FLAT OWNERSHIP ACT
1.1The Maharashtra Ownership Flats(Regulation of the Promotion, Construction, Sale, Management and Transfer)Act,1963(“the MOFA”)has been enacted to regulate the promotion, construction, sale, management and transfer of flats sold on an ownership basis within the State of Maharashtra. The MOFA is an important piece of legislation as it lays down the responsibilities of real estate developers / builders in respect to flats sold by them and conversely the rights of flat purchasers within the State.
The MOFA lays down certain important definitions.
The MOFA defines the term to mean:
a. A separate and self-contained premises,
b. Which is used or is intended to be used as a Residence, office, show-room, shop, godown, carrying on of any industry or business Including a garage
c. And the premises forms part of a building
The term flat also includes an apartment. The Explanation to the definition provides that even if a separate bathing, washing, sanitary, etc. arrangement is made between two or more premises, they shall be deemed to be separate and self-contained.
Thus, in order to be construed to be a flat, all the above ingredients must be fulfilled. This is an important definition because if a premises is not regarded as a flat the provisions of the MOFA do not apply. A common misconception is that the provisions of the MOFA only apply to residential premises.
The second most important definition is that of the term “promoter”. It is defined to mean a person:
a. Who constructs or causes to be constructed
b. A block or building of flats or apartments
c. For selling all or any of them to a Company, Co-operative Society, Association of Persons
All the three limbs of the definition are important and all three must be satsified for construing a person to be a promoter. The term promoter includes his assigns and thus, if a person assigns his interests in the land to another person then the assignee would become a promoter . In the event that the builder and the person selling the flats are different, then both of them are promoters. The decision of the Bombay High Court in the case of Ramniklal Kotak v. Varsha Builders AIR 1992 Bom 62 is very relevant on this issue. A mere contractor of the builder would not come within the definition of the term.
III.Responsibilities / Liabilities of the Promoter
3.1S.3 of the MOFA casts onerous responsibilities upon a promoter who constructs a building of flats which are to be “taken on ownership basis”. It is strange that though the term “ownership basis” has been used in the MOFA it has not been defined anywhere. The responsibilities of the Promoter u/s. 3 are as follows:
(a) make a full and true disclosure of
(i) his title to the land along with a title certificate and an entry in the Property Card of the same
(ii) all encumbrances on the land
(iii) all outgoings for the property : rates, municipal taxes, cess, etc.
(iv)the prescribed particulars in all advertisements for sale of flats
(v)the nature of fixtures, fittings, lifts, materials used in construction of the building, etc.
(b)specify in writing the :
(i)date by which possession of the flat would be handed over
(ii)the precise nature of organisation of flat purchasers to be formed to which the title would be conveyed, e.g., company, co-operative society
(c)not part with possession until a Completion Certificate is received from the Municipal Corporation.
(d)give inspection on 7 days notice of the approved plans and specifications
(e)Maintain a list of flats taken or agreed to be taken with prescribed details.
3.2The Promoter is responsible for paying all outgoings including taxes in respect of the flats until he transfers the property to the flat owners/ society / company, etc.
3.3Once the approved plans and specifications are disclosed to the flat purchasers, the promoter cannot without the purchasers’ previous consent make any alterations or additions in the structures of the flats. In case the flat purchaser notifies any defect in the building/materials used/ any unauthorised changes, etc. within 3 years of taking possession, then the promoter shall, if possible, rectify the same free of cost.
3.4If the promoter fails to give possession of the flat as per the date specified in the agreement or any further agreed date or in case of any reasons beyond control within a further extended time of 6 months, then the promoter shall be liable on demand to refund the amounts received by him along with 9% interest per annum till the date of refund.
3.5 After execution of the agreement for sale, the promoter cannot create any mortgage/charge on the flat without the consent of the flat purchaser.
IV.Registration of Agreements
4.1U/s. 4 of the MOFA, before accepting any payment as advance payment or deposit from a flat purchaser, the Promoter has a liability to execute a written agreement in the prescribed format with every flat purchaser and to get this agreement registered under the Registration Act. Further, the amount of deposit or advance cannot exceed 20% of the sale price. U/s. 5 the Promoter is required to maintain separate bank accounts of sums taken as advance or deposit and he shall hold them for the purpose for which they were taken. The Bombay High Court’s decision in the case of Ramniklal Kotak v. Varsha Builders, AIR 1992 Bom 62 is relevant in this respect:
“To prevent bogus sales being effected by a Promoter and to put a check to malpractices indulged in by the Promoters in regard to sales and transfer of flats, the Legislature has provided that the Promoter shall :
(a)not accept any sum or money as advance payment or deposit more than 20% of the sale price;
(b)enter into a written agreement with each individual flat owner.”
The Bombay High Court in the case of Association of Commerce House Block Owners v. Vishnidas Samaldas (1981) 83 Bom. L.R. 339 held that the provisions of s. 4 are mandatory and not directory in nature.
4.2 The prescribed particulars in respect of the Agreement which is specified in Form V are as under :
(a) the date by which possession of the flat would be handed over
(b)the carpet area and balcony area of the flat(shown separately)
(c) the price of the flat along with instalments in which the same is to be paid
(d) the precise nature of organisation of flat purchasers to be formed
(e) the nature, extent, description and percentage of undivided interest in the common areas and facilities
(f)the copies of title certificate, property card extract, approved plans, etc.
4.3 S.4A states that even if any agreement is not registered u/s. 4 of the MOFA, it is admissible as evidence in a suit for specific performance or as evidence for part performance u/s. 53A of the Transfer of Property Act. This section was inserted to overrule the Bombay High Court’s decision in the case of Association of Commerce House Block Owners v. Vishnidas Samaldas that non-registered agreements are wholly invalid and void ab initio and create no rights between the parties.
V.Conveyance of title
5.1U/s. 10 of the MOFA, as soon as the minimum number of persons required for forming a co-operative society or a company have taken flats, the promoter must within 4 months submit the application for formation of a co-operative society or a company. This section recognises a company as a valid form of organisation as opposed to a society. The promoter must then u/s. 11 convey his title to such an organisation of the flat takers within 4 months of the date of formation of the society or the company (provided no date has been agreed upon).
6.1 Any promoter guilty of contravention of s.3 (general liabilities), s.4 (registration of agreement), s.5(maintenance of separate accounts for deposits), s.10 (formation of society or company) or s.11 (conveyance of title) shall, on conviction, be punished with a term up to 3 years and/or a fine.
6.2 Any promoter who commits a criminal breach of trust in respect of any advance or deposit given to him for specified purposes shall, on conviction, be punished with a term up to 5 years and/or a fine. The penalty for contravening any other provision of the Act, on conviction, is a term of up to 1 year and/or a fine of up to Rs. 10,000.
VII. Directors’ Responsibilities
7.1The responsibilities of the directors of a company which is acting as a promoter of a building, etc. are very onerous. They must be extremely careful and cautious in exercising their duties as the penalties provided under the Act are very severe and in most cases they result in imprisonment.
7.2 The Act also provides that where the person committing any offence is a company, then every person who at the time of the offence was responsible for the conduct of the business of the company as well as the company would be directly liable to be punished.
7.3 Further, any director with whose connivance, neglect or active consent any offence has been committed by the company, shall also be deemed to be guilty of the offence and shall be liable to be directed proceeded against and punished.