Can a housing society refuse a buyer because of his community? Supreme Court in Zoroastrian CHS, decoded

The transfer application is on the table. A member wants to sell his flat and share to a buyer, and half the committee is uneasy about the buyer's community. Then someone says, 'But the Supreme Court has held that a society can choose its members.' Before anyone moves a resolution to refuse, it is worth reading what the Court actually decided, and under which State's law.

The case in brief

Zoroastrian Co-operative Housing Society Ltd. was registered in 1926 in Ahmedabad under the Bombay Co-operative Societies Act 1925 and later came under the Gujarat Co-operative Societies Act 1961. Its registered bye-law 7 required all members to belong to the Parsi community, and bye-law 21 allowed a share to be sold only with the Committee's previous sanction. An heir, who had himself become a member, got permission in 1988 to build flats for sale only to Parsis, did nothing for seven years, and then sought to transfer his share to a builders' association. The society refused.

The Board of Nominees took the view that membership could not be confined to Parsis, the Tribunal held the bye-law invalid under Article 300A of the Constitution, and the Gujarat High Court — a single judge, affirmed by a Division Bench — called it an unfair restriction and a restraint on alienation hit by section 10 of the Transfer of Property Act. Civil Appeal No. 1551 of 2000 was decided on 15 April 2005 by B.N. Agrawal and P.K. Balasubramanyan JJ: (2005) 5 SCC 632; AIR 2005 SC 2306.

What the court decided

The Supreme Court allowed the society's appeal. Within the Gujarat Act, it found nothing that stops a society from prescribing a membership qualification based on belief, persuasion or religion, and said section 24(1) does not contemplate open membership regardless of the bye-laws. A bye-law that does not go against the Act is not opposed to public policy unless it is immoral or offends public order. A Registrar cannot direct a society to admit a person who does not qualify under its registered bye-laws. And section 10 of the Transfer of Property Act does not apply to transfer of membership, which is regulated by the bye-laws; on these facts the restriction was a self-imposed, qualified one and not an absolute restraint on alienation (paras 35-36).

The Court set aside the High Court judgments, the authorities' orders and the direction to admit the builders' association, and restrained that association from building on the strength of a transfer made without the society's prior consent. Its test was simple: the validity of a bye-law "has to be tested in the light of the provisions of the Act and the rules governing co-operative societies." (para 16)

Why it matters for your society

The judgment is often quoted as saying a society may pick its members. It says something narrower: a registered bye-law, valid under the applicable Act, binds everyone. The question is always what your own Act, Rules and registered bye-laws say.

For a Maharashtra housing society, that points the other way. Under the 2014 model bye-laws, bye-law 17(a) lists who may be admitted: individuals competent to contract, firms, companies and other bodies corporate, co-operative societies, the State or Central Government, local authorities and registered public trusts. It contains no community, religion or language qualification. And bye-law 39(b) says the committee or general body shall not refuse an application for membership or transfer except for non-compliance with the Act, the Rules, the bye-laws, or any other law or Government order. A refusal based on dislike alone is exposed, and delay makes it worse.

What your committee should do

1. 1Log the application and check the paperwork. Under bye-law 38(a) the member gives the Secretary 15 days' notice with the transferee's consent; bye-law 38(e) lists the documents and payments, including the transfer fee, entrance fee and a premium capped by Government limits, with no donation or contribution under any other pretext. Under bye-law 38(d) no society No Objection Certificate is required; if one is asked for, the committee may consider the application on merit within one month.
2. 2Test the buyer against bye-law 17(a). If the land came from Government, CIDCO, MHADA, SRA or another authority, bye-law 17(c) makes admission subject to the competent authority's approval, such as the Collector's. Where the 2026 Amendment Rules apply, Rule 106C-4 requires an application with 5 shares' value and a ₹500 entrance fee, the registered agreement or gift deed, and managing committee approval.
3. 3If you must refuse, the ground has to be non-compliance with the Act, the Rules, the bye-laws, or another law or Government order (bye-law 39(b)). Name it in the resolution.
4. 4Have the Secretary communicate the decision to the applicant within 15 days of the committee's decision, with reasons where the application is rejected (bye-law 63(g)); the reasons must also be recorded in the minutes of the meeting (bye-law 63(f)).
5. 5Diarise three months from receipt. If nothing is communicated by then, the transfer is deemed accepted and the transferee deemed admitted under section 22(2) of the MCS Act 1960 (bye-law 39(c)).

Limits of this ruling

This was a Gujarat case, on a bye-law registered in 1926. It says nothing about the Maharashtra Co-operative Societies Act 1960 or the Maharashtra model bye-laws. The Court did not decide the position of a society that is State under Article 12; it found no case made that this society met the Ajay Hasia tests (para 26). It declined to apply Articles 14 and 15 to co-operative societies (para 19) saying that goal needs legislative intervention (para 32). It left it to State legislatures to amend their Acts (paras 17, 28, 32, 33), and conceded that a one-religion society may seem retrograde in secular India (para 26).

Refusing an otherwise qualified applicant unreasonably or for frivolous reasons remains open to challenge (para 15). Section 24(1) of the Gujarat Act and Rule 12(2) bar refusal without sufficient cause, and the society's decision is not final and can be appealed (para 18). The section 10 point rested on particular facts: an inherited allotment and a self-imposed, qualified restriction that the Court held was not an absolute restraint (paras 35-37).

So this is not authority for a Maharashtra committee to refuse a buyer it dislikes: refusal grounds are confined by bye-law 39(b), reasons must be given under bye-law 63(g), and three months of silence costs the society the decision (bye-law 39(c), section 22(2)).