Mumbai: Housing experts call issuance of additional five shares to society member a ‘myth’

Previously, only five shares were issued to society members. The amended law allows the issuance of 10 shares, but only to new members. Representation pic

Amid lack of clarity from the authorities, the housing experts have called the issuance of additional five shares a ‘myth' and raised a red flag about possible misuse by the society members.

Advocate Vinod Sampat, founder and president of Flat Users Residents Welfare Association, said, "For so many years, five shares were issued to members and 10 shares to partnership firms/private Ltd firms, etc. Now, the state cooperative housing department wants 10 shares issued to members. One fails to understand the logic...Rs 250 for five shares is not a big sum, but the havoc that it would cause cannot be expressed in words. If a member has mortgaged his/her property to a bank, would it be feasible to get the old certificate back from the bank, so that a new certificate with 10 shares is issued?

"Moreover, the law is unclear on whether additional five shares should be issued or an old share of five shares is taken back, and one certificate of 10 shares is issued. The moot question is what purpose is being served by it?" he asked.

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A mere myth

CA Ramesh Prabhu, founder-chairman of MahaSEWA, said, "There is a lot of confusion and misuse because of the provision in the Model Bye-laws of 2014, wherein bye-law no.19 now prescribes the issuance of 10 shares to new members." Many societies have adopted the Model Bye-laws of 2014, and are issuing five more shares, but also to the members who were issued five shares as per the old bye-laws, he added.

"This is because of the absence of specific guidelines from the cooperative department, and it is nothing but a myth... There is no provision in the 97th Amendment of the Constitution of India or the Maharashtra Co-operative Societies Act, 1960 or the rules made thereto" for the issuance of five additional shares to the existing members.

Prabhu added, "Legally, as per the bye-law no. 19, the society is to issue 10 shares to a member, but it is applicable for new members only; not for existing members or transfer of shares from existing to new members." "Many societies, without knowing the proper provisions, issue share certificates for additional five shares. The members might misuse this," Prabhu concluded.

Red flags

Advocate Sampat, raising concerns about fraud, said there is a possibility that some society members "may mortgage their flat to two different banks given five shares being issued twice".

"There is a risk of manipulation, forgery and fraud. For instance, two share certificates are issued to a member, who later passes away. Both his heirs may have physical possession of one share certificate of five shares each. Now, who should be recognised as the incoming member? To avoid such situations, the cooperative commissioner/the state government must clarify the modalities for the issuance of five additional shares. The cooperative housing department should frame guidelines for transparency and simplicity," Sampat concluded.

Way out

Advocate Shreeprasad Parab, an expert director, State Housing Federation, said, "...there is no such procedure being prescribed by the authority for an increase of the number of shares". He said that in the meanwhile, the housing federations suggest ways of increasing the share capital:

Ask members to return the Rs 250 [for 5 shares] share certificate and provide a new share certificate of Rs 500 [for 10 shares]. In case of a lost share certificate, ask members to furnish a copy of the police complaint and an affidavit in that regard. If case of soiled, burnt, torn, disfigured share certificate, demand an affidavit in that regard.

What is a share certificate?

The allottee acquires the ownership rights in the flat by executing the sale deed with the promoter and further, the allottee forgoes his ownership rights and acquires the membership rights in the housing society. A share certificate is conclusive evidence of the allotment of membership in the society, explained Advocate Parab.