Suraj Lamp Judgment does not govern possessory rights

The controversy surrounding transfers via ‘SA/SPA/GPA/Will” was certainly put to rest by the Hon’ble Supreme Court in its recently delivered judgment titled Suraj Lamps & Industries Pvt Ltd. v. State of Haryana and another. [Special Leave Petition (C) No.13917 of 2009-Decided on 11-10-2011.] The operative portion of the said judgment clearly stipulates that SA/GPA/WILL transactions are not `transfers’ or `sales’ and that such transactions cannot be treated as completed transfers or conveyances.

It also stated that they can continue to be treated as existing agreement of sale and may also be used to obtain specific performance or to defend possession under section 53A of TP Act. Hon’ble Delhi High Court in its recent judgment delivered on 1st March, 2012 in the matter of Suresh Kumar And Anr. v. Suresh Atal  in RFA No. 482/2011 spelled out the scope of application of Suraj Lamps judgment in a suit for possession. The Court observed, ‘Of course, the judgment in the case of Suraj Lamp (Supra) squarely applies against the respondent/plaintiff in the facts of the present case ….however, it would at best mean that ownership rights as is normally known would not rest with the respondent/plaintiff,however, possessionary rights of the suit property cannot be disputed to be that of the respondent/plaintiff. These possessory rights were created in the year 2001 itself by means of the documents executed in favour of the respondent/plaintiff. In a suit for possession a plaintiff has to show better title i.e. entitlement than that of the defendant and in the present case, besides the fact that respondent/plaintiff has shown a better entitlement to possession by virtue of the documents dated 25.9.2001 executed in her favour, the appellants/defendants themselves do not have any equities in their favour inasmuch as qua both the flats purchased by them rights have been exercised.

Thus, even if the respondent/plaintiff fails to prove the ownership rights stricto sensu to the extent of entitlement of possession, the appellants/defendants cannot defend the suit for possession once no title or interest in the suit property is claimed by them.The respondent/plaintiff, therefore, need not strictly prove, that a license deed ought to have been executed before the suit for possession could be filed by respondent/plaintiff. A license is merely a right to enter and exit a property and for which there is no deed which is required to be drawn up.” Unhesitatingly, it can be said that judgment delivered by the Hon’ble delhi High Court succinctly explicates the substance of the ratio as also the application of Suraj lamps (supra) by stating that Suraj lamps (supra) at best governs the ownership rights of the parties by reiterating that immovable property can be legally and lawfully transferred/conveyed only by a registered deed of conveyance but does not govern the possessory rights of the parties in a suit for possession wherein the plaintiff has to showbetter title i.e. entitlement than that of the defendant and not absolute title as required to claim ownership.

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SC Aims To Check Misuse Of Power Of Attorney In Conveyancing Properties

The Supreme Court recently in Suraj Lamp & Industries (P) Ltd v. State of Haryana on October 11, 2011 has come down heavily on the invalidity of the legal arrangements taking place in the real estate sector in the form of Sale Agreement (SA) / General Power of Attorney (GPA) / Will Transfers; and instead held that the Registered Deed is the only legally valid tool for property transactions. Wherever a purchaser pays the full consideration, and instead of getting a Registered Deed of conveyance gets a SA/ GPA/ Will as a mode of transfer, either at the instance of the vendor or at his own instance, it cannot be treated as legally valid.

This judgement has brought into limelight a practice in India’s real estate, a practice in vogue for a long time, where registration of freehold property is administered through SA/ GPA/Will. In popular notion, and mistakenly at that, all the prospective sales can take place through any of the aforesaid modes, all being equally legitimate for all intents and purposes. It’s however inaccurate because there cannot be a sale or any other kind of transfer of immovable property through SA/ GPA/ Will.

This practice has become prominent because the agreements in the form of SA/ GPA/ Will are not required to be registered compulsorily since they do not involve transfer of any right or title and thereby escapes from the payment of stamp duty. A high rate of stamp duty levied on conveyancing deeds acts as a damper for execution of deeds of conveyance for full value, and encourages SA/ GPA/ Will transfers. When parties resort to such agreements for their transfer of immovable property, the adverse effect is not only loss of revenue (stamp duty and registration charges) but the greater danger of generation of ‘black’ money as these transactions facilitate persons with undisclosed wealth/ income to invest their black money and also earn profit/ income, thereby encouraging circulation of black money and corruption. Also the unscrupulous property owners more often enter into such sale agreements and take huge earnest money and then sell the property to others, plunging the original agreement holder and the subsequent purchaser into litigation. Thus the motive behind such transfers ranges from avoidance of stamp duty, registration charges and capital gains tax, to the fear of defective title of the seller being exposed at the instance of registration.

Furthermore, it is necessary to refer to the hardship, loss and anxiety caused due to the unnecessary litigation in absence of a mechanism for prospective purchasers to verify whether a property is subject to any pending suit, decree or attachment. Compulsory registration of conveyancing of immovable property would definitely reduce the litigation to a considerable extent, by which a prospective purchaser can ascertain this before he decides to purchase the property. This will go a long way towards discouraging generation of black money in real estate matters, and undervaluation to save stamp duty. Whatever be the intention behind the transfer of immovable property through SA/ GPA/ Will, the consequences are distressing in the long run, adversely affecting the economy and the civil society of the country.

This refined decision of the Apex Court was indeed long needed as it tends to clean up the illegal money flourishing in the real estate sector by making all the properties registered by restraining investments of black money under the cover of anonymity conferred by the unregistered transactions. It not only strikes down the transfers through SA/ GPA/ Will, but more manifestly drives the gullible persons holding properties with a title arising out of SA/ GPA/ Will transfers to execute proper conveyance deeds and register them since anything less than the registration would automatically obviate them from full-fledged ownership. This would undoubtedly set the innocent buyers free from the nagging fear of being surpassed by an imposter and would certainly put a reality check on the vehicles of fraud in the real estate sector.

It is disappointing to note here despite of having hundreds of anarchic laws on the subject, such abuse of law is seen so frequently. This suggests that even the legislators are the beneficiaries of the situation and the recent scams are the proof of it. Steps should be taken for reduction of the stamp duty on conveyance so as to encourage public to disclose the maximum sale value and have the sale deeds registered. Though the reduction of the stamp duty may result in an immediate reduction in the revenue by way of stamp duty, in the long run it will be advantageous to the law and order of the country. Thus it is the law makers this time who are supposed to take the call by making amendments in the existing anarchic legal system and uphold the welfare of the society.

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Highlight on title investigation of immovable property

Rapid industrial development and unbridled urbanisation have seen the demand for land for development of residential, commercial and industrial complexes, and even for farmhouses rise tremendously, resulting in sky-high prices. Alienation of real estate is specially taking place in villages situated within a radius of 1-20 km of urban industrial and commercial centres. Land parcels are generally purchased through socially advanced, often unscrupulous persons, or rich agriculturists possessing sufficient muscle power and skills to persuade, deceive and exploit the poor farmer. As a result, widespread deceit and exploitation is seen in almost all land alienations. It is, therefore, essential to have a fair idea of the guidelines of investigation of title.

Title is a legal term; it means the ownership right to property. When search is conducted unto the property of the person who owns it, it is called the Investigation of Title.

Investigation of title commences with the advocate commissioning searches in the offices of the concerned sub-registrar, to find out all documents that are registered relating to the property for the last 30 years. If the relevant documents are not available from the above office, the owner’s advocate is asked to provide copies of the same. Enquiries should also be made from the Municipal Corporation to ascertain whether there are any arrears of property taxes or water charges in respect of property.

In addition, the advocate issues a notice in local newspapers inviting claims in the nature of mortgage, charge, easement, etc., against the property to be submitted within a specific time with supporting documents. The notice states that if no claim is received, it would be deemed that no such claim exists or it shall be deemed to have been waived. Such a clause is not binding on the real claimants because the notice may not come to the attention of such person, however in case of dispute such notice will support buyer’s contention that he is a bona fide purchaser for value without notice of claim. Site inspection through a surveyor for ascertaining the possession and boundaries of the land should be conducted.

The investigation is carried out broadly to ensure that the property is indeed in the name of the person selling, is free from liens, mortgages and encumbrances, that the property tax has been fully paid up to date and that the property is not engaged in any legal conflicts. The owner of the property/land has to prove this satisfactorily or else there is no chance at all that any buyer/creditor would take the risk & invest his funds.

In the legal term, land has a vast meaning, however, for the time being we are considering limited meaning of land. The land means surface of the ground and everything on or over or under it. Land can be classified as per its use or as per its geographical nature

The word “Title” generally used in the context of property means a right in the property. It connotes bundle of rights subject to prohibitory or regulatory statute. Such rights are capable of being transferred.

In the case law reported in Supreme Court Cases ,

Can bank Financial Services Vs custodian 2004(8) SCC 266, it was held by Supreme Court that:-

“The Title in an immoveable property is the means whereby a person’s rights to property in presenti is established and does not include a bare expectancy to get such right in due course of time.”

i.e. Title means a present right or interest in an immovable property capable of being transferred.

The expression Title conveys different forms of a right to a property, which can include a right to possess such property.

Title in immovable property can be conveyed only if the transferor posses such title.

A person cannot convey any title, which he himself does not possess .This was decided by the Supreme court in case of “Syndicate Bank V Estate officer, AIR 2007 SC 3169”

Title in a property cannot exist in two different persons having rival claim.

Marketable title to property :-

The term ’marketable title’ title means a title free from reasonable doubt.

Where there is reasonable decent probability of litigation, it would be considered as the title is doubtful.

Further a public notice in local newspapers should be given about the intention of sale as also calling for any objection before the sale is finalised.

Material defect in property is different from material defect in title.

A right of way / easement may not be a defect in title of the property but would become the material defect in the property. Disclosure of material defect in property is the duty of the seller:-The seller is duty bound to disclose to the buyer. Material defect in the seller’s title makes the sale deed voidable.

Material defect in property if not disclosed amounts to fraudulent transfer. –Under Section 55 of the Transfer of property Act, omission on the part of the seller to make disclosure as are mentioned under section 55(1)(a) of the Act, is fraudulent. But before there is such breach it must be shown that the buyer could not with ordinary diligence, discover such defect.

It is well settled that where the buyer has the means of discovering the defect of the title, there can be no breach of section55 (1) of the Act.

The reported case laws are  Dr.Gwashalal Vs Kartar Singh A.I.R 1961 ,J.K. 66and  Jhamaklal v Mishrilal AIR ,1957 MB 23.

Existence of mortgage makes the title incomplete. – The existence of the mortgage over the property makes the title thereto incomplete.

It is well settled that encumbrance on the property is material defect in the property.

Possessory title in the property – A possessory title under a registered agreement to sale along with “No Objection Certicate” of the seller, could be very well to the extent of furnishing the security but cannot confer full fledged title in the property.

In terms of section 12 B of the Income Tax Act, title must pass by any modes mentioned therein, namely sale exchange or transfer.

In the case of Alapati Venkataramaih Vs commissioner AIR 1966 SC 115 Supreme court held that the contention that a possessory title in terms of section53A of the Transfer of Property Act would not sub serve the requirements of an effective conveyance of the capital assets, as delivery of possession of immoveable property cannot by itself be treated as equivalent to conveyance of immovable property.

By taking proper care as above, the purchaser can get good and marketable title to any immoveable property.

While buying flats in co-operative societies, certain precautions should be taken such as:

1. Verifying the name of the member on the share certificate, electricity, telephone and maintenance bills and receipts;

2. Inspection of the records of the society for ascertaining whether:

a. The building has an occupation certificate;

b. Any lien/charge/claim has been registered with the society;

c. All dues in respect of the flat have been paid to the society;

d. The land has been conveyed to the society;

e.There are any disputes/litigation in relation to the flat;

The society has no objection in transferring the flat. (Although the new co-operative society bye-laws do not require obtaining a no-objection certificate, societies have not adopted the same, hence the requirement of obtaining the no objection continues to exist).

3. Ensure that the transferor is in possession of the flat and has the original agreement/s for sale and share certificate;

4. Verify that proper stamp duty is paid on the original agreement/s for sale and the agreements are registered; The following should also be considered:

a. Whether the shares are transferor’s self acquired property or acquired/held by the transferor in as a Karta of a Hindu Undivided Family;

b. If the transferor is a nominee of the deceased, whether consent of all the legal heirs of the deceased has been obtained;

If the transferor is a partnership firm, verify the partnership deed to ascertain if the partner/s disposing off the shares are authorized;

c. If the transferor is a limited company, verify that proper resolutions are passed approving and authorizing execution of the transaction and whether any winding up petitions are pending against the Company.

The process of investigation of title is laborious and filled with setbacks. The searches at the Sub-Registrar’s offices are in a dismal condition and the records are not maintained properly. Replies from the Municipal Corporation, are also not easily provided. Therefore to find out the correct position of the property is challenging.

The advocates have to patiently investigate the title even though there are several hurdles such as inaccuracy of records. No lapse on part of the advocates is feasible and the seller will not be liable in case of any default or shortcoming with respect to the documents.

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Maharastra Ownership of Flat Act

FLAT OWNERSHIP ACT

I.Introduction

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.

II.Important Definitions

The MOFA lays down certain important definitions.

2.1 Flat

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.

2.2 Promoter

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).

VI.Offences

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.

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Attachment of Property

I. Introduction

In case of a decree from a Court, the Court may require any person (known as the defendant) to pay any sum to the decree holder (or the plaintiff). In case the defendant fails to do so the Court can, in execution of its decree, attach the movable and immovable properties of the defendant and recover the amount due by disposal of these assets. However, certain assets are not liable to attachment under a Court decree. In last month’s issue relating to Debt Recovery Tribunals, we had seen that the Recovery Officer of the DRT can require any debtor of the defendant to pay any sum directly to him. This excludes any amount exempt from attachment in execution of a Court decree u/s. 60 of the Code of Civil Procedure, 1908. This Article examines some of the provisions relating to Attachment of assets in execution of a Court decree.  

II. Execution of a Decree

2.1 The Civil Procedure Code, 1908 (“the Code”) deals with the provisions relating to a court decree and its execution. S.2(2) of the Code defines a decree as the formal adjudication which conclusively determines the rights of the parties with regard to the controversial matters covered by the suit. The decree could be interim or final.

2.2 The judgment debtor is a person against whom a decree has been passed or an order capable of execution has been made.

2.3 The decree holder means a person in whose favour a decree has been passed or an an order capable of execution has been made.

III. Attachment

3.1 The property belonging to the judgment debtor, or property over which, or the profits of which, he has a disposing power which he may exercise for his own benefit, is liable to attachment and sale in execution of a decree.

3.2 The property liable to attachment may be lands, houses or other buildings, goods, money, bank notes cheques, bills of exchange, hundis, promissory notes, Government securities, bonds or other securities for money, debts, shares in a corporation and, other than the assets expressly excluded, all other saleable property, movable or immovable. The property may be held in the name of the judgment debtor or by a trustee for his benefit or on his behalf.

3.3 The following property of the judgment debtor shall not be liable to such attachment or sale :

3.3.1 Personal property

(i) clothes, cooking vessels, beds of the judgment debtor, his wife and children, and personal ornaments which as per religious usage, cannot be parted with by any woman

(ii) tools of artisans – court decisions have held that it only includes movable tools and not immovable equipment.

(iii) if the judgment debtor is an agriculturist, his implements of husbandry and such cattle and seed grain as the court deems fit to enable him to earn his livelihood as such, and such portion of agricultural produce or of any class of agricultural produce as may have been declared to be free from liability

(iv) houses and other buildings along with the materials and the land appurtenant thereto which is necessary for their enjoyment, which belongs to an agriculturist or a labourer or any domestic servant and is occupied by him

(v) all moneys payable under a policy of insurance on the life of the judgment debtor – no conditions have been stipulated as to when the money should become payable, i.e., policies which mature after a fixed term or after the death of the assured.  In certain circumstances, policies for the benefit of a judgment debtor’s wife and children under the Married Woman’s Property Act, 1874, are free from attachment.

(vi) tenancies in respect of a residential building covered by the provisions of any Rent Control Act

3.3.2 Salary

(i) stipends and gratuities allowed to pensioners of the Government or of a local authority or of any other employer, or payable out of any notified service family pension fund and political pension

(ii) the wages of labourers and domestic servants, whether payable in cash or kind

(iii) salary to the extent of the first Rs. 1,000 and 2/3 of the balance in execution of any decree other than a decree for maintenance. If any part of the attachable salary has been under attachment,  for 24 months, then such portion shall be exempt from attachment until the expiry of a further period of 12 months. Where the attachment has been made in execution of one decree, it shall, after the attachment has continued for a total period of 24 months, be finally exempt from attachment in execution of that decree

(iv) 1/3 of the salary  in execution of any decree for maintenance

(v) salary payable to persons covered by the Air Force Act, 1950, or the Army Act, 1950, or the Navy Act, 1957,

(vi) all compulsory deposits and other sums in or derived from any fund to which the Provident Funds Act, 1925, or Public Provident Fund Act for the time being applies, in so far as they are declared by the Acts to be not liable to attachment

(vii) any allowance forming part of the emoluments of any servant of the Government/ railway / local authority which has been notified to be exempt from attachment, and any subsistence grant or allowance made to any such servant while under suspension

(viii) any allowance declared by any Indian law to be exempt from liability to attachment or sale in execution of a decree

3.3.3 Incorporeal property

(i) a mere right to sue for damages

(ii) any right of personal service

(iii) an expectancy of succession by survivorship or other merely contingent or possible right or interest

(iv) a right to future maintenance

(v) where the Judgment debtor is a person liable for the payment of land revenue, any movable property which, under any law for the time being applicable to him, is exempt from sale for the recovery of an arrears of such revenue

(vi) books of account 

Notwithstanding anything contained in any other law, an agreement by which a person agrees to waive the benefit of any exemption under this section shall be void.

IV. Mode of Attachment

4.1 Rules 41 to 57 of Order 21 deal with the manner in which various properties are to be attached.  Rules 44 and 45 deal with the attachment of agricultural produce.

4.2 Rule 46 provides that where the movable property is

(i) a debt, the attachment would be by prohibiting the recovery of the debt or the debtor from making payment thereof; or

(ii) a share in a body corporate, the attachment would be by prohibiting the transfer of the shares or from receiving any dividend.

(iii) any other movable property, the attachment would be by prohibiting the person in possession of the property from giving possession to the judgment debtor.

4.3 In case the judgment debtor has a co-share in a movable property, then the attachment will be by a notice prohibiting him from transferring his share/interest or in any manner creating a charge on the share in the property.

4.4 In case the property is a negotiable instrument the attachment shall be made by way of an actual seizure and brought to the court.

4.5 Rules 49 and 50 provide for attachment of property of a partnership firm.

4.6 Under Rule 54, if the property is immovable, then attachment will be made by a order prohibiting any transfer or charge on the property. Any alienation after the attachment will be null and void against all claims enforceable under the attachment.

V. Effect of Attachment

5.1 An attachment does not create any title of the decree-holder to the property nor does it create a lien or charge over the property for the sum due to the decree-holder.

5.2 The judgment debtor continues to enjoy the attached property.

5.3 All that an attachment does is to prevent a private-transfer and that no person can benefit from a subsequent transfer of the attached property. S. 64 of the Code provides for such private alienation. Once a property has been attached, any private alienation of such property by private transfer or delivery and any payment to the judgment debtor of any debt, dividend, etc., contrary  to such attachment shall be void as against all claims enforceable under the attachment. S.64 applies whether the property stands in the name of the judgment debtor or any other person who is a name lender, i.e., benami property – Pradyut Shah, AIR 1979 Bom 166. However, if the transfer is by an operation of law or pursuant to a Court order, then s.64 does not apply. It only covers private transfers, such as, voluntary sales, gifts, mortgages.  It may be noted that the private transfers are not void ab initio but only void as against all claims enforceable under the attachment. There is a difference of opinion amongst various Courts as to whether or not any private transfer after attachment but in pursuance of a contract of sale executed prior to attachment is covered by s. 64. Various decisions have held that in order that an attachment renders a subsequent alienation as void u/s. 64, the attachment must follow the process laid down under the Code, e.g., Rules 41 to 57 of Order 21.

VI. Auditor’s duty

The Auditor should enquire of the auditee whether any attachment proceedings are pending against it. The Auditor can provide value added services to his clients by enlightening them about which assets are not attachable and what are the rights and obligations in respect of an attached property. It needs to be repeated and noted that the audit is basically under the relevant law applicable to an entity and an auditor is not an expert on all laws relevant to business operations of an entity. All that is required of him is exercise of ‘due care’.  The Auditor should also enquire whether the entity has obtained ‘attachment’ in cases filed by it. This will enable the Auditor to assess the provisions for bad and doubtful debts. Though an ‘attachment’ does not create any rights in favour of the entity but the courts normally do not grant attachment unless the plaintiff establishes a prima facie case.

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FAQs for Acquisition of a Flat in a Co-operative Society.

Q1.      What are the steps involved for acquisition of a flat in Mumbai?

A1.      In Mumbai, most of the flats are situated in a co-operative housing society. Hence, we will give the check list for acquisition of a flat in Mumbai in a co-operative housing society.  The steps enumerated below are general in nature and may vary depending upon the facts and circumstances of each case and the understanding of the parties concerned.

Further, the sequence of the steps enumerated below may also change/ vary depending upon the facts and circumstances of each case and the understanding of the parties concerned.

(a)        Identify the flat to be purchased, the furniture and fixtures lying in the flat, etc.

(b)        Check whether there is a clear understanding on the commercial aspects of the transaction, such as the following:

(1)     The consideration amount

(2)     The manner and time line of payment of the consideration amount

(3)     Payment of the token amount/ earnest money deposit

(4)     When will the possession of the flat be handed over/ given to the purchaser? Whether the possession of the flat will be given in vacant, quiet and peaceful condition?

(5)     When will the seller hand over the originals of the documents of title to the purchaser?

(6)     Date of completion of the transaction

(7)     Who will bear the society transfer charges, Collector’s transfer charges, stamp duty on the agreement/ conveyance, registration charges, etc.?  Whether the purchaser will alone bear or whether the purchaser and seller will bear, and if yes, then in what proportion?

(8)     Who will bear the professional fees, such as fees of chartered accountants and lawyers for preparing the documents, etc? Whether each party will bear their respective professional fees?

(9)     Whether the seller will be responsible to clear/ bear the society maintenance charges up to the date of handing over of the possession of the flat to the purchaser?  Usually, it is the seller who is responsible for the same since he has enjoyed those utilities.

(10)   Who will clear/ bear the past dues, if any, of the society?  Usually, it is the seller who is responsible to clear the past dues of the society.

(11)   Whether the seller will be responsible to clear/ bear the utility dues, such as electricity charges, water charges, telephone expenses, etc., up to the date of handing over of the possession of the flat to the purchaser?  Usually, it is the seller who is responsible for the same since he has enjoyed those utilities.

(12)   Conditions precedents, if any, to be fulfilled or complied with either by the seller or the purchaser before the completion of the transaction

(13)   Whether the flat is to be purchased free of any charge or encumbrance or subject to any charge, encumbrance, etc.

(c)        Check whether the flat is mortgaged with any bank/ financial institution/ creditor for availing of any loan or financial facility by the seller or his predecessor?

(d)       If the flat is mortgaged, then obtain from the seller, the name and address of the bank/ financial institution/ person to whom the flat is mortgaged, the amount outstanding (principal plus the interest, if any) and such other details which are relevant for completing the transaction.

(e)        Check with the lending bank/ financial institution/ person, the modalities for repayment/ discharge of the entire loan (principal plus the interest, if any), modalities for taking the possession of the originals of the documents of title, modalities for releasing of the charge of the bank/ financial institution/ person on the flat, etc.

(f)        Obtain copies of all the documents of title.

(g)        Verify whether the copies of the documents of title are copies of the originals of the documents of title?  This is necessary:

•        To see that the copies are the same as the originals.  In other words, the copies are not tampered to suit the seller.

•        To see that all the originals of the documents of title are in fact in possession of the seller and that they not lying with any bank/ financial institution or any creditor of the seller from whom the seller may have obtained loan/ financial facility and which is not disclosed by the seller to the purchaser.

(h)        Check the documents of title whether they are in order.  In other words, check whether the past documents of title are properly executed and confers a clear, perfect and marketable to the seller.

(i)         Check whether proper stamp duty is paid on every document of title.  If proper amount of stamp duty is not paid on any document, then quantify the stamp duty liability on such improperly stamped document and arrive at an understanding with the seller for its payment.  Alternatively, the seller may indemnify the purchaser for the same.  However, this should not be a preferred option.

(j)         Check whether documents of title are registered.  If no, then take steps for registering the unregistered document.

(k)        Check whether the land on which the flat is situated is freehold or leasehold.

If the land on which the flat is situated is freehold, check whether the conveyance of the land is executed by the owner/ builder in favour of the society. If no such conveyance is executed, then the purchaser should consider the stamp duty liability, if any, which may arise whenever the conveyance is executed by the owner/ builder in favour of the society.  This is so because the purchaser will have to proportionately share/ contribute to such extra cost.  Further, this aspect would also affect the present and future market valuation of the flat, future salability, etc.

If the land on which the flat is situated is leasehold, check whether the Lease Deed of the land is executed by the owner/ lessor in favour of the society. If no such lease is executed, then the purchaser should consider the stamp duty liability which will arise whenever the lease is executed by the owner/ lessor in favour of the society.  This is so because the purchaser will have to proportionately share/ contribute to such extra cost.  Further this aspect would also affect the present and future market valuation of the flat, future salability, etc.

(l)         If the land on which the flat is situated is leasehold, check the unexpired period of lease. Also check whether there is any renewal clause in the lease.

If the lease is going to expire in a few years and if there is no renewal clause in the Lease Deed, then this fact may affect the very decision of the purchaser to buy the flat.

Further, if the lease is going to expire in a few years and if there is a renewal clause, then this would involve additional stamp duty cost etc. These factors affect the present and future valuation of the flat, future salability, etc., of the flat, and hence, the purchaser should consider these before making a decision to buy the flat.

(m)       Check whether the land on which the flat is situated is Collector’s land.  If yes, then obtain the permission of the Collector for the transfer of the flat and pay the prescribed amount of transfer charges to the Collector.

(n)        Verify the title of the seller to the flat by taking searches in the Registrar’s office, giving public notice, etc.

(o)        Check whether the society dues are fully paid. If no, then clear the dues of the society.

(p)        Check whether all the utility bills, such as for electricity, telephone, water, etc., are fully paid and discharged.

(q)        Obtain society’s no-objection to the proposed transfer of the flat.

(r)        Check the society’s byelaws for transfer procedure.

(s)        Prepare the following documents for transfer of the flat as may be appropriate:

•        Agreement of Sale/ Memorandum of Understanding

•        Transfer Deed/ Conveyance Deed

•        Receipt/s for payment of the consideration amount

•        Possession Letter for handing over of the possession of the flat and originals of the documents of title

•        Declaration of the seller

•        Indemnity of the seller in favour of the purchaser for non-payment of stamp duty on earlier title documents, non-registration of earlier title documents, etc.

•        Letter to the society requesting for the transfer of the flat

•        Society Transfer Forms

(t)        Compute the market value of the flat in the manner laid down by the Ready Reckoner published by the Stamp Duty Authorities every year.

(u)        Pay the stamp duty at the rates prescribed under the appropriate Article of Schedule I to the Bombay Stamp Act, 1958.

(v)        Purchaser to pay the balance/ entire consideration to the seller. Simultaneously execute the above documents.  Further, the purchaser to simultaneously take possession of the following documents and things:

•        Originals of all the documents executed

•        Originals of all the documents of title

•        Possession of the flat along with the all the keys

•        Original of the no-objection letter/ certificate of the society

•        Original of the Collector’s no-objection certificate

•        Original receipt from the society evidencing discharge of all the society dues till the date of handing over of the possession

•        Original of the utility bills duly paid and discharged

Seller to keep copies of the above documents

(w)       Register the relevant documents and pay registration charges.

(x)        Change the lock/ locking system of the entrance to the flat.

(y)        Submission of various forms, share certificates, etc., to the society for the transfer of the flat in the name of the purchaser and for admitting the purchaser as a member of the society.

(z)        Payment of the transfer fees to the society.

(ai)       Follow-up with the society for transfer of the flat in the name of the purchaser, and for admitting the purchaser as a member of the society.

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Land Uses & Terminology in Mumbai

I. Introduction

Real estate is a sector which touches almost everyone’s life.  One often comes across concepts such as land reservation, nature of land, etc., while dealing with the real estate sector. Further, while dealing with taxation issues connected with real estate, such as s.80-IB(10), knowledge of these terms is of immense value. The types of uses for which land in Mumbai can be used are explained in the Development Control Regulations for Greater Bombay, 1991 (“the DC Regulations”). The Regulations have been framed under the Maharashtra Regional and Town Planning Act, 1966 (“ the MRTP Act”). As the name suggests, these Regulations are applicable only for the City and suburbs of Mumbai. The MRTP Act provides for the town planning and the development of land for public purposes within the State of Maharashtra. This Article gives a bird’s eye-view of the land usage provided under the DC Regulations.

II. Division into Zones

2.1 As per the town planning scheme for Mumbai, the entire city has been divided into various zones and sub-zones. Accordingly, land has been designated or reserved for certain development purposes. This is to ensure an equitable distribution of the available land for different purposes. Some of the important land uses specified in the DC Regulations are as under:

(a) Residential (R)

(i)  Residential (R-1)

(ii) Residential with Shopping Line (R-2)

(b) Commercial (C)

(i)  Local Commercial (C-1)

(ii) District Commercial (C-2)

(iii) Shopping Centre (SC)

(c) Industrial (I)

(i)  Service Industries (I-1)

(ii) General Industries (I-2)

(iii) Special Industries (I-3)

(iv) Industrial Estate (IE)

(d) Public / Semi-Public

(i)  School – Primary / Secondary

(ii) College

(iii) Recreation Ground (RG)

(iv) Playground (PG)

(v) Garden (G)

(vi)Park (P)

The Municipal Corporation, which administers the DC Regulations, decides the purpose for which certain land is to be used depending upon various factors, such as, the need for green spaces in every locality, provision of public amenities like theatres, schools, etc. in residential areas, open spaces in industrial zones, etc.

2.2 Although, the names of the zones specify the type of usage permitted in that zone, certain ancillary uses are also permitted in these zones, subject to the fulfillment of certain conditions. Some of the important ancillary uses permitted are as follows:

(a) Pure Residential Zone (R-1) : An area up to 50% of the floor space of the principal zone may also be used for clinics of doctors / dentists, nursing homes, students’ hostels, bus shelters, crematoriums, police stations, etc.  Further, convenience shopping is allowed at the rate of one shop per 15 tenements on the ground floor. Such shopping line will not be permitted in more than two adjoining plots in any locality and shall not cover more than 5% of the plot area. “Convenience shopping” is defined to mean shops, each with a carpet area not exceeding 20 sq. m. except where otherwise indicated and comprising those dealing with day to day requirements, as distinguished from wholesale trade or shopping.  It  includes, foodgrain or ration shops, each with carpet area not exceeding 50 sq. m., dry cleaners, tailors, groceries, beauty parlours,  bakeries, restaurants and eating houses each with a carpet area not exceeding 50 sq.m, shoes and sports shops each with a carpet area not exceeding 75 sq.m.

(b) Residential Zone with Shopping Line (R-2) : In addition to the uses permitted under R-1 zone, certain additional uses are allowed, such as, retail stores, professional offices not exceeding 100 sq.m. in area,  restaurants and eating houses each with a carpet area not exceeding 200 sq.m. on the ground floor, establishments of a larger size than those permitted in a R-1 zone, etc. The shopping line must confirm to certain additional restrictions, e.g., the area of any shop cannot exceed 100 sq.m., they must only be on the ground floor, etc. Most of these shopping lines have been the bone of contention in cases u/s. 80-IB(10) of the Income-tax Act. Developers in Mumbai have constructed shopping lines in accordance with the permissible limits under the DC Regulations.

2.3 Recreation/Amenity Open Spaces – In residential and commercial layouts  certain open spaces must be earmarked for recreational areas. In any layout or sub-division of vacant land in a residential and commercial zone, open spaces shall be provided as under :

(i)    Area from 1001 sq. m. to 2500 sq.m.  ..   ..   15%.

(ii)   Areas from 2501 sq. m. to 10,000 sq.m.  ….   20% (ii)   Areas above 10,000 sq. m. ..    ..  ..   25%

These open spaces shall be exclusive of areas of accesses/internal roads/designations or reservations development plan roads and areas for road-widening and shall as far as possible be provided in one place.  Where however, the area of the layout or sub-division is more than 5000 sq.m., open spaces may be provided in more than one place, but at least one of such places shall be not less than 100 sq. m. in size.  Such recreational spaces will not be necessary in the case of land used for educational institutions with attached independent playgrounds. The minimum area of such recreational space shall not be less than 125 sq. m.

2.4The maximum permissible Floor Space Index or FSI earmarked for some of the areas in Mumbai are as under :

No.	Area and type of Occupancy	FSI permissible
1.	Residential Zone & Commercial Zone
(a)	Island City of Mumbai (i.e., from South Mumbai to Mahim)	1.33
(b)	Suburbs	Ranges from 0.5 to 1.00
2.	Service Industrial Zone	1.00
3.	Educational Buildings, Medical Institutions and Institutional Buildings
(a)	Island City of Mumbai (i.e., from South Mumbai to Mahim)	1.33
(b)	Suburbs	1.00

Under the DC Regulations, the plot size for the FSI computation is done as under :

No.	Plot size	Area for FSI computation
1.	Residential and Commercial Zones
(a)	Up to 1,000 sq.m.	Total Area
(b)	1,001 – 2,500 sq.m.	Total Area subject to maximum of 2,125 sq. m.
(c)	2,501 sq.m. and above	Total Area (-) 15% of the area for recreational / amenity open space
2.	Industrial Plots
(a)	Up to 1,000 sq.m.	Total Area subject to maximum of 900 sq. m
(b)	Above 1,000 sq. m	Total Area (-) 10% of the area for recreational / amenity open space

2.5Many times a land falls within the zones demarcated or areas reserved for public purpose / additional amenities in the development plan prepared under the MRTP Act.  These are known as reservations under the DC Regulations. In such a case the Town Planning Authorities require the plot of land for carrying out their developmental activities, such as reservation for garden area, road widening, construction of schools, parks, playgrounds, etc. Thus, there are conflicting objectives of the BMC / Town Planning authorities on one hand who want to use the land for reservation purpose and the Owner of the land on the other hand who wants to use the land to construct residential / commercial, other projects. These divergent objectives are balanced by Transferrable Development Rights or TDRs.

Thus, where an owner whose land is reserved for any town planning purpose under the MRTP Act has surrendered his land free of cost to the BMC in the manner specified under the DC Regulations, then he is eligible for FSI in the form of Development Rights. The FSI by way of Development Rights would be of the like manner and to the same extent had the land not been  reserved. Alternatively, the Owner may be granted TDR after he has completed the development of the reservation and surrendered the same to the BMC. The Development Rights are granted in the form of a Development Rights Certificate which the owner may either use himself or he can transfer it to any other person.  If the owner instead of merely surrendering his land to the BMC, also develops or constructs the amenity on the surrendered plot at his own cost and then hands over the developed/constructed amenity to the BMC, free of cost, then he is eligible for additional Development Rights. These additional Development Rights would be  equal to the FSI equal to the area of the constructed by him.

V. How a CA can help?

Although an Auditor is not supposed to enquire about the compliance of DC Regulations, etc., it would be of great utility to him if he has a basic understanding of the provisions of the law in this respect. The Auditor may be able to use this knowledge in judging whether the going concern of an entity which is engaged in real estate construction has been affected because of severe violations of these Regulations. Further, while providing tax advise to clients on matter such as the provisions of s.80-IB(10), knowledge of these provisions would be of great assistance.

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