Court’s Decision
The Bombay High Court dismissed a writ petition filed by a Co-operative Housing Society challenging orders of the Deputy Registrar and Divisional Joint Registrar, which directed the society to admit auction purchasers of a flat as members. The Court held that the society’s prolonged inaction in deciding the membership application triggered the statutory deeming fiction under Section 22(2) of the Maharashtra Co-operative Societies Act, 1960. It emphasized that:
“If the society either does not take the decision or having taken a decision, fails to communicate the decision, within the stipulated period, it runs the risk of the membership of a person being foisted on such society by the deeming fiction.”
The Court upheld the lower authorities’ direction to admit the applicants as members while allowing the society to pursue recovery of disputed dues separately.
Facts
The petitioner was a Co-operative Housing Society in Mumbai. The original flat owners had defaulted on bank dues, leading Punjab National Bank to conduct an auction under the SARFAESI Act. Respondents 3 and 4 purchased the flat through an e-auction held on 30 August 2018 and took possession on 30 December 2018.
The purchasers applied to the society on 28 September 2018 for membership and transfer of shares. Despite repeated follow-ups, the society neither approved nor formally rejected the application. After years of delay, the applicants approached the Deputy Registrar under Section 22(2) of the Maharashtra Co-operative Societies Act, seeking intervention.
The Deputy Registrar, after noting the prolonged silence, directed the society to admit the respondents as members. This order was upheld by the Divisional Joint Registrar in revision. The society then filed a writ petition challenging these orders on the ground that membership could not be granted unless outstanding dues were paid under Section 154B-7 of the Act.
Issues
- Whether the society’s failure to communicate a decision on the membership application within three months triggered deemed admission under Section 22(2).
- Whether the applicants were disqualified from membership due to non-payment of outstanding dues.
- Whether the authorities were justified in directing the society to admit the applicants as members despite the society’s claim of pending arrears.
Petitioner’s Arguments
The petitioner society contended that under Section 154B-7(a) of the Act, no transfer of share or interest is effective unless the dues of the housing society are paid. It argued that the respondents had failed to clear substantial outstanding maintenance charges, which were due from 2009 onwards. The society maintained that the respondents could only be admitted after clearing these dues.
The society also submitted that the applicants did not initially file their membership application in the prescribed format, which allegedly justified the society’s non-action. Moreover, it was argued that the auction purchasers had taken the flat on an “as is where is” basis, and were therefore liable to clear all past dues attached to the premises.
Respondents’ Arguments
Respondents 3 and 4, appearing in person, submitted that they had applied for membership as early as 2018, followed by repeated reminders and formal applications, including one in the prescribed form in July 2021. They argued that they were never informed of deficiencies in their applications, nor were they told about the outstanding dues or given a breakdown.
They contended that they had paid maintenance charges from November 2018 onwards and denied liability for dues incurred before acquiring the flat. They alleged harassment by the society and highlighted that repairs to the building were deliberately withheld from their premises to pressurize them.
Analysis of the Law
The Court analyzed Section 22(2) of the Maharashtra Co-operative Societies Act, which provides that if a society does not communicate a decision on a membership application within three months, the applicant is deemed to have been admitted. This “deeming fiction” was inserted by Maharashtra Act 20 of 1986.
The Court further examined Rule 19 of the Maharashtra Co-operative Societies Rules, which lays down conditions for admission, including application in prescribed form and compliance with bylaws. It found that the respondents had in fact submitted applications in the prescribed format and paid the transfer fees.
As to the society’s reliance on Section 154B-7, which restricts transfer without payment of dues, the Court held that this provision must be interpreted harmoniously with Section 22. While dues must ordinarily be paid, where their existence or quantum is seriously disputed, the society cannot arbitrarily refuse membership.
Precedent Analysis
The Court relied on the Supreme Court’s decision in K.C. Ninan v. Kerala State Electricity Board [(2023) 14 SCC 431], which held that when a property is sold “as is where is,” the buyer assumes responsibility for not just the physical condition but also potential encumbrances or obligations, unless otherwise exempted.
This precedent was applied to emphasize the respondents’ duty to carry out due diligence. However, the Court clarified that whether past dues are recoverable from them must be adjudicated separately.
Court’s Reasoning
The Court found that the society had:
- Failed to decide the application within three months.
- Failed to communicate any rejection.
- Failed to respond to applicants’ repeated communications.
- Raised the issue of dues only as an afterthought.
Given these facts, the Court held that the statutory presumption of deemed membership had come into effect. The society’s later objections regarding outstanding dues could not override this legal fiction. The Court clarified that the society is free to recover any proven dues through appropriate mechanisms under the Act.
Conclusion
The High Court dismissed the writ petition with costs and upheld the orders of the Registrar and Joint Registrar, directing the society to admit the auction purchasers as members. It clarified that its observations on dues were not binding on future proceedings, and all rights and liabilities regarding past dues remain open to adjudication.
Implications
This judgment is a strong reiteration of the statutory right of deemed membership under Section 22(2). It puts housing societies on notice that prolonged inaction or procedural evasiveness can result in automatic admission of applicants. It also clarifies that while societies can recover dues, they cannot use such claims to indefinitely delay membership transfers.
The ruling balances society’s financial interests with fairness to bona fide purchasers, ensuring procedural rigor does not become a tool for harassment.
Referred Cases and Their Role
- K.C. Ninan v. Kerala State Electricity Board (2023) 14 SCC 431: Clarified implications of “as is where is” clause; applied to assess obligations of auction buyers.
- No other case law was relied on in substance, though references were made to procedural rules under the MCS Act and Rules.
FAQs
1. Can a housing society refuse membership if previous owner’s dues are unpaid?
Not indefinitely. If the society fails to decide or communicate within three months, the applicant is deemed to be admitted under Section 22(2). Disputed dues must be adjudicated separately.
2. What does “as is where is” basis mean in auction sales?
It implies the buyer accepts the property with all physical and legal liabilities, including potential past dues, unless explicitly excluded in the sale terms.
3. Can the society still recover unpaid maintenance dues after admitting the new owner?
Yes. The society can initiate proceedings under Section 91 or Section 154B-29 of the Act to recover legitimate dues from either the previous or current owner.
