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Co-operative Housing Societies and the Consumer Protection Act, 1986

There are several instances, particularly in Maharashtra, where District Consumer Forums, and even the State Commission. have entertained complaints from members of Co-operative Housing Societies against the Society.  I examine here and reiterate that Co-operative Housing Societies are outside the purview of the Consumer Protection Act, 1986, hereinafter referred to as the Act, because neither a member of a Society is a ‘Consumer’ or the Society, a ‘service provider’, as defined under the Act.  Further any judgment should give justice not only to the party in whose favour the judgment was given, but also to the other parties against whom the judgment was. In the case of disputes between a member of a Co-operative Housing Society and the Society the provisions of the Act and the consumer courts set up there under are ill-equipped to give justice to all the parties in litigation. If a judgment did not cover all the parties, it becomes imbalanced and unfair to the party or parties against whom the judgment was delivered.

I take here a case which came before a District Consumer Forum in Mumbai. A member of a Co-operative Housing Society (CHS) in Mumbai filed a complaint before the District Consumer Forum against the Society (Opposite Party No.1) and another member of the same Society (Opposite Party No.2). The Complaint was briefly as follow:

The Complainant had a flat in the Society. Opposite Party No.2 had his flat situated right above that of the Complainant. OP No.2 allegedly carried out extensive repairs and renovations in his flat without the permission of the Society, Opposite Party No.1. It resulted in leakage to the flat of the Complainant. The Complainant claimed damages from the OP No. 2, which he refused. The Complainant then complained to OP No.1, which in turn passed a resolution at its General Body Meeting saying that OP No.2 should pay damages to the Complainant.  OP No.2 again refused to pay and the Complainant went before the Consumer Forum citing OP Nos. 1 and 2 as the Opposite Parties. The court gave its award in favour of the Complainant and gave orders to OP No.1 only. The court ordered that the OP No.1 should pay the Complainant Rs.55000/- for the repairs, Rs.15000/- for mental agony and Rs.5000/- as costs. Curiously OP No. 2 was let off free as he did not come under any of the provisions of the Act and not because he was not liable to pay. Is this not an unfair judgment? A court can admit a case only if all the parties to the litigation come under its jurisdiction. If a complaint is filed before a Consumer Court naming two or more Opposite Parties and if the court finds one or more of the Opposite Parties would be outside its jurisdiction even though such party or parties may solely or also be liable, it should not admit the case and, instead,  ask the Complainant to go to appropriate court which would have jurisdiction over all the parties named in the complaint and against whom the complaint can sustain. If the court gives its judgment only on the party or parties over whom the court had jurisdiction and lets off other party or parties merely for the reason that it has no jurisdiction, it will be gross injustice to the affected party. If the affected party were to go on appeal up through the consumer court hierarchy everywhere the party let off by the lowest court would escape for the same reason.

Now let me examine whether cases similar to the above would come under the provisions of the Act at all. Section 2(iv) (d) (ii) of the Act defines a Consumer thus:

“Consumer” means any person

(ii) who hires or avails of any services for a consideration  which has been paid or promised or partly paid and partly promised or under any system of deferred payment and includes any beneficiary of such services other than the person who hires or avails of the services for consideration paid or promised or partly paid and partly promised or under any system of deferred payment, when such services are availed of with the approval of the first mentioned person, but does not include a person who avails of such services for any commercial purposes.”

In order to become a “Consumer” under the Act, it is not enough if the person avails of any services. It is also necessary that the person pays a consideration for the services. In a Co-operative Housing Society a member does not pay to the Society any consideration for the services received. What the member pays to the Society is not consideration but only reimbursement of costs incurred by the Society on behalf of the member. The Society arranges for various services such as sweeping, security, electricity consumption etc. determines the share of each member according to approved formulas and collects the same from the members without any service charge or consideration for the Society itself. What a member pays is only reimbursement of expenditure incurred by the Society on his behalf. If any excess amount is collected during the process, the amount is retained in the Society’s books and applied to future expenses on behalf of the member or members. The Managing Committee members are not paid any remuneration. Even if they were paid any remuneration they would only be servants of the Society just like a sweeper or a watchman and not themselves service providers.

A Co-operative Housing Society in like a joint family with more than one earning member. In such a joint family the earning members contribute for the various domestic expenses of the family according to an agreed formula. One of the earning members or non-earning members is entrusted with the task of collecting money from the earning members, maintaining accounts and paying for the various expenses of the family.  Neither he nor the family would become a service provider for the family. The earning or non-earning members will not be consumers either.

Section 2 (o) of the Act states thus

‘ “service” means service of any description which is made available to potential users and includes, but not limited to, the provision of facilities in connection of banking, financing, insurance, transport, processing, supplying of electrical or other energy, board or lodging or both, housing construction, entertainment, amusement or purveying of news or other information but does not include the rendering of any service free of charge or under a contract of personal service.

As the service given by a Society is free of charge, such service is not service and the Society itself is not service provider under the Act. When a Society bills a member it is bound to render account to the member as to how much was paid by the Society under each head of expenditure and how the member’s share was computed. If the member does not pay and the Society has to apply to the Registrar for a recovery certificate under Section: 101, of the Maharashtra Co-operative Societies Act, 1960, the Society is bound to submit all the computations and calculations that would satisfy the Registrar. A commercial service provider will not be required to give to his customer his computation to arrive at the price.  If the Society were giving all the services on a commercial basis, as the consumer court legal fraternity seems to believe, such rendering of accounts would not have been necessary

I have gone in detail through many cases before the consumer courts.  In none of the cases the lawyers of the Societies have argued that their clients would not come under the jurisdiction the Consumer Protection Act, 1986 as I have argued above. The judges also entirely depend on the arguments placed before them by the lawyers on both sides and do not look into the laws on their own. Judges should ascertain facts from the lawyers and how law applies to them. But they should have also their own knowledge of laws concerned and do their own homework. The lawyers of Co-operative Housing Societies should have argued that their clients were outside jurisdiction of the Consumer Protection Act, 1986 and consumer courts instituted thereunder.  In case the court does not accept the argument, they can file a writ of prohibition before the High Court under Article 226 of the Constitution. Writs against consumer courts have been admitted by High Courts in many cases.

Co-operative Housing Societies are also required to submit income-tax returns. But any excess of income over expenditures is not considered as profit for the purpose of income-tax liability. Income of a Society for the purpose the Income-tax Act are external incomes of the Society such as interest on deposits with banks etc.. There are instances of the Government demanding service tax from Co-operative Housing Societies. It is again due to ignorance of the tax authorities of the working of Societies. Receipts from members and expenditures of a Co-operative Housing Society is said to be on a mutuality basis i.e. you receive from this side and pay the  amount on the other side on a one is to one basis.  A Co-operative Housing Society is a ‘not for profit’ organization.

Consumer courts are not fully equipped to give full justice in Co-operative Housing Society cases. As illustrated above they could not order the upper floor member, who was actually liable, to pay. Only a civil court can do that.

In cases, where technical points are involved, the judges should pro-actively ask technical experts to be brought into the witness box. In the cited case it was the question of leakage of water from an upper floor to a lower one. The leakage was caused due to work done on the upper floor. All of us know that water flows downwards only and not upwards. So how a leakage can be stopped by doing repair work on the lower floor only without doing anything on the upper floor?  If any work is to be done on the upper floor the upper floor member should have been asked to do it or give access to do the work. The consumer court cannot order the upper floor member due to lack of jurisdiction. The case was not one of monetary transaction to be settled by payment of cash. The grievance of the complainant here was that there was leakage of water from the upper floor. Redressal of the grievance should have been stopped. Instead of ordering action to stop the leakage, the court has ordered payment of cash to the Complainant. What will the complainant do?  He will on his own do repairs from below. As an engineer I say that the leakage would surely recur within a few months or a year. What remedy can the Complainant seek then? If the leakage is to be effectively closed work should be done on the upper floor. After the work is done it should be tested for leakage by pouring water. The contractor who does the work should give a guarantee at least for a few years. The judgment has no provision for any of these things.

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