For revised guidelines refer Article: Revised Rules for Transfer Fee

In earlier articles we have discussed “Types of Cooperative Societies” and “Transfer Process in Service Society“. This article is about Transfer Fee charged by Housing Societies, its history, reason for allowing transfer fee, where it is to be used, Registrar circulars on transfer fee and High Court Judgement “Arun Co-Op. Housing Society Ltd. vs State Of Gujarat And Ors” and Current status of Transfer Fee.

Housing Societies

With Amendment in Cooperative Societies Act as discussed in an earlier article, there is now a clear definition of different types of societies. This article is limited to first 3 definitions

2.7B “Co-operative housing society” means —

a society, the object of which is to provide its members with open plots for housing, dwelling houses or flats and to provide its members common amenities and services;
a society, the object of which is to allot the plots to its members to construct the dwelling unit or flats thereon or to allot the dwelling units already constructed and where land is held either on lease hold or free hold basis by the society and houses are owned or to be owned by the members;
a society, the object of which is to allot the flats already constructed or to be constructed to its members and where both land and building or buildings are held either on freehold or lease-hold basis by the society;
“co-operative housing service society” means a society formed by the owners of flats in a building for the purpose of maintenance of the building and provision of common amenities and services;

What is Transfer Fee ?

Transfer Fee is a fee charged by Housing society from New Members on purchase of plot / flat or commercial property.

Purpose of charging Transfer Fee

Initial purpose of charging the transfer fee was to create a fund for maintaining the roads, drainage, lights etc. as in earlier days it was not under the corporation/municipality area and thus the society was responsible to maintain it.

Byelaws Old Clause

6A. On every permitted disposition or devolution of or dealing with the said plot and buildings or any part thereof under or by virtue of these regulations the member shall pay to the society _____ the premium received by him from the purchaser member in respect of the said plot and shall also pay to the society in case of the said plot and building half of the amount received by him over and above the capital cost with interest at _____ p.a. up to a limit of one third of the capital cost and such payments received by the society shall belong to the society absolutely and carry to reserve fund.

History

Earlier Bye-laws were framed by the concerned society as per the leaflet “U” which, inter alia, provided for the purpose of payment of transfer fees as and when the house constructed over the plot which was allotted by the society is sold by the allottee member to the new coming member. There were different bye-laws in respect of different societies providing separate quantum of transfer fee. In certain cases huge amounts of transfer fee were demanded which was causing great difficulty to the seller and purchaser of the house of Housing Society.

Usage of Transfer Fee

Amount collected as Transfer fee cannot be used for the administration of the society but should be credited in the development fund of the society and thereafter be used for the common facilities.

Registrar Transfer Fee Circular: 11-Jan-1988: ₹ 500 to ₹ 10,000

In view to have uniformity of the same standards, it is decided by the State Govt. after detailed consideration that “the Co-op. Housing Society may fix the transfer fee on ad hoc basis from ₹ 500/- to ₹ 10,000/- keeping in view their own circumstances. It is intimated in the said circular that when the new societies are registered, it may be ensured that the bye-laws for transfer fee are as per the instructions of the circular. Further it is also communicated by the said circular that keeping in view of the provisions of Section 14(1) of the Act read with Rule 7 of The Gujarat Co-op. Societies Rules within a period of three months the proposal may be called for and the same may be sanctioned as per the instructions contained in the circular for the amendment in the bye-laws. If any society does not forward the proposal or refuses to amend the bye-laws, list of same may be prepared and be forwarded and so that the matter can be placed before the State Cooperative Council for appropriate decision for amendment in the bye-laws. It is also mentioned in the said circular that the Auditor of the societies may be instructed to verify with the officer-bearers that the societies are collecting transfer fees as per the Govt. instructions mentioned in this circular.

Registrar Transfer Fee Circular: 13-2-1991 : ₹ 500 to ₹ 50,000

On 13-2-1991 another circular has been issued by the Registrar, Co-op. Societies, Gujarat State wherein it has been mentioned that after circular, dated 11-1-1988 certain Co-op. Societies have made the amendment in the bye-laws whereas the majority of the Co-operative Housing Societies have not amended the bye-laws, Therefore, in this regard, representations made by the Co-operative Housing Societies were placed on 17-1-1991 before the State Co-operative Council and the said State Co-operative Council has, after considering all the details, resolved vide resolution No. 9 for making provision for uniform transfer fee. In the said circular it has been communicated that the uniform transfer fee should at the rate of 10% of the difference of amount received from shares and the amount invested with interest at the rate of 10% subject to minimum of ₹ 500/- and maximum of ₹ 50,000/-. Such amount should not be used for the administration of the society but should be credited in the development fund of the society and thereafter be used for the common facilities. It is further communicated that if any amount is fixed by the annual general body of the Managing Committee by lump sum the same shall not be treated as in operation. In the very circular, it has been also communicated that the bye-laws as per the resolution of the State Co-operative Council should be amended within a period of three months by the existing Co-op. Housing Societies keeping in view the provisions of Section 14(1) of the Act read with Rule 7 of the Rules, and the society be communicated with the same for forwarding the proposal. If specified societies fail to make the amendment, since the prior approval has been granted by the Co-operative Council, the amendment in the bye-laws be registered and the copy be forwarded as per Section 14(2) of the Act so as to bind all the members of the Co-op. Housing Societies as per the amended bye-laws. It is also mentioned that while registering the new Co-op. Housing Societies, it may be ensured that the bye-laws are registered as per the instructions of the circular and even the Auditors may be instructed to verify that the transfer fee is collected by the office bearers of the societies accordingly.

Reason for Changes in Transfer Fee

Initially the purpose of charging the transfer fee was to create a fund for maintaining the roads, drainage, lights etc. as in those days the corporation/municipality was not levying the betterment charges for the same. Therefore, the societies were charging 50% of the sale proceeds as transfer fees.

But, now the corporation/municipality provides these facilities and, therefore, there is no need to collect huge amounts from the members for reserve funds for using the same for the purpose of drainage, lights, roads etc. It is submitted that the societies are also separately charging maintenance charges for maintaining the common facilities of the societies from the members. It is further stated that it had come to notice that the huge amounts collected from the members are not utilised in the interest of the members and therefore after taking all the aspects into consideration the State Govt. came to conclusion that an uniform policy should be adopted in the matter of transfer fees charged by the co-operative housing societies.

It has been submitted that the aforesaid instructions bear out the policy of the State Govt. to make the charging of transfer fee by the co-operative housing societies uniform all over the State in the interest of members of the societies and the aforesaid decision has been taken after due consideration and deliberations and has reasonable nexus with the object sought to be achieved and hence the said decision is just, proper legal and is in the larger public interest.

High Court Judgement on Transfer Fee

Multiple societies approached the High Court against circular, which included Arun Co-op. Housing Society Ltd, Adarsh Co-op. Housing Society Ltd, Shreejeebaug Co-op. Housing Society Ltd, New Brahmakshatriya Co-op. Housing Society Ltd and Hindu Colony Co-op. Housing Society Ltd.

High Court considered below points before giving its judgement

Whether the impugned circular can be said to be a policy decision of the State Govt. or not?
What will be the effect of the said circular upon the Dist. Registrar exercising powers under Section 13 or 14 of the Act, as the case may be?
Whether the wholesome exercise of power by the Dist. Registrar on the basis of circular without examining the facts and circumstances of the concerned society can be sustained in the eye of law or not?

Summary

Registrar authority is a quasi judicial in nature and thus any instructions or the directions issued by the higher administrative authority can, at the most, be one of the considerations for exercising the discretion.
Section 14(2) of the Act it transpires that the power is to be exercised by the Registrar in each case separately, that too after giving opportunity of being heard and upon the facts and circumstances of the society.

Some of important Paragraphs from the Judgment

30. The aforesaid discussion clearly goes to show that the fact situation of each case is required to be considered and there cannot be any wholesome or mechanical exercise of power while passing the final order under Section 14(2) of the Act. It may be possible that in spite of the circular, the Registrar may find upon the fact situation of a particular society that it is not necessary or desirable to direct the amendment in the byelaws. For example, the society may be at a place where it has to bear all infrastructural expenses of maintaining common facilities like roads, lights etc. whereas the location or yardsticks in respect of the society which is within the corporation may be different. Suffice it to say that each case of the society is to be independently considered objectively by the Registrar after taking into consideration the details available on record. Prima facie, it appears that in all these matters, the Registrar has mechanically exercised the powers, that too without giving any opportunity of hearing to the concerned society and therefore such mechanical or general or wholesome exercise of power directing to register the amendment in the byelaws, in my view, cannot stand in the eye of law. On true construction of Section 14(2) of the Act it transpires that the power is to be exercised by the Registrar in each case separately, that too after giving opportunity of hearing and upon the facts and circumstances of such society. Therefore, the learned counsel for the petitioners are right in contending that there cannot be any wholesome exercise of power or rather mechanical exercise of power for the purpose of giving directions to register the amendment in the byelaws under Section 14(2) of the Act. However, the Registrar would be right in not registering the amendment in the byelaws which may not be in conformity with his tentative view under Section 14(1) of the Act.

32. In view of the above discussion, the orders passed by the District Registrar in each case in respect of the petitioner society under Section 14(2) of the Act for passing final orders of registering the amendment in the byelaws are hereby quashed and set aside.

35. However, so far as the present petitioners are concerned, the matter shall be considered afresh by the Registrar under Section 14(1) of the Act when the society concerned is called upon to amend the byelaws as per circular dated 13-2-1991 and thereafter if any of the petitioner-society declines or fails to carry out the amendment in the byelaws it would be open to the Registrar to consider the matter as per Section 14(2) of the Act keeping in view the aforesaid observations and discussion made in this judgment and to pass final orders in accordance with law.

Current Status of Transfer Fee of Housing Society