What is the maximum amount chargeable by a housing society for transfer charges, as per the law?

By Abhay Shah, Realty Quarter

The Maharashtra Government lately increased the stamp duty by 1% including for the sale, donation and transfer, and further increases in stamp duty and registration charges are possible. However, a conflict which afflicts property owners and buyers is somewhat nearer to home – transfer fees for the sales and transfer of shares and rights to apartments in a building by a cooperative housing society.  At the time of sale of the shares and rights in the flat, society insists on the payment of a transfer premium by a member, which varies from Rs 25,000 to even a percentage of the purchase payment in respect of the flat’s sale.

Maximum Permitted Transfer Charges described by the Law:

In general, the property owner and buyer, who request the cooperation of the society in order to modify the buyer’s name on the shareholding certificate, have no choice but to heed the society demands. The question is whether the law allows a society to impose an exorbitant transfer charge. The answer is found in Bylaw No 38 of the 2013 bylaws of the Maharashtra Model Society, 1960, published by Maharashtra government with a circular dated August 9, 2001. The aforementioned Bylaw No 38 and circular dated on August 9, 2001 state unequivocally that a sum of Rs 25,000 cannot be exceeded by the society’s premium for the transfer of flats.

In order not to fall foul of the aforementioned transfer fees cap, many societies often force the property owner/purchaser to pay the amount demanded through a ‘voluntary donation’. Bylaw No 38, however, also includes this eventuality and runs one step further to ensure that ‘No extra donation or gift to any other funds or under any other pretext shall be retrieved from the transferor or the transferee’.

Legal judgments concerning the transfer fees

Over the previous few years, the legality of paying transfer fees demanded by society has been checked by the judiciary on countless occasions. In the case of Bharatiya Bhavan Cooperative Housing Society Limited and others vs. Krishna H Bajaj and others (Writ Petition No 1094 of 2004, ruled on February 17, 2010), the Bombay High Court allowed the society’s appeal, thereby disqualifying the flat buyer from receiving a refund of an amount of Rs 9,63,000 paid to the society at the time of the flat’s sale through a voluntary arrangement.

During the appeal hearing before the Bombay High Court, the flat buyer claimed that the voluntary input was nothing but transfer fees demanded by the society, which the flat owner had no choice but to pay. The Bombay High Court observed that in that case, knowing the precise legal position, the flat buyer contracted with the society in the name of a voluntary contribution to pay the transfer fees of Rs 9,63,000.

Aggrieved by the preceding order, the property purchaser filed to the Supreme Court of India for a unique allowance (SLP No 11266 of 2010, the order decided on November 9, 2011). The SC declared that it did not agree with the factors provided by the Bombay High Court in the aforementioned judgement. However, the SC was unable to overturn the Bombay High Court’s ruling on the basis that the flat buyer had not contested the society’s choice to fix the amount of the transfer fees and that the flat buyer’s challenge was created after more than two years after the voluntary donation had been paid.

This problem of transfer fees has now been brought to a standstill by an order adopted by the Bombay High Court in the situation of Alankar Sahkari Griha Rachana Sanstha Maryadit vs Atul Mahadev and another (Writ Petition No 4457 of 2014, ruled on 6 August 2018), where the Bombay High Court categorically disagreed with the decision adopted by the Bombay High Court in the situation of Krishna H Bajaj and held that, in view of the fact that the flat buyer is taking immediate steps to challenge the transfer fees transaction, it cannot be established that it was a voluntary donation but a transfer fee payable by obligation. In the case of Alankar Sahkari, relying on the provisions of the society’s bylaws and the circular of 9 August 2001, the Bombay High Court observed that there was a ceiling of Rs 25,000 for transfer fees and that society were inventing different ways of earning more money by legally unauthorized means.

In addition, in the event of Alankar Sahkari case, the Bombay High Court has acknowledged that the society has a dominant role when a property buyer wishes the transaction smoothly and the return of the share certificate on his behalf. Under such situations, the society requires the flat purchaser to pay the exorbitant amount under the garb of ‘voluntary donations’.

The Bombay High Court ruled that a society can raise funds only through charges or fees that are legally permissible and that members are not supposed to profit from it. While the payment of donations to society can not be barred, the society can not impose transfer charges on the pretext of a donation without coercion or obligation.

Impact on property buyers and sellers of the Bombay HC judgment on transfer fees.

In the case of Alankar Sahkari, the Bombay High Court’s judgment set the basis for any property owner or purchaser to contest the exorbitant requirements of transfer fees collected by society, whether or not it is called a voluntary donation. While the legal remedy and law have been resolved reasonably, the remaining issue is whether a home buyer is prepared to commence acrimonious litigation with a society where he or she hopes to remain for the foreseeable future.

However, in societies where there is currently no resolution on paying the transfer charges as voluntary donations or otherwise, members should object to any such resolution being passed as it is against the intent of the law. Only if members raise their objections at the right time such actions can be prevented.