The right of a cooperative society to levy non-occupancy charges (NOC) has always been a very contentious issue leading to many disputes between the society and its members. Societies often feel that they are justified in charging members for subletting their premises in view of the handsome rental income being realised by them. Members on the other hand,feel that societies victimise them by levying exorbitant charges when there is no real difference whether the unit is being used by the member himself or the person who has taken the flat on rent. Diverse practices by societies,ineffective enforcement by the authorities and the varied interpretations by legal experts have only served to confuse the common man completely. This article examines the evolution of the law as laid down in the Maharashtra Cooperative Societies Act upon this issue and the position as on date. What are non occupancy charges ? Non occupancy charges are charges levied by a cooperative society only when the flat or unit is sub-let. Byelaw 43(2) (iii) (c) of the new model bye-laws stipulates that an application for sub-letting shall contain a declaration that the member is willing to pay NOC. It should be noted that no NOC is payable if a flat is simply locked up and not sub-let or if it is occupied by any member of the family (family includes spouse,parent,sibling,child,grandchild,son- or daughter-in-law). Further,NOC cannot be charged to an intending member during the period between which he has purchased the flat and till he is admitted as a member of the society if he has furnished documentary evidence of the same. The evolution of the law Societies have consistently tried to resist attempts by the government to regulate the amounts they can charge as NOC as unwarranted interference. On the other hand,the state government has argued that it is merely trying to protect the interest of the individual flat owners who are often coerced to pay huge sums as NOC charges. On March 13,1992 the Commissioner for Co-operative Societies,Maharashtra,issued a circular directing that societies could levy non-occupation charges upto a maximum of 25 per cent of service charges. This circular was challenged in the court and subsequently withdrawn. In 1995,the state government issued a fresh order stating that NOC charges cannot be fixed in excess of the maintenance charges but this order too met with a similar fate as the earlier circular and was withdrawn. In June,1997,the state government appointed a committee to examine the entire issue of non-occupancy charges. This committee submitted its report in July 1998 and finally in August 2001,the state government issued an order directing societies not to levy non-occupancy charges exceeding 10 per cent of the service charges. The circular also clarified that even if societies failed to amend their bye-laws to incorporate this change,they would still be bound to observe this limit. The Bombay High Court confirmed this decision of the state government in March,2007 and it was subsequently also affirmed by the Supreme Court thereby closing the door to any further controversy in this matter. What constitutes service charges ? Bye-law 67 of the new model bye-laws authorises the society to recover charges for outgoings from members and these include service charges. Bye-law 68 defines what constitutes service charges. These include salaries and allowances to staff,outgoings for society office,sitting fees to committee members,printing and stationery charges,common electricity charges amongst others. The municipal taxes payable by a member are often collected by the society and remitted to the corporation in a consolidated manner. Under no circumstances must these be included in the service charges and neither should the contributions to sinking and other funds. Service Tax Whilst levying NOC,societies,especially large ones,may find that they have become liable to charge and recover service tax from the members. This is because any form of service charges,NOC,space rental for telecom towers,etc. which aggregate to Rs 10 lakh in a financial year will pull a society into the ambit of service tax. There is a lot of paper work and compliances involved here although sometimes this can be avoided through proper planning. Does the circular apply to all societies ? Strictly speaking,no. The circular 1094 dated August 1,2001 is quite clear and unambiguous and states that a cooperative society cannot charge NOC in excess of 10 per cent of the service charges. It goes on to state that this circular is applicable to all residential and commercial units in housing societies. In other words,purely commercial societies are outside the purview of this circular and therefore free to decide the NOC in the general body meeting. This position has been confirmed by the Bombay High Court in Mittal Court Premises C.S. Ltd. case. It would be in the collective interest,however,to levy NOC at a rate that does not pinch a member as the intention of a cooperative society is not to profit from its members but to render service. The test of reasonableness is very important in deciding this aspect. It is interesting to note here that many experts and authors of books available in the market have misinterpreted the Marathi circular and concluded that it applies to both residential and commercial societies whereas the circular actually applies to residential and commercial premises in residential societies only. Readers may please refer to the original circular in Marathi in case of any doubt. To sum up,NOC can only be levied if units are sub-let and not occupied by family members. For all types of units,whether residential or commercial which are contained within a residential society,non occupancy charges cannot exceed 10 per cent of the service charges. Purely commercial societies are free to decide their own non-occupancy charges but should ensure that these are reasonable in keeping with the spirit of cooperation. Author is a Mumbai-based CA and legal expert
