ET News Item Corpus Fund Not Taxable

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News item in the Economic Times on Judgement by the Income Tax Appellate Tribunal (ITAT) that additional compensation "Corpus Fund" received from builder on redevelopment of project is not taxable.

The above news clipping is just for information, members are requested to consult with their Chartered Accountants and plan their Corpus Fund & Rent and other receipts on redevelopment judiciously.

Directive u/s 79[A] of the MCS Act And Rules 1960 for Redevelopment

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English Version of Directive under section 79[A] of the MCS Act And Rules 1960 in respect of redevelopment of Building of the   Cooperative

Housing Societies in Maharashtra by Chief Secretary Cooperation, Govt. of Maharashtra.

Maharashtra Government Order No SAGRUYO 2007 / case No.554 /14(S)

Co – Operative Marketing and textile Division. Dated 3^rd Jan 2009.

      

Where as the-development of building belonging to Co operative Housing Society is in progress on large scale in the state of Maharashtra, there are large number of complaints received from the members in respect of management. Nature of the most of the complaints received in respect of re– development of building of Housing Society are as under.

1. The members are not taken in to confidence in the process of re – development
2. No Transparency in the process of Tender
3. Arbitrary appointment of Architect.
4. Gross Violation of provisions of MCS Act 1960 & Rules 1961.
5. No Coordination between Architect & Project consultants.
6. No planning in process & Redevelopment.
7. No proper method is being followed while finalizing the Tenders.
8. No uniformity in contracts done with developer.

 Where as there is no uniform & firm policy in deciding the above complaints and at different levels and to deal with various complaints received, in order to have a consultation with respective authorities working in the field, the Commissioner for Cooperation and Registrar of Cooperative Societies Maharashtra State Pune has appointed study group under the chairmanship of joint Registrar of Coop. Society. CIDCO. The said study group under consultation with all concern in the field unanimously opined that there should be guiding Rules for Re – development of Buildings of Co – op. Housing Societies.

            There for as per the section 79 (A) of the MCS Act 1960, Govt. has passed the following orders. In respect of redevelopment of Co-op. Societies building. It shall be treated as “Cooperative Housing Societies Buildings Redevelopment Directives.”

1)     Demand for a special General Body Meeting: Note of suggestions & implications of the said project and to take.

Members not less than ¼ of the total number of members of the cooperative Housing Society must give a requisition notice for convening a special General Body Meeting of members to the secretary of the society and the Managing Committee duly elected and constituted as per byelaws of the Co-operative Housing Society to consider aspect of redevelopment of building of the co-operative. Housing Society after taking policy decisions on various terms and conditions about the redevelopment of building of the Society.

2)     Convenceing Special General Body Meeting – As directed in para No. 1 above, within 8 days of the receipt of the Requisition Notice from the members, the Secretary of the Society shall convene a meeting of the Managing Committee to take note of above notice and convene within one month a special General Body Meeting and send the said notice with agenda to all the Members with 14 clear days notice in advance. Their acknowledgement receipt for the notice and Agenda shall be kept in the office of the society.                                                                 

Before convening the special General Body Meeting, the Managing Committee of the society, shall obtain panel of Architect and & project consultant prepared State Govt. or Local self Govt. and call 5 Architect/ project consultants from the said panel who are well conversant with re-development & building and expert in the field with request to prepare Redevelopment Project Report and submit quotations to the society. The said quotations & Project Reports shall be kept before the special General Body Meeting any for society’s competent quotation & project Report of one such project consultant / Architect.

The following Agenda shall be discussed in the Special General Body Meeting and the decision shall be taken on the following various issues.

a)     To take primary decision on redevelopment after considering suggestions & demands of members.

b)    To appoint expert & experienced Architect & Project Management Consultant (PMC) from the panel of state Govt. / Local self Govt. and to finalise scope of their work with the terms and conditions of their appointment.

c)     To outline in details the working procedure, in respect of Redevelopment of the societies buildings.

3)     To receive written suggestion of re – development of the building. The Members can submit to the committee their suggestion, recommendations for the project and also names of known expert Architect and Project Management consultant eight days before the date of the meeting. However, these names shall be from the panel of the Govt./ local self Govt. who shall have their letter of consent of willingness to work for the project.

4)     Decision to be taken at special general body meeting – Quorum for the special General Meeting shall be 3/4 of the total numbers of members of the society. If there is no quorum the said meeting shall stand adjourned for eight days and the adjourned meeting shall be convened accordingly. If there is no quorum at the adjourned special General Meeting, the meeting shall stand dissolved assuming that members are not interest in the redevelopment of the society’s building.             

       If there is requisite quorum present at the Special General Meeting as directed above, the meeting shall take cognizance of all suggestions & recommendation objections & directions given by the members for the redevelopment of building. They shall be recorded in the Minutes of special General Meeting with their name. The Special General Meeting. Thereafter will take primary decisions in principle in the meeting regarding redevelopment programme & its implementation by passing a resolution by 3/4 of the majority of the members present at the meeting. After passing the resolution as said herein, the special General Meeting shall decide issues as under.

a)     To finalise terms and conditions along with scope of work for appointment of an Architect and Professional Project consultant the panel of State Govt./local self Govt. who will be entrusted with Re-development work.

b)    To present program for Re-development of building to the members.

5)     Proceeding of Special General Meeting – The secretary of the Society will prepare the proceeding of the special General Meeting and will circulate copy of the said proceeding to all members within 10 days. He shall keep the acknowledgment of members in the office for receiving minutes. Copy of the same shall be sent to the registrar’s office of Coop. societies of the concerned ward where the society is registered.

6)     An appointment letter to Architect and Project Management Consultant – The Secretary of the society will give within 15 days form the date of Special General Meeting the appointment letter to approved Architect and project management consultant. The committee will enter into contract, based as the terms & conditions and scope of work approved by Special General Meeting with architect and Project Management Consultant.

7)     The initial work to be under taken by Architect / Project Management Consultant.

a) To survey the Land and Building of the society.

b)To obtain the information as to conveyance of the Land & Building in favour of society.

c) To obtain information about availability of FSI / TDR based as the prevailing Rules & Regulations of Government and as per type of ownership of land, Rules & regulation of MHADA / SRA / BMC if the Lard is under these categories.

d)To prepare Realistic & feasible report, after considering suggestion, Recommendations, objection & direction of members of the society made by them in Special General Meeting, giving details of availability of areas available for Residences commercial, open space, garden, parking and specification of construction of building.

e) The Project Management Consultant / Architect to submit within two months from date of their appointment, the report to the committee of the Society.

8)     Work after obtaining feasibility Report of Redevelopment of Building.

(a)   On receipt of the feasibility report, the Secretary of the Society shall convene a Special General Meeting of the member to consider the feasibility Report of Architect / Project Management Consultant. Notice in respect of the aforesaid meeting indicating the date, time & place, shall be displayed on the Notice Board of the society. It may be circulated to all the members.  The said notice shall also intimate to the members that the copy of the said report is available at the office and the said report shall be kept for the inspection in the office for the 8 days before the date of Special General Meeting. The notice intimating availability of report shall also invite suggestions on report within Eight days of the date of notice. The acknowledgment of notice by members shall be kept in the office the society.

(b)    The secretary of the society shall send seven days before the date of joint Special General Meeting, suggestions received from members to the Architect / Project consultant for their consideration.

(c)   At the above Special General Meeting of Members & Architect, Project consultant, overall consideration of suggestions and recommendations of the member and consideration of opinion of Architect, there shall be made context of this consideration and with some required & approved changes special General Meeting shall give approval to the said feasibility Report by majority. The Special General Meeting will take after the next date of the meeting for considering & finalizing the tentative draft of tender, tender notice. The Special General Meeting shall fix date & time, place of meeting of considering tenders. The SGM will direct to the competitive tenders through Architect / Project consultant in which emphasis shall be on carpet Area / Corpus found & other technical terms. Tenders shall be called from well known expert & experience developers. Members may give names of such developers in the Meeting. The secretary will obtain detailed report from Architect / Project consultants on these tenders.

Added : -  Tender notice shall be published at any two national & regional newspaper for invitation of builders / developers.

Time limit must be fixed & approved to collect / submit / open / comparison / site visit of the tenders of bidders / developers.

Opening of tenders must take place within one hour of submission in front of all members / developers, to maintain transparency. EMD ( .001% ) as earnest money deposit must be asked from bidders to prove genuineness. Respective builders must be asked to explain reasonableness of their offer. Architect / project consultants shall ask & Builder / developer must inform each and every aspect / course of action for redevelopment including exit option in case of failure by developer due to any unforeseen reason.    

9)     To display list of tenders

a)         The secretary shall display on the notice board the list of tenders received on the last day of date of receipt of Tenders.

b)        15 days after the last day of receiving tender secretary of the society shall convene a special / redevelopment management committee. In the said meeting representative of developers who have submitted bid in tenders shall be allowed to remain present, member of the society who so desire may remain present in the meeting as observers. Received tender shall be opened in the meeting in present of Architect / Project consultants & all within mentions persons present at meeting. Architect / Project, Management consultant shall scrutinize all the received tenders and prepare a comparative table, which shall compare bidders who have bid in the tenders, their quality, reputation, experience, competitive rates with other terms & conditions offered by them. Out of these bidders, it they are more,  then at list 5 and or all the bidders if they are less then 5 bidders. The bidder shall be short listed from all the bidders who have made bid in the tenders. They shall be presented in the special General Meeting for approval at next special General Meeting. The short listed bidders shall be invited at this Meeting.

10)  Selection of Developer

a)     Appointment of officer – representative of Registrar of Co-op. societies – The Managing Committee of the society within 8 days shall make and application to the Registrar of Co-op. society to appoint his representative to attend Special General Meeting and in whose presence Developer shall be selected considering his experience, quality, his financial & technical capability and competitive rates with terms & condition offered by him. On receipt of such an application, Registrar will appoint his representative for the Meeting.

b)    Special General Meeting for finalization of final Tender – After the appointment of representative of Registrar and his prior permission after fixing date, place & time of meeting with him, the secretary of the society shall convene a special General Meeting, within one month of his appointment giving 14 days notice, membership there in time, place & date of meeting and along with the Agenda to all the members. The notice shall be sent by hand delivery or by post with their acknowledgement which shall be kept in the office of the society. The society shall invite representative of the developers to remain present at the meeting. Registrar’s office shall make arrangement for presence of his representative in such meeting. The society at its own cost shall provide for video Recording of the meeting of the society. The Society shall ensure that no other persons other than members shall be allowed to remain present & participate in the meeting. For this purpose, the society shall give Identification Card (I. D. Card) to every member to his identification. This is for the members to remain present at the meeting with Identity Card. Decision’s regards Redevelopment, Scheme & selection of Developer & other decision shall be made in presence of authorized representative of Registrar Co-op. Societies. Such approved proposal shall be sent to the competent authority for approval.

c)     Absence of require quorum at special General Meeting – Quorum for the special General Meeting shall be 3/4 of the total number of members. If there is no quorum present at the special General Meeting it shall be adjourned for eight days. If there is no required quorum present at the adjourned special General Meeting, it shall be deemed that the member of the society are not interested in the redevelopment of building and the meeting shall stand dissolved with remarks that the redevelopment of building proposal shall not be allowed to be presented again in Special General Meeting till completion of one year period from the date of dissolved special General Meeting.

d)    Work of the special General Meeting in respect of selection of Developers – The authorized officer of the Registrar of Cooperative societies will remain present at above Special General Meeting convened for selection of developers as an observer.  On necessary presence of representatives & officer deputed by the Registrar, and if the proper Quorum i.e. ¾ of the total number of the society present, the S.G.M. shall transact the following business.

1. Comparative information in respect of redevelopment by select developers for presentation of their proposal.
2. Tender to be presented in chronological order.
3. To approve term & conditions of one of the developers and finalize & select the said Tenders.
4. To take approval of the selected tender.
5. To acquaint members about further work of the Redevelopment

       Consent of ¾ members present at the meeting in writing is a must for appointment of developer. If should be noted that if selected developer or his representative is not present at this meeting, it shall be presume that they have consent to work the meeting will undertake other aspects of the Redevelopment.

11)  Development Agreement with Developer: - The managing committee of the society on passing of Resolution of appointment of developers at S.G.M. shall execute Development Agreement within one month of date of the said SGM with a selected developer on the basis of terms & conditions approved by the members in S.G.M. under the consultation & guidance of the Architect / Project Management consultant.

Development Agreement shall contain other terms as under in additions to terms & conditions recommended by the Architect and project Management consultant & approved SGM.

1. Redevelopment of the building shall be completed within two years & not more than that and in peculiar circumstances it shall not exceed more that three years.
2. The Developer shall provide a Bank Guarantees of 20% of the total cost of the redevelopment Project.
3. The Developer shall make provision for temporary alternate accommodation in the same area for the members who will be vacating the premises or shall make provision for monthly rental plus deposit to be paid to all the members of the society if they agree or shall make provision for temporary alternate accommodation in the Transit Camp.
4. Development agreement shall be registered under the Registration Act 1908.
5. New members, on completion of Project, shall be  admitted in S.G.M. as member of the society
6. Agreement must specify carpet area to be given.
7. Right to Redeveloped societies building given to the builder is not transferable.
8. Flat owners shall vacate the premises only after obtaining all legal documents and permission of the competent Authority for redevelopment of building.
9. In case of one who is in possession of flat / premises & who if owner of the same, his right of ownership shall not be disturbed.
10. If there arises any dispute in the redevelopment of building agreement executed by the developer, Architect and Society, it shall be resolved under the provisions of sec. 91 of MCS Act 1960 and such provision shall be made in the development agreement.

12)  Allotment of flats shall be given in the new building in the same manner in which the original flats were i.e. the floor, the location and shall be allotted after the receipt of occupation certificate. It is necessary to allot flats by lot system, it shall be allotted accordingly but only after building completion which is ready for occupation and members are ready & willing to occupy their premises. Allotment shall be done in presence of authorized officer of Registrar. The developer shall make arrangement for video recording of the same.

13)  The office bearer or any committee member of the society is prohibited to be appointed as developer or shall not be relative of the appointed developer.

14)  Sanctioned plans shall be obtained for Municipal Corporation or Competent Authority who has right to sanction plans and shall be put before the special General Meeting. If any member wants to have any certified document, he shall make an application and shall also pay requisite amount for copy of document to the secretary of the society; the Committee shall be responsible to provide required information to the members.

This order is available or website of Government of Maharashtra(in Marathi) – No.  20090103114749001

This order in Marathi is issued in the name of Governor of Maharashtra.

 

Mohan Chandra, Project Management Consultants, Andheri, Mumbai
Mobile : 9819011191, 8433225151
Email : aek.omcar@gmail.com

FAQ

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Frequently Asked Question

1. What is Redevelopment?

Redevelopment means demolishing the old building structure and constructing a new building structure in its place as per the new DC guidelines taking into consideration additional FSI & TDR available with new layout plans for the building and individual members flat with modern amenities.

2. When should a Society consider Redevelopment?

Some of old buildings both in the city and the suburbs are very well maintained and have excellently planned spaces hence a Society should consider Redevelopment of the building only if an adverse Structural Audit Report is received from an approved Structural Auditor. The report should clearly mention details of defects / remedies / cost of repairs etc. Redevelopment should be considered considering the cost of repairs, if it minor repairs or major structural repairs and the General Body can decide if they want to go for repairs or redevelopment. Once Redevelopment is decided procedures as stipulated u/s 79(A) of of MCS Act 1960 as per the Government order dated 3^rd January 2009.

3. What are the precautionary measures to be taken by the Managing Committee and the Redevelopment Committee to ensure smooth beginning and completion of the project under re-development?

100% support of members is the key to success of any redevelopment process first precautionary measure is to take stock of disputes and oppositions within and devise and consider means to find ways and means for resolving the disputes and converting opposition to support gradually with the redevelopment process. Secondly the Managing Committee should seek advice of professionals of ethical conduct.

4. What is the percentage of consent of members required for re-development?

As per the Government notification of 3^rd January 2009, 75% members of the total members should be present at the Special General Body Meeting in which decision for redevelopment is taken and the developer is appointed. In the said meeting if a majority of 75% of the total members present approve the re-development (effectively this means 57% of the total members of the society) decision can be taken and is binding on all the members of the society.

The Managing Committee should try for 100% support because if any disputing members fail to vacate the flats voluntary and while legally minority cannot stall the re-development process this may lead to few months of anxiety to other members until court orders are obtained and implemented.  

5. Can a Society go for redevelopment without taking conveyance & agreement?

As per the Government Notification dated 3^rd January, 2009, the appointment of Developer or builder can be done only after obtaining  Conveyance of land and building in favour of  the society. If conveyance has not been done the society can appoint a consultant to obtain the conveyance in favour of the Society. Many a times societies without conveyance want to avoid the time and expense for conveyance and become vulnerable to developers who are looking for such societies/opportunities where they can execute agreements at their own terms and conditions such societies are at the mercy of these developers and the society cannot dictate their terms and condition. So get the conveyance done and be the boss.

6.    What would be the benefits to the Members in terms of additional area, corpus fund, rent, etc. from redevelopment or to be negotiated with the developers?

This varies as per the location and potential of the plot, for e.g. a developer may offer more benefits in a prime location offering better return on investments than a not so prime area. Further as per the new DC rules there is no space free of FSI like balconies, niches, voids, etc all this now come under ‘fungible area’ and Managing Committee should ensure that the same is negotiated in the total area offered by the developers. Members should expect and negotiate the following benefits –

(i)            Depending upon location additional Area of 15 % to 30 % of existing usable carpet area + additional 10% to 20%  towards ‘fungible area’ i.e. a total benefit of 25% to 50% additional carpet area.

(ii)          Corpus Fund in the range of Rs.1000/- per s.ft to Rs.2500 per s.ft of existing usable carpet area of members.

(iii)         Prevalent Rent for obtaining on LL space equivalent to existing usable carpet area for relocation in the vicinity of existing building.

(iv)         Prevalent one/two month’s brokerage for two year term.

(v)          One Way/Two Way expenses for transportation of household goods.

(vi)         Cost of Stamp Duty and Registration of proposed new flats to be allocated.

(vii)       Amenities required by the members should be decided initially and incorporated in the bid documents to receive best offers from the developers. 

7.    How long will it take to complete the total redevelopment of the Society’s building proposal?

From the first SGM wherein the members agree to resume redevelopment process to finally deciding the developer and signing of MOU/DA/Approving of new layout plans with the developer may take 12 to 18 months. From vacating the old flats to getting occupation of newly constructed flats may take 14 to 30 months. Hence the complete process is expected to take 4 to 5 years.

8.    Can there be a penalty clause included against the builder for Delay or denial of possession, or O.C or any other statutory requirements?

Yes. The Penalty Clause in the agreement should be drafted appropriately and should be possibly linked with Bank Guarantee/Security Deposit by retaining a higher amount of bank guarantee. Once members are out no developers have ever adhered to the penalty clause and litigation on part of members will stall the project so ensure that you have suitable clause and cash in hand to impose the penalty clause.

  

9. Why there is lottery system when members get a new flat & why there is no choice?

Lottery method is one of the simplest and easy way to allocate flats and avoid disputes among members for choices, other alternative solutions can be negotiated with the developers or cooperation of the developers sought, e.g.

(i)            Allocation of flats as per the old chronological order, say owner of Flat No.1 in the old building will get the first available flat on the first available floor say Flat No.101, Flat No. 2 will get Flat No. 102 and so on.

(ii)          Another option can be on the basis of facing of flat say front and rear

(iii)         Another option can be one floor higher like old ground floor flats will move to the first floor of the new building, old first floor to the second floor and so on. 

10.   What is the tenure of the Redevelopment Committee?

As such there is nothing sort of tenure of Redevelopment committee, it is preferable that one set of committee oversee the complete project from beginning of the process to completion of project.

11.   Can a minority of members stall the process of Redevelopment?

There are many High Court rulings against minority members trying to stall projects. Even after various verdicts we know the process of law which takes it own times and obtaining a favourable order in view of the various verdicts may take 6 months. All possible efforts should be made to avoid such confrontation for speedy p the process.

12. Do the members enjoy rights or privileges for purchase of additional area to be built by the developer for sale?

Generally developers offer 5 to 10% of the total area occupied by the members at a pre-negotiated rate. Suitable clause can be incorporated in the bid documents itself to ascertain such area available. The managing committee should also devise means for distribution of such spaces if the demand is more than that offered by the developer.

  

13.  What is the permissible height of the new building?

In case of buildings in the vicinity of airport and high rise buildings Civil Aviation Department is the final Authority. Members should also ensure individual flats floor height during the bidding process itself. Minimum floor height of individual flat is 9½ feet as per BMC guidelines.

14. Can a member sell his/her flat to the developer, if yes what should be the rate?

While some members redevelopment as an opportunity there are a few who perceive it as a risk and would rather prefer to sell the flat and buy a flat somewhere else. The managing committee should take due consideration of such members  and can also consider inviting rates for purchase of flats by the developers during bidding process itself and try to negotiate the best rates for such members.

 

15. Can the associate members vote in such meetings, will their opinion be considered?

Yes, Associate Members are authorised to vote at such meetings, as per the authorisation form submitted by the original member. Managing Committee should ensure that such form have been duly obtained and is on record before the voting process.

16. On vacating of flats by the members where will the existing members stay?

Members can choose flat of their choice in the vicinity as per the rent negotiated with the developer. Depending on corpus fund and rent receivable and overall financial position of members, they can opt for investing/buying their own flats in the distant suburbs and temporarily relocate to such flats and create a permanent asset for themselves.

  

17. Is the rent for alternate accommodation right of the members?

Yes, Rent for alternate accommodation is the right of the members and should be negotiated taking into consideration future inflations in rates for first year, second year and consecutive year if further delay is anticipated.

18. How to ensure that rent for alternative accommodation will be paid by the developer till occupation is given to the members in newly constructed building?

Members should preferably negotiate rent for the full tenure of completion of the project proposed by the developer in advance say if the developer has quoted 24 months completion period, negotiate 24 months rent in advance.  

19. What happens in case one of the members brings in a Court stay order

Courts generally don’t issue stay orders on flimsy grounds. If there has been any technical lapse in following the bye laws or the guidelines under 79(A) of the MCS Act. on the part of the managing committee a stay may be possible. It will be appropriate if SGM approval is sought on all major issues so that such members are part of the process and they cannot back out at the last moment.

20. What will be the maintenance cost per member after redevelopment?

It may be always 2 to 3 times more than that being paid presently. But MCGM is already working on increasing the levies on old buildings at par with the new buildings in the next few years there will be a marginal difference between the old and the new buildings.

21. To sum up what are the Advantages & the Disadvantages?

The Advantages

- Most of the buildings considering redevelopment are 30 to 40 years old,              

   families have expanded during the years who do not wish to leave the   

   neighborhood, redevelopment gives an opportunity for additional space plus

   an opportunity to purchase additional space if possible.

- Redevelopment gives bigger better planned internal and outer space

- Modern facilities and amenities like lifts, intercoms, hi-tech security systems,

  concealed wiring, stilt/podium parking, etc

- Recreation facilities like community hall, gymnasium and club house/

   swimming pool subject to availability of space.

-  Stilt/Podium Car Parking space.

-  Finally available corpus fund and rent from redevelopment if planned and   

   invested judiciously will means life time free maintenance and may be even

   additional revenue.

The Disadvantages

-  There is a tense phase between vacating the flats by members in the old building and getting  occupation of the flats in the new building.

-  Unethical conduct on the part of any one or all the parties involved in the project may    
   jeoparadise the whole project.

-  Loop holes in the Redevelopment Agreement may leave scope for misinterpretation and give  undue advantage to the developer.

-  Initially there is a psychological divide between the old and new members post 
   redevelopment.

-  High maintenance cost post re-development

-  Pressure on amenities like water supply, sewage, etc.

-  Forceful occupation without OC may lead to high taxes.

-  Additional area will invite additional stamp duty and new individual agreement will require 
   fresh registration
  
Mohan Chandra, Project Management Consultants, Andheri, Mumbai
Mobile : 9819011191, 8433225151
Email : aek.omcar@gmail.com