Can a society take a donation when a member transfers? Bombay High Court, Alankar Sahkari Griha Rachana Sanstha v. Atul Bhagat (2018)

A member wants to sell. The buyer is ready, the papers are ready, and the managing committee must pass the transfer resolution. Someone at the table says, “He is in a hurry. Ask for a good round sum as donation, and the society will gain.” Many committees have done exactly this.

The Bombay High Court has examined this very situation. The question is simple: when a transferring member pays a large sum and later evidence calls it a “donation”, is it really voluntary? The answer should make you pause before any figure is put to a member who is waiting for your resolution.

The case in brief

The respondents, Atul Mahadev Bhagat and another, were members of Alankar Sahkari Griha Rachana Sanstha Maryadit. They held Plot No. 59 and built a bungalow on it. After an earlier dispute over a condition violation, they signed consent terms and deposited Rs.50,000 as security for completing construction within three years. Later, needing money, they decided to sell and agreed to pay a transfer fee of Rs.25,000.

They alleged that the society demanded Rs.5,00,000 “for regularizing the transfer”. Under pressure, they paid it by two demand drafts of Rs.2,50,000 each on 27 April 2005. After a demand letter of 4 July 2005 was refused, they filed Dispute No. 398 of 2005 on 29 December 2005 in the Co-operative Court, Pune, claiming Rs.6,98,740 with interest.

The society said the money was a voluntary donation. It pointed out that the respondents themselves admitted in evidence that they paid it “towards donation”, and that their letter of 9 December 2004 had offered transfer charges at Rs.25 per sq.ft.

The Co-operative Court, Pune, on 1 October 2007, ordered the society to pay Rs.5,00,000 with 11% interest from 29 December 2005. The Maharashtra State Co-operative Appellate Court, Mumbai Bench at Pune, in Appeal No. 02 of 2008, on 12 December 2013, partly allowed the appeal and reduced the sum to Rs.4,75,000 with 11% interest. The society then filed Writ Petition No. 4457 of 2014. Mrs. Mridula Bhatkar, J. pronounced judgment on 31 August 2018.

What the court decided

On these facts, where a society demanded Rs.5,00,000 from a transferring member who then paid it, the court held that the payment was not a voluntary donation. The question was who stood in the advantageous or dominant position (para 6).

The court said an admission that money was paid “towards donation” does not mean it was paid voluntarily and without pressure. Incoming and outgoing members are both in a subordinate position and the society enjoys a dominant status in a transfer, because the managing body’s consent resolution is required. In such circumstances, the court held, it cannot be inferred that the member paid the donation voluntarily (para 8).

On the law, so far as its members are concerned a society can collect or increase its funds only through legally permissible charges or fees, and is not expected to indulge in profiteering from the members; if such amount is earned it is taxable (para 9). Genuinely voluntary donations are not barred (para 9). But:

> “No manner the transfer fees can be charged under the pretext of donation.”

The 9 December 2004 offer worked out to roughly Rs.85,000 to Rs.90,000, against Rs.5,00,000 demanded, and the respondents challenged the payment within months. The court concluded the amount was a transfer fee paid out of compulsion, not a voluntary payment (para 10). The court proceeded on section 72 of the Indian Contract Act, which appears both in the passage it adopted from Sind Co-operative Housing Society v. Income-tax Officer, (2009) 317 ITR 47 (Bombay High Court, Division Bench) at para 5 and in its discussion at para 7.

The writ petition was dismissed. The society must return Rs.4,75,000 with simple interest at 8% per annum from 29 December 2005 until realization, in place of the 11% rate. The rest of the Appellate Court order stands (para 11).

Why it matters for your society

• •Calling a receipt a “donation” does not protect it. Because your resolution is the gate to the transfer, a court may see the member as the weaker party.
• •The refund runs with interest for years. In this case the interest ran from December 2005.
• •Your own bye-laws already close this door. Bye-law 38(e)(ix) says no additional amount towards donation or contribution to any other funds, or under any other pretext, shall be recovered from the transferor or transferee.
• •Excess collection also invites a tax question. Sind (quoted at para 5) said an excess retained over the binding notification or bye-laws is exigible to tax as it has an element of profiteering.

What your committee should do

1. 1Charge only what the bye-laws allow: the transfer fee of Rs. 500/- under bye-law 38(e)(vii), and the entrance fee of Rs. 100/- from the proposed transferee under 38(e)(viii).
2. 2Fix any premium under bye-law 38(e)(ix) only at a rate decided by the General Body Meeting, within the limits of the Department of Co-operation circular. Remember that bye-law 2(xxvii) treats premium as payable in addition to the transfer fee.
3. 3Do not ask for, hint at, or accept any “donation” or contribution as a condition of the transfer resolution. The last sentence of 38(e)(ix) forbids it.
4. 4Do not charge premium where the Note to bye-law 38 exempts it: transfers to the transferor’s family, nominee or heir or legal representative after death, and mutual exchange of flats among members.
5. 5If a member truly offers a donation unprompted, keep a written record that it was his own offer and not linked to the resolution. Credit it to the Reserve Fund under bye-law 12(a)(v), which covers all donations except those received for a specific purpose; credit transfer fees and premium under 12(a)(ii) and (iii), and appropriate all of these to the Reserve Fund while finalising the preceding year’s accounts under 12(b).
6. 6If a transferor or transferee asks for an NOC, remember that under bye-law 38(d) it is not required for the transfer, but the committee may consider the application on merit within one month.
7. 7Treat a member’s complaint about excess premium seriously, and follow the bye-law route. Under bye-law 172 the member files a written complaint with any office bearer; under bye-law 173 your committee must decide it at its immediate next managing committee meeting and communicate the decision within 15 days. If you do not, bye-law 174(a) lets the member go to the Registrar — and “Demand of excess premium for transfers” is one of the matters listed there.

Limits of this ruling

The Rs.25,000 figure needs care. In para 4, respondents’ counsel argued that the society could not demand more than Rs.25,000, relying on a Government circular of 9 August 2001 said to be in force. In para 8, the court itself remarked that “there is a ceiling of Rs.25,000/- for transfer fees”. But the judgment does not reproduce the circular or decide which instrument fixes the figure. It is not a general holding, and it should not be quoted as one. Check the circular in force for your own area today rather than rely on a 2018 figure.

The judgment cites no section of the Maharashtra Co-operative Societies Act and no government notification number. It also does not decide whether any ceiling applies to all societies or all areas, nor the taxability of this society’s receipt, on which para 9 only makes a general remark.

The society relied on Bharatiya Bhavan Co-op Housing Society Ltd v. Smt. Krishna H. Bajaj, WP No. 1094 of 2004 (Bombay High Court, 17 February 2010). The court distinguished it, since there a written agreement existed and section 23 was applied, and said it respectfully was not in agreement with that finding. Both are single-judge decisions, so the point is not finally settled at that level.

One continuity point: the 2026 rules continue to place all transfer fees, charges or premiums received on transfer of membership in the reserve fund.