1. Court’s decision
The Bombay High Court has ruled that a cooperative housing society is legally entitled to refuse membership to an auction purchaser until all outstanding dues of the previous member are fully cleared. The Court set aside the appellate and revisional orders of the Divisional Joint Registrar and Deputy Registrar, holding that both authorities erred in treating the auction purchaser’s claim as falling within the ambit of deemed membership. The Court reaffirmed that Section 154B-7 of the Maharashtra Cooperative Societies Act imposes a mandatory precondition: no transfer of share or occupancy rights can take effect unless dues are paid. As the petitioner society communicated its refusal within the statutory ninety-day window, the refusal was valid. Membership, the Court held, may be granted only after payment of arrears .
2. Facts
The dispute arose from Gala No.103 in a cooperative housing society. The earlier member had accumulated substantial arrears running into lakhs, including long-pending maintenance charges and taxes. Despite several notices, the dues remained unpaid. Indian Overseas Bank, which had initiated recovery under the SARFAESI Act, eventually took physical possession of the unit and sold it to the fourth respondent through a sale certificate followed by a sale deed. The transfer took place without obtaining the society’s no-objection certificate. When the auction purchaser applied for membership, the society stated that membership could not be processed until arrears were cleared. A formal refusal was communicated on the eighty-seventh day, within the statutory period. The purchaser, instead of paying dues or disputing their quantum, filed an appeal under Section 22, which the Deputy Registrar allowed, and the revision was rejected by the higher authority, leading to the writ petition .
3. Issues
The key questions before the Court were:
(1) Whether the housing society had lawfully refused membership within the ninety-day limit prescribed under Section 23(2).
(2) Whether an auction purchaser can demand membership without clearing admitted arrears of the previous member.
(3) Whether the principle of deemed membership under Section 22(2) can override the mandatory statutory requirement under Section 154B-7 when the dues are undisputed.
(4) Whether the respondent could rely on the Brightland Cooperative Housing Society precedent, and whether that ruling applied to a case where dues were not in dispute .
4. Petitioner’s arguments
The petitioner society argued that it had strictly complied with the statutory framework. It emphasised that refusal was communicated on the eighty-seventh day, thereby satisfying Section 23(2). Once refusal is issued in time, the purchaser cannot invoke deemed membership. The society stressed that Section 154B-7 is couched in mandatory language—no transfer can take effect unless dues are paid. The petitioner submitted that the auction purchaser’s title to the property is distinct from the statutory process of acquiring membership, and the latter is conditional. The society maintained that the statutory scheme aims to ensure recovery of legitimate dues and prevent financial burden on other members. As the arrears were admitted and not contested by the purchaser, the authorities had no jurisdiction to override the mandatory requirement .
5. Respondent’s arguments
The auction purchaser contended that he could not be saddled with the previous member’s liabilities and relied heavily on the judgment in Brightland Cooperative Housing Society. He argued that the authorities were justified in granting him membership because societies cannot demand historically accumulated dues from an auction purchaser. According to him, the purchase under SARFAESI confers clear title and cannot be hindered by past claims. He asserted that denying membership merely on account of earlier arrears would be inconsistent with the principle laid down in Brightland and insisted that the appellate and revisional findings were correct in treating the refusal as illegal .
6. Analysis of the law
The judgment turns on the interpretation of Sections 154B-7, 154B-12, 22(2), and 23(2) of the Maharashtra Cooperative Societies Act. Section 154B-7 unequivocally states that no transfer of share, interest, or occupancy right becomes effective unless the dues of the society are paid. This is expressed in negative language, indicating mandatory compliance. Section 154B-12 clarifies that while a valid transfer between parties can occur through a registered document, the effect of such transfer in the society’s records occurs only upon fulfilling statutory preconditions. Section 23(2) requires communication within ninety days, and such communication was undisputedly issued. Section 22(2), providing for deemed membership, operates only in cases of inaction, not when a lawful refusal exists. Thus, the law protects the society’s financial stability, preventing transfer of units burdened with arrears without ensuring recovery .
7. Precedent analysis
The Court examined the Brightland ruling relied upon by the respondent. In Brightland, the society’s claim of arrears was unverified, disputed, and never crystallised despite repeated requests. The Court had held that in such uncertain circumstances, the society could not invoke Section 154B-7 without adjudication of dues, as misuse was possible. However, the High Court clarified that in the present case, dues were admitted and undisputed. The factual core of Brightland—uncertainty in quantification—was absent. Indeed, Brightland itself contains a principle that when dues are definitive, the statutory mandate must be followed. Thus, the precedent did not support the respondent. The Court distinguished the cases, noting that the earlier ruling cannot be extended to shield an auction purchaser from mandatory statutory compliance .
8. Court’s reasoning
The Court emphasised that membership is a statutory privilege, not an inherent right. A purchaser under SARFAESI obtains title, but not automatic membership. The statute’s purpose is to ensure that societies remain financially viable and do not collapse under the weight of unrecovered common expenses. If auction purchasers could enter without clearing arrears, societies would have no mechanism to recover legitimately owed dues. The Court found that the authorities had overlooked binding statutory language and had incorrectly treated the refusal as inaction. The communication on the eighty-seventh day was a clear refusal. Deemed membership could not override statutory conditions. The SARFAESI Act, the Court noted, protects secured creditors but does not extinguish existing statutory claims of societies. Both operate independently, and neither overrides the other .
9. Conclusion
The Court concluded that the society acted lawfully, diligently, and within its rights. The refusal communicated within ninety days was valid. The Deputy Registrar and Divisional Joint Registrar erred in granting membership without payment of dues. Their orders were quashed. Membership may be granted only when the auction purchaser clears all outstanding arrears. The writ petition was allowed, and the society’s statutory insistence on payment was upheld .
10. Implications
This ruling has significant implications for cooperative housing societies, banks conducting SARFAESI auctions, and auction purchasers. Societies gain strong judicial reinforcement for insisting on arrears clearance before admitting purchasers as members. Auction purchasers must account for outstanding dues as part of the financial burden attached to the property. Banks must ensure that bidders are aware of statutory liabilities beyond the auction price. The judgment fortifies cooperative governance by prioritizing financial stability and collective interests. It also clarifies that deemed membership cannot be misused to bypass mandatory statutory safeguards. Housing societies across Maharashtra are likely to rely on this judgment in similar disputes involving transfer of membership following bank auctions .
11. Precedent Analysis
1. Brightland Cooperative Housing Society Ltd. v. Divisional Joint Registrar (2025 SCC OnLine Bom 2795)
Holding: Transfer cannot be denied based on arrears whose quantum is disputed or uncrystallised; deemed membership may apply when societies fail to clarify dues.
Application in present case: Distinguished. The High Court noted that in the present matter, dues were undisputed, quantified, and admitted. Hence, Brightland’s protective rationale did not apply, and Section 154B-7 remained mandatory .
FAQS
1. Can an auction purchaser get society membership without clearing old dues?
No. The Bombay High Court held that under Section 154B-7, membership cannot be granted unless outstanding society dues are cleared, even if the buyer is an auction purchaser under SARFAESI .
2. Does deemed membership apply when the society issues a refusal within 90 days?
No. Deemed membership under Section 22(2) applies only when the society is inactive. A timely refusal prevents deemed membership from arising .
3. Does buying a flat under SARFAESI automatically grant society membership?
No. SARFAESI transfers ownership but does not override the Cooperative Societies Act. Membership requires compliance with statutory conditions, including payment of arrears .
