PURCHASE OF PROPERTY BY SHARE CERTIFICATE

Advocate Selvakumar | property advocates in Bangalore | advocates in Bangalore 

            TRANSFER of immovable properties, particularly through transfer of shares, is very common in Mumbai, Gujarat, West Bengal but not so popular in Karnataka.

            The Transfer of Property Act, 1882 defines the transfer of property as “An act by which living persons convey the property in present or in future to one or more other living persons or to himself” and to transfer the property is to perform such act (Sec5).

            The act further describes the word “living persons” to include company, association, body of Individuals, whether they are incorporated or not.

            The recognized mode of transfers are sale mortgage lease, exchange, gifts. Incase of mortgage and lease, the owner of the immovable property retains his ownership rights but transfers some interest, and in certain cases possessory  rights.

            Sale, exchange and gifts are transfer of absolute rights in the immovable property by the owner to the other. In sale and exchange, the transfer is for consideration in cash or kind. In gift, the property is transferred to other out of love and affection and no other consideration is accepted and the transfer is absolute without any conditions attached. Section 10 of the Transfer of Property Act mandates that no absolute restrictions be imposed on transfer of property and only some temporary restrictions may be part of the transfer.

            The registration of sale and exchange deeds, if the value of property transferred is one hundred Rs. or more is a must. Incase of transfer of immovable property is by gift, the document evidencing the gift should be registered irrespective of the value of the gifted property. Section 17 of Indian Registration Act deals with the documents whose  registration is compulsory. It includes deed   of gift, non testamentary document (other than will) which create declare, assign, limit, extinguish any right, title, interest on immovable property, the value of which is Rs.100 or more.

            The stamps acts of various states prescribe the stamp duty payable on such documents of transfer.

            Thus, any transfer of immovable property shall be absolute without permanent restrictions, with power to alienate and shall be by registration of the deed of transfer on which prescribed stamp duty has to be paid. The prescription that the registration is compulsory when the value of the immovable property is Rs. One Hundred or more is only of academic interest, as no immovable property will be less than worth Rs.100. But, we are dealing in this article, with an altogether different type of transfer of immovable property adopted by some housing co-operative societies where the transfer is neither absolute nor the deed or transfer is registered.

Housing co-operative societies

            With the evolution of time and emergence of group housing schemes institutions which serve the cause of housing have developed. These housing societies are co-operative institutions which are required to be registered with the registrar of the co-operative societies. They have their own rules, by law. Recently, the Supreme Court had held that they can limit the membership to a particular class unless appropriate amendments are made to various co-operative societies Acts, incorporating a policy that no society shall be formed or if formed, membership in no society shall be restricted to a particular profession, religion, belief. There are mainly three types of housing co-operative societies.

Tenant ownership co-op housing societies

            The society purchases or takes on lease the land, makes layout and allot sites to its members. The members construct the houses at their cost. In such societies the land is owned by the society and the constructed part by the members.

Co-partnership co-op housing societies

            The society purchases or takes on lease the land and constructs buildings/flats which are allotted to the members. Here both the land and constructions are owned by the society.

Other co-operative housing societies

            The persons who have purchased flats from builders under the agreements as per flat ownership Acts of various states from society. The builder conveys the land and building in favour of society. Such societies are called flat owner’s type co-op housing societies.

            Both the land and building vest with the society. One should not mistake these societies, with the associations formed by the purchasers to manage the common areas and to keep the documents to title of the property.

Shares of the Societies

            Housing co-operative shares which own both the land and building offer shares to its  members. The number of shares allotted to its members is in relation to the flat, which is to be allotted to the members. To be clearer, the member who is allotted a three-bedroom flat has more shares than the person who is allotted a two bed room flat. The society owns the land and the building. On payment of fixed amount of deposit, the society allots the flat to the member.  No sale deed is executed or registered in favour of the member. He is not the absolute owner of the flat. His right is limited only to the use and enjoyment of the flat. Shares, deposit, and right to use and enjoy the flat shall constitute an integral and indivisible right which shall not be separated, that is, a share holder cannot transfer the shares to one person, deposit to another and right to use and enjoyment of that flat to a third person. In such an irregular transfer, the societies recognize only the person to whom the shares are transferred.

            So, in case of transfer of right to use and enjoyment of his flat, the transfer of shares to such a transferee is a must. Members may also surrender his rights to use an enjoyment of the flat to the society and get a refund of the deposits and share money. The members do not get absolute rights over the property and the ownership vests with society.

            Apart from housing co-operative societies, certain companies which are registered under the Companies Act, also follow this procedure, where that flats are allotted to its member share holders only to use an enjoy the flat, retaining the ownership with the company.

            The member is entitled to transfer his rights – use and enjoyment of flat. No absolute ownership is transferred which vests with the society. No objection certificate from society is necessary for such transfer. The purchaser has to become a member of the society. The shares standing in the name of the previous owner will be transferred to the transferee. The society charges a fee for such a transfer.

Mortgage

            Often, financial institutions finance transfer of such flats. But as the right of the member is limited to use and enjoyment of the flat, the financing institution does not get proper charge of such flats as the ownership is with the society. No Objection certificate is a must for such a mortgage.

            The Supreme Court has held, such properties cannot be alienated or auctioned to recover the dues. Even the entire property is assessed as a single unit for property tax, which will, in the name of the society will collect proportionate property tax from members.

Housing Societies in Karnataka

            This practice is not so common in Karnataka though, there are some tenant ownership housing Societies in Karnataka. The Karnataka government has made it very clear that separate regular conveyance deeds have to be made in case of individual share holders on payment of property stamp duty and registration charges. Department of Stamps and Registration has issued notices in many cases and the law is still unsettled in out state.