Flat owners’ association cannot demand a ‘transfer fee’ at every resale of a flat, rules Madras High Court

Justice S.M. Subramaniam said excess charges or levying of transfer fees on the transfer of a flat are impermissible; he also held that any amendment to a flat owners’ association’s bylaws could only come into effect only after the Registrar of Societies approved of the amendment

A view of the Madras High Court | Photo Credit: PICHUMANI K

A complaint by a single flat owner is sufficient for the Registrar of Societies to inquire into allegations of irregularities/illegalities by the flat owners’ welfare association and it is not necessary for the majority or one-third of the members to approach the official with such a complaint, the Madras High Court has ruled.

Justice S.M. Subramaniam said, Section 36(1) of the Tamil Nadu Societies Registration Act of 1975 empowers the Registrar to act even suo motu and therefore, the officer could invoke this power on the basis of a complaint lodged by a single owner without expecting a large number of members to raise a grievance.

The judge also held that any amendment to the association bylaws would come into effect only after the Registrar approves the amendment on being satisfied with its reasonableness. He rejected the argument that it was sufficient for the association to simply submit the amendment to the Registrar without any need to obtain approval.

Permitting the associations to just submit the amendments to the Registrar would lead to “anarchy” because they might end up amending the bylaws as per their whims and fancies, to the detriment of the flat owners. Further, the Registrar can approve of the amendments only if they are not against the basic rights of the flat owners, he said.

“There cannot be any room for exploitation by the association or its office-bearers. There is a possibility of them taking the upper hand in the matter of maintaining the apartments. Unguided power to an apartment owners association is not intended under the provisions of the Tamil Nadu Apartment Ownership Act,” Justice Subramaniam wrote.

The verdict was delivered while dismissing a writ petition filed by the owners’ association of Ankur Grand flats in Kilpauk in Chennai. The judge upheld the Registrar’s refusal to approve an amendment which authorised the association to collect a ‘transfer fee’ at the rate of ₹50 per sq.ft or 1% of the sale value, whichever was higher, during every resale of a flat.

Though the association attempted to justify this collection by contending that the amount was being added to the association’s corpus fund, the judge said, the association must restrict itself to the collection of maintenance charges alone especially when the builder had already collected the corpus fund from the initial purchasers and transferred it to the association.

“Prescription of excess charges or levying transfer fee on transfer of a flat are impermissible. The purpose and object of the association is not to develop its funds, but to maintain the flats. Collection of excess amount and keeping as a corpus fund would only lead to unnecessary complications in apartments,” the judge remarked.

Since right to property was a Constitutional right, the judge said, such a right could not be infringed upon by an association through the compulsory demand of a transfer fee during every resale of a flat. He also made it clear that the association could not restrain a flat owner from entering into his house for non-payment of dues.

“Coercive action by the flat owners’ association or its office-bearers against any member, at no circumstances be allowed and such illegal activities are liable for prosecution under the criminal law. Mutual respect and understanding in a community living is of paramount importance. Any member committing an irregularity is actionable only in the manner known to law and by following the procedures,” the judge concluded.