Bombay High Court: Section 28 Shareholding Restriction Inapplicable to Housing Societies After Introduction of Chapter XIII-B.

Headnote:

The Bombay High Court held that the restriction under Section 28 of the Maharashtra Co-operative Societies Act, 1960, which limits a member from holding more than one-fifth of the total share capital, does not apply to housing societies after the introduction of Chapter XIII-B. The Court ruled that purchase of multiple bungalows by a company does not automatically amount to illegal accumulation of share capital and cannot be treated as opposed to public policy. Membership cannot be denied where the applicant is willing to comply with statutory and regulatory conditions.

Background:

1. Respondent No.1 company purchased five out of fifteen bungalows in the petitioner housing society through registered sale deeds dated 7 April 2008.
2. On the basis of these purchases, Respondent No.1 sought membership of the society, claiming deemed membership due to non-decision within the statutory period.
3. The petitioner society challenged the sale transactions and membership through multiple proceedings under the Maharashtra Co-operative Societies Act, 1960.
4. Earlier writ petitions were disposed of by the High Court on 14 February 2024, granting liberty to Respondent No.1 to submit fresh membership applications.
5. Fresh applications were rejected by the society, but the Deputy Registrar allowed the appeal, and the Divisional Joint Registrar dismissed the revision, leading to the present writ petitions.

Issues Before the Court

1. Whether purchase of multiple bungalows by a company violates Section 28 of the MCS Act by resulting in excess shareholding.
2. Whether Section 28 continues to apply to housing societies after the introduction of Chapter XIII-B.
3. Whether the sale deeds executed in 2008 are void as being opposed to public policy under Section 23 of the Indian Contract Act, 1872.
4. Whether proceedings should be governed by pre-amendment law due to the saving clause under Section 154B-31.

Court’s Observations

1. Section 28 governs holding of shares, not ownership of immovable property. Purchase of a flat or bungalow does not automatically result in allotment of shares.
2. Membership, allotment of shares, and issuance of share certificates are distinct legal steps under the Act.
3. After introduction of Chapter XIII-B, Section 28 is expressly excluded from application to housing societies by virtue of Section 154B(2).
4. Fresh membership applications filed in February 2024 constituted new proceedings, to which the amended legal regime applies.
5. The saving provision under Section 154B-31 applies only to proceedings pending at the time of commencement of the amendment and does not revive an earlier legal position once proceedings are set aside.
6. Sale deeds cannot be treated as void under Section 23 of the Contract Act in the absence of any express statutory prohibition.
7. The second proviso to Section 22 of the MCS Act is regulatory and not prohibitory; willingness to comply with prescribed conditions is sufficient.

Final Decision

The Bombay High Court dismissed all the writ petitions, upholding the orders of the statutory authorities granting membership to Respondent No.1.

The Court clarified that conferment of membership shall be subject to compliance with regulatory conditions specified by the society, after which membership must be processed in accordance with law.

Legal Provisions Discussed:

1. Section 28, Maharashtra Co-operative Societies Act, 1960 – Restriction on holding of shares
2. Chapter XIII-B & Sections 154B, 154B-31, MCS Act – Special regime for housing societies
3. Section 22, MCS Act – Admission of members
4. Section 23, Indian Contract Act, 1872 – Contracts opposed to public policy
5. Article 226, Constitution of India – Writ jurisdiction