By I C Naik
(“Nomination to flats on member’s death– Confusion Compounded” posted in the Cooperative Coffee Shop on December 17, 2017 was in fact Part 5 of the articles written by Mr I C Naik. This is Part 6-Editor)
Every member of a co-operative housing society is at least conscious about importance of the society’s financials management. It is about management, accounting and reporting i.e. funds management. Internal rules (a few relevant bye-laws) for mobilization and utilization of funds in the housing society are very well organized in a very simple manner. It requires no expertise if the intentions are honest enough to its adherence.
A very simple scheme of the housing society’s financials as provided in the registered bye-laws of the society is stated briefly as under:
1. The managing committee is under a contractual obligation to apportion all Society Charges (for simplicity so defined which also include the contribution to funds like Repair Fund and Sinking Fund) on all the flats. The definition also includes demands in the nature of income to the society payable by the members. One generally missed out concept is that the Committee has an obligation under the bye-laws to ensure that 100% of Society Charges are built in to the rate of demand made on the Management Committee. This is an exclusive domain and duty of the Management Committee. General Body Meeting is out of it. It is hard coded in bye-laws.
2. Another important concept built in to financial management of housing societies under every successive Model bye-laws is also generally missed out by most cooperators including the writers of the Housing Manual. The members of the society are supposed to be involved in decision making of long term nature implications of financial decisions. For example the rates of Sinking Fund. Repair Fund, Major Fund and their utilization are vested in General Body Meeting but annual maintenance expenses are within complete control of the Management Committee. Fixing overdue interest charge, rates of NOC Transfer Premium etc are within the domain of General Body Meeting as these are decisions of long term nature.
In this background, let’s turn to Chapter 4 of Housing Manual, namely FUNDS OF THE SOCIETY (pp37-39). The question before us is how far the content of chapter 4 helps achieve the Manual ‘s declared objective of ”simplification in management and dispute solving within the society premises.” Or it is an empty mandate like those we saw so far.
1. Sub-Para 4.2 Reserve fund:-
i. Section 66 of the M C S Act 1960 requires every society which does, or can, derive a profit from its transactions must maintain a reserve fund and transfer therein at least one-fourth of the net profits each year.
ii. The Housing Manual however vaguely mandates the transfer of some amount from the net profit towards the reserve fund. When the law is clear why the drafters of Housing Manual do not take trouble to read the provisions?
2. Sub-Para 4.3 Raising of other funds:- Sinking fund:-
i. Bye-laws require General Body Meeting to fix the rate of contribution not lower than 025% of the value of the flat.
ii. The directions under this paragraph have two areas of confusion.
a. For fixing the rate of contribution Housing Manual requires the consent of all members in the general body meeting. All proposals in General Body Meeting are passed by a simple majority excepting certain specific businesses like amending bye-laws or expelling a member or approving redevelopment etc. All members’ consent is not necessary for any business.
b. As per Housing Manual this rate is 0.25% of the rate of construction cost of each flat.
3. Sub-Para 4.4 Increasing / Sanctioning of Maintenance fee and other fees:
i. The Management Committee is duty bound to fix a rate of members’ contribution by apportioning Society Charges under each head as listed in the specific bye-law and by implication the General Body Meeting cannot interfere. Overriding such power of the Management Committee conferred under registered bye-laws Housing Manual provides:” It is obligatory to take approval of general body meeting in this regard and to take action as per resolution of general body meeting.
ii. Service Charges form part of the maintenance bill raised at the rates fixed by the Management Committee as aforesaid. Model bye-laws stipulate that services charges to be charged equally to all members (except Model 2014- which requires equal collections in respect of every flat held by the member). This collection has been thoroughly confused by Housing Manual which can increase litigations The incorrect directions are:
a. The society can take decision on its level regarding charging service fee from the member holding more than one flat.
b. The member himself should reside in one of the flats.
4. Sub-Para 4.5 Non- Occupancy charges:-
The State Government had issued direction under Sec 79A (which was upheld by Bombay High Court also),
i. Fixing a ceiling on the amount of NOC which General Body Meeting can decide : i.e. “Non occupancy charges should not be more than 10% of service charges.”
ii. Requiring ever housing society to amend its bye-laws accordingly and ordering every housing society to abide by this directive whether the bye-laws are amended or not.
One can see the redundancy of the Chapter 4 of the Housing Manual. In fact it confuses the members.