Penal interest on delayed maintenance charges

Sreekumar J Pai (Querist) 24 August 2026 This query is : Resolved
Apartment owners Association charged penal interest on delayed payment by capitalizing/compounding the penal interest on the monthly maintenance charges. Is this legal? can an association enact bylaws above the Indian laws?

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This discussion explores the legality of Apartment Owners Associations charging penal interest on delayed maintenance payments, especially when compounded monthly. Generally, associations can charge penal interest if it's in their registered bye-laws. However, exorbitant rates, particularly compounded monthly, may be deemed illegal under Indian law, with simple interest up to 21% per annum often considered the legal limit.

kavksatyanarayana (Expert) 26 August 2026
Each state has its own laws. Usually, an apartment owners' association can legally charge penal interest on delayed maintenance charges, provided the provision is explicitly stated in the registered society bye-laws. While standard rates vary by state cooperative acts, penal interest is generally considered legally valid and reasonable up to a maximum of 21% per annum (simple interest). Exorbitant monthly penalty rates (such as 5% to 6% per month) are generally deemed illegal and unenforceable.

Sreekumar J Pai (Querist) 26 August 2026
Thanks a lot Sir 🎉

Dr. J C Vashista (Expert) 27 August 2026
Refer to the Bye=Laws adopted by the Association, which is accepted by its members and applicable to all of them.

Sreekumar J Pai (Querist) 27 August 2026
I agree. But byelaw can't have provisions against the Indian laws. Charging penalties above 21%, that too capitalizing the amount levied is against the law of land. Hope you agree with me.

T. Kalaiselvan, Advocate (Expert) 27 August 2026
Compounding penal interest on delayed maintenance charges by an Apartment Owners Association (AOA) or Resident Welfare Association (RWA) is legally unsustainable and generally illegal, and no association can enact bye-laws that override Indian law.
Charging interest on interest (compounding) or treating overdue interest as part of the principal monthly balance to levy fresh interest is illegal unless expressly provided by a specific state statute—which Apartment Ownership Acts do not support.
Send a written letter to the Managing Committee citing the relevant State Apartment Ownership Act/Model Bye-Laws. Request them to recalculate your dues using simple interest only on the principal overdue amount.
File a dispute or complaint with the District Registrar of Societies/Co-operative Societies (under whom the association is registered) for charging illegal penal interest.
As a flat owner, you are a "consumer" paying for maintenance services. Charging illegal compound penal interest constitutes an "unfair trade practice" and a "deficiency of service" under the Consumer Protection Act, 2019.

Dr. J C Vashista (Expert) 28 August 2026
Bye-Laws of an association / Society has to be framed, approved by its AGM and approved by concerned Registrar only when it is in conformity with particular Act / Rules on the subject.

Sreekumar J Pai (Querist) 28 August 2026
Thanks a lot Sri.Kalaiselvan & Vasishta for penning more clearly.

T. Kalaiselvan, Advocate (Expert) 31 August 2026
You are welcome for your appreciations

Sreekumar J Pai (Querist) 31 August 2026
One more doubt. Can an office bearer of the apartment owners association be debarred from office for violating the above guidelines on the charging of penal interest ( compounding) ? If yes, for how many years?

Dr. J C Vashista (Expert) 01 September 2026
No.
Such provision do not exist either in any of the State Apartment Ownership Act / Rules or Bye- Laws of the association.

P. Venu (Expert) 02 September 2026
Any suggestion depends upon the provisions of the law under which the Apartment is registered.

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