Court’s Decision
The Bombay High Court, per Justice Amit Borkar, dismissed a writ petition challenging concurrent findings of the Cooperative Court and the Cooperative Appellate Court, which had upheld the validity of multiple Memoranda of Understanding (MoUs) executed between a cooperative housing society and one of its members concerning the allotment and use of additional Floor Space Index (FSI).
The Court held that the dispute squarely fell within Section 91 of the Maharashtra Cooperative Societies Act, 1960, as the transaction arose directly from the rights and obligations of membership, not from a commercial dealing with an outsider.
Justice Borkar observed:
“When the right claimed by a member arises from the society’s bye-laws, resolutions, or conditions applicable only to members, the dispute must be treated as one arising in his capacity as a member.”
The Court affirmed that the MoUs were valid and binding, the resolutions of the society were lawfully passed, and the status quo order of the High Court had been violated by the society’s subsequent cancellation of MoUs, rendering the cancellation void ab initio.
Accordingly, the petition was dismissed, and the society was directed to implement the awards within three months.
Facts
The case arose from a long-standing dispute within a cooperative housing society owning two buildings (“A” and “B” Wings). The original disputant, a founding member and flat owner, claimed entitlement to additional FSI of 1500 sq. ft., granted to the society by the Municipal Corporation of Greater Mumbai in lieu of acquired land in 1977.
In 1988, the society’s AGM resolved to utilize the FSI and invited sealed tenders restricted to members. The disputant’s bid was accepted, and a Memorandum of Understanding (MoU) dated 14 November 1989 was executed confirming allotment upon payment of ₹7 lakh.
Subsequent policy changes led to substitution of the FSI with Transferable Development Rights (TDR). The society passed fresh resolutions in 1991 and 1992 permitting the disputant to use up to 2700 sq. ft. of TDR at his own cost. Supplementary MoUs were executed in 1992 and 1997, and legal opinion from Dr. D.N. Sonsale, Senior Advocate, confirmed their validity.
However, after years of delay, the society cancelled the MoUs in 2003 despite a status quo order passed by the High Court in 2002. The disputant’s legal heirs challenged this cancellation before the Cooperative Court, which found in their favour — a decision later upheld by the Appellate Court and now affirmed by the High Court.
Issues
- Whether the dispute over FSI allotment falls within Section 91 of the Maharashtra Cooperative Societies Act, i.e., whether it “touches the business of the society.”
- Whether the MoUs executed by the society’s sub-committee were valid and binding under the authority of general body resolutions.
- Whether the society’s subsequent resolution cancelling the MoUs was illegal due to violation of the status quo order.
Petitioner’s Arguments
The petitioners (society and its members) argued that the dispute was not maintainable under Section 91, as it did not arise from membership but from a commercial transaction. They claimed that the tender for FSI was open to the general public, and hence, the transaction was independent of cooperative rights.
They contended that the managing committee lacked authority to delegate powers to an FSI sub-committee or execute MoUs. The MoUs were said to be illegal, unauthorised, and contrary to the society’s bye-laws. Further, they argued that the additional FSI had lapsed under municipal rules and could not be revived through TDR.
Relying on Deccan Merchants Cooperative Bank Ltd. v. Dalichand Jugraj Jain (1968 SCC OnLine SC 10), Belganda Sahakari Sakhar Karkhana Ltd. v. Keshav Rajaram Patil (1994 Mh LJ 1756), and Cargill India Pvt. Ltd. v. Shri Adinath Sahakari Sakhar Karkhana Ltd. (2013 (5) Mh LJ 570), the petitioners submitted that not all disputes involving land or construction fall within the meaning of “business of the society”.
Respondent’s Arguments
The respondents contended that the right to additional FSI flowed directly from membership and the society’s bye-laws, which permitted construction and development activities. The tender expressly restricted participation to members holding share certificates, and hence the transaction was an internal cooperative matter, not a commercial venture.
They relied on Suprabhat Cooperative Housing Society Ltd. v. Span Builders (2002 (3) Mh LJ 837), where the Court held that housing development and use of FSI form part of the “business of the society.” They argued that the MoUs were duly authorised by the general body resolution of 12 November 1989, executed under proper authority, and ratified by subsequent resolutions.
The respondents also submitted that the 2003 cancellation of MoUs violated the status quo order of the High Court and was therefore void.
Analysis of the Law
Justice Borkar began by reiterating the settled principle that the true nature of a dispute is determined by its substance and not its form. The key test is whether the right or benefit claimed arises from membership or could be enjoyed by an outsider.
If the right is derived from bye-laws, resolutions, or internal decisions, it falls within Section 91. But if it is a purely commercial dealing open to the public, it does not. Applying this, the Court found that Clause 1 of the tender restricted eligibility to members, proving that the transaction arose from membership rights and not an open commercial offer.
The Court also held that real estate development and FSI allocation are integral to a housing society’s “business,” being within its object clause. Therefore, the dispute “touches the business of the society” under Section 91.
Precedent Analysis
The Court distinguished and reconciled the precedents cited:
- Deccan Merchants Cooperative Bank Ltd. (1968) – Held that not every transaction involving property qualifies as “business” of the society. However, that case concerned a commercial loan dispute unconnected to cooperative purposes.
- Belganda Sahakari Sakhar Karkhana Ltd. (1994) – Concerned an industrial cooperative, where the transaction was extraneous to its cooperative objectives.
- Cargill India Pvt. Ltd. (2013) – Involved a private company and a cooperative sugar mill in a commercial contract, again unrelated to membership.
- Suprabhat CHS Ltd. v. Span Builders (2002) – Applied to hold that construction, FSI utilization, and redevelopment activities are inherent to the functioning of housing societies.
Justice Borkar emphasized that these authorities reaffirm the principle that the business of a cooperative society must be judged by its objects. Since the society’s bye-laws here expressly covered development, maintenance, and construction, the transaction in question was integral to its cooperative purpose.
Court’s Reasoning
- Capacity as a Member — The Court found that the tender was open only to members and that the MoUs were executed pursuant to resolutions passed by the general body, making the transaction an internal cooperative act.
- Authority of the Managing Committee — The managing committee’s delegation to the FSI sub-committee was upheld as a legitimate administrative step. The Court observed that internal sub-committees are permissible unless expressly prohibited by bye-laws.
- Validity of MoUs — The MoUs were executed under valid authority, duly ratified, and acted upon for years. The legal opinion of Dr. Sonsale further confirmed their legality.
- Lapse of FSI — The plea of lapse was rejected since the society continued to act upon its earlier resolutions and substituted the FSI with TDR as per revised government policy.
- Status Quo Violation — The 2003 resolution cancelling the MoUs was declared void, having been passed in defiance of the High Court’s order. The Court held that any act violating judicial restraint is “void and unenforceable”.
- Equity and Estoppel — The society, having accepted payments and allowed reliance, was estopped from resiling. Justice Borkar invoked the doctrine of promissory estoppel, holding that once a member acts upon the society’s resolutions, the society cannot later retract.
Conclusion
The High Court dismissed the writ petition, affirming that:
- The transaction between the society and its member arose directly from membership rights and hence falls within Section 91.
- The MoUs and resolutions were lawfully executed and binding.
- The status quo violation rendered the cancellation of MoUs void.
- The society must implement the awards and give effect to the MoUs within three months.
Justice Borkar concluded:
“The right to utilise FSI and TDR arises from the society’s bye-laws and decisions of its general body. Once such rights are conferred on a member, they cannot be unilaterally withdrawn. The dispute touches the business of the society and lies within the jurisdiction of the Cooperative Court.”
Implications
This ruling reinforces the autonomy of cooperative housing societies and clarifies the scope of Section 91. It safeguards members’ rights by ensuring that:
- Cooperative decisions arising from membership-based rights cannot be treated as mere commercial dealings.
- Societies are bound by their own resolutions and MoUs, especially after acceptance of consideration.
- Status quo orders by courts must be scrupulously followed.
It also underscores that development rights and FSI allocation are intrinsic to the functioning of housing societies and fall within their statutory “business.”
