Non Occupancy Charges should be 10% of Service Charges By Societies

lawBy Advocate S R Agarwal

Accommodation Times Bureau

The levy of non-occupation charges has been a
controversial issue for a long time, which resulted into
disputes between members and the Societies flooding
the offices of the Deputy Registrar and the Courts.
Therefore, attempts have been made by the State Govt
from time to time to regulate it. The commissioner for Cooperative
Societies, Maharashtra State, issued a Circular
on 13.3.1992 laying down that the Societies could levy
non-occupation charges upto a maximum of 25% of
service charges and, accordingly, clause No: (C) of Byelaw
No: 45 (2) (iii) of the old bye-laws was replaced by
the following words.
“He shall pay non-occupancy charges to the Society at a
rate of not exceeding 25% of the service charges as will
be determined by the meeting of General body of the
Society.”
This Circular was challenged in Writ Petition No: 1618 of
1993, but it was disposed off as the said Circular was
withdrawn. In exercise of the powers vest in the State
Government under Section 79 A of the Maharashtra Co-
Operative Societies Act, the State Government issued
an Order on 9.3.1995 laying down that the non occupation

charges shall not be fixed beyond 100% of the
maintenance charges. But this Order was also challenged
in Writ Petition No: 1398 of 1996. Therefore, the State
Government appointed a Committee on 19.6.1997 to look
into the whole gamut of non-occupancy charges. The
Committee submitted its report to the State Govt on
31.7.1998 and when the said Writ Petition came up for
hearing in January 2000, it was dismissed as withdrawn,
as the State Govt submitted that the report of the said
committee was under consideration of the State
Government and, in the meanwhile, the earlier Order
dated 9.3.1995 was not being applied.
After the consideration of the Committee’s Report, the
State Government issued an Order dated 1.8.2001 in
Public Interest under Section 79 A of the said Act, there
by directing the Societies not to charge non-occupancy
charges beyond 10% of the Service charges (excluding
Municipal Taxes). Agian a number of the Societies led by
Palm Beach Riviera CHS Ltd., challenged this
Government Order dated 1.8.2001, fixing the non occupancy
charges not more than the 10% of the service
charges, before the Hon’ble High Court during the years
2002 and 2006 on various grounds such as, that this
Order was against the interest of the Societies, arbitrary,
not in public interest and unwarranted interference in the
affairs of the Societies and there is no legislative policy
enabling the Govt or Registrar to override the bye-laws

of the Societies duly approved by the Registrar enabling
the General Body to fix the non-occupancy charges
payable by the members and that the said Order may
enable a member to use the flat as a vehicle for carrying
out the object of earning money, thereby defeating the
spirit of the co-operative housing.
The State Government, justifying the Order dated 1st
August 2001, submitted before the Hon’ble High Court
that it has been issued in exercise of statutory powers
under Section 79 A of the said Act in public interest as it
serves the interest of the Societies, as well as the
members, because by virtue of a bruit majority and with
a view to extract more money from the members not
occupying the flats, non-occupancy charges were being
imposed whimsically and at exorbitant rates and on the
basis of the income earned by such members, which
amounted to levying the tax on income of the members
and in some cases at the rate of per sq.ft. of the area of
the Flat and the complaints were received by the Govt.
that in case of a few societies, the non-occupancy
charges recovered in respect of two flats were being
utilized towards the property taxes for the remaining 47
members, who were not required to pay anything towards
the Property Tax and the non-occupancy charges
recovered from three to six flats were more than the
property tax bill of the entire society, which levied these
charges @ of Rs. 9/- per sq. ft per month. Therefore, the

Government constituted a committee and after due
consideration of its recommendations decided a uniform
rate of non-occupancy charges throughout the state,
without linking the same with the rateable value of the flat
or the rental income derived by such members and to
achieve the objective of stopping the Societies from
profiteering and to prevent unjust enrichment and acting
to the detriment of the members, who gave their flats on
rent or on leave and license basis and to protect such
minority members from the oppression by majority in as
much as a flat is a property of the member and he is
entitled to return from the same as he has invested the
money for acquiring the same. It was also pointed out
that in such cases, societies do not spend any extra
money on account of the member giving the flat on leave
and license or rental basis and Govt. is concerned for
solving the housing problem in the State. Therefore, the
State Govt issued the Order dated 1-8-2001 and at the
same time, replaced by Bye-law No: 45 in the amended
Bye-law numbered as 43 which, interalia, provided as
under :-
“ C) He shall pay non-occupancy charges to the society.
Non occupancy charges shall be charged in accordance
with the circular issued by the Government of
Maharashtra/Commissioner for Co-operation from time
to time and shall not be levied if the flat is occupied by the
‘family’ of the member as defined under these Bye-laws.”

After the careful consideration of the submissions made
on behalf of the Societies and the Sate Government, the
Hon’ble High Court observed that the validity of Section
79 A of the said Act has already been upheld by this Court
in the cases 1989 Mh-L-J. 173 and 1993 (2), Mh L.J. 1716
and that it has been found that in some area, levy of nonoccupancy
charges has become a profit making business
and the State Government is empowered to issue Order
in public interest preventing the affairs of the Society being
conducted in a manner detrimental to the interest of the
members and looking at the housing cost as at present,
the member concerned must be allowed to earn some
income on the investment he has made and a good
member of flats remain unoccupied for various reasons
and if non-occupancy charges are allowed at the rate,
the majority decide, it would be an additional impediment
in the flats being available on leave and licence or tenancy
basis, which does not in any way violate the provisions of
the Maharashtra Ownership Flats Act and the provision
of the earlier Bye-law No : 45, empowering the General
Body of the Society to fix the non-occupancy charges,
was being abused by some of the societies, which cannot
be allowed to use the authority under the bye laws, a
vehicle for making money and exploit the minority
members, as it is not the business of the societies to
impose taxes and derive income by different modes, like
non-occupancy charges etc. The Hon’ble High Court came

to the conclusion that the exercise of the power by the
State Government is bonafide one with the objective to
avoid unnecessary litigation and disputes and bringing
uniformly in the rate of nonoccupancy charges without
linking the same to the income derived by the concerned
member or the rateable value of the Flat and to prevent
the exploitation of minority members. The argument on
behalf of the Societies that the entire property of the
Society was assessed as one Unit for Municipal Taxes
and the flats given on rent or lease and licence basis would
add to the rateable value component thereby, giving rise
to increase in such taxes did not find favour with the High
Court as of no significance and need not be considered,
as each flat is assessed separately for Municipal taxes
with effect from 1st April 2006.
Thus, the issue of the quantum of the non-occupancy
charges has been finally settled by the Hon’ble Bombay
High Court by its Judgment dated 2nd March 2007 by
upholding the Government Order dated 1st August 2001,
prescribing the non-occupancy charges not more than
10% of the service charges, excluding property taxes, both
in respect of residential as well as commercial premises,
irrespective of the fact whether the new Bye-laws are
adopted by the Societies or not. This Judgment has
brought in a great relief to the members of the Societies,
who give the flats on rent or leave and licence basis.

However, this judgement has been challenged before the
Hon’ble Supreme Court of India, which, after preliminary
hearing has passed the order dated 30.4.07, as “Interim
order passed by the High Court shall continue in the
meantime.” Therefore, no society can charge more than
10% as non-occupancy charges, unless ruled otherwise
by the Hon’ble Supreme Court of India.





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