SCA/10543/2008 1/32 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 10543 of 2008 With SPECIAL CIVIL APPLICATION No. 10544 of 2008 To SPECIAL CIVIL APPLICATION No. 10546 of 2008 For Approval and Signature: HONOURABLE MR.JUSTICE JAYANT PATEL ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ========================================================= DEVAVRAT SHIVAPRASAD BHATT - Petitioner(s) Versus HOUSING URBAN DEVELOPMENT CORPORATION (HUDCO) & 4 - Respondent(s) ========================================================= Appearance : MR VIKRAM J THAKOR for Petitioner(s) : 1, MRS MAUNA M BHATT for Respondent(s) : 1, NOTICE SERVED BY DS for Respondent(s) : 2 - 4. UNSERVED-REFUSED (N) for Respondent(s) : 5, ========================================================= CORAM : HONOURABLE MR.JUSTICE JAYANT PATEL Date : 11/11/2008 COMMON ORAL JUDGMENT(CAV) SCA/10543/2008 2/32 JUDGMENT 1. In all the petitions, as common questions arise for consideration, they are being considered by this common judgement. 2. Heard Mr.Thakore for the petitioners in all the petitions, Mr.M.R.Bhatt, learned counsel for respondent No.1 Corporation in all the petitions, respondent No.2 is joined in capacity as the recovery officer of the Tribunal who has exercised the statutory power pursuant to the Judgement and Award of the Tribunal and therefore, no individual interest exist of him. Respondent No.3 is the custodian of respondent No.4 Society, who has remained personally present and has made submission as recorded hereinafter. The presence of respondent No.5 as such is not required since respondent No.5 floated the scheme at the initial stage and in any case, no Judgement and Award has been passed against respondent No.5 by the Tribunal. The matter is heard for final disposal. 3. The short facts of the case appears to be that the petitioners are the members of Viratnagar Cooperative Housing Society Ltd. (hereinafter referred to as “the Society”), respondent No.4 herein. The Society during the period when it was under the control of developer/builder/promoter, had taken loan from respondent No.1 Corporation (hereinafter referred to as “HUDCO”). It appears that as per the scheme of the society, all residential units were constructed during the period of 1993 and they were two types, viz. A- type and B-type. The cost of A-type was fixed at SCA/10543/2008 3/32 JUDGMENT Rs.65,000/-, whereas B-type was fixed at Rs.95,000/-. As per the petitioners, the scheme was floated by respondent No.5 viz. Kalikund Consultancy Services Pvt. Ltd. (hereinafter referred to as the “developer”) and the members concerned in B-type had to pay Rs.25,000/- and the remaining amount of loan was to be treated as of Rs.70,000/- payable by the concerned member in installment. As per the petitioners, they contributed Rs. 25,000/- and the remaining amount of about Rs.69,400/-/Rs.70,000/- was to be made available from the loan of HUDCO and to be paid by the petitioners in installment. The pertinent aspect is that the loan was to be procured by the Society from HUDCO and not by the petitioners concerned in their individual capacity. As per all the petitioners, they continued to make the payment of the installments and there was some default. The District Registrar exercised the power for appointment of custodian in place of the Managing Committee of the Society and at present, the custodian, respondent No.3 herein is holding the charge and the affairs of the Society. As the installments were not being paid in time by all the members simultaneously and the loan remained unpaid, respondent No.1 herein initiated proceedings before the Debt Recovery Tribunal, Ahmedabad, (DRT) for recovery of the amount of loan being OA No. 369/98. In the proceedings before the DRT, the concerned members of the society, whose details were available with HUDCO were joined as party defendants in the proceedings. However, the DRT, as per the Judgement dated 20.02.2006, did not pass the Award SCA/10543/2008 4/32 JUDGMENT against the members in their individual capacity, nor against the builder/developer, but passed the order against the Society, its Chairman and the Secretary for Rs.2,23,25,524.97 Ps. with the simple interest @ 12% p.a. from 30.12.1998 until realization. It has also been ordered that the applicant therein(HUDCO) shall be entitled to sell the mortgaged property for realization of the certified dues. It appears that based on the said Judgement and Order of the Tribunal, the recovery proceedings came to be initiated by HUDCO against the Society being Recovery Proceedings No.68/06 and the whole property of the Society was contemplated to be sold by public auction and for such purpose, a notice was also issued and at that stage, the petitioners have approached to this Court for challenging such action of issuing notice so far as they relate to their tenement in occupation, viz. tenement No.65, 88, 116, & 11 respectively of the concerned petitioners of the present group of petitions. It deserves to be recorded that the petitioners also prayed for the direction to the respondent No.2 Recovery Officer to accept the amount of Rs.34,971/-, 11,670/-, 36,140/- from the petitioners of Special Civil Application Nos.10543, 10544 and 10545 of 2008 respectively, whereas, in the case of petitioner of Special Civil Application No.10546/08, since the contention was that the full amount has been paid, the prayer is made to direct the Recovery Officer to issue No Due Certificate and to drop the proceedings against tenement No.11 of the petitioner. SCA/10543/2008 5/32 JUDGMENT 4. It may be recorded that pursuant to the order passed by this Court, the alleged amount as recoverable by the Society from the petitioners which is quantified in the petition by the petitioners have been deposited by the petitioners pending the petition. The custodian has also remained present in the Court pursuant to the notice issued by this Court and has declared before the Court that so far as the loan amount of the petitioners is concerned qua their particular tenement, as per the record of the Society, the same is fully paid. However, he stated that as all the members of the Society did not pay their respective installments well in time and only some made the payment, such amount though credited by the Society with the respondent Corporation, since it was not the full amount, the respondent No.1 Corporation has credited the said amount towards the outstanding installment and as a result thereof, the amount though paid already by the petitioners concerned, did not create a situation of nil amount since the loan with the respondent No.1 Corporation was not qua the individual tenement holder. He therefore submitted that though no amount is recoverable by the Society towards outstanding installments of the loan from the concerned petitioners (after the amount deposited pursuant to the interim order), the respondent No.1 Corporation continues to assert the right over all the properties of the Society including the tenements of the petitioners for recovery of the amount pursuant to the Judgement and Order of the Tribunal and therefore, No Due Certificate from the respondent No.1 Corporation is not received, SCA/10543/2008 6/32 JUDGMENT otherwise the Society has not to recover the amount from the concerned petitioners in view of the full payment made of their respective loan qua that particular tenement of the concerned petitioners. 5. Whereas on behalf of the respondent No.1 Corporation, the contention is that the loan was given by the respondent No.1 Corporation to the Society and as per the various terms and conditions of the loan agreement, the Society had agreed to abide by the observance of the conditions and it included the prohibition of transfer or alienation of any right and the payment of the loan by way of installment in a consolidated manner. It was submitted that if some members of the Society have paid the installment to the Society, and in turn deposited with the respondent No.1 Corporation, but if some of the remaining members have not paid the installments, the same is not a full compliance to the conditions of the loan agreement and as per the loan agreement, since the respondent No.1 Corporation is entitled to appropriate the payment first towards the outstanding interest, the liability of the Society as per the loan agreement would continue to subsist irrespective of the payment made by its members inter se and if the full amount is not paid by the Society, may be on account of non- payment of the concerned installment by their respective members, the respondent No.1 Corporation will be within its rights to recover the outstanding dues by way of execution of the Judgment and Award of the Tribunal, particularly from the whole area of the SCA/10543/2008 7/32 JUDGMENT property held by the Society. It was submitted that if the loan is treated as bifurcated amongst the individual members of the Society inter se, the consequence would arise that the respondent No.1 Corporation may not be in a position to sell the whole property of the society and only certain tenements may be available for disposal, which would be neither feasible nor would fetch the appropriate price of the property and consequently, recovery as per the Judgement and Award of the Tribunal would be frustrated. It was submitted that in view of the loan agreement, there is no individual right with the concerned member of the Society who has been allotted tenement since the property vest to the Society and the members concerned cannot individually resist to the execution or recovery of the amount on the ground that the concerned member has already paid the full amount of the tenement concerned allotted to him and therefore, the execution/recovery cannot be effected from the tenement which is allotted to him. It has been submitted that if such bifurcation is read, the whole Judgement and Award of the Tribunal would be redundant and consequently, the respondent No.1 Corporation would not be in a position to recover the amount and therefore, as the basis of the petition is not acceptable, the petitions may be dismissed for stalling the recovery proceedings before the recovery officer of the Tribunal. 6. It is an admitted position that the Judgement and the SCA/10543/2008 8/32 JUDGMENT Award has been passed by the Tribunal for recovery of Rs.2,23,25,524.97 Ps. with interest @ 12% p.a. from 30.12.1998 until realization. It is also true that as per the Judgement and the Award of the Tribunal, it is observed that the applicant shall be entitled to sell the mortgaged property for realization of the certified dues. It is also true that the application/Suit of the Corporation against remaining defendants is dismissed with costs. So far as the other defendants viz. other than the Society, its Chairman and Secretaries are concerned, it has been observed by the Tribunal as under: “Now, the question whether the claim should be allowed against all the defendants. Evidence on record reveals that the applicant had sanctioned and disbursed the loan to the defendant No.1- Society. Defendants No.2 and 3 had executed documents, in official capacity, on behalf of defendant No.1. Defendant Nos. 1 to 3 would be liable to discharge the debt. As far as defendant No.4 is concerned, he is promoter/developer. There is no privity of contract between him and the applicant. Considering the scope of the application under Section 19 of the Act, I am skeptical about fastening liability on defendant No.4. As far as remaining defendants are concerned, I fail to understand why they came to be impleaded in this proceeding. It appears that they are tenement/flat owners. Defendant Nos. 1 to 3 might have allotted the tenements/flat to the above persons. By no stretch of imagination, they are either necessary or proper parties. If the Tribunal is called upon to adjudicate the rights of the occupants of the tenements/flats, the very object of the Act would be defeated. I am, therefore, of the opinion that no Recovery Certificate can be issued against occupants” Thereafter, at para 13, in the concluding observations, SCA/10543/2008 9/32 JUDGMENT it has been observed inter alia as under: “The application is required to be dismissed against the remaining defendants” 7. Under these circumstances, it can be said that the Judgement and the Award has been passed by the Tribunal against the Society, its Chairman and Secretary for the whole amount and the outstanding loan amount is made recoverable by sale of the mortgaged property. But the pertinent aspect is that the amount ordered as recoverable comprises of various tenements/flats held by various members including the petitioners herein and as per the provisions of the Gujarat Cooperative Societies Act (‘the Act’ for short), the Society though technically is the owner of the property, but as per the provisions of the Act read with Rules and bylaws, the allotment of the plot/tenement/flat is made by the Society to its various members for their exclusive rights as owner/tenant/occupier in such immovable property. Therefore, the allotee members of the tenement are neither third party nor transferor nor can be said as holding interest adverse to the respondent Corporation, but all such member allottee are having interest in the property of the Society as per the Transfer of Properties Act, for any facilities in absolute qua the tenement/flat already allotted to them so far as it relates to right to occupy and enjoy the property, may be subject to the ownership of the Society. 8. The rights of the member allottee in any housing cooperative societies can broadly be classified into two SCA/10543/2008 10/32 JUDGMENT categories; first is as tenement- co-partnership Society and another is tenement-ownership Society. The Division Bench of this Court had an occasion to consider such issue for the rights of the member allottee in a Cooperative Housing Society while examining the question of conveyance and question of transfer of such rights of such member alottee. It was inter alia observed by the Division Bench in the said Judgement reported in AIR 1980 Gujarat 62, in the case of “Mulshanker Kunverji Gor and Ors. vs. Juvansinhji Shivubha Jadeja”, at para 5 as under: “We have no doubt in our minds that Section 42 of the Gujarat Co-operative Societies Act, 1961, inter alia, exempts from compulsory registration instruments relating to shares in a society notwithstanding that the assets of such society consist wholly or in part of immovable property. Shares in a co-operative housing society have a necessary relation to the immovable properties which the society constructs and which are allotted by the society to its members. It is necessary, therefore, to find out what an instrument of transfer relating to "shares in a society" conveys to the transferee. It has been argued that there are two types of co-operative housing societies. One type is called "tenant co-partnership society". Another is called "tenant ownership society". A "tenant co- partnership society" is a society where the land is owned by the society and upon which houses are constructed by the society for the benefit of its members. It is the co-operative venture of all the members of a co-operative housing society which brings into being the houses which the members in their turn may occupy. They are constructed out of its own assets and out of the moneys borrowed by it. The debt discharged by the society by collecting periodical contributions from them In specified amounts. In such a society it is the society in which the land and the buildings in the eye of law vest. SCA/10543/2008 11/32 JUDGMENT The learned District Judge has on facts found in the instant case that the society in question is a tenant co-partnership society. Therefore, when a member of such a co-operative housing society transfers his shares to another with the approval of the society, he not only transfers the shares but also, as a necessary incident thereof, transfers his interest in the immovable property which has been allotted to him. What Section 42, clause (a), therefore, exempts from the rule of compulsory registration is an instrument relating to "shares in a society" which carry with them, necessary incident, member's interest in the immovable property occupied by him. We say so because both the land on which the house has been constructed by the society and the house itself vest in the society in the eye of law. It is therefore difficult to uphold the argument raised by Miss Shah that with the transfer of "shares in such a society", what are transferred are merely the shares in the society and not the right to occupy the house which necessarily flows from the allotment of the houses by the society to its members. In case of a "tenant co-partnership society", "shares in a society" which a member holds appear to us to be inseverable from his interest in the immovable property which has been allotted to him for his occupation and enjoyment. Now, it is necessary for us to make it clear that the expression "shares in a society" used in clause (a) of Section 42 connotes shares in the assets of the society which include the immovable properties of the society which the society has allotted to its members for enjoyment and occupation. Looking at it from another angle, we find that since the immovable property - the land and the house - vest in the society, no title is transferred to the purchaser with the transfer of shares. Title continues to remain with the society. Right to occupy and enjoy it is transferred by the transfer of his shares by one member to another. This expression does and cannot therefore embrace within its sweep any personal interest, independent of the society, which a member may have in the immovable property which he occupies. Such a situation arises in case of "a tenant ownership society". It has been argued that in "a tenant ownership society". the land belongs to the society SCA/10543/2008 12/32 JUDGMENT and the superstructure thereupon is constructed, not by the society out of its funds but, by the member out of his personal funds. In such a case, when by an instrument a member transfers his "shares in the society" to another person, he not only transfers his shares but also his right to occupy and enjoy the land belonging to the society and the super-structure which he has constructed out of his personal funds and which belongs to him personally. The transfer of such a superstructure cannot be effected except under a registered conveyance because clause (a) of Section 42 does not exempt from compulsory registration the transfer of a member's personal immovable property - not belonging to the society - to another. It is therefore clear that in case of "a tenant co- partnership society", the transfer of shares necessarily carries with it the transfer of member's interest in the immovable property allotted to him and that such a transfer can be brought about without a registered instrument because clause (a) of Section 42 carves out an exception to the rule enunciated in Sub-Section (1) of Section 17 of the Registration Act, 1908. In case of "a tenant ownership society", shares carrying with it, as necessary incident, the member's interest in the land which belongs to the society can be transferred without a registered instrument but the super- structure cannot be transferred except under a registered instrument contemplated by Sub-S. (1) of Sec. 17 of the Registration Act, 1908 read with Sec. 54 of the Transfer of Property Act because the expression "shares in a society" used in Section 42 (a) of the Gujarat Co-operative Societies Act, 1961 casts its net upon land which belongs to the society but does not reach the super-structure which exclusively belongs to the member and which has nothing to do with the member's. "shares in a society." (Emphasis supplied) 9. The Apex Court had an occasion to consider the question as to whether a flat in a Tenant Cooperative Housing Society under the Maharashtra Cooperative Housing Societies Act, (which is more or less at par SCA/10543/2008 13/32 JUDGMENT with Gujarat Cooperative Societies Act) is liable to attachment and sale in execution of decree against the member in whose favour or in whose benefit the same has been allotted by the Society or not. In the said decision in the case of Ramesh Himmatlal Shah Vs. Harsukh Jadhavji Joshi reported at AIR 1975 SC 1470, it was inter alia observed by the Apex Court at paragraph Nos. 17 & 18 as under: “17. .... There is no absolute prohibition in the Act or in the Rules or in the Bye laws against transfer of interest of a member in the property belonging to the Society. The only transfer which is void under the Act is one made in contravention of sub-section (2) of Section 47 (see Section 47 (3)). We have not been able to find any other provision anywhere" to the same effect. In the scheme of the provisions a dichotomy is seen between share or interest in the capital and interest in property of the Society. 18. This right or interest to occupy is a species of property. We have to consider whether this right to the particular property is attachable and saleable in execution of the decree against the judgment-debtor. It is contended by Mr. Chatterjee, amicus curiae, that Section 31 of the Act completely bars attachment and sale of the said property in execution of the decree. We have already pointed out the difference in language between Section 29 and Section 31 and also made reference to S. 47 (1) (b) in that connection. There is nothing in the language of Section 31 to indicate that the right to occupation which is the right to be sold in auction is not attachable in execution of the decree. There is nothing in Section 31 to even remotely include a prohibition against SCA/10543/2008 14/32 JUDGMENT attachment or sale of the aforesaid right to occupation of the flat. Once Section 31 is out of the way, we are left with Section 29 wherein we do not find even a provision at prior consent for transfer of share or interest in such property. The only restrictions under S. 29 (2) are that the member may not transfer his interest in the property prior to one year and the transfer is made to an existing member of the Society or to a person whose application for membership has been accepted by the Society. It is true that bye-law 71D says that a member to whom a tenement is allotted shall not assign or underlet, vacate or part with the possession of the tenement or any part thereof without the previous consent in writing of the Managing Committee, but there is nothing to show that contravention of this bye-law makes the assignment void under the Act unlike in the case of a transfer being void under Section 47 (3). There is no impediment to ratification of the assignment by the Committee particularly in view of the legal position arising out of the conjoint, effect of Section 29, Rule 24 and bye-law 9. Section 29 read with R. 24 shows that there is no prohibition as such against transfer of a share to a member or even to a non member if he consents to be a member and makes an application for membership by purchasing five shares as provided under bye-law 9. Reading the aforesaid provisions there is no reason to think that there is any question of refusal of membership of the Society to a non-member if he is qualified otherwise and makes an appropriate application in which case the transfer of shares will be operative and thus the assignment of the right to occupation will hold good. Further it is significant that under Section 146 (a) of the Act, contravention of sub-sec.(2) of Section 47 is punishable under Section 147 of