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| DATE: | September 20, 2013 (Date of publication) |
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| Click here to download the judgement (hill_properties.pdf) |
Occupancy rights in flat conferred by Articles of Association confer ownership rights in flat. Restriction on transferability of flat in Articles of Association is void
Hill Properties Ltd, by its Articles of Association, permitted its shareholders to use and occupy flats in the building owned by it. A shareholder mortgaged a flat to secure a loan taken from the Union Bank. As there was a default in repayment of the loan, the flat was attached in proceedings initiated under the Securitization Act before the DRT. Hill Properties claimed that it was the owner of the flat and that the shareholder had a mere right to use and occupy the flat and that the mortgage of the flat was void. The High Court rejected the contention and held that the shareholder had the right to mortgage the flat. On appeal by Hill Properties to the Supreme Court HELD dismissing the appeal:
The right, title & interest over a flat conveyed is a species of property, whether that right has accrued under the provisions of the Articles of Association of a Company or through the bye-laws of a Cooperative Society. Flat owners’ right to dispose of its flat is also well recognized, and one can sell, donate, leave by will or let out or hypothecate his right. By purchasing the flat, the purchaser, over and above his species of right over the flat, will also have undivided interest in the common areas and facilities, in the percentage as prescribed. Flat owners will also have the right to use the common areas and facilities in accordance with the purpose for which they are intended. It is too late in the day to contend that flat owners cannot sell, let, hypothecate or mortgage their flat for availing of loan without permission of the builder, Society or the Company. Neither the Companies Act nor any other statute make any provision prohibiting the transfer of species of interest to third parties or to avail of loan for the flat owners’ benefit. A legal bar on the saleability or transferability of such a species of interest will create chaos and confusion. The right or interest to occupy any such flat is a species of property and hence has a stamp of transferability. The Articles of Association of a Company have no force of a Statute and the right of the shareholder to mortgage could not have been restricted by the Articles of Association (Ramesh Himatlal Shah Vs. Harsukh Jadhavji Joshi (1975) 2 SCC 105 followed).
Impromptu
The grounds of the apex court ruling are noted to have been summed up in para 14 , which reads:
Quote
14. We find that neither the Companies Act nor any other
statute make any provision prohibiting the transfer of
species of interest to third parties or to avail of loan for the
flat owners’ benefit. A legal bar on the saleability or
transferability of such a species of interest, in our view, will
create chaos and confusion. The right or interest to occupy
any such flat is a species of property and hence has a stamp
of transferability and consequently we find no error with the
warrant of attachment.
UQ
On a quick reading and undratanding, the legal mplications of the State law specially governing “Flat” are not seen to have been argued, hence not been addressed and gone into. May be, courts could be expected do so, in the other cases, e.g. in the tax case of Shantikumar D Majithia vs. DCIT (ITAT Mumbai), in further proceedings, had it been pursued, and happens to be pending.
For related info. and clues, it may be found worthwhile to look up the personal Blog,-
@ http://vswaminathan-swamilook.blogspot.in/2013/09/icl-today.html
And the contents of the in-side material
< Is Inserted to serve as An Open Invitation To Law Experts/ Activists to Explore !
For an elaboration of the viewpoints, but as a shortcut to saving self from the hassle of freshly drafting for the purpose, it is recommended to look up the Blog @
http://vswaminathan-swamilook.blogspot.in/2013/09/icl-today.html.
On the point of civil law in issue, the crux of the opinion the SC has handed down deciding it against Hill Properties, the appellant, reads:
“Occupancy rights in flat conferred by Articles of Association confer ownership rights in flat. Restriction on transferability of flat in Articles of Association is void.”
Going by one’s knowledge of the settled position in property law, the conventionally accepted concepts of “occupancy rights” and “ownership rights” do not connote or have the same or identical implications or consequences. There is no gainsaying that, as such, regardless of the compulsions of whatsoever nature, there could conceivably no case for holding that those two types of property rights are not basically and fundamentally distinct.
No doubt, references have been made to, and inspiration sought to be drawn from, the special state enactments (and other rules), governing flats, being units of a ‘building’. However, so far as could be seen, the appellant , has not argued, much less in detail, the peculiar legal implications of the special law; hence, not gone into by the lower court, and also by the apex court.
To one’s understanding, the clinching proposition of law enunciated / accepted in decided cases, also for tax purposes, is this: Even if it is case where flats have been acquired following strictly the procedure laid down by the special law, the admitted position is that the property rights, particularly “absolute ownership’ rights” in the “land and building”, of which the flat forms a part, vests with the ‘company’ or ‘society’ as formed and registered as per the special law by the flat buyers jointly as a community;- not in the individual n possession. Should that so, and on that premise, it seems inconceivable that in a case where there is no such company (“association”) constituted by the occupants of flats in a building as per the special law, different considerations would come into play.
Digressing for a while, for instance, the afore stated legal position, it is observed, has been reiterated, with no reservation, also in the SC case in deciding the issue of ‘saleability’ of parking spaces to individual flat buyers, against the builder/seller.
In the Hill Properties case, on its facts and circumstances as understood, it has not been anybody’s stance that it is such a company as envisaged by the referred special law for flats.
If the foregoing and several other considerations were to be borne in mind, as of now, to say the least, it is anybody’s guess whether the view the court has taken in re. Hill Properties would come to be reviewed by the SC itself; that is, if and when the occasion next arises and the whole matter is called upon to be given a fresh look and examination having regard to the attendant legal principles.
Over to law pundits, fervently wishing for useful or helpful contribution, by way of add-on / rejoinder, if any.
Regrettably, personal entreaties to those directly concerned or otherwise, who really care to share own thoughts and ideas, -extended to law pundits as well , – inviting, but altruistically for the common good, useful or helpful contribution, by way of add-on / rejoinder, if any, on the implications of the SC Ruling , it is noted, have failed to evoke any response.
Meanwhile, in pursuit of the intended objective, further thoughts are to be found briefly set out in a short write-up @
http://taxguru.in/corporate-law/sc-judgment-hill-properties-case-form-prevailed-substance.html
May be noted, that goes to supplement the comments earlier posted @
http://itatonline.org/archives/index.php/shantikumar-d-majithia-vs-dcit-itat-mumbai-s-222a-occupancy-rights-to-shareholder-taxable-as-deemed-dividend/