Demand for exorbitant transfer charge illegal
Most states don’t allow societies to charge beyond ~10,000 to ~25,000; seek legal remedy if subjected to high demands
Media professional Sushil Bahal bought a house a few years ago in a suburban Mumbai society for about ~30 lakh. While the resale flat cost him less than what a newly-constructed one would have, the society asked him to cough up ~1 lakh as transfer charge for membership. Bahal paid up to avoid friction.
Bahal isn’t alone. Many buyers are either unaware of the maximum amount a society can charge, or give in to such demands for reasons similar to Bahal’s.
States’ laws vary
The amount a society can legitimately levy varies from one state to another. Says Dinesh Kadam, partner, MZM Legal LLP, a Mumbai-based law firm: “The law in Maharashtra doesn’t permit a society to charge beyond ~25,000. Another ~500-650 can at most be charged for change of name in the share certificate.”
Ashoo Gupta, partner at law firm Shardul Amarchand Mangaldas, says under the Delhi Cooperative Societies Act, 2003, society membership carries a transfer fee of ~500, plus some amount chargeable as share money and admission fee. She adds the courts in the National Capital have deemed a payment of ~10,000, charged by some societies, as reasonable.
Anshul Gupta, managing partner, ANG Partners, Advocates & Solicitors, cites a January 2019 notification by the Registrar of Cooperative Societies, Delhi, that directs all residential cooperative societies not to charge any “entry fee” from persons taking possession of flats or plots.
West Bengal’s laws contain no specific provisions. Says Kolkatabased Soumya Banerjee, a partner at law firm AQUILAW: “There appears to be no provision under West Bengal laws to collect transfer fee upon the sale of a house in a registered society. Neither the model bye-laws under Section 20 of the 2006 West Bengal Co-operative Societies Act, 2006, nor the West Bengal Co-operative Society Rules, 2011 has any provision for such collection.”
He says according to the FAQS (frequently asked questions) issued by the Department of Cooperation, a housing society can’t charge transfer fee from its transferor-members. There was a provision earlier to collect 0.5 per cent of the sale value, but that was removed subsequently.
Both Banerjee and Gupta of Shardul Amarchand Mangaldas concur that nothing in the laws in Karnataka and Tamil Nadu permits a society to collect transfer charges.
Banerjee opines that any such collection in Kolkata, Bengaluru or Chennai may constitute a breach. Gupta, however, believes there is no bar on collection in Bengaluru and Chennai. “It is just that no specific clause prescribes any mechanism for calculation of transfer charges. A society may collect transfer charges if they are reasonable and if it has an explicit clause in its bye-laws,” she says.
How societies squeeze out more
Most withhold the no-objection certificate to the deal on some pretext or the other. Says Kadam: “Sometimes societies try to collect higher amounts as repair and maintenance charges. However, such charges must first be ratified by the society members. In any case, repairs and maintenance, sinking fund and other contributions remain outside the ambit of transfer charges. Attempts by the society to include them constitute a violation.”
Kadam says while an NOC isn’t needed in Maharashtra, nothing in the statutes prevents a society from raising conditions to issue one. But the non-existence of an NOC can’t be a reason for denying membership. However, the seller/transferor should pay all maintenance arrears before transferring his interest. Kadam says attempts by some societies to coerce the buyer into making a ‘voluntary donation’ are illegal too.
High charges frowned upon
Gupta of ANG Partners says the ‘council of board of directors’ of a society in Katraj (Pune) was dissolved in 2020 by the deputy district registrar for passing a general body resolution to levy a transfer charge of ~1.25 lakh.
In a case in Delhi, the judge frowned upon a charge of ~1 lakh and above levied by a society from new members and fixed the maximum amount payable at ~10,000 each.
Drawing upon this order and the provisions contained in the Bye-laws, Rules and Haryana Cooperative Societies Act, 1984, the Office of the Registrar, Cooperative Societies, Haryana, in Panchkula, warned societies in a circular against charging anything beyond ~10,000 towards transfer, saying such a practice was “sheer exploitation of the Act and needs corrective steps”.
What buyers can do
If the society demands a high amount as transfer charge, or asks for a donation, or any other amount falling outside the purview of legally permissible transfer charges, get it to put the demand in writing to bolster your case in court. Also get hold of any resolution the society may have passed calling for such payments. Take a receipt for any amount paid.
Finally, you have the option to move the competent authority in your city or state to prevent the society from overcharging or to recover any amount paid under duress. The law is on your side.