Transfer and Transmission of Flats
Multi-storeyed ownership flats in cities and big towns have come to stay because of dire necessity and manifold reasons including the ever growing need of an urban community, lack of land availability in urban areas, rise in cost of construction, restrictions under various rent legislations, security and other reasons. Being units in a large complex structure, the ownership and enjoyment of such flats is subject to conditions aimed at ensuring peaceful possession and enjoyment by other unit holders sharing common amenities and having undivided interest in land over which the building stands. Unlike an independent residential house, the management of common amenities and ownership of land in a multi-storeyed structure is with an independent entity and the rights and duties of flat owners are regulated by the respective statutes governing such independent entities.
2. The Maharashtra Ownership Flats (Regulations of the Promotion of Construction, Sale, Management and Transfer) Act, 1963 (MOFA), which regulates promotion of the construction, sale, management and transfer of flats taken on ownership basis in the State of Maharashtra, obligates the promoter to constitute a Co-operative Society or a company as soon as minimum prescribed number of flats are taken by the purchasers and to convey the title over the land and building to such Society/ Company. This is to ensure common management and collective ownership of land and property. The rights of individual flat purchaser vis-a-vis the Society/Company and inter se are governed by the Maharashtra Co-operative Societies Act in the case of constitution of Society and, by the Companies Act, in case a company is formed. A common feature, however, is that while the legal ownership of land and building vests in the entity so constituted, the right of enjoyment by way of the right of occupation remains with the member/share holder which right itself is a transferable right.
2.1 MOFA also provides for an alternative to the constitution of Co-operative Society/Company by permitting the flat purchasers to submit their respective apartments to the provisions of Maharashtra Apartment Ownership Act, 1970 (MAOA) and form a condominium by making a declaration u/s. 2 and executing Deeds of Apartment as per Sec. 5(2) of that Act. In case a condominium is formed each apartment owner remains entitled to the exclusive ownership and possession of his apartment in accordance with the declaration and the whole property is deemed to be owned in common by the apartment owners. They have undivided interest in the common areas and facilities. The condominium is responsible for the management of property and common areas and facilities.
3. Transfer of property under the Transfer of Property Act, 1882 has been defined to mean an act by which a living person conveys property, in present or in future, to one or more other living persons or, to himself and one or more other living persons and “to transfer property” is to perform such act. The Act clarifies that “living person” includes a company or association or body of individuals whether incorporated or not. “Transfer” being an act implies a conscious, voluntary action by a person in his lifetime to any other living person. Transmission is succession which involves passing of a right and obligation over a property to the heirs or others consequent upon the death of the owner of the flat. The succession is either by nomination or by testamentary disposition or intestate as per the provisions of applicable law. These are discussed in the later part of this article.
Flats in Co-operative Societies
4. In a Tenant Co-partnership Housing Society where the flats are got constructed by the Society and allotted to the members, the issue whether the flats are attachable and saleable in the execution of a decree against the concerned member was subject of consideration by the
Bombay High Court in Harshukh Jadhavji Joshi vs. Ramesh Himmatlal Shah [AIR 1974 Bom 87]. The question involved a decision about the nature of member’s interest in the flat. The Court held that the member is a tenant and the tenancy is subject to the regulations and the bye-laws. The member, therefore, has no saleable interest or disposing power in respect of the flat without the consent of the Society. The decision implied that the ownership of the building vests in the Society and not the members. In appeal, the Supreme Court, without disturbing the view that ownership vests in the Society, held the attachment and sale valid as the members have right of occupancy which right itself is a specie of the property. In other words, in a tenant co-partnership society when a member transfers his shares, he actually transfers the right of occupancy without a proprietary interest of any sort.
4.1 The right of occupancy is represented by the share certificate. Section 29(2) of the M.C.S. Act lays down that the member shall not transfer any share held by him or his interest in the capital or property unless (a) he held such share or interest for not less than one year and (b) the transfer is made to a member of the Society or to a person whose application for membership is accepted. The Supreme Court in the case of Ramesh Himmatlal (supra), therefore, held that it will be for the auction purchaser to first obtain membership of the Society and the Court, before confirmation of the sale, will insist upon his membership of the Society which, it would not be unreasonable to assume, will be granted by the Society in the ordinary course unless there are cogent and relevant reasons for not doing so.
4.2 Bye-laws lay down the procedure for transfer of shares and interest in the capital/property of the Society. Briefly stated the steps involved are –
- a 15 days notice by the member to the Society of intention to transfer;
- consideration of request in the meeting of the committee as to whether the member is prima facie eligible to transfer;
- issue of no-objection certificate, by the Society, if so required by transferor or the transferee;
- execution and registration of Sale Agreement;
- submission of prescribed documents, including application of membership by the proposed transferee and resignation of transferor, duly registered agreement and transfer fees of ₹ 500/-. Also payment of amount of premium at the rate fixed by General Body Meeting and a no-objection certificate as required under any law from any authority. A no-objection certificate is required particularly from the bankers and financiers if the transferor had taken any loan against the flat or if the transferor is a charitable trust.
4.3 In case the decision of the committee is not communicated within 3 months, the transfer application shall be deemed to have been accepted. On the transfer application having been accepted, the share certificate will be transferred to the transferee with necessary mutation of names therein. If the flat has been purchased by two brothers by contribution in equal proportion, only one will be admitted as member by the Society, the other one will remain the Associate Member only.
Flats in Companies
5. As stated before, in case the promoter decides to constitute a company, the provisions of Companies Act will be applicable and the relationship, rights and obligations of the flat purchasers, who will be allotted shares therein, will flow from the provisions of Companies Act read with the Memorandum and Articles of Association of the Company.
5.1 When a Company is formed in accordance with the provision of MOFA the land and building conveyed by the promoter belongs to the Company and the Articles of Association provides the nature of rights of the share holders over the individual flat(s) as well as the manner of identifying the particular flat(s) in relation to which such rights are to be exercised. Whatever rights are held by the share holder in respect of the particular identified flat(s), are transferable by transfer of shares which represent his rights and interest in the company’s property.
5.2 This mechanism, therefore, provides a convenient and speedy manner of transferring interest in the flats in a company. The smooth operation of the system of holding flats by subscribing to shares of a company involves a very carefully drafted Articles of Association balancing the interest of the flat purchaser in the asset of the Company and to ensure that the benefit as well as cost of any improvement etc., effected in the building by the Company is equitably contributed and borne by all the share holders.
5.3 It is in the realm of uncertainty as to whether with the amendment introduced in the definition of ‘transfer’ by the Finance Act, 2012 by insertion of an explanation making creation of an asset as a transfer, any transfer of shares in such a Company will tantamount to transfer of flat or interest in flat for tax purposes. This will have implications on computation of capital gains in application of the criteria for determining whether the asset is short-term or long-term and in application of provisions relating to transfer of immovable property.
Flats in Condominium
6. As stated earlier, the legal position about ownership of flats in condominium is different from the flats in Co-operative Society or the Company. Section 4 of the MAOA, 1970 provides that each apartment, together with its undivided interest in the common areas and facilities, appurtenant to such apartment, shall for all purposes constitute heritable and transferable immovable property within the meaning of any law for the time being in force in the State. Accordingly, an apartment owner may transfer his apartment and the percentage of undivided interest in the common areas and facilities by way of sale, mortgage, lease, gift, exchange or in any other manner whatsoever in the same manner, to the same extent and subject to the same rights privileges, obligations, liabilities etc., as any other immovable property or, make a bequest of the same under the laws applicable to the transfer and succession of immovable property. Section 5 of the Act provides that each apartment owner shall be entitled to the exclusive ownership and possession of the apartment.
6.1 Unlike the flats in Co-operative Society, flats in condominium are not the property of the condominium but remain the property of the apartment owner and can be transferred like any immovable property by execution and registration of a Deed of Apartment (Sale Deed). This will, however, be subject to the procedure and conditions laid in the bye-laws of the condominium.
6.2 If a flat is acquired in a condominium by two co-owners, the rights of both the co-owners are distinctly recognised and each co-owner is treated as the owner of his share in the apartment.
7. As stated, transmission is passing of property or rights therein on the death of the erstwhile owner. It takes place in accordance with the wishes of the deceased or, in the absence of any expression of such wish, in accordance with the provisions of succession laws applicable to him. The wish is expressed either by nominating a person to take over on death or by a written or oral Will or any other testamentary disposition.
8. Membership in Co-operative Society or Company can be conveniently transferred if the original owner of shares makes a nomination in favour of somebody else. The new model bye-laws in bye-law 33 clarifies that person acquiring membership by nomination shall hold the flat in trust till the legal heirs are brought on record and shall not have the right to ownership and shall not create third party interest or alienation in any way whatsoever.
8.1 The Model bye-laws of the housing society provide for nomination to be made by the member nominating a person or persons to whom the whole or part of the shares and/or interest of the member in the capital/property of the Society shall be transferred in the event of his death. On the death of the member the Society is required to transfer the share/interest to the nominee/nominees for which the nominee is required to apply for membership within 6 months of the death.
8.2 If the member dies without making a nomination or no nominee comes forward for transfer, the Society invites claims or objections by a public notice and then the committee decides the person who, in its opinion, is the legal heir of the deceased.
8.3 In case a flat is purchased by two persons contributing equally, only one, to be decided by them, can be the member of the Society, the other is admitted as ‘associate member’ only. As per the bye-laws, if there is a nomination, it is the nominee who succeeds as member and not the associate member. In a Company also the nominee takes precedence over all other, including the legal heirs. This was confirmed by Hon’ble Justice Roshan Dalvi in the Suit filed by Smt. Harsha Nitin Kokate against the Saraswat Bank Ltd. in Suit No. 1972 of 2008 wherein after the death of Nitin Kokate, the claim of the widow Harsha was rejected as there was nomination in favour of the nephew of the deceased. On a reading of Section 109A of the erstwhile Companies Act the Hon’ble Court held that the intent of the nomination is to vest the property in the shares which includes the ownership rights thereunder in the nominee upon nomination validity made as per the procedures prescribed.
8.4 The transmission by nomination in respect of shares in a co-operative Society is not a conclusive proof of ownership and can be challenged by other claimants in appropriate proceedings. It was held by the Hon’ble Bombay High Court in the case of Gopal Vishnu Ghatnekar vs. Madhukar Vishnu Ghatnekar reported in AIR 1982 Bom 482 that a nomination is permitted only in respect of the share and the property of the society. The society is concerned only with the shares held by a member and the land given by it to a member and not with the structure that a member may put up.
8.5 If the shares in a Company are held jointly by 2 persons, the surviving share holder generally takes over as the sole owner. The transmission of shares in a Company is governed by the Articles of Association of that Company. As per Regulation 25 of Table A of the erstwhile Companies Act, on the death of a member, (who is a joint holder), the surviving joint holder and in case the shares are held by a single holder, his legal representatives will be the only person recognised by the Company as having any title to his interest in the shares. Where shares are registered in joint names of two brothers and the Articles provide that the survivor will be recognised, the Company will be justified in refusing to transfer the shares on death of the first holder in favour of his wife even if she had procured the succession certificate in her favour.
9. Succession is testamentary if the deceased has executed a Will which is a legal declaration of the intention of the testator with regard to his properties to be carried into effect after his death. Will is sometimes accompanied by ‘Codicil’ which is an instrument made in relation to a Will explaining, altering or adding to its dispositions. It forms part of the Will. The Will is required to be probated if it is executed by Hindus or Parsis within the jurisdiction of Calcutta, Bombay and Madras High Courts. Probate is also necessary if the Will is executed by Hindus or Parsis outside these jurisdictions but it relates to the flat situated in these cities. As a general rule, it is not necessary to probate the Will of a Muslim. However, if the Muslim was married under the Special Marriage Act, the succession to his estate is governed by Indian Succession Act. Up to 26th May, 2002, Christians also were required to obtain probate of the Will but they have now been exempted from this requirement.
10. Intestate succession of the property of deceased takes place as per operation of law. There being no uniform law of succession, different communities are governed by different laws. Muslims for instance, are governed by Shariat law, Christian and Jews by Sections 31 to 49 of Indian Succession Act, 1924 and Parsis by Sections 50 to 56 of the Indian Succession Act, 1924. The Hindus are generally governed by the provisions of Hindu Succession Act, 1956 and some provisions of the Indian Succession Act, 1925.
10.1 Persons marrying under the Special Marriage Act, 1954 are, in the matter of succession, governed by those provisions of Indian Succession Act which are applicable to Christians, etc. Thus, if one Muslim and one Parsi get married under the Special Marriage Act, succession to their estate is governed by the provisions of Indian Succession Act, 1925. However, where both the spouses are Hindu, Buddhist, Sikh or Jain the succession to their estate will continue to be governed by Hindu Succession Act.
Safeguard in the Purchase Deed for smooth transmission
11. As a measure to obviate the necessity of making nomination or executing a Will, with attendant disputes and procedural hassles, an alternative course to facilitate transmission is to provide for the successor in the Purchase Deed itself at the time of acquiring the flat. Quite often the flat is acquired by two individuals, say husband and wife, with the intention that it should pass to the survivor. In such a case the flat may be purchased by the couple as joint tenants or joint owners with a clear stipulation that on the death of either of them, the survivor will become the sole owner of the flat. A possible way to do so is to define the purchaser in the recitals in such a way that the term ‘purchaser’ means and include the survivor. This will be an easier way to exclude other legal heirs to put their claim as heirs.
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