Nominee in the shares of a co-op society is not the owner – Recent amendment to the Maharashtra Co-op. Societies Act reaffirms the position in law

Background

The ongoing pandemic has had a devastating effect on the lives of every Indian, with many losing their loved ones a little too early and without any chances of saying goodbye. The impact which the pandemic shall have can only be assessed once the dust settles and it is likely to lead to a vast influx of litigation flooding our courts.

As the death toll increases with each passing day, unfortunate as it maybe, inevitably this may lead to an increase in succession and property related disputes posing issues of inheritance. While, the law of succession is more or less settled as a result of various judgments of the Supreme Court and the High Courts, the competing rights of the nominee and the legal heir have always been a matter of debate. This debate finds its way onto the aspects of the inheritance of bank accounts, fixed deposits and shares in a company. However, perhaps the most significant of all is the aspect of inheritance of immovable property, especially in cities such as Mumbai where real estate plays a major role in the economics of the city. This article attempts to provide a brief primer on the following aspect of the law:

A member of a co-operative housing society dies with a nominee in place for his shares in the housing society but also has legal heirs other than the person he has nominated. In such a situation, who is entitled to the shares and therefore, in turn, the apartment or the flat?

What the Supreme Court held

After some initial conflicting judgments of various High Courts, the Supreme Court in 2016, in the landmark case of Indrani Wahi vs Registrar of Co-operative Society and others held that a co-operative society was bound by the nomination made by the deceased and that it was bound to transfer the shares to the nominee. However, transfer of shares in such a manner does not confer any right, title or interest over the property in favour of the nominee. The Supreme Court further held that it is always open to the legal heirs to pursue their case for succession or inheritance as per law.

Therefore, co-operative societies must transfer the shares in the name of the nominee on death of a member. This does not mean that the nominee becomes the owner of the property. The nominee merely holds the property in trust for the legal heirs. The legal heirs of the deceased can always approach the appropriate court to stake their claim to their share of the deceased’s property including the flat/apartment in question. Once they obtain the relevant order from the court, the legal heirs become the owners of the property and the society is bound to transfer the flat/apartment in their name.

Despite this clear position in law, several housing societies, once the shares were transferred to the nominee as a member, allowed the nominee to transfer the Flat without insisting on getting the no-objection from the other heirs, who may be otherwise entitled to the shares. Such societies freely gave their NOCs for sale of the flat to third parties.

The law in Maharashtra

The Maharashtra Co-operative Societies Act, 1960, which governs the law related to societies including housing societies in Maharashtra, earlier provided under section 30 that the society, ‘Shall’ transfer the shares and the membership of the Society to the Nominee. As such, the nominee then became a regular member of the Society.

Amendment by an Ordinance

The Act has since been amended by way of an Ordinance in 2019 later enacted as a part of the law through an amendment in the same year. As per the newly introduced Section 154B-13 of the Maharashtra Co-operative Societies Act, 1960 (which overrides section 30 mentioned above), a society can transfer the interest of a deceased member in the flat only when testamentary documents or succession certificate or heirship certificate or document of family arrangement has been produced by the legal heirs of the deceased member or person/s entitled to the flat.

The first proviso under this section further clarifies and clears the cloud of doubts that a nominee shall only be admitted as a provisional member in place of the deceased member till the time legal heirs or person/s entitled to the flat are admitted as member/s.

The concept of “provisional member” has been newly incorporated and the term has been defined under section 154B-1(18) as a person who is duly admitted as a member of a society temporarily after death of a member on the basis of nomination till the admission of legal heir/s as the member of the society in place of deceased member.

In light of the recent Maharashtra Co-operative Societies (Amendment) Act, 2019 the long-standing controversy of nomination vs. succession has been put to rest once and for all.

Therefore, now more than ever, correct estate planning is the need of the hour to ensure that properties are passed on smoothly as per the wishes and intentions of the deceased.

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