Karnataka High Court Rules Against Cooperative Societies for Apartment Management
In a landmark judgment, the Karnataka High Court has declared that cooperative societies are not an appropriate mechanism for managing residential apartments and their common areas on behalf of owners. The court cancelled the registration of the Sobha HRC Pristine Apartment Owners Co-operative Society in Jakkur, Bengaluru, emphasizing the superiority of the Karnataka Apartment Ownership Act (KAOA) for such purposes.
Court Order Details and Legal Rationale
Justice MG Uma passed the order while allowing a petition filed by Sobha Limited, the petitioner-builder. The court cancelled the registration granted by the assistant registrar of cooperative societies, Bengaluru Urban district, to the association on September 6, 2023. Additionally, it quashed the order dated February 7, 2024, passed by the deputy registrar of cooperative societies in appellate proceedings.
The court highlighted several critical issues with the cooperative society framework. Justice Uma stated, "The Karnataka Cooperative Societies Act never enables the members to hold the property and to maintain and manage the undivided share and the facility. There is always a danger of the management being superseded by the government in a peculiar situation and appointment of an administrator who is an employee appointed by the registrar of cooperative societies, and who is definitely an outsider being put in charge."
Problems with Shareholding and Voting Rights
The court flagged significant concerns regarding shareholding and voting restrictions under the cooperative society model. "The restriction on holding more than 5% of the share capital cannot be reconciled with the object with which the society is formed," the order noted. It pointed out ambiguities in the bye-laws, such as unclear definitions of shares and quantification methods for each owner.
On voting rights, the order elaborated, "The restriction on voting till completion of 1 year and only 1 vote per person will definitely defeat the object with which KAOA was enacted, where it safeguards the interest of owners where there is no restriction to own more than 1 apartment and can exercise 1 apartment 1 vote and are entitled to vote the moment they become members of the association."
Preference for KAOA Over Cooperative Societies
Referring to options under the Real Estate (Regulation and Development) Act (Rera) and local laws, Justice Uma emphasized the robustness of KAOA. "Under the provisions of Rera, an option is given to the parties either to form an association or a society or a cooperative society or a federation under the local laws. In Karnataka, when the Karnataka Apartment Ownership Act (KAOA) is the robust enactment to take care of the interest of the owners of the apartment and when none of its provisions are repugnant to the central legislation, ie, Rera, and that too, when KAOA is the special enactment enacted for the very purpose of dealing with maintenance, administration, and management of the undivided interest in the common areas and facilities in the residential apartment, this court does not find any justification for formation of a cooperative society like respondent No 3, ie, Sobha HRC Pristine Apartment Owners Association," the judge added.
Background and Petitioner's Arguments
According to Sobha Limited, the local law applicable to the project was the Karnataka Apartment Ownership Act (KAOA) 1972 and the Karnataka Apartment Ownership Rules, 1974. The company stated that the deed of declaration, along with the bye-laws, was filed with the deputy registrar of cooperative societies via letter dated June 21, 2023, as required under section 13 of KAOA, and was acknowledged.
Sobha Limited argued that maintenance, administration, and management of common areas were undertaken by forming an association of owners under KAOA. It alleged that TK Parasuraman, claiming to be the chief promoter, approached the assistant registrar with misleading facts, suppressed material information, did not adhere to KAOA provisions, and obtained the registration certificate illegally under the Karnataka Co-operative Societies Act, 1959.
The petitioner contended that the registration was erroneous and contrary to the objectives of the Karnataka Co-operative Societies Act, effectively hijacking the association's bye-laws. Sobha Limited further argued that out of 395 units, only 30 to 40 were members of the cooperative society, with no consent from other owners to be part of it.
This ruling sets a significant precedent for apartment management in Karnataka, reinforcing the legal framework provided by KAOA and highlighting the limitations of cooperative societies in residential contexts.
