Rules on funds of housing societies are laid down in the registered Bye-Laws listed below:

Sahakarsutra Infoseries:

Rules on funds of housing societies are laid down in the registered Bye-Laws listed below:

7a. entrance fees;7b issue of shares;7c.loans and subsidies;7d deposits;7e voluntary donations,7f. contribution towards cost of building/buildings;7g fee on transfer of shares, along with the occupancy rights,7h. premium on transfer of occupancy right over the flats;[As per G.R.]7i any other mode permitted under these bye-laws.8. Share capital of the Society12. Constitutions of Reserve Fund12i. The reserve Fund of the society shall comprise of :-12ia.Appropriation 149a12ia entrance fees12ia transfer fees12ia transfer premium12ia all donations13a. Creation of the repairs and maintenance fund by the Society13b.Creation of Major Fund by the Society13c.Creation of the Sinking Fund by the Society14a.Utilisation of the Reserve Fund14b. Utilisation of the Repairs and Maintenance Fund14c. Utilisation of the Sinking Fund67 Composition of the charges of the society68. Breakup of Service Charges of the Society69 a. Sharing of the Society’s charges by the members69 b. Committee to fix Society’s charges in respect of every flat70. Payment of the Society’s charges.71. Review of cases of defaults in payment of the charges of the Society.72. Interest on the default charges.149a Contribution to the Statutory Reserve Fund of the Society149 b Distribution of the remaining profit of the Society.149bi To pay dividend149bii To pay honorarium to the office-bearers149bi ii To allocate to a common welfare fund,149biii The balance, as the annual meeting of the general body, may determine.

On perusal of this list one would put his finger on following items which appears relevant to the issue how to raise funds for capital expenditure in the housing societies after it has taken off and started operating. Normally large capital for new things hardly arises in housing societies except at the time of redevelopment.

2.7b issue of shares;

6.contribution towards cost of building/buildings

21.Utilisation of the Reserve Fund

36.149biii The balance, as the annual meeting of the general body, may determine.

Issue of shares may not be attractive for members to subscribe as capital in housing societies is a sunk investment. Contribution towards cost of building appearing in the books of accounts of housing societies is the aggregate amount paid by flat purchasers to builder at a price agreed between builder and the flat purchaser. This is a price of the flat but in a scheme of housing societies it also represents a member’s aggregate contribution to a society’s fund employed in acquiring assets of the society. Imagine a situation that the new pipe line was secured by builder already an no new connection is being allotted by BMC. The members would have contributed prorate the price of the flat. That is one basis of contributing to pipe line or any new common purchases of a capital nature.

The housing societies do have Reserve fund built up over a period by contribution from members under various items as can be seen in above list say 1,7,8, 12, 13, 16 and 36. One would imagine this Reserve Fund could be utilized to acquire capital asset of this nature that is an utility for common use. This cannot be quantified as a share of a member on any equitable basis. More over utilization of Reserve fund is restricted under bye laws No 14 “(a)Reserve Fund: The Reserve Fund of the society may be utilized for the expenditure on repairs, maintenance and renewals of the society’s property “

Item 36 is an accumulated balance of surplus in Income and Expenditure account that too a small part. How much surplus a society generates is also an issue in itself as it depends on adherence to requirements of Bye-Law No 67-72. A strict adherence to these bye laws would generate a fairly decent surplus for such purposes over a period.

So where is the answer? The Scheme of financing in housing societies is quite tight and integrated to its object the main object being “to provide its members common amenities and services” as per Section 2(16) of the M C S Act 1960. Bye-laws 67-72 requires full contribution towards the expenses on this object besides contributing to funds like Repair Fund Sinking Fund etc.

High capital expenditure is not anticipated so basis of members contribution there for is not given any importance. Members have much less liberty to the uses of the funds. As and when a major capital asset is proposed to be acquired members have to arrive at amount every member will contribute on some fair basis and not on the end use of the funds so collected. In societies where every dwelling unit is uniform contribution of equal amount per one unit will not look unfair. But where flats are of varying sizes say 1BHk 2 BHK and 3 BHK any basis will look controversial. 

Over here, the most followed method is to contribute on per sq feet basis to avoid any controversies.