ORDINANCE FOR CO-OPERATIVE HOUSING SOCIETIES

INTRODUCTION

The Maharashtra Government has introduced the Maharashtra Ordinance No. IX of 2019 dated 09.03.2019 to amend the Maharashtra Co-operative Societies Act, 1960 (“the Act”). This Ordinance would remain in force for a period of six months, i.e., up to 8^th September, 2019 after which it would lapse unless the Government comes out with an Amendment Act or renews the Ordinance. A new Chapter, XIII-B, consisting of section 154B to 154B-29, has been inserted in the Act specifically dealing with co-operative housing societies.

One of the complaints against the Act was that it was geared more towards general co-operative societies and did not have special provisions for co-operative housing societies. That issue is sought to be addressed by this new Chapter. While the Ordinance has made several amendments to the Act, it has introduced key changes to the concepts of membership of a co-operative society. This article examines some of the amendments made by the Ordinance in relation to membership of a co-operative housing society.

NEW CATEGORIES OF MEMBERSHIP

The Ordinance has introduced new categories of membership in a co-operative housing society. A “Member” has been defined to mean:

(a) a person joining in an application for the registration of a housing society; or

(b) a person duly admitted to membership of a society after its registration;

(c) an Associate or a Joint or a Provisional Member.

Thus, an Associate Member has now also been classified as a Member. A Joint Member has also been categorised as a Member. Further, a new category of membership called Provisional Member has been introduced. A house construction co-operative housing society; tenant ownership housing society; tenant co-partnership housing society; co-operative society; house mortgage co-operative societies; premises co-operative societies, etc., are all included in the definition of a housing society.

An “Associate Member” has been defined to mean any of the specified ten relations of a Member; these are the husband, wife, father, mother, brother, sister, son, daughter, son-in-law, daughter-in-law, nephew or niece of a person duly admitted to membership of a housing society. For this purpose, there must be a written recommendation of a Member for the Associate Member to exercise his rights and duties. Further, an Associate Member’s name would not appear in the Share Certificate issued by the society to the Member. Hence, it is evident from this definition that only one of the ten relatives can be inducted as an Associate Member. It is worth noting that the Ordinance has some drafting errors in the definition of Associate Member in the English text. However, on a reading of the Marathi version the position becomes clearer.

A “Joint Member”, on the other hand, has been defined to mean a person who either joins in an application for the registration of a housing society or a person who is duly admitted to membership after its registration. The Joint Member holds share, right, title and interest in the flat jointly but whose name does not stand first in the share certificate. Thus, a Joint Member would not be the first name holder in the share certificate but would be the second or third name holder. Thus, the difference between an Associate Member and a Joint Member is as follows:

The Act defines an Associate Member as a member who holds jointly a share in the society but whose name does not appear first in the share certificate. Thus, this existing definition in the Act (applicable for co-operative societies) is a combination of the definitions for Associate and Joint Members introduced by the Ordinance which would now be applicable for co-operative housing societies. Further, this existing definition treats any person as an Associate Member, whereas as per the Ordinance only ten specified relatives can be Associate Members. The existing definition under the Act would apply to general co-operative societies while the definitions introduced by the Ordinance would apply only for co-operative housing societies. Thus, there would be two separate definitions.

The society may admit any person as an Associate, Joint or Provisional Member. However, this has to be read in the context of the definition of the term Associate Member which states that only the specified relatives of a Member can be admitted as Associate Members.

VOTING RIGHTS OF MEMBERS

A Member of a society shall have one vote in its affairs and the right to vote shall be exercised personally. It is now expressly provided that an Associate Member shall have right to vote but can do so only with the prior written consent of the main Member.

In case of Joint Member, the person whose name stands first in the share certificate has the right to vote. In his absence, the person whose name stands second, and in the absence of both, the person whose name stands third shall have the right to vote. However, this is provided that such Joint Member is present at the General Body Meeting and he is not a minor.

Based on the above, the differences between an Associate and a Joint Member can be enumerated as follows:

PROVISIONAL MEMBER

One of the perennial issues in the case of a housing society has been that of the role that a nomination plays in the case of the demise of a Member. A nomination continues only up to and till such time as the Will is executed. No sooner is the Will executed, than it takes precedence over the nomination. A nomination does not confer any permanent right upon the nominee nor does it create any legal right in his favour. Nomination transfers no beneficial interest to the nominee. A nominee is for all purposes a trustee of the property. He cannot claim precedence over the legatees mentioned in the Will and take the bequests which the legatees are entitled to under the Will. In spite of this very clear position in law, several cases have reached the High Courts and even the Supreme Court. The following are some of the important judicial precedents on this issue:

(1) The Bombay High Court in the case of Om Siddharaj Co-operative Housing Society Limited vs. The State of Maharashtra & Others, 1998 (4) Bombay Cases, 506, has observed as follows in the context of a nomination made in respect of a flat in a co-operative housing society:

“…If a person is nominated in accordance with the rules, the society is obliged to transfer the share and interest of the deceased member to such nominee. It is no part of the business of the society in that case to find out the relation of the nominee with the deceased Member or to ascertain and find out the heir or legal representatives of the deceased Member. It is only if there is no nomination in favour of any person that the share and interest of the deceased Member has to be transferred to such person as may appear to the committee or the society to be the heir or legal representative of the deceased Member.”

(2)  Again, in the case of Gopal Vishnu Ghatnekar vs. Madhukar Vishnu Ghatnekar, 1981 BCR, 1010, the Bombay High Court has observed as follows in the context of a nomination made in respect of a flat in a co-operative housing society:

“…It is very clear on the plain reading of the Section that the intention of the Section is to provide for who has to deal with the society on the death of a Member and not to create a new rule of succession. The purpose of the nomination is to make certain the person with whom the society has to deal and not to create interest in the nominee to the exclusion of those who in law will be entitled to the estate. The purpose is to avoid confusion in case there are disputes between the heirs and legal representatives and to obviate the necessity of obtaining legal representation and to avoid uncertainties as to with whom the society should deal to get proper discharge. Though in law the society has no power to determine as to who are the heirs or legal representatives, with a view to obviate similar difficulty and confusion, the Section confers on the society the right to determine who is the heir or legal representative of a deceased Member and provides for transfer of the shares and interest of the deceased Member’s property to such heir or legal representative.

Nevertheless, the persons entitled to the estate of the deceased do not lose their right to the same… the provision for transferring a share and interest to a nominee or to the heir or legal representative as will be decided by the society is only meant to provide for the interregnum between the death and the full administration of the estate and not for the purpose of conferring any permanent right on such a person to a property forming part of the estate of the deceased. The idea of having this Section is to provide for a proper discharge to the society without involving the society into unnecessary litigation which may take place as a result of dispute between the heirs’ uncertainty as to who are the heirs or legal representatives…

It is only as between the society and the nominee or heir or legal representative that the relationship of the society and its Member are created and this relationship continues and subsists only till the estate is administered either by the person entitled to administer the same or by the Court or the rights of the heirs or persons entitled to the estate are decided in the court of law. Thereafter, the society will be bound to follow such decision… To repeat, a society has a right to admit a nominee of a deceased Member or an heir or legal representative of a deceased Member as chosen by the society as the Member.”

(3) A single judge of the Bombay High Court in Ramdas Shivram Sattur vs. Rameshchandra Popatlal Shah 2009(4) Mh LJ 551 has held that a nominee has no right of disposition of property since he is not an absolute owner. It held that the law does not provide for a special Rule of Succession altering the Rule of Succession laid down under the personal law.

(4) The position of a nominee in a flat in a co-operative housing society was also analysed by the Supreme Court in Indrani Wahi vs. Registrar of Co-operative Societies, CA No. 4646 of 2006(SC).This decision was rendered in the context of the West Bengal Co-operative Societies Act, 1983.The Supreme Court held that there can be no doubt that the holding of a valid nomination does not ipso facto result in the transfer of title in the flat in favour of the nominee. However, consequent upon a valid nomination having been made, the nominee would be entitled to possession of the flat. Further, the issue of title had to be left open to be adjudicated upon between the contesting parties. It further held that there can be no doubt that where a Member of a co-operative society nominates a person, the co-operative society is mandated to transfer all the share or interest of such Member in the name of the nominee.

It is also essential to note that the rights of others on account of an inheritance or succession are a subservient right. Only if a Member had not exercised the right of nomination, then and then alone, the existing share or interest of the Member would devolve by way of succession or inheritance. It clarified that transfer of share or interest, based on a nomination in favour of the nominee, was with reference to the co-operative society concerned and was binding on the said society. The co-operative society had no option whatsoever, except to transfer the membership in the name of the nominee but that would have no relevance to the issue of title between the inheritors or successors to the property of the deceased. The Court finally concluded that it was open to the other members of the family of the deceased to pursue their case of succession or inheritance in consonance with the law.

Taking a cue from these cases, the Ordinance seeks to make certain changes to the Act. It has introduced the concept of a Provisional Member. This is defined to mean a person who is duly admitted as a Member of a society temporarily after the death of a Member on the basis of nomination till the admission of legal heir or heirs as the Member of the society in place of the deceased Member. The salient features of Provisional Membership are as follows:

a) It is temporary in nature;

b)  It comes into force only once the main Member dies;

c)  It can apply on the basis of a valid nomination;

d)  It would continue only till the legal heirs of the deceased Member are admitted as members of the society. This could be by way of a Will or an intestate succession.

Thus, the Ordinance seeks to clarify the legal position which has been expounded by various Court judgements, i.e., the Provisional Member would only be a stop-gap arrangement between the date of death and the execution of the estate of the deceased. However, it proceeds on one incorrect assumption. It states that such membership will last till such time as the legal heirs of the deceased Member are made members. What happens in case of a Will where the Member has bequeathed his right in favour of a beneficiary who is not his legal heir? A legal heir is not defined under any Act. It is a term of general description. The Law Lexicon by Ramanatha Aiyar (4^th Edition) defines it as including only next of kin or relatives by blood. It is known that a person can make even a stranger a beneficiary under his Will. In such an event, a strict reading of the Ordinance suggests that the Provisional Membership would also continue since the legal heirs of the deceased have not been taken on record.

However, that would be an absurd construction since once the Will is executed, it is the beneficiary under the Will who should become the Member. Hence, it is submitted that this definition needs redrafting. The position has been correctly stated in the proviso to section 154B-13 also introduced by the Ordinance. This correctly states that the society shall admit a nominee as a Provisional Member after the death of a Member till the legal heirs or person who is entitled to the flat and shares in accordance with succession law or under Will or testamentary document are admitted as Member in place of such deceased Member. Hence, this recognises the fact that a person other than legal heirs can also be added as a Member.

The Ordinance also provides for the contingency of what happens if there is no nomination. In such cases, the society must admit such person as Provisional Member as may appear to the Managing Committee to be the heir / legal representative of the deceased Member. It further states that a Provisional Member shall have right to vote.

PROCEDURE ON THE DEATH OF A MEMBER

Normally, in the case of a housing society, any transfer of share or interest of a Member is not effective unless the dues of the society have been paid and the transferee applies and acquires membership of the co-operative housing society. However, this provision does not apply to the transfer of a Member’s interest to his heir or to his nominee.

The Ordinance introduces section 154B-11 which states that on the death of a Member of a society, the society is required to transfer the share, right, title and interest in the property of the deceased Member in the society to any person on the basis of:

• Testamentary documents, i.e., a Will;

• Succession certificate / legal heirship certificate – in case of intestate succession;

• Document of family arrangement executed by the persons who are entitled to inherit the property of the deceased Member; or

• Nominees.

This is the first time that a document of family arrangement has been given statutory recognition. The amendment equates a Memorandum of Family Arrangement to be at par with a testamentary or intestamentary succession document. Scores of Supreme Court judgements, such as Ram Charan Das vs. Girja Nandini Devi (1955) 2 SCWR 837; Tek Bahadur Bhujil vs. Debi Singh Bhujil, (1966) 2 SCJ 290; K. V. Narayanan vs. K. V. Ranganadhan, AIR 1976 SC 1715, etc., have held that a family arrangement does not amount to a transfer and hence there is no need for registration of a Family Settlement MOU. In spite of this, in several cases the Registration Authorities are reluctant to mutate the rights in the Property Card or the Record of Rights based on an unregistered Family Settlement MOU. In several cases, even co-operative societies do not agree to transfer the share certificates based on the Family Settlement MOU unless it is registered and stamped.

The Ordinance now provides that the society must transfer the flat based on a Document of Family Arrangement executed by the persons who are entitled to inherit the property of the deceased Member. However, this has restricted the transfer only to those persons who are entitled to inherit the property of the deceased. For instance, in the case of an intestate Hindu male, his Class I heirs, Class II heirs, agnates and cognates are entitled to inherit his property. Thus, a document signed between any of these relatives should be covered under this provision.

CONCLUSION