De-registration of Co-operative Housing Societies

August 28, 2019
By Rahul Sarkar
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Every year state governments strip off a select unfortunate societies of their legal status as co-operative housing societies, leaving them powerless to transfer shares, unprotected from legal protection over disputes and deprived from using the word ‘society’ in any manner. Many members who are residents of deregistered societies have found themselves entangled in consequential backlash and have not been able to carry out any ownership transfer in addition to the problem of diminishing value of their residences because of the associated stigma of deregistration.

The most common offence leading to deregistration is the failure to comply with bye-laws regarding maintenance and submission of mandatory financial audit reports. Many societies fail to abide by this. Either the managing committee does not have the time to follow yearly audit submissions or they simply lack the awareness or skills to do so.

Another reason for deregistration is when the society members are found to be involved in falsifying information on their registration submissions and engage in misrepresentation of any kind. Bombay High Court had ruled in 2018 that if some members are found to be erecting unauthorized construction in their own residences, it does not warrant a deregistration of the entire society, however other corrective measures may be taken as per society bye-laws against such members.

Once the Registrar passes the order, the society’s managing committee has no legal recognition and no respite if found under the law if there are any grievances or disputes within the members. They still continue to have the ownership of their residences, but other than that, any other transactions such as buying, selling, assigning additional nominees, etc come to a standstill.

The Maharashtra Co-operative Societies Act 1960 in section 21A states that – If the Registrar is satisfied that any society is registered on mis-representation made by applicants, or where the work of the society is completed or exhausted or the purposes for which the society has been registered are not served, he may, after giving an opportunity of being heard to the Chief Promoter, the committee and the members of the society, de-register the society.

What this means essentially is that the Registrar follows a due process before deregistering a society.

What is the process of deregistration?

  1. The registrar communicates to the society that it is found lacking in adherence and gives them a chance to present their case by offering an interim directive to them before taking a final decision of deregistration.
  2. If the Registrar doubts that its office has the correct addresses of every member or if the society is too large that reaching out to everyone is not practical, he gives out a public notice of the proceedings of the de-registration so that such a notice is considered as an official communication to the Chief Promoter and all members and no objection can be raised legally by the society on the grounds of ‘failure to communicate’ from the Registrar’s office.
  3. As a follow-up, the Registrar may appoint an Official Assignee to oversee the remaining procedure. The job of the Official Assignee is to acquire/realise the society’s assets and liquidate the liabilities.
    He does this within one year from the date that he is assigned the society’s books, records, property, assets, etc. The Registrar could extend this time-limit but it is not to exceed a period of three years.
  4. The Official Assignee is compensated for his services as prescribed by the Registrar but is not entitled to any allowance beyond the prescribed amount decided by the Registrar.
  5. The Registrar and Joint Registrar of Co-operative Societies and no other officer below these have the right to deregister any society.

Approximately only less than 10% of the total number of registered societies face such extreme measures from the government. But even so, there is a provision in the laws to counter such decisions and if the society finds substantial grounds to disagree with the Registrar, have the right to approach the court for further redressal. In some cases, the society has approached the court citing that the Registrar did not give them a legal notice for deregistration and therefore they were not allowed to be heard or present their case.

The law does give the following provisions in the Cooperative Societies Act

  • No suspension or cancellation may be made by the Registrar until he has given the society a chance to be heard. The Registrar may even suspend registration in case of offences not too grave and even if no rectification has been observed by the society, the deregistration is considered final.
  • The managing committee of the society is responsible for submitting audit reports as that is found to be the leading cause for cancellation. Other than that, any society registered under fraudulent documentation or misrepresentation is sooner or later bound to be deregistered when the Registrar suspects wrongdoing.

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