money for acquiring the same. It was also pointed out that in such cases, Societies do not spend any extra money on account of the member giving the flat on leave and license or rental basis and Govt is concerned for solving the housing problem in the State. Therefore, the State Govt issued the Order dated 1-8-2001 and at the same time, replaced by Bye-law No: 45 in the amended Bye-law numbered as 43 which, interalia, provided as under :-

“C) He shall pay non-occupancy charges to the Society. Non Occupancy charges shall be charged in accordance with the circular issued by the Government of Maharashtra/Commissioner for Co-operation from time to time and shall not be levied if the flat is occupied by the family of the member as defined under these Bye-laws.”

After the careful consideration of the submissions made on behalf of the Societies and the State Government, the Hon’ble High Court observed that the validity of Section 79 A of the said Act has already been upheld by this Court in the cases 1989 Mh-L-J. 173 and 1993 (2), Mh L.J. 1716 and that it has been found that in some area, levy of non-occupancy charges has become a profit making business and the State Government is empowered to issue Order in public interest preventing the affairs of the Society being conducted in a manner detrimental to toe interest of the members and looking at the housing cost as at present, the member concerned must be allowed to earn some income on the investment he has made and a good member of flats remain unoccupied for various reasons and if non-occupancy charges are allowed at the rate, the majority decide, it would be an additional impediment in the flats being available on leave and licence or tenancy basis, which does not in any way violate the provisions of the Maharashtra Ownership Flats Act and the provision of the earlier Bye-law No: 45, empowering the General Body of the Society to fix the non-occupancy charges, was being abused by some of the Societies, which cannot be allowed to use the authority under the Byelaws, a vehicle for making money and exploit the minority members, as it is not the business of the societies to impose taxes and derive income by different modes, like non-occupancy charges etc. The Hon’ble High court came to the conclusion that the exercise of the power by the State Government is bonafide one with the objective to avoid unnecessary litigation and disputes and bringing uniformity in the rate of non-occupancy charges without linking the same to the income derived by the concerned member or the rateable value of the Flat and to prevent the exploitation of minority members. The argument on behalf of the Societies that the entire property of the Society was assessed as one Unit for Municipal Taxes and the flats given on rent or leave and licence basis would add to the rateable value component thereby, giving rise to increase in such taxes did not find favour with the High Court as of no significance and need not be considered, as each flat is assessed separately for Municipal taxes with effect from 1st April 2006.

Thus, the issue of the quantum of the non-occupancy charges has been finally settled by the Hon’ble Bombay High Court by its Judgment dated the 2nd March 2007 by unholding the Government Order dated 1st August 2001, prescribing the non-occupancy charges not more than 10% of the service charges, excluding property taxes, both in respect of residential as well as commercial premises, irrespective of the fact whether the new Bye-laws are adopted by the Societies or not. This Judgment has brought in a great relief to the members of the Societies, who give the flats on rent or leave and licence basis.