Supreme Court: Person who avails any banking service is ‘consumer’ under Consumer Protection Act

By Fiona Mehta

 

In the case of Arun Bhatiya vs HDFC Bank and ors, the Supreme Court has reaffirmed that a person who avails any banking service falls within the scope of the definition of ‘consumer’ under the Consumer Protection Act, and can take recourse to legal remedies provided in the Act.
A Bench of Justices DY Chandrachud and AS Bopanna ruled that the State Commission was wrong in declining to hear the case of a person on merits merely because the dispute involved the father of the person as well.
Facts of the case:
In this case, the complainant and his father had opened a joint FD in HDFC Bank. An amount of 75 Lakhs had been deposited jointly in the name of the complainant and his father for a period of 145 days. The FD amount was credited to the account of the complainant’s father on the request made by the father on 31 May 2016.
In his complaint before the State Consumer Disputes Redressal Commission at Lucknow, the complainant contended that upon the maturity of the FD, both the complainant and his father had jointly issued a direction to the bank for renewing it for a period of ten days and despite this, the amount was credited solely into the account of the father.

The SCDRC held that the dispute was primarily between the complainant and his father on the issue of the FD amount deposited, and therefore only a civil court was competent to deal with such a dispute. The NCDRC dismissed the appeal as withdrawn. Later, the complainant filed a review application stating on affidavit that he had not furnished instructions to his counsel to apply for withdrawal of the appeal. But the same was not entertained.

Decision:

The court noted that the essence of the complaint is that there was a deficiency on the part of the respondent bank in proceeding to credit the proceeds of a joint FD exclusively to the account of his father.
“The SCDRC ought to have determined whether the complaint related to deficiency of service as defined under the 1986 Act. The SCDRC had no justification to relegate the appellant to pursue his claim before a civil court. The appellant did not, in the proceedings before the SCDRC, raise any claim against his father. Therefore, the SCDRC was wrong in deducing that there was a dispute between the appellant and his father. Assuming that there was a dispute between the appellant and his father, that was not the subject matter of the consumer complaint. The complaint that there was a deficiency of service was against the bank.”, it added.

Supreme Court order: NCLT cannot coerce allottees into settlements

By Fiona Mehta

 

The Hon’ble Supreme Court’s recent decision in E. S. Krishnamurthy & Others v. Bharath Hi Tech Builders Pvt. Ltd. defined and limited the jurisdiction of the National Company Law Tribunal (“NCLT”) and the National Company Law Appellate Tribunal (“NCLAT”) as well as the courses of action available to these authorities under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”).

 

Facts of the case: A agreement was made for the M/s Bharath Hi Tech Builders Pvt. Ltd. (Respondent) to raise money for the development of some agricultural property. The Respondent was required to transmit and register the plots to the allottees within the specified timeframe after a Facility Agent of the Respondent was designated to market the plots to potential buyers (Allottees) in exchange for the payment of a lump sum price.

The Respondent took out a term loan after failing to gather the necessary funds. The Respondent also asked the allottees for extensions on when they needed to transmit the plot, promising to pay back the full amount plus interest if they didn’t succeed. The Respondent requested additional extensions and provided additional assurances in response to its subsequent inability to fulfil its responsibilities.

The Respondent’s failure to make reparation, however, prompted the Appellants to file a petition before the NCLT, Bengaluru Bench under Section 7 of the IBC. The NCLT dismissed the petition on the grounds that the Respondent was making sincere attempts to seek a settlement, had already made settlements with some of the petitioners, and was still in the process of obtaining settlements with more petitioners. It gave the Respondent a deadline by which to reach a settlement with the additional claimants.

This NCLT order was appealed to the NCLAT, which dismissed the appeal on the grounds that the NCLT had already dismissed the petition at the pre-admission stage because a settlement process was in progress and the rights of all the appellants were protected because the NCLT had set a deadline for settlement and granted leave to appeal to the NCLT if the claims were not resolved.

Aggrieved by this order of the NCLAT, the Appellants filed a Civil Appeal before the Supreme Court under Section 62 of the IBC.

Court findings: When ruling that the NCLT had violated Section 7(5) of the IBC by acting outside of its authority, the Court noted that the NCLT has only two options when filing a petition under Section 7. It must accept the application in accordance with Section 7(5)’s Clause (a) or reject it in accordance with Clause (b). The Act does not give the NCLT any other options.

The NCLT may admit the application when:

  1. A default has occurred;
  2. The application under Section 7(2) is complete; and
  3. No disciplinary proceeding is pending against the proposed resolution professional.

In the event that any of the above conditions are not met, the NCLT may reject the application.

The Supreme Court has limited the NCLT’s authority at that stage and its possibilities by strictly interpreting Section 7 to limit the NCLT’s jurisdiction there. This has increased predictability, certainty, and clarity by limiting the NCLT’s options and setting boundaries on its power.

The Supreme Court correctly viewed that the NCLT may only support settlements in a period when they are fashionable and preferred to litigation. Settlements may be a quick and effective way to resolve disputes, but they may also aggravate one or more parties. As a result, they cannot be forced onto a party in order to achieve the goal of the corporate debtor’s rehabilitation in a timely manner.

“Regulator has to act fairly”: Supreme Court orders SEBI to provide Reliance with complaint-filing documents

By Fiona Mehta

 

The Securities and Exchange Board of India (SEBI), a regulator, has a responsibility to act fairly when conducting proceedings or taking any action against the parties, the Supreme Court ruled in a decision issued on Friday, granting Reliance Industries Limited (RIL) access to certain documents that the SEBI had used as the basis for a criminal complaint against the company.

A bench led by the Chief Justice of India stated in the verdict that “it is expected that parties in such processes are transparent, especially for Regulators like SEBI, who are supposed to give all the papers, which are important for comprehending the issue” (Reliance Industries Ltd versus Securities and Exchange Board of India).

 

Facts of the case: In the case of Reliance Industries Ltd versus Securities and Exchange Board of India (2022), the matter dates back to a number of share transactions involving RIL in 1994, when the company’s proprietors and related firms received roughly 12 crore equity shares “fraudulently” distributed. The agency launched an investigation into the suspected violations in response to a complaint made by S Gurmurthy in 2002. Both Justice BN Srikrishna, a former Supreme Court justice, and YH Malegam, a chartered accountant, were consulted by the SEBI for their opinions.

The RIL asked for the release of these opinions and any associated internal paperwork. RIL filed a writ case with the Bombay High Court after SEBI rejected the proposal, but it was denied in February 2019.

In 2020, the SEBI filed a criminal charge against RIL before the Special Judge in Mumbai, citing violations of the SEBI Act and Regulations. The Court dismissed the complaint because it was over its deadline. Before the Bombay High Court, the regulator filed a revision appeal contesting the dismissal of the complaint. RIL submitted an interlocutory application in SEBI’s revision case asking for the documents to be made public. The High Court postponed RIL’s application on March 28, 2022, stating that it could only be taken into consideration in conjunction with the main revision petition. This prompted the Supreme Court to receive the extraordinary leave petition.

 

Supreme Court’s Judgement: The Supreme Court made the decision to thoroughly consider the question after noting that it touched upon “essential issues of criminal jurisprudence.” The bench, which included Chief Justice NV Ramana and Justices JK Maheshwari and Hima Kohli, emphasised the regulator’s need to act equally. The Securities and Exchange Board of India (SEBI) has been ordered by the Supreme Court to provide Reliance Industries Ltd. with access to the papers that the SEBI used to support its criminal complaint against RIL for suspected irregularities in a share transaction in 1994.

Regulators have a responsibility to conduct proceedings or take any other action against the parties fairly. As a regulator, SEBI has this responsibility. Being a quasi-judicial agency, SEBI is required by its charter to conduct itself honestly and in compliance with the laws and regulations. The responsibility of a regulator is to handle complaints and parties fairly, not to flout the law in order to secure convictions. The Regulators have a moral obligation to act fairly, which manifests itself in their treatment of the public with respect and cooperation.

Regulators should refrain from bringing pointless criminal charges against major firms. – The initiation of criminal proceedings in commercial transactions should be done with great caution, and the courts should serve as the doorkeepers for such proceedings. Frivolous criminal charges brought against major firms would have long-term negative economic effects for the nation. As a result, the Regulator must exercise caution when taking such action and carefully consider all relevant factors.

Principles of natural justice – SEBI’s obligation to behave fairly is closely linked to the principles of natural justice, which state that a party cannot be found guilty without having had a fair chance to present their case.

How a recent Supreme Court ruling extends the legal rights of a daughter to her father’s property

By Fiona Mehta

 

In the matter of Arunachala Gounder, the Supreme Court Judgment dated 20th January 2022 has whipped up a lot of interest and intrigue – more so among the general population than the legal community. The Judgment delivered by a Bench of Hon’ble Justice Abdul Nazeer and Hon’ble Justice Krishna Murari delves into the realms of a daughter’s rights on her father’s self-acquired property or his share in partitioned coparcenary/family property.

 

What was the issue?

The most recent Supreme Court decision addresses a daughter’s legal entitlement to inherit her father’s “self-acquired” property in the absence of any other legal successor with inheritable rights. This implies the Hon’ble Court decided whether the property’s lawful heir would be the daughter by ‘inheritance’ or her father’s brother’s son through survivorship. One important fact is that the Judgment deals with a scenario before the commencement of the Hindu Succession Act, 1956.

 

What the Supreme Court has said:

The Honorable Court stated unequivocally that a self-acquired property or a share received in a partition of a coparcenary property by a Hindu male who died intestate (without leaving behind a legally valid Will) will devolve (i.e. be transferred) by “inheritance” rather than “survivorship,” implying that the daughter of a Hindu male will be entitled to such property before any other collaterals.

In the present case – The Hindu male died intestate. He was living in a joint family. However, the property in question was his ‘self-acquired’ property and therefore, his sole surviving daughter had all the rights to inherit his property and not his brother’s son (through survivorship).

 

Who inherits the property after the death of the daughter of the Hindu male who died intestate?

The Hindu Succession Act of 1956 solidified inheritance among all Hindus (irrespective of school of philosophy). A Hindu female’s property (including property gained by inheritance) is her absolute property, according to Section 14 of the aforementioned Act. As a result, the misunderstanding caused by some old conventions that a Hindu girl could only enjoy the inherited property throughout her ‘lifetime’ was also dispelled.

The succession of such properties (owned by Hindu females) in absence of a Will/testament is governed by Section 15 of The Hindu Succession Act, 1956 and in terms of the ‘order of succession’ as provided for in Section 16 of the same Act.

 

Legal heirs of Hindu female who dies without a valid will:

When a Hindu female dies intestate, her self-acquired property will devolve in terms of Section 15(1), firstly by her class-I legal heirs viz. the children and the husband, if alive.

However, when a Hindu female dies intestate leaving behind inherited property, then as per Section 15 (2), if she dies issueless viz. without any children, then the property inherited from her father or mother will go to the heirs of her father. Similarly, property inherited from her husband or father-in-law will go to the heirs of the husband. The Supreme Court in the present Judgment has affirmed the sanctity of this provision by stating that the intent of the Legislature in carving out the ex ..

 

Supreme Court Decision:

The recent Supreme Court pronouncement clarifies the inheritance laws as applicable to a Hindu female as follows:

(a) The Hindu daughter inherits the self-acquired property of her father

(b) The rule of ‘inheritance’ prevails and not the rule of ‘survivorship’.

(c) The Hindu female has an ‘absolute’ right in such property (in terms of the Hindu Succession Act, 1956) and not a limited ‘lifetime’ interest.

(d) Such property can revert to the ‘source’ only when the Hindu female dies without leaving behind a child.

(e) In absence of a Will/Testament, such property devolves upon her legal heirs as per the terms of Section 15 and 16 of The Hindu Succession Act, 1956.

 

The Hon’ble Court has answered all the unanswered questions and redefined the law. While there could be a minuscule percentage of such cases, they would not drag on for many years, because the law has been clearly laid, leaving no room for any conundrum.

Supreme Court allows the settlement plan of Promoter at Liquidation stage

By Fiona Mehta

 

In the matter of Vallal RCK Vs. M/s Siva Industries and Holdings Limited and Ors. [Civil Appeal Nos. 1811-1812 of 2022] under the Supreme Court of India on 3th June 2022, it was held that when 90% or more of the creditors decide that allowing the promoter of the Corporate Debtor to file a Settlement Plan and withdrawing the Corporate Insolvency Resolution Process as per Section 12A of the Insolvency and Bankruptcy Code, 2016, will be in the best interests of all stakeholders, the adjudicating authority (NCLT) or the appellate authority (NCLAT) cannot sit in appeal over such commercial wisdom of the Committee of Creditors.

This Judgement will now change legality of Section 12 of the Insolvency ad Bankruptcy Code, 2016.

 

Facts:

IDBI Bank Limited had filed an application under Section 7 of the IBC seeking initiation of Corporate Insolvency Resolution Process (CIRP) against M/s Siva Industries and Holdings Limited (Corporate Debtor). The NCLT accepted the application on July 4, 2019, and the CIRP process began. The Resolution Professional (RP) presented a resolution plan to the COC, but it was not adopted since it did not earn the required 66 percent of votes. The RP applied to start the liquidation process. Mr. Vallal Rck, the Corporate Debtor’s promoter, then submitted a settlement application under Section 60(5) of the IBC, proposing a one-time settlement plan.

The learned NCLT, in an order dated August 12, 2021, dismissed the application for withdrawal of CIRP and adoption of the Settlement Plan, stating that the said Settlement Plan was not a settlement simpliciter under Section 12A of the IBC but a “Business Restructuring Plan.” The learned NCLT began the liquidation process of the Corporate Debtor in IA/837/IB/2020 as well, pursuant to another ruling of even date. As a result of this, the appellant filed two appeals with the learned NCLAT.

 

Supreme Court Judgement:

The Court noted that Section 12A, which deals with withdrawal of petitions admitted under Sections 7, 9, or 10, was included by the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018, following significant consideration by the Insolvency Law Committee. The Committee had suggested that a departure be permitted if the COC supports it with a 90% vote share.

The Court noted that the Committee issued the proposal because the IBC’s aim, according to the Committee, is to prevent individual enforcement and settlement actions. In light of this, it was suggested that a settlement may be negotiated between all creditors and the debtor in order for a withdrawal to be approved. Regulation 30A was added to the Regulations, 2016 as a result of the addition of Section 12A to the IBC, which lays out the detailed procedure for withdrawing an application.

The legality of Section 12A was also confirmed in Swiss Ribbons Private Limited and Anr. v. Union of India and Ors. Furthermore, a slew of Apex Court decisions have already concluded that NCLT and NCLAT have no authority to intervene with COC’s business judgement.

The Code 2016’s major goal is to resolve corporate debtor issues through a reorganization and resolution procedure while keeping the corporate debtor as a going business. Liquidation of a corporate debtor is the last resort when all other options have failed and there is no other option than liquidation. When a better plan for the Corporate Debtor’s business exists and has been accepted by a majority of the Committee of Creditors, it is the duty of the Adjudicating Authority or the Appellate Authority not to interfere with the COC’s decision.

Supreme Court: Homebuyers can move RERA Authority against Bank’s Recovery Actions

RERABy Fiona Mehta

 

The Supreme Court of India, vide its order dated 14th February, 2022, in the matter of Union Bank of India vs. Rajasthan Real Estate Regulatory Authority & Ors. while upholding the order dated 14th December 2021 of the Hon’ble High Court of Rajasthan, inter-alia held that the RERA Authority.

The RERA Authority read with the rules and regulations made thereunder (“RERA Act”) has the jurisdiction to entertain a complaint filed by an aggrieved person against the bank as a secured creditor in the event the bank takes recourse to any of the provisions contained in Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”) provided that the proceedings filed before the RERA Authority have been initiated by the homer buyers to protect their rights.

 

Background: In a recent writ petition, the division bench of the Hon’ble Rajasthan High Court issued a landmark decision protecting home-buyers’ rights and interests by ruling that secured creditors such as financial institutions and banks fall under the jurisdiction of the RERA Authority, and that home-buyers can file a complaint with the RERA against such secured creditors.

The High Court further held that:

(i) The Real Estate Regulatory Act, 2016 (“RERA Act”) operates retrospectively only in the cases where the security interest is created because of fraud or collusion between banks/financial institutions and developers;

(ii) The RERA Act would prevail over the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”) in case of a conflict between the two; and

(iii) The RERA has jurisdiction to entertain complaints against secured creditors like banks/financial institutions once they take recourse under Section 13(4) of the SARFAESI Act to enforce their security interest. The High Court judgment has already been discussed in our previous update which can be accessed.

 

Supreme Court Judgement: The Hon’ble Supreme Court, in its order dated 14th February 2022, resolved one of the outstanding legal questions by concluding that Banking Institutions can be made parties before the RERA Authority and are subject to the RERA Authority’s jurisdiction.

While upholding the Rajasthan RERA authority’s landmark decision, the Hon’ble High Court further ruled that the RERA act will take precedence over the Bank’s recovery actions under the SARFAESI Act. This order of the Hon’ble Supreme Court established that the rights of Allottees are fundamental, and their interests are prioritized over the rights of banking institutions.

In light of the aforementioned judgments, a bank or financial institution taking recourse under Section 13(4) of the SARFAESI Act in response to a developer’s default in payments would be deemed to be a promoter in relation to the secured asset for the purposes of the RERA Act, allowing Allottees to file RERA Act complaints against such bank or financial institution.

SC awards builder 7 days’ jail and fine for contempt of court

By Fiona Mehta

 

In the matter of Urban Infrastructure Real Estate Fund v. Dharmesh S. Jain and another, the Supreme Court sentenced Respondent 1- real estate developer Dharmesh Jain to 7 days imprisonment at civil prison in Byculla on May 14, 2022 under the Contempt of Courts Act with a fine of Rs. 5 lakh to be deposed before the Bombay High Court in 2 weeks.

Vide detailed judgment and order dated March 10, 2022 passed in the aforesaid Contempt Petition, this Court held that Dharmesh Jain, for the contempt of this Court for wilful disobedience of the order dated October 28, 2021 passed by this Court in Miscellaneous Application No. 1668 of 2021 in Special Leave Petition (Civil) No. 14724/2021, as also, for wilful disobedience of the order passed by the High Court dated 08.08.2019 in Notice of Motion No. 960 of 2019 in Commercial Arbitration Petition No. 55 of 2019.

Two months prior, the SC had found him guilty of wilful disobedience of his October 2021 ruling as well as an August 8, 2021 Bombay High Court order. Following an arbitral award of Rs. 78 crore against him and Nirmal Infrastructure Pvt. Ltd, of which he is a director, in a commercial dispute with Urban Infrastructure Real Estate Fund over a share purchase agreement, the HC ordered him to deposit a certain amount.

The HC stated that they provided the respondents/contemnors with sufficient opportunities to either comply with the orders of this Court and the High Court, for which wilful disobedience has been established and they are liable to be punished suitably under the provisions of the Contempt of Courts Act, or to settle the dispute amicably with the petitioner herein, but neither the respondents/contemnors have complied with the orders passed by this Court and the High Court.

However, so as to give one last opportunity to the contemnor to purge the contempt and comply with the orders passed by the Bombay High Court as well as this Court, it is observed that the aforesaid sentence shall be kept in abeyance for a period of two weeks from today, failing which, the aforesaid sentence shall take effect and on non-compliance, the respondent No.1 herein – Dharmesh Jain will then surrender before the concerned Court/Authority to undergo the sentence imposed by this Court.

Scope of Limitation period extended as Coronavirus Lock down in offing: Supreme Court

By SC Bureau

Supreme Court of India in its Suo Moto cognizance, have ordered that all matters in Supreme Court, High Courts and all subordinate courts stand extended irrespective of Limitation period as per Limitation Act or Special Law.

The Apex Court observed ”  This Court has taken Suo Motu cognizance of the situation
arising out of the challenge faced by the country on account of
Covid-19 Virus and resultant difficulties that may be faced by
litigants across the country in filing their
petitions/applications/suits/ appeals/all other proceedings within
the period of limitation prescribed under the general law of
limitation or under Special Laws (both Central and/or State).
To obviate such difficulties and to ensure that
lawyers/litigants do not have to come physically to file such proceedings in respective Courts/Tribunals across the country
including this Court, it is hereby ordered that a period of
limitation in all such proceedings, irrespective of the limitation
prescribed under the general law or Special Laws whether condonable
or not shall stand extended w.e.f. 15th March 2020 till further
order/s to be passed by this Court in present proceedings.
We are exercising this power under Article 142 read with
Article 141 of the Constitution of India and declare that this
order is a binding order within the meaning of Article 141 on all
Courts/Tribunals and authorities.
This order may be brought to the notice of all High Courts for
being communicated to all subordinate Courts/Tribunals within their
respective jurisdiction.
Issue notice to all the Registrars General of the High Courts,
returnable in four weeks. ”

S U P R E M E C O U R T O F I N D I A
RECORD OF PROCEEDINGS
SUO MOTU WRIT PETITION (CIVIL) No(s).3/2020
IN RE : COGNIZANCE FOR EXTENSION OF LIMITATION
Date : 23-03-2020
CORAM :
HON’BLE THE CHIEF JUSTICE
HON’BLE MR. JUSTICE L. NAGESWARA RAO
HON’BLE MR. JUSTICE SURYA KANT

 

Please down Load the Order here:SC-CoronaVirus-Limitation

Car Parking cannot be sold or purchased : Supreme Court

By SRELJ Bureau

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2544 OF 2010

Nahalchand Laloochand Pvt. Ltd. …………..    Appellant

Versus

Panchali Co-operative Housing Society Ltd. …………..     Respondent

WITH

CIVIL APPEAL NO. 2545 OF 2010

CIVIL APPEAL NO. 2546 OF 2010

CIVIL APPEAL NO. 2547 OF 2010

CIVIL APPEAL NO. 2548 OF 2010

CIVIL APPEAL NO. 2449 OF 2010

CIVIL APPEAL NO. 2456 OF 2010

 

JUDGEMENT

R.M. Lodha, J.

Of these seven appeals which arise from the judgment dated April 25, 2008 passed by the High Court of Judicature at Bombay (Appellate Jurisdiction), five are at the instance of the original plaintiff and the other two are by the parties, who were not parties to the proceedings before the High Court or the trial court but they are aggrieved by the findings recorded by the High Court as they claim that these findings are affecting their rights.

The facts:

2.     Few important questions of law arise in this group of appeals. It will be convenient to formulate the questions after we set out the material facts and the contentions of the parties. The narration of brief facts from S.C. Suit No. 1767 of 2004 will suffice for consideration of these appeals. Nahalchand Laloochand Private Limited is a Private Limited Company. As a promoter, it developd few properties in Anand Nagar, Dahisar (E), Mumbai and entered into agreements for sale of flats with flat purchasers. The flat purchasers are members of Panchali Co-operative Housing Society Ltd. (for short, ‘the Society’). The promoter filed a suit before the Bombay City Civil Court, Bombay for permanent injunction restraining the Society (defendant) from encroaching upon, trespassing and/or in any manner disturbing, obstructing, interfering with its possession in respect of 25 parking spaces in the stilt portion of the building. The promoter set up the case in the plaint that under the agreements for sale it has sold flats in its building and each flat purchaser has right in respect of the flat sold to him and to no other portion. It was averred in the plaint that each flat purchaser has executed a declaration/undertaking in its favour to the effect that stilt parking spaces/open parking spaces shown in the plan exclusively belong to the promoter and that the declarant has no objection to the sale of such spaces by it. The defendant (Society) traversed the claim and set up the plea that the promoter has no right to sell or dispose of spaces in the stilt portion and that the undertakings given by the flat purchasers are not binding being contrary to law and based on such undertakings, the promoter has not acquired any right to sell stilt parking spaces.

3.      The parties let in evidence (oral as well as documentary) in support of their respective case.

4.     On April 4, 2007, the Presiding Judge, City Civil Court, Greater Bombay dismissed the suit with costs.

5.      The promoter preferred first appeal before the High Court which was dismissed on April 25, 2008.

6.     For brevity, we shall describe Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act, 1963 as ‘MOFA’, Maharashtra Ownership Flats (Regulations of the Promotion of Construction, Etc.) Rules, 1964 as ‘1964 Rules’, Development Control Regulations for Greater Bombay, 1991 as ‘DCR’, Maharashtra Apartment Ownership Act, 1970 as ‘MAOA’, The Maharashtra Regional and Town Planning Act, 1966 as ‘MRTP Act’ and Transfer of Property Act as ‘T.P. Act’.

The summary of findings recording by the High Court:

7.      While dismissing the appeal, the High Court recorded the following findings :

The carpet area of any of the 56 flats/tenements in Panchali building is not less than 35 sq. mtrs.

The parking space either enclosed or unenclosed, covered or open cannot be a ‘building’.

It is compulsory requirement to provide for parking spaces under DCR.

It is obligatory on the part of the promoter to follow the DCR. The agreement signed under MOFA between the developer and the flat purchaser must be in conformity with the model form of agreement (Form V) prescribed by the State Government.

The model agreement does not contemplate the flat purchasers to separately purchase the stilt parking spaces.

The rights arising from the agreement signed under the MOFA between the promoter and the flat purchasers cannot be diluted by any contract or an undertaking to the contrary. The undertakings contrary to DCR will not be binding either on the flat purchasers or the Society.

The stilt parking space is a common parking area available and the developer is obliged to provide the same under the DCR when the carpet area of the flat is 350 sq. meters It is not an additional premises/area that he is authorized to sell either to flat purchaser or any outsider. It is part and parcel of the Society building and it cannot be a separate premises available for sale. As soon as the Corporation issues the occupation certificate and the Society is registered, the building as well as the stilt parking spaces, open spaces and all common amenities become the property of the Society.

The stilt parking spaces cannot be put on sale by the developer as he ceases to have any title on the same as soon as the occupation certificate is issued by the Corporation and it becomes the property of the society on its registration.

The stilt parking spaces cannot be termed as ‘open/covered garages’ and Clause 2 of the Model Agreement—Form V provides for sale of covered/open garage in addition to the flat/shop.

It is immaterial if the purchase agreement does not include stilt car parking spaces in the common area of amenities. The stilt car parking spaces is part of the common amenities and it cannot be treated to be a separate premises/garage which could be sold by the developer to any of the members of the society or an outsider.

Under MOFA, the developer’s right is restricted to the extent of disposal of flats, shops and/or garages, which means that any premises which is included in the Flat Space Index (FSI) can be sold by the developer/promoter. The stilt parking space is not included in the FSI nor it is assessable for the Corporation taxes.

The submissions:

8.       Mr. Tanmaya Mehta, learned counsel appearing for the promoter—Nahalchand Laloochand Private Limited (appellant) contended that: the stilt parking space being ‘garage’, as an independent unit is covered by the definition of ‘flat’ in Section 2(a-1) of MOFA; Section 2(a-1) creates an artificial definition of ‘flat’ and since in common parlance a garage would not be considered as a flat, the legislature clarified and explained that the term ‘flat’ means…… and ‘includes a garage’; as long as premises are covered from the roof or which have a covered roof and used for the parking of vehicles, that would qualify as ‘garage’ and since stilt parking spaces are covered parking spaces and form part of the building, they fall within the definition of a ‘garage’; even if stilt parking spaces do not fall within the definition of ‘flat’, they are nevertheless sellable as independent units since right to sell such spaces flows from the bundle of rights associated with ownership of the property and Sections 10 and 11 of MOFA read with Rule 9 of 1964 Rules are not exhaustive of the rights retained by the promoter upon execution of conveyance. Moreover, if stilt parking spaces are treated as ‘common areas’ then the proportionate price for the same would have to be paid by each flat purchaser, irrespective of whether he requires the parking space or not and there may be situations where the number of parking spaces will not be equal to the number of flats and, thus, a person who has paid proportionate price for the common parking space may find himself without parking space, even though he has paid for the same. Lastly, the learned counsel submitted that in any event the promoter undertakes that the parking spaces shall be sold only to persons purchasing flats within the subject layout, i.e. the purchasers of flats in the seven buildings which form part of the layout and exist in close proximity.

9.       Mr. Pravin K. Samdani, learned senior counsel for one of the appellants viz., Maharashtra Chamber of Housing Industry adopted a little different line of argument. He contended that the provisions of MOFA permit a promoter to sell garage/open/covered car parking space along with the flat. His submission is that MOFA does not define the word ‘garage’ and that word has to be understood and interpreted in accordance with the plain grammatical meaning and not with reference to DCR which have been framed under MRTP Act having different legislative object. As to whether the stilt parking spaces are ‘common areas’, Mr. Pravin K. Samdani would submit that MOFA does not list out the ‘common areas’ and ‘limited common areas’ while MAOA does define these terms and parking spaces thereunder are ‘common areas and facilities’ unless otherwise provided in the declaration by the owner of the property. Under MOFA, it is for the promoter and under MAOA, the declarant has to prescribe at the outset the ‘common areas’ and ‘limited common areas’. He referred to Sections 3(2)(h), 4(1)(a)(v), 10 and 11 of the MOFA and submitted that the promoter must at the outset indicate the nature of organization (condominium or society or company) that would be formed at the time of sale of flats and on formation of such organization, the promoter joins such organization with a right and power to dispose of remaining flats that would include the remaining unsold open/covered parking space/garage and the organization is transferred unsold open/covered parking spaces only if all the flats have been sold by the promoter. Learned senior counsel would submit that it is wholly irrelevant whether stilt/podium/basement/covered car park attracts FSI or not but the only relevant criterion is whether the promoter has listed it as a part of common area or not and if he has not done so then it is sellable. If he has listed it, then every flat purchaser is proportionately required to contribute for the same.

10.       In the appeal filed by one Chirag M. Vora, Mr. Sunil Gupta, learned senior counsel appeared. He argued that MOFA was enacted and enforced in the year 1963 as a regulatory piece of legislation and barring the few aspects in respect of which MOFA makes specific inroads into the rights of the promoter in the matter of construction, sale, management and transfer of flats, all other aspects of the right of the promoter who enters into contract with the flat purchaser remain unaffected and undisturbed. His submission is that MOFA gives a wide meaning to the word ‘flat’ so that buildings of all permutations and combinations may be covered within the scope of that Act and keeping in mind both the plain language of Section 2(a-1) as well as the object of that Act, widest meaning to the word ‘flat’ deserves to be given so that

the plain language is satisfied and also the object of the Act is better subserved. He adopted the line of interpretation put forth by Mr. Tanmaya Mehta that ‘garage’ includes covered parking spaces and even open parking spaces and is a ‘flat’ in itself under Section 2(a-1). Relying upon Barnett & Block v. National Parcels Insurance Company Ltd.1 , learned senior counsel submitted that the minimum requirement of garage is that there should be roof (even if there are no walls) and for the purpose of MOFA, not only a covered parking space like a stilt parking space but also an open parking space is tantamount to ‘garage’.  According to learned senior counsel the word ‘garage’ is not to be read simply as another kind of user as contrasted with residence, office, showroom or shop or godown or industry or business rather it has to be read in contrast and juxtaposed against the expression ‘set of premises’; it is the alternative to the ‘set of premises’ and not merely to the different users of the set of premises mentioned in Section 2 (a-1). Mr. Sunil Gupta, learned senior counsel would submit that each stilt parking space as well as each open parking space is a ‘flat’ in itself de hors the other accommodations amounting to ‘flat’ under Section 2(a-1) of MOFA. In support of his argument, he relied upon a decision of this Court in the case of Municipal Corporation of Greater Bombay & Ors. v. Indian Oil Corporation Ltd.2. In the alternative, he submitted that if the stilt parking space or open parking space is not held to be a ‘flat’ under Section 2 (a-1), still that space/area cannot be treated as part of ‘common areas and facilities’. Firstly, he submitted that common areas and facilities do not include garage/parking spaces and such parking spaces remain ungoverned by MOFA. Sections 3 and 4 of MOFA concern with matters pertaining to ‘common areas and facilities’ but MOFA does not define the meaning of ‘common areas and facilities’. Section 3(2)(m)(iii) leaves it to the promoter to disclose to his flat purchaser the nature, extent and description of the common areas and facilities. Section 4, by mentioning a prescribed form of agreement, rather opened the possibilities for the promoter to continue to exercise his traditional and pre-Act right to dispose of such parking spaces according to his choice. The stilt/covered/open parking spaces do not figure as part of the common areas and facilities in any project and remain within the contractual, legal and fundamental rights of the promoter to dispose of the same in the manner in which he proposes and his customers accept. Section 16 of MOFA does not override this right of a promoter. Secondly, learned senior counsel would submit that the provisions of MOFA must not be made to depend on the provisions of some other enactment just because the subject matter of the two legislations appears to be the same. In this regard, he referred to Maxwell Interpretation of Statutes, 12th Edition, pages 69 to 70 and G.P. Singh on Principles of Statutory Interpretations, 8th edition, pages 150 to 160. He, thus, submitted that for the purposes of understanding the meaning of ‘flat’ under Section 2(a-1) of MOFA, the provisions of MAOA may be looked at but there would be no justification in understanding the expression, ‘flat’ defined in MOFA with reference to MRTP Act, DCR, rules related to FSI and the provisions concerning property tax in the Bombay Municipal Corporation Act.

11.       On the other hand, Mr. Neeraj Kumar Jain, learned senior counsel and Mr. Umesh Shetty, learned counsel for the Societies stoutly supported the view of the High Court.

The issues:

12.      In view of the contentions outlined above, the questions that arise for consideration are : (i) whether stand alone ‘garage’ or in other words ‘garage’ as an independent unit by itself is a ‘flat’ within the meaning of Section 2(a-1) of MOFA; (ii) whether stilt parking space/open parking space of a building regulated by MOFA is a ‘garage’; (iii) If the answer to aforesaid questions is in the negative, whether stilt parking space/open parking space in such building is part of ‘common areas and facilities’ and (iv) what are the rights of the promoter vis-à-vis society (of flat purchasers) in respect of open parking space/s / stilt parking space/s.

13.        All these questions have to be considered in the light of statutory provisions. At this stage we notice some of the provisions of MOFA. As regards other statutory provisions, we shall refer to them wherever necessary.

Relevant provisions of MOFA:

14.      The definition of ‘flat’ in Section 2(a-1) is most vital and during course of arguments it has been rightly said that meaning of the word ‘flat’ is the actual fulcrum of MOFA. Section 2(a-1) reads thus:

“S.2(a-1).-“Flat” means a separate and self-contained set of premises used or intended to be used for residence, or office, show-room or shop or godown or for carrying on any industry or business (and includes a garage), the premises forming part of a building and includes an apartment.

Explanation.—Notwithstanding that provision is made for sanitary, washing, bathing or other conveniences as common to two or more sets of premises, the premises shall be deemed to be separate and self-contained.”

15.      ‘Promoter’ is defined in Section 2(c) as under :

“S.2(c).-`Promoter’ means a person and includes a partnership firm or a body or association of persons, whether registered or not who constructs or causes to be constructed a block or building of flats, or apartments for the purpose of selling some or all of them to other persons, or to a company, co-operative society or other association of persons, and includes his assignees; and where the person who builds and the person who sells are different persons, the term includes both;”

16.       The general liabilities of the promoter are set out in Section 3. To the extent it is relevant to the present case it reads thus:

“S.3.-(1) Notwithstanding anything in any other law, a promoter who intends to construct or constructs a block or building of flats, all or some of which are to be taken or are taken on ownership basis, shall in all transactions with persons intending to take or taking one or more of such flats, be liable to give or produce, or cause to be given or produced, the information and the documents hereinafter in this section mentioned.

(2)        A promoter, who constructs or intends to construct such block or building of flats, shall—

(a)        make full and true disclosure of the nature of his title to the land on which the flats are constructed, or are to be constructed; such title to the land as aforesaid having been duly certified by an Attorney-at­law, or by an Advocate of not less than three years standing, and having been duly entered in the Property card or extract of Village Forms VI or VII and XII or any other relevant revenue record;

(b)         make  full and true disclosure of all encumbrances on such land, including any right, title, interest or claim of any party in or over such land;

(c)                to  (h) …..

(i)         not    allow    persons   to  enter into possession until a completion certificate where such certificate is required to be given under any law, is duly given by the local authority (and no person shall take possession of a flat until such completion certificate has been duly given by the local authority);

(j) to (l) …..

(m)       when the flats are advertised for sale, disclose inter alia in

the advertisement the following particulars, namely :­

(i)         the  extent of the carpet area of the flat including the area of the balconies which should be shown separately;

(ii)        the price of the flat including the proportionate price of the common areas and facilities which should be shown separately, to be paid by the purchaser of flat; and the intervals at which the instalments thereof may be paid;

(iii)       the nature, extent and description of the common areas and facilities;

(iv)       the   nature,   extent  and description of limited common areas and facilities, if any.

(n)        sell flat on the basis of the carpet area only:

Provided that, the promoter may separately charge for the common areas and facilities in proportion ‘to the carpet area of the flat’.

Explanation.—For the purposes of this clause, the carpet area of the flat shall include the area of the balcony of such flat.”

17.       Section 4 of MOFA mandates that promoter before accepting advance payment or deposit shall enter into an agreement with the prospective flat purchaser and such agreement shall be registered. It provides as follows:

“S.4.-(1) Notwithstanding anything contained in any other law, a promoter who intends to construct or constructs a block or building of flats all or some of which are to be taken or are taken on ownership basis, shall, before, he accepts any sum of money as advance payment or deposit, which shall not be more than 20 per cent of the sale price enter into a written agreement for sale with each of such persons who are to take or have taken such flats, and the agreement shall be registered under the Registration Act, 1908” and such agreement shall be in the prescribed form.

(1A) The agreement to be prescribed under sub­section (1) shall contain inter alia the particulars as specified in clause (a); and to such agreement there shall be attached the copies of the documents specified in clause (b)—

(a)        particulars—

(i)         if the building is to be constructed, the liability of the promoter to construct it according to the plans and specifications approved by the local authority where such approval is required under any law for the time being in force;

(ii) to (v) …..

(vi)       the nature, extent and description of limited common areas and facilities;

(vii)      the nature, extent and description of limited common areas and facilities, if any;

(viii)      percentage of undivided interest in the common areas and facilities appertaining to the flat agreed to be sold;

(ix)       statement of the use for which the flat is intended and restriction on its use, if any;

(x)        percentage of undivided interests in the limited common areas and facilities, if any, appertaining to the flat agreed to be sold;

(b) ….. ”

18.       Section 10 casts duty upon the promoter to take steps for formation of co-operative society or company, as the case may be. The said provision reads as follows :

“S.10.-(1) As soon as a minimum number of persons required to form a Co-operative society or a company have taken flats, the promoter shall within the prescribed period submit an application to the Registrar for registration of the organization of persons who take the flats as a co-operative society or, as the case may be, as a company; and the promoter shall join, in respect of the flats which have not been taken, in such application for membership of a co-operative society or as the case may be, of a company. Nothing in this section shall affect the right of the promoter to dispose of the remaining flats in accordance with the provisions of this Act.

Provided that, if the promoter fails within the prescribed period to submit an application to the Registrar for registration of society in the manner provided in the Maharashtra Co-operative Societies Act, 1960, the Competent Authority may, upon receiving an application from the persons who have taken flats from the said promoter, direct the District Deputy Registrar, Deputy Registrar or, as the case may be, Assistant Registrar concerned, to register the society :

Provided further that, no such direction to register any society under the preceding proviso shall be given to the District Deputy Registrar, Deputy Registrar or, as the case may be, Assistant Registrar, by the Competent Authority without first verifying authenticity of the applicants’ request and giving the concerned promoter a reasonable opportunity of being heard.”

19.      There is also obligation cast upon promoter to execute the documents of title and convey to the co-operative society or the company or an association of flat purchasers/apartment owners, right, title and interest in the land and building by virtue of Section 11 which reads thus:

“S.11.- (1) A promoter shall take all necessary steps to complete his title and convey to the organization of persons, who take flats, which is registered either as a co-operative society or as a company as aforesaid, or to an association of flat takers or apartment owners his right, title and interest in the land and building, and execute all relevant documents therefore in accordance with the agreement executed under section 4 and if no period for the execution of the conveyance is agreed upon, he shall execute the conveyance within the prescribed period and also deliver all documents of title relating to the property which may be in his possession or power.

2.         It shall be the duty of the promoter to file with the Competent Authority, within the prescribed period, a copy of the conveyance executed by him under sub­section (1).

3.         If the promoter fails to execute the conveyance in favour of the co-operative society formed under Section 10 or, as the case may be, the company or the association of apartment owners, as provided by sub­section (1), within the prescribed period, the members of such co-operative society or, as the case may be, the company or the association of apartment owners may, make an application, in writing, to the concerned Competent Authority accompanied by the true copies of the registered agreements for sale, executed with the promoter by each individual member of the society or the company or the association, who have purchased the flats and all other relevant documents (including the occupation certificate, if any), for issuing a certificate that such society, or as the case may be, company or association, is entitled to have an unilateral deemed conveyance, executed in their favour and to have it registered.

(4) …..

(5) …..”

20.      Section 16 of MOFA provides that the provisions contained therein are in addition to the provisions of the T. P. Act and shall take effect notwithstanding anything to the contrary contained in the contract.

Re:      question nos. (i) and (ii):

(A)       What is `flat’?

21.       For proper consideration of questions (i) and (ii) as afore-referred, it is of considerable importance to ascertain the import and meaning of the term ‘flat’ defined in Section 2(a-1) of MOFA. Rather the answer to the questions presented for consideration must squarely or substantially depend on what is a ‘flat’. Justice G.P. Singh in the ‘Principles of Statutory Interpretation’ (12th edition, 2010) says that the object of a definition of a term is to avoid the necessity of frequent repetitions in describing all the subject matter to which that word or expression so defined is intended to apply. In other words, the definition clause is inserted for the purpose of defining particular subject-matter dealt with and it helps in revealing the legislative meaning. However, the definitive clause may itself require interpretation because of ambiguity or lack of clarity in its language. In the ‘Construction of Statutes’ by Earl T. Crawford (1989 reprint) at page 362, the following statement is made: “…….the interpretation clause will control in the absence of anything else in the act opposing the interpretation fixed by the clause. Nor should the interpretation clause be given any wider meaning than is absolutely necessary. In other words, it should be subjected to a strict construction.”

22.      The definition of term ‘flat’ in MOFA at the time of its enactment was this: ‘flat’ means a separate and self-contained set of premises used or intended to be used for residence, or office, showroom or shop or godown (and includes a garage), the premises forming part of a building. By Maharashtra Act No. 15 of 1971, the definition of ‘flat’ got amended and the words ‘and includes an apartment’ were inserted after the word `building’. Thereafter by Maharashtra Act 36 of 1986, the words ‘or for carrying on any industry or business’ were inserted after the word ‘godown’ and before the bracketed portion `(and includes a garage)’.

23.       Before we analyze Section 2(a-1), if we ask what the term ‘flat’ means, apart  from the statutory definition, the reply must be that though it has no  uniform  meaning but in its natural and ordinary meaning, ‘flat’ is a self contained set of premises structurally   divided   and separately owned for dwelling. Concise Oxford English Dictionary (10th edition, revised) explains `flat’ —a set of rooms comprising an individual place of residence within a larger building.

24.       Webster Comprehensive Dictionary; International edition (Vol. 1) explains ‘flat’— 1. a set of rooms on one floor, for the occupancy of a family; apartment. 2. A house containing such flats.

25.       In Stroud’s Judicial Dictionary (5th edition, Vol. 2), a reference has been made to the observations of Somervell L.J, in Murgatroyd v. Tresarden, 63 T.L.R. 62 and it is stated; the natural meaning of the word ‘flat’ is a separate self-contained dwelling.

26.       In Words  and Phrases, Permanent Edition, (West Publishing Company), Vol. 17, while dealing with the term `flat’ generally, it is stated :

“The word ‘flat’ has no technical, legal meaning, so that a court can pronounce absolutely one way or the other. A building is a ‘flat’ or not, and, where the testimony is conflicting, the question is one of fact”.

27.       Advanced Law Lexicon by P. Ramanatha Aiyar (3rd edition, 2005) explains the term ‘flat’, in the following way – `in the ordinary use of the term a flat is a self-contained set of rooms, structurally divided and separately owned or let from the rest of a building, which for the most part consists of other flats separated in like manner’.

28.       Reverting back to the definition of the term ‘flat’ under Section 2(a-1), for a ‘flat’ within the meaning of this definition clause, the set of premises has to be a separate and self-contained that forms part of the building which is used or intended to be used for residence or office, showroom or shop or godown or for carrying on industry or business. Separateness of one premises from another premises physically and also in use or intended use for one of the uses specified in the definition clause containing the necessary facilities for self-contained accommodation is sine qua non for a unit being covered by the definition of ‘flat’ occurring in Section 2(a-1) which includes an ‘apartment’. In other words, it must be a separate unit conforming to the description capable of being used for one of these purposes—namely, residence, office, showroom, shop, godown or for industrial or business purposes. Alternative uses in Section 2(a-1) do expand the ordinary meaning of the term ‘flat’ but nevertheless such premises that form part of building must be separate and self-contained. A set of premises is called self-contained if it has the following basic amenities available: (a) sanitary; (b) washing, bathing and (c) other conveniences (cooking etc.) for the use of its occupant/s although as provided in the explanation appended to Section 2(a-1) such provision may be common to two or more sets of premises. The nature of construction and user are important features of this definition clause. A unit or accommodation to fit in the definition of ‘flat’ must meet twin-test namely: (i) self contained test and (ii) user test. The other predominant characteristic is that it must form part of a building. Crucially, for the relevant premises to be ‘flat’:

  • It must be a separate and self contained premises;
  • It must form part of building;
  • It  must  be  used  or  intended to be used for any of the uses namely—residence,    office,    showroom,   shop,    godown or for carrying on any industry or business.

29.       In the discussion made above, we have not referred to the bracketed portion namely -‘(and includes a garage)’ so far. What is the meaning and significance of this bracketed portion? On technical linguistic basis, the bracketed phrase can only attach to the word preceding it. That may not be happy construction nor such construction by reading bracketed portion ‘(and includes a garage)’ with the preceding word ‘business’ appropriately reflects the meaning of the phrase. The scope of the bracketed phrase has to be seen in the context of the definition given to the word ‘flat’ which is true indication of intent of the legislature. It was suggested by learned senior counsel and counsel for the promoters that the phrase ‘and includes a garage’ must be read with the ‘set of premises’ and not with the user. This does not appear to be a correct reading of the expression.  We are not persuaded to accept such construction. We think that statutory definition of ‘flat’ must be construed keeping in view the intent of the legislature and the context of the statute and, seen thus, the phrase, ‘and includes a garage’ in the bracket does not bring in ‘garage’ by itself within the meaning of word ‘flat’. If stand alone `garage’ (or a garage by itself) were intended by the legislature to be a ‘flat’ within the meaning of Section 2(a-1), that could have been conveniently conveyed by use of the expression ‘or garage’ after the word ‘business’ in the same breath as preceding uses. The bracketed phrase is rather indicative of the legislative intention to include a ‘garage’ as appurtenant or attachment to a flat which satisfies the ingredients of Section 2(a-1). To this extent Mr. Pravin K. Samdani is right in his submission. It is clear to us that stand alone ‘garage’ or in other words ‘garage’ as an independent unit by itself is not a ‘flat’ within the meaning of Section 2(a-1) and we answer question (i) in the negative. The judgment of Bombay High Court in Dr. K.R. Agarwal Vs. Balkrishna3 to the extent the expression ‘or garage’ has been read after the word ‘godown’ in para 5 (clause 2) of the report does not state the correct legal position in what we have already said above.

(B)       Whether stilt parking space is a garage?

3                      AIR 1972 Bombay 343

30.        The  next  question  is,  whether  stilt  parking  space in a building regulated by MOFA is a ‘garage’. The term ‘garage’ has not been defined in MOFA and, therefore, we need to first find out what is the extent and scope of that term in Section 2(a-1). The general term ‘garage’ is appropriated in English from the French language and means ‘keeping under cover’ or ‘a place for keeping’ of wagons as well as automobiles. Concise Oxford English Dictionary (10th edition, revised) explains ‘garage’— 1 a building for housing a motor vehicle or vehicles. 2 an establishment which sells fuel or which repairs and sells motor vehicles.

31.        Webster Comprehensive Dictionary, International edition (Vol. 1) explains the word ‘garage’—a building in which motor vehicles are stored and cared for.

32.        Words and Phrases, Permanent Edition, (West Publishing Company), Vol. 17, states that ‘garage’ generally is a station in which motorcars can be sheltered, stored, repaired, cleaned, and made ready for use; it is also place for private storage for motorcars; stable for motor cars.

33.       The DCR define two expressions ‘garage-private’ and ‘garage-public’ in Regulations 2(47) and 2(48) respectively. According to these Regulations, ‘garage-private’ means a building or a portion thereof designed and used for the parking of vehicles and ‘garage-public’ means a building or portion thereof designed other than as a private garage, operated for gain, designed and/or used for repairing, serving, hiring, selling or storing or parking motor-driven or other vehicles. In our view, we must give to the word ‘garage’ occurring in Section 2(a-1) a meaning that general public or for that matter a flat purchaser of ordinary prudence would give to that word or understand by that word. Learned senior counsel Mr. Sunil Gupta referred to Barnett and Block1 wherein Atkinson, J. stated as follows:

“Now what is a garage? No evidence was given to suggest or prove that the word “garage” in the trade had got any special meaning, and it was agreed to take four dictionary definitions set out in the agreed statement of facts. The four definitions were these. From the SHORTER OXFORD DICTIONARY: “A building for the storage or refitting of motor vehicles.” From the NEW CENTURY DICTIONARY : “A building for sheltering, cleaning or repairing motor vehicles. To put or keep in a garage.” From the NEW STANDARD DICTIONARY: “A building for stabling or storing of motor vehicles of all kinds.” From NUTTAL’S STANDARD DICTIONARY : “A storehouse for motor vehicles.” Those are four definitions from leading dictionaries all containing at any rate one word in common, and that is “building.” As there is no evidence as to how the general public understand the word “garage,” I suppose one is entitled to use one’s own knowledge. I am inclined to think that ordinary man in the street does regard a garage as connoting some sort of a building; how far he would go I do not know. I do not know whether he would think that there should be a wall all round it, or whether it would be sufficient if there were three sides walled in and a roof. I have one in mind where there is a row of sheds without any protection in front, which are commonly spoken of as “garages,” but I am going to apply here the test suggested by counsel for the insured. He said “A garage is a place where one can get reasonable protection and shelter for a car.”

Can I say that you are getting reasonable protection and shelter for a car, if there is nothing to protect the car from above – if there is no roof of any sort? I think the ordinary man, as counsel for the insurers suggested, who took a house with a garage, if he came and found merely an open shed without any roof, would think he had been swindled, however high the walls might be. I cannot think that one is entitled to say that it is adequate or reasonable protection or shelter if there is no roof; but this is worse than that, though I agree that the walls are very good here. Wherever you put a car in this yard, in addition to there being no shelter from above, there will be no shelter on two sides. That seems to me to be really conclusive.”

He, thus, submitted that even a place with merely a roof may well be a ‘garage’. By placing reliance on condition No. 2 in Form V of 1964 Rules, learned senior counsel submitted that for the purposes of MOFA, even an open parking space is tantamount to a ‘garage’.

34.     The relevant portion of condition No. 2, Form V appended to 1964 Rules reads as under:

“2.        The Flat Purchaser hereby agrees to purchase from the Promoter and the Promoter hereby agrees to sell to the Flat Purchaser one flat No. ………. of the Type ………. of carpet area admeasuring ………. sq. meters (which is inclusive of the area of balconies) on ………. floor as shown in the Floor plan thereof hereto annexed and marked Annexures D/Shop No. ………. /covered/open Garage No. ………. in the ………. Building (hereinafter referred to as “the Flat”) for the price of Rs. ………. including Rs. ………. being the proportionate price of the common areas and facilities appurtenant to the premises, the nature extent and description of the common/limited common areas and facilities/limited common areas and facilities which are more particularly described in the Second Schedule hereunder written. The Flat Purchasers hereby agrees to pay to that Promoter balance amount of purchase price of Rs. ………. (Rupees ………. ……………) having been paid to the Promoter on or before the execution  of his agreement in the following manner.”

35.      We do not perceive any force in the argument that open parking space tantamounts to a ‘garage’ within the meaning of Section 2(a-1) read with condition No. 2 Form V of 1964 Rules. Can a person buying a flat for residence or one of the uses mentioned in Section 2(a-1) really think that open to the sky or open space for parking motor vehicles is a garage?  We do not think so. The word ‘garage’ may not have uniform connotation but definitely every space for parking motor vehicles is not a garage. A roofless erection could not be described a garage. What is contemplated by a ‘garage’ in Section 2(a-1) is a place having a roof and walls on three sides. It does not include an unenclosed or uncovered parking space. It is true that in condition No. 2, Form V the words ‘covered/open garage’ have been used but, in our view, the word ‘open’ used in the Model Form V cannot override the true meaning of term ‘garage’ in Section 2(a-1). As a matter of fact, none of the provisions of MOFA regards ‘open garage’ connoting ‘flat’ or an appurtenant/attachment to a flat. We do not think undue importance should be given to word ‘open’ which has loosely been used in condition No. 2, Form V. The true meaning of the term ‘garage’ in Section 2(a-1), we think, is not affected by a Model Form V appended to the 1964 Rules.

36.      The question then is as to whether the stilted portion or stilt area of a building is a garage under MOFA. A stilt area is a space above the ground and below the first floor having columns that support the first floor and the building. It may be usable as a parking space but we do not think that for the purposes of MOFA, such portion could be treated as garage. It was argued that the test accepted by Atkinson, J. in Barnett & Block1–that a garage is a place where one can get reasonable protection and shelter for a car—is satisfied by stilt car parking space and such space is a garage. We are unable to agree. The test accepted by Atkinson, J. in Barnett and Block1 also does not support this argument. Even as per that test a place having roof but offering no shelter or protection on two sides cannot be a garage. It is worth repeating what Atkinson,J. said, `….I am inclined to think that the ordinary man in the street does regard a garage as connoting some sort of building; how far he would go I do not know. I do not know whether he would think that there should be a wall all round it, or whether it would be sufficient if there were three sides walled in and a roof. I have one in mind where there is row of sheds without any protection in front, which are commonly spoken of as “garages”.’ Atkinson,J. applied the test of `reasonable protection and shelter for car’ as was suggested by the counsel for the insurer while construing the term `garage’ in a policy of insurance. For the purposes of MOFA, and particularly Section 2(a-1), the term ‘garage’ must be considered as would be understood by a flat purchaser and such person would contemplate garage which has a roof and wall on three sides. Our answer to question No. (ii) is, therefore, no.

Re: question no. (iii) – Whether stilt parking spaces are part of `common areas and facilities’?

37.       The High Court has held that the stilt car parking spaces are part of the common amenities. Is the High Court right in its view? MOFA does not define nor it explains ‘common areas and facilities’ though the said phrase is used at various places in that Act. Mr. Pravin K. Samdani, learned senior counsel for Maharashtra Chamber of Housing Industry submitted that following could be termed as part of the ‘common areas’:

15% Recreation Ground (RG) Area;

Recreational facilities and/or club house on above RG  Areas;

Society Office

Security guards cabin

Common passage/lobbies

Stair cases

Lifts

Terraces over the  roof of the building

Landings on each floor

Columns and beams of the building

Playgrounds, if any.

According to him, the following could be part of ‘Limited Common Areas’:

Separate lift attached to a particular flat and/or  certain number of flats;

Terrace attached to a flat;

Servants toilet on each floor, meant for the user of the  flats on that particular floor;

The aforesaid list as suggested by the learned senior counsel, in our opinion, is not exhaustive. It may not be out of place to refer to Section 3(f) of MAOA which defines ‘common areas and facilities’ as follows:

“3(f)   “common areas and facilities”, unless otherwise provided in the Declaration or lawful amendments, thereto means—

(1)        the land on which the building is located;

(2)        the foundations, columns, girders, beams, supports, main walls, roofs, halls, corridors, lobbies, stairs, stair-ways, fire-escapes and entrances and exits of the buildings;

(3)        the basements, cellars, yards, gardens, parking areas and storage spaces;

(4)        the premises for the lodging of janitors or persons employed for the management of the property;

(5)        installations of central services, such as power, light, gas, hot and cold water, heating, refrigeration, air conditioning and incinerating;

(6)        the   elevators, tanks, pumps, motors, fans, compressors,

ducts and in general all apparatus and installations existing for common use;

(7)        such community and commercial facilities as may be provided for in the Declaration; and

(8)        all other parts of the property necessary or convenient to its existence, maintenance and safety, or normally in common use;”

It is true that interpretation clause or legislative definition in a particular statute is meant for the purposes of that statute only and such legislative definition should not control other statutes but the parts of the property stated in clauses (2), (3) and (6) of Section 3(f) as part of ‘common areas and facilities’ for the purposes of MAOA are what is generally understood by the expression ‘common areas and facilities’.  This is fortified by the fact that the areas which according to the learned senior counsel could be termed as ‘common areas’ in a building regulated by MOFA are substantially included in aforenoticed clauses of Section 3(f) of MAOA. Looking to the scheme and object of MOFA, and there being no indication to the contrary, we find no justifiable reason to exclude parking areas (open to the sky or stilted portion) from the purview of ‘common areas and facilities’ under MOFA.

38.     It was argued that under MOFA it is for the promoter to prescribe and define at the outset the ‘common areas’ and unless it is so done by the promoter, the parking area cannot be termed as part of ‘common areas’. We are quite unable to accept this submission. Can a promoter take common passage/lobbies or say stair case or RG area out of purview of `common areas and facilities’ by not prescribing or defining the same in the `common areas’? If the answer to this question is in negative, which it has to be, this argument must fail. It was also submitted that by treating open/stilt parking space as part of ‘common areas’, every flat purchaser will have to bear proportionate cost for the same although he may not be interested in such parking space at all. We do not think such consideration is relevant for the consideration of term ‘common areas and facilities’ in MOFA. It is not necessary that all flat purchasers must actually use ‘common areas and facilities’ in its entirety. The relevant test is whether such part of the building is normally in common use. Then it was submitted that if a parking space is sold to a flat purchaser, it is to the exclusion of other flat purchasers and, therefore, logically also it cannot be part of ‘common areas’. This submission is founded on assumption that parking space (open/covered) is a ‘garage’ and sellable along with the flat. We have, however, held in our discussion above that open to the sky parking area or stilted portion usable as parking space is not ‘garage’ within the meaning of Section 2(a-1) and, therefore, not sellable independently as a flat or along with a flat. As a matter of fact, insofar as the promoter is concerned, he is not put to any prejudice financially by treating open parking space/stilt parking space as part of ‘common areas’ since he is entitled to charge price for the common areas and facilities from each flat purchaser in proportion to the carpet area of the flat. MOFA mandates the promoter to describe ‘common areas and facilities’ in the advertisement as well as the ‘agreement’ with the flat purchaser and the promoter is also required to indicate the price of the flat including the proportionate price of the ‘common areas and facilities’. If a promoter does not fully disclose the common areas and facilities he does so at his own peril. Stilt parking spaces would not cease to be part of common areas and facilities merely because the promoter has not described the same as such in the advertisement and agreement with the flat purchaser. Although there is some merit in the contention of the appellant that High Court erred in placing reliance on the two aspects—namely, that the area of stilt parking space is not included in the FSI and such area is not assessable to the corporation taxes -in reaching the conclusion that stilt parking space is part of ‘common areas’ but in our view even if these two aspects are excluded, in what we have discussed above stilt parking space/open parking space of a building regulated by MOFA is nothing but a part of ‘common areas’ and, accordingly, we answer question no. (iii) in the affirmative.

Re: question no. (iv) – what are the rights of a promotervis-à-vis society in respect of stilt parking spaces?

39.       We have now come to the last question namely— what are the rights of a promoter vis-à-vis society (of flat purchasers) in respect of stilt parking space/s. It was argued that the right of the promoter to dispose of the stilt parking space is a matter falling within the domain of the promoter’s contractual, legal and fundamental right and such right is not affected. This argument is founded on the premise, firstly, that stilt parking space is a ‘flat’ by itself within the meaning of Section 2(a-1) and in the alternative that it is not part of ‘common areas’. But we have already held that ‘stilt parking space’ is not covered by the term ‘garage’ much less a ‘flat’ and that it is part of ‘common areas’. As a necessary corollary to the answers given by us to question nos. (i) to (iii), it must be held that stilt parking space/s being part of ‘common areas’ of the building developed by the promoter, the only right that the promoter has, is to charge the cost thereof  in proportion to the  carpet area of the flat from each flat purchaser. Such stilt parking space being neither ‘flat’ under Section 2(a-1) nor ‘garage’ within the meaning of that provision is not sellable at all.

40.       MOFA was enacted by the Maharashtra Legislature as it was found that builders/developers/promoters were indulging in malpractices in the sale and transfer of flats and the flat purchasers were being exploited. The effect of MOFA may be summarized as follows. First, every promoter who constructs or intends to construct block or building of flats in the area to which MOFA applies has to strictly adhere to the provisions contained therein, i.e., inter alia, he has to make full and true disclosure of the nature of his title to the land on which the flats are constructed and also make disclosure in respect of the extent of the carpet area of the flat and the nature, extent and description of the common areas and facilities when the flats are advertised for sale. Secondly, the particulars which are set out in Section 4(1A) (a) (i) to (x) have to be incorporated in the agreement with the flat purchaser. Thirdly, the promoter has to apply to the Registrar for registration of the organization (co-operative society or company or condominium) as soon as minimum number of persons required to form such organization have taken flats. As regards unsold flats, the promoter has to join such organization although  his right to dispose of  unsold flats remains unaffected. Fourthly, and more importantly, the promoter has to take all necessary steps to complete his title and convey to the organization his right, title and interest in the land and building and execute all relevant documents accordingly. It was argued by Mr. Tanmaya Mehta, learned counsel for the promoter that in view of the provisions of MOFA, Section 6 of T.P. Act and Article 300A of the Constitution, the right of the promoter to transfer parking spaces is not at all restricted. Relying upon the decisions of this Court in ICICI Bank Ltd. v. SIDCO Leathers Ltd. & Ors..4, Karnataka State Financial Corporation v. N. Narasimahaiah & Ors.5 and   Bhikhubhai    Vithlabhai   Patel   &     Ors.,

 4 (2006) 10 SCC 452

5 (2008) 5 SCC 176

v. State of Gujarat & Anr.6, he submitted that the provisions contained in MOFA must be construed strictly and there is no provision either express or by necessary implication in MOFA restricting the sale of stilt or open parking spaces. Mr. Sunil Gupta also argued that promoter continues to have contractual, legal and fundamental right to dispose of the stilt/open parking space in the manner in which he proposes and his consumers accept. We think this argument does not bear detailed examination. Suffice it to say that if the argument of learned senior counsel and counsel for promoter is accepted, the mischief with which MOFA is obviously intended to deal with would remain unabated and flat purchasers would continue to be exploited indirectly by the promoters. In our opinion, MOFA does restrict the rights of the promoter in the block or building constructed for flats or to be constructed for flats to which that Act applies. The promoter has no right to sell any portion of such building which is not ‘flat’ within the meaning of Section 2(a-1) and the entire land and building has to be conveyed to the organisation; the   only    right    remains   with  the promoter is to sell

6 (2008) 4 SCC 144

unsold flats. It is, thus, clear that the promoter has no right to sell ‘stilt parking spaces’ as these are neither ‘flat’ nor appurtenant or attachment to a ‘flat’.

41.        In view of the above, it is not at all necessary to deal with the factual submissions advanced by Mr. Tanmaya Mehta. Having regard to the answer to question no. (iv), the finding of the High Court that undertakings are neither binding on the flat purchasers nor the society also warrants no interference.

42.      These appeals, accordingly, fail and are dismissed with no order as to costs.

………….……………..

J (R. M. Lodha)

…..…….……………..

J (A. K. Patnaik)

New Delhi.                                                                                                                           August 31, 2010.

Housing societies to suspend members in case of violation of bye-laws: Supreme Court

By Legal Bureau

New Delhi: Cooperative housing societies can expel a member for owning more than one property as acquiring concessional government land cannot be a ruse to accumulate wealth, the Supreme Court has ruled.
The Apex Court bench of Justices Mukundakam Sharma and A R Dave in their judgement have observed that based on the functioning of voluntary organisations like cooperative societies, they are the best system which can suit the needs of poor and weaker sections. The object of a cooperative society is not to earn profits but to enable the members to improve their economic conditions by helping them in their pursuits, the court added.
The apex court passed the judgement while upholding the membership termination of a doctor, Parmanand Sharma, by Ishwar Nagar Co-op Housing Building Society in south Delhi for being in possession of another housing property in violation of the society’s bye-laws.
Thus, the cooperative societies like the present one which seek to obtain the land at concessional rate from the government and to build houses must necessarily have a limitation in that only members who are in real need of houses should be permitted to become members and to take the benefit of land allotment, Justice Sharma writing the judgement observed.
Sharma had purchased a property bearing No. A-19/A, Kailash Colony, New Delhi in his family’s name consisting of him, wife and two minor children in 1968. In the ground floor he was running a nursing home and on the other floors he was residing with his family.
His membership of the society was terminated in 1978 on the ground that Sharma owned another residential property, in the capital in violation of rule 25(1)(c)of Delhi Cooperative Societies Rules, 1973 which prohibited a member from owning any other property.
The Delhi High Court quashed the termination upon which the society moved the apex court.
Upholding the appeal, the apex court maintained, that a person cannot exploit his membership of a cooperative society, to avoid the soaring market prices and take a concessional advantage in obtaining a plot.
The Bench further said that the Bye laws of the society regulate the management of the society and govern the relationship between Society and its members. They are of the nature of Articles of Association of a company registered under the Companies Act. If they are consistent with the Act and Rules, the members are bound by them.
The apex court rejected the plea of the doctor that the Act cannot be applied retrospectively as at the time of purchasing the property he was governed by the Bombay Co-operative Societies Act, when there was no such prohibition. The Delhi Cooperative Societies rules, he pointed came subsequent to the purchase of his properties.