In a significant ruling impacting the governance of residential apartment complexes, the Karnataka High Court has cancelled the registration of the Sobha HRC Pristine Apartment Owners Co-operative Society in Jakkur, Bengaluru.
Justice M G Uma held that a cooperative society is not an appropriate mechanism for managing residential apartments and their common areas on behalf of flat owners, especially when a specific legal framework already exists for such purposes.
The court allowed a petition filed by Sobha Limited and quashed both the registration granted on September 6, 2023 by the Assistant Registrar of Cooperative Societies and the appellate order dated February 7, 2024 passed by the Deputy Registrar.
Court’s Key Observation on Cooperative Societies
The High Court observed that the cooperative society framework is not designed to manage apartment ownership structures involving undivided shares in common areas and facilities.
The court noted that under the Karnataka Co‑operative Societies Act 1959, the law does not empower members of such societies to hold and manage property in the manner required for residential apartment complexes.
Justice Uma also highlighted a significant concern that the management of a cooperative society can be superseded by the government in certain circumstances. In such cases, an administrator appointed by the Registrar—who may be an outsider—could take charge of the society.
According to the court, this possibility creates uncertainty and risk in the governance of apartment complexes, where management ideally should remain with the apartment owners themselves.
Issues with Shareholding Structure
Another important issue raised by the court was the shareholding restrictions under the cooperative society model.
The court pointed out that cooperative societies typically impose a restriction that no member can hold more than 5% of the share capital. However, this framework does not align with the nature of apartment ownership.
Justice Uma observed that the society’s bye-laws referred to shareholding but failed to clarify key aspects such as:
• What type of share is being referred to
• How shares would be distributed among apartment owners
• Who would determine the share entitlement of each owner
This lack of clarity made the cooperative model unsuitable for managing the apartment complex.
Voting Rights Conflict with Apartment Ownership Laws
The High Court also raised concerns regarding voting rights in cooperative societies.
Under the cooperative framework, restrictions such as one vote per member and a waiting period of one year before voting rights are granted were found to conflict with the principles of apartment ownership.
Justice Uma noted that under the Karnataka Apartment Ownership Act 1972 (KAOA), the structure is fundamentally different.
KAOA provides that:
• Owners may hold more than one apartment
• Voting rights follow a one apartment, one vote principle
• Voting rights are available immediately upon becoming a member
The court held that cooperative society voting restrictions could undermine the intent of the apartment ownership law designed specifically to protect the rights of apartment owners.
Court Highlights Role of RERA and Local Laws
The court also examined the options available under the Real Estate (Regulation and Development) Act 2016.
RERA allows developers and apartment owners to choose among several management structures, including forming:
• An association of apartment owners
• A society
• A cooperative society
• A federation under local laws
However, the court emphasized that in Karnataka, the Karnataka Apartment Ownership Act (KAOA) is the most appropriate and specialized law for managing apartment complexes and their common facilities.
Justice Uma stated that KAOA is a robust legal framework specifically enacted to govern maintenance, administration and management of apartment complexes, including the undivided interest in common areas.
Since KAOA already provides a comprehensive mechanism for these purposes, the court found no justification for forming a cooperative society for the Sobha HRC Pristine project.
Builder’s Arguments Before the Court
The petitioner, Sobha Limited, argued that the project was governed by the Karnataka Apartment Ownership Act, 1972 and the Karnataka Apartment Ownership Rules, 1974.
According to the company, the required Deed of Declaration and bye-laws had already been submitted to the authorities in June 2023 as mandated under Section 13 of KAOA.
The builder stated that the apartment owners’ association had been properly formed through the registered declaration and Form-B under the Act to manage maintenance, administration and common facilities.
Allegations of Misrepresentation in Society Registration
Sobha Limited alleged that an individual claiming to be the chief promoter approached the Assistant Registrar of Cooperative Societies with misleading and incomplete information.
The builder claimed that key facts were suppressed and the provisions of KAOA were ignored while obtaining the registration of the cooperative society under the Karnataka Cooperative Societies Act.
As a result, the builder argued that the registration certificate issued on September 6, 2023 was illegal and contrary to the objectives of the cooperative law.
Lack of Support from Majority Apartment Owners
The court was also informed that the apartment complex consists of 395 residential units, but only 30 to 40 owners had joined the cooperative society.
The builder argued that the remaining apartment owners had not given consent to become members of the cooperative society.
This raised serious questions about the legitimacy and representativeness of the society.
Court Cancels Registration
After examining the legal framework and arguments from both sides, the Karnataka High Court concluded that the registration of the cooperative society was improper.
The court therefore cancelled the society’s registration and quashed both the original registration order and the appellate order passed by the Deputy Registrar.
Significance of the Judgment
The ruling has important implications for apartment governance in Karnataka.
It reinforces that apartment complexes should preferably be managed under the Karnataka Apartment Ownership Act rather than the cooperative society framework, particularly where the structure of ownership involves undivided shares in common areas.
The decision also clarifies the relationship between RERA and local apartment ownership laws, emphasizing that specialized state legislation like KAOA provides the most suitable mechanism for managing residential apartment communities.
For developers and apartment owners, the judgment highlights the importance of choosing the correct legal structure for property management to avoid future disputes.