How to prepare maintenance bills of Cooperative Housing Society in Mumbai?

How to prepare maintenance bills of cooperative housing society in Mumbai:

1. Bye Law No 72 mandates the Secretary of the society, to  prepare demand notice in respect of the charges of the society payable by members on the basis of the bye-laws-law No. 71(a) and issue the same to all the members on or before the date fixed by the Committee.

2. Charges of society as listed under Bye Law No 68 are mainly of four types

a. Payments to BMC – Property taxes & Water charges
b. Contribution to funds-Repair fund & Sinking fund
c. General maintenance expenses – power, staff salaries, security services, insurance etc.
d. Recoveries from members – NOC on rented flats, Parking , Interest on delayed payments

Ideally demand note should list out charges under these heads for members’ understanding of what they for what they are consuming. Control on expenses becomes easier.

3. Bye Law No 71(a) lays down basis on which these charges are mandated to be apportioned over each flat.

a. This procedure is not optional. But in Mumbai every society has devised its own method. The composite rate of ` Six per sq feet is the simplest form of comparing the monthly burden on the pockets of members of different cooperative housing societies. It is an easier but unscientific substitute for the rate to be arrived at in a too simplistic way. It is not a method as per Bye Laws.
b. If after conducting a detailed exercise of apportioning the “society charges” as above a composite rate is worked out, it will rarely happen that one rate for all the flats will be the result of such exercise. If these are grouped as aforesaid there can be more than one rate and some may be same for all the flats of same area. But one rate for all is highly unlikely.
c. As a matter of fact, if a detailed exercise is insisted upon by members in the general body meeting (though it is not with in their role to fix rates, a policy direction on how to fix the rates can be laid down by members in the general body meeting) members will get a pleasant surprise that the rate may be somewhat higher but society will report profits every year. This is generally overlooked in simplified rate fixation method adopted by most cooperative housing societies in Mumbai.

Can a society charge maintenance on per sq. ft. basis ?

There is a Bombay High Court judgment that the society having flats of different sizes and by passing a Resolution for charging the maintenance charges on the basis of area of the flat and even getting it ratified in the general body meeting cannot charge maintenance on sq ft basis. 

More particularly due to the reason that the large flat holders were not drawing more benefits or facilities by virtue of the big size of their flats. The services are enjoyed by all the members equally therefore there is no rational basis for the society to charge for services on the basis of size of the flats and therefore the Courts below also rightly held the said resolutions as invalid and inoperative.

Although general body is supreme for the administration of the society it cannot pass arbitrary and unreasonable resolutions merely because it has a large majority in favour of one of the issues on the agenda.

In a CHS the services are enjoyed by all the members equally and therefore, there was no reason for the society to have made the large flat holders to pay more on the basis of the area of the flat. There is absolutely no rational or any reason to require the large flat owners to pay more for the aforesaid service charges.

Whether Saket Cooperative housing society can charge maintenance on the basis of floor area of each flat, as in his society there are different sizes of flats?

Fixation of maintenance rates is viewed as the managing committee making members gulp a bitter pill from year to year. As such it has always been a controversial area of management of every cooperative housing society.

The subject has visited the Bombay High Court more than once. In a recent case of Venus Cooperative Society [Venus Co-operative Housing Society Ltd. v. Dr. J.Y. Detwani reported in 2004(5) Mh.L.J. 197 = 2003(3) All. M.R. 570. ]

Bombay High Court held that the resolution of the society levying differential charges on the basis of the area of the flats was arbitrary, unreasonable, without any rational and without any source of power.

It held that services of the society were enjoyed by all the members equally and there was no reason for the society to make the large flat holders pay more on the basis of the area of the flats.

The relevant Bye Laws covering the scheme of fixation of maintenance charges:

1. It is now well settled position that the Bye Laws of cooperative housing society are internal rules binding on all the members inter se and also its managing committee and the Society i.e the duly convened general body meeting. [The Co-Operative Central Bank Ltd. & … vs Additional Industrial Tribunal, … on 3 April, 1969 [1970 AIR 245, 1970 SCR (1) 206]

2. Look at the following Bye Laws very carefully (As most people normally not do)

a. Bye Law No 111: Subject to the provisions of the MCS Act, the MCS Rules and the Bye-laws-laws of the Society, the final authority of the society shall vest in its general body meeting, summoned in such manner as is specified in these bye-laws
b. Bye Law No 112. The Management of the affairs of the society shall vest in the Committee duly constituted in accordance with the provisions of the Act, the rules and the bye-laws of the Society.
c. Bye Law No 113. Subject to the direction given or regulation made by a meeting of the general body meeting of the Society, the Committee shall exercise all powers, expressly conferred on it and discharge all functions entrusted to it under the bye-law No. 137.
d. Bye Law No 137.Subject to the bye-law No. 113 the Committee shall exercise the powers and discharge the functions and duties as mentioned hereunder: (Item 11 ) “To fix in respect of every flat the society’s charges on the basis of the proportion laid down under the bye-law No. 71(a). “[Bye Law No 71(b)]
e. Bye Law No 71(b): The committee shall fix in respect of every flat the society charges on the basis laid down under the bye-laws-law No. 71(a).

3. Now mark carefully in these Bye Laws:

a. The general body meeting has a final authority to give directions to the managing committee within the framework of the M. C. S. Act 1960, the M.C.S. Rules 1961 and the Bye Laws themselves (Bye Law No 111). These three are superior to any resolution of the general body meeting, in that order and thus the M. C. S. Act is final.

b. In discharge of its duties the managing committee must perform the functions entrusted under Bye Laws and enumerated under Bye Law No 137.

c. It is quite probable that the general body meeting decides to give a direction to the managing committee, which is different from what a Bye Law has expressly provided for. For that the Bye Law No 167 contains Sub-Sections 1, 2 and 3 laying down the procedure to be complied first. These sub-sections involve prior approval of and registration by the Registrar of the special majority resolution passed in the general body meeting specifically convened for that purpose. The resolution must be affirmed by 2/3 number of members present and voting.

4. This lengthy explanation should bring home a point that the basis fixed for apportioning society charges incurred under various heads, in Bye Law No 71(a) must be resorted to by the managing committee in arriving at an amount of society charges [in due discharge of its important duty]. It may be emphasized that the entire society charges as listed in Bye Laws 69 and 70 are to be apportioned without any discretion of the managing committee or the general body of the society.

5. In Bye Law No 69 there are 14 items of Society Charges one of which comprises of set of 11 items called Service Charges enumerated in Bye Law No 70. The general body meeting can add any new head of expense in these lists as that authority is spelt out in both the Bye Law No 69 and 70. But it cannot leave out any item of society charges whether listed or not.

6. In Bye Law No 71(a) different basis of apportionment of society charges are laid down, instead of a one uniform basis “the area of the flat- different size of flats” or “number of flats” where the flats are of uniform carpet area. Most of these basis can be divided in 3 groups besides some specific basis for individual items which can not be grouped. These basis do have some logical relationship with the beneficial impact of expenses for flat holders as can be seen below. In short the final rate of society charges to be demanded by the Secretary (Bye Law No 72), is a complicated combination of various basis. It remains a complicated exercise even cases where all the flats are of uniform carpet area.

a. Charges to be apportioned on the basis of the area of each flat:

1. Item No (iv) Expenses on repairs and maintenance of the buildings
2. Item No (vi) Sinking Fund
3. Item No (xii )Insurance Charges
4. Item No (xiii) Lease rent : (Where land is obtained on lease)
5. Item No (xiv) Non-Agricultural tax

b. Charges to be apportioned on the basis of Pro-rata the Number of Flats

1. Item No (vii) Service Charges : Equally divided by the number of flats.
c. Charges to be divided among number of members (No of Flats not relevant)
1. Item No (iv) Expenses on repairs and maintenance of the lift, including charges for running the lift : Equally by all the members, irrespective of the fact whether they use the lift or not.
Specific basis for specific nature of expenses
1. Item No (i) Property taxes : As fixed by the Local Authority
2. Item No (ii) Water Charges : On the basis of total number of taps / push cocks/of turn cocks/mixing taps/Flush taps/shower taps etc.
3. Item No (viii) Car Parking Charges : At the rate fixed by the general body of the society at its meeting under the bye-laws-law No. 84.

4. Item No (ix) Interest on the defaulted Charges : At the rate fixed under the bye- law No. 74.
5. Item No (xi) Non-occupancy charges : At the rate fixed under the bye-laws-law No. 45(2)(iii)©.
f the general body wants to make any change in the basis of apportionment fixed in any clause of Bye Law No 71(a), that can be done by carrying out an amendment in the Bye Law No 71 (a) as explained under Para 3.c. earlier.

3. As most of the expenses are having the basis of apportioning laid down in the Bye Law 71(a), ideally there exists a very little scope of dispute as regards the basis of allocation being either on the basis of “the carpet area of the flat” or “the number of flats” or “the number of members” to the exclusion of the other two.

4. Despite such a “black and white” law for recovering society charges from members why there are disputes?

Genesis of the dispute in such vital matter of cooperative housing societies

1. The roots of dispute lie in oversimplification by management in compliance of the mandatory requirements of Bye Law No 71(a) & (b). Most Committees use a short cut to attend to the unpleasant duty of fixing ever increasing rate of maintenance charge. The practice is to place statement of expenses netted off by the income earned, like NOC, interest on default in payments and interest earned on idle funds parked outside the Society’s business.

The managing committee than smartly shift their onerous duty to the members in the general body meeting to fix the rate, to recover the balance amount of expenses using some simple formula. The general body meeting unintentionally perform the function of the managing committee, without realizing the breach of the Bye Laws for which the managing committee will in fact be liable since as per the Bye Law No 71(b) [item 11 of Bye Law No 137 ] it is the duty of the managing committee to fix the rate and the general body meeting fixing the same does not absolve the managing committee .

2. The managing committee while abducting its duty, passively induces members in the general body meeting to fix the recovery of maintenance charges as it suits to majority – oppression of minority is also not a minor issue in cooperative societies.

3. Members do not realize that this has an adverse fall out on expenses incurred. The managing committee is accountable to members for funds applied in maintenance and providing services, but in shifting the onus to fix the rate, to the general body meeting extravagant spending by the managing committee losses the focus completely.

A Word of caution or take it as a warning:

The Maharashtra Cooperative Societies (Amendment) Act 2013 drastically amended Section 81 concerning audit of societies. Sub-section (1)(e)(iii) thereof has made it obligatory for auditors’ report to ensure that “the functioning of the committee and sub-committees of the societies be checked and if any irregularities or violations are observed or reported, duly fixing the responsibilities for such irregularities or violations’

The first thing that can attract the attention of the auditor on functioning of a committee of a cooperative housing society could be the fixation of rates of maintenance without strictly resorting to the basis of apportionment and consequent short recovery of expenses incurred by the committee in any year.