Introduction: The method and the law under which the Apartment Owners’ Association (AOA) is to be formed in Karnataka are not very well settled and there exist several schools of thought resulting in formation of multiple types of associations which are carrying out activities of maintenance of apartments complexes. This article explores the laws and processes involved in establishing an AOA in Karnataka.
In order to examine this subject, it would be necessary to look into the provisions of the following statutes:
- The Karnataka Apartment Ownership Act, 1972 (KAOA, 1972 or 1972 Act )
- The Karnataka Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act 1972 ( KOFA)
- The Karnataka Co-operative Societies Act, 1959 ( 1959 Act) and
- The Karnataka Societies Registration Act, 1960 ( KSR or 1960 Act)
- The Real Estate ( Regulation and Development ) Act 2016 (RERA)
Page Contents
- The Karnataka Apartment Ownership Act, 1972 (KAOA, 1972 OR 1972 ACT)
- Karnataka Ownership Flats (Regulation of The Promotion Of Construction, Sale, Management And Transfer) Act 1972 (KOFA)
- Real Estate (Regulation And Development) Act 2016 And Karnataka Co-Operative Societies Act, 1959 ( 1959 Act)
- Karnataka Societies Registration Act, 1960
The Karnataka Apartment Ownership Act, 1972 (KAOA, 1972 OR 1972 ACT)
Under the Karnataka Apartment Ownership Act, 1972, which is commonly known as KAOA or the 1972 Act, Section 3(d), defines ‘Association of Apartment of Owners as “all of the apartment owners acting as a group in accordance with the bye-laws and declaration.” Section 2(j) defines a Declaration as “an instrument by which the property is submitted to the provisions of this Act, as hereinafter provided and such declaration as from time to time.” The contents of the Declaration that is to be executed in respect of the project is defined under Sections 11(1) and Section 11(2) requires that a true copy of the Declaration and Bye-Laws and all amendments to the Declaration or the Bye-Laws shall be filed in the office of the competent authority, i.e., the Registrar of Cooperative Societies. Section 13 requires the Declaration and all amendments thereto to be registered under the Registration Act, 1908 and also provides for the documents that are required to be annexed to such a Declaration. Section 16(1) requires that the administration of every property shall be governed by the Bye-Laws, a true copy of which to be annexed to the Declaration and further that no modification of or amendment to the Bye-Law shall be valid unless it is duly recorded and copy thereof is duly filed with the competent authority. Section 16(2) & (3) sets out what these Bye-Laws shall provide for. In addition to the Declaration that is to be executed by the sole owner or all the owners, the owner of the apartment is also required to execute a Declaration as per Section 5(2) that he submits the apartment to the provisions of the Act. The Karnataka Apartment Ownership Rules, 1974, under Rule 3 states that the Declaration to be executed under Section 2 shall be in Form-A and the Declaration to be executed by the apartment owner as required under Section 5(2) shall be in Form-B.
The above statutory provisions categorically contemplate that either a sole owner of the property i.e., the land on which the apartment building is constructed or all the owners of the property i.e., all the purchasers of the apartments in the project can submit the property i.e., land and building along with all the common areas and facilities to the provisions of the Act under a Declaration i.e., under Form-A. This declaration is commonly known as Deed of Declaration or DOD.
The Bye-Laws for the Association of Apartment Owners to act as a group is required to be annexed with the DOD by setting out the contents therein as required under Section 16. Once Form-A annexed with the Bye-Laws is executed and registered before the jurisdictional Sub-Registrar, a true copy of the DOD and Bye-Laws should be filed in the office of the competent authority, i.e., the Registrar of Cooperative Societies , as defined in Section 3 (i) of KAOA. While executing the Sale Deeds in respect of the individual apartments, the apartment owners should also execute a Declaration in Form-B thereby submitting their apartments to the provisions of KAOA. Form – B can also be executed subsequent to execution and registration of the Sale Deed.
As regards the time as to when the DOD is to be executed and the Form-B shall be executed, the Act, as such, does not stipulate the time. However, in view of the requirement of the Association of Allottees to be formed under Section 11(4)(e) of The Real Estate (Regulation and Development) Act, which requires that the Promoter should enable formation of the Association of Allottees within a period of 3 months of the majority of the allottees having booked the apartment and further since, it is by virtue of the DOD under which an apartment becomes heritable and transferable, the common areas as well as the limited common areas would come to be declared, it can be interpreted that the DOD should be executed even before the first Sale Deed in respect of the Apartments is executed and registered.
With the execution & registration of DOD along with the Bye-Laws and execution of Form-B, submission of the same in the office of the competent authority, i.e., the Registrar of Cooperative Societies, the statutory requirements under the Karnataka Apartment Owners Act are completed and by virtue of the Bye-Laws that are annexed along with the DOD, the apartment owners can come together acting as a group in accordance with the Bye-Laws as an Association, which will then be recognized as an Association of Persons (AOP) which is an entity recognized even under the definition of Person under Section 2 (31) (v) of Income Tax Act which includes an Association of Persons or a Body of Individuals, whether incorporated or not. The requirement of formation of an Association as contemplated under the KAOA or the 1972 Act for the limited purpose of apartment owners coming together to take charge of the common areas and facilities as declared under the DOD and also take over the maintenance of the common areas gets completed. All the Apartment Owners will then become members of the Association and submit themselves to the Bye Laws and be bound by it. The Association of persons which is created by virtue of the above can apply for PAN Card by submitting the registered Deed of Declaration along with the Bye-Laws and thereafter open Bank Accounts for the purpose of deposing the corpus funds as well as the common areas maintenance charges or CAM charges. The Association of persons is required to file Income Tax returns and the Association so formed will have to conduct its operations in accordance with the Bye-Laws. This association can sue and also be sued in a civil court or before RERA, however it cannot invoke provisions of Consumer Protection Act and seek any recourse under it. GST registration, if required, can also be obtained by the Association formed under KAOA.
Karnataka Ownership Flats (Regulation of The Promotion Of Construction, Sale, Management And Transfer) Act 1972 (KOFA)
In this regard it is also necessary to refer to the provisions of The Karnataka Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act 1972 which is commonly known as KOFA. A reading of the statement of objects and reasons for enactment of this act it can be made out that this act is enacted in the interest of the intending purchasers who advance funds, in order to regulate the construction, sale, management and transfer of flats or apartments by individuals or group of individuals to construct such multistoried buildings, From which it can be made out that KOFA is a regulatory enactment similar to The Real Estate ( Regulation and Development ) Act 2016 (RERA or RERD Act). Though under Section 92 of RERA The Maharashtra Housing (Regulation and Development act) 2012 came to be repealed none of the other regulatory enactments in force in the other states were repealed. The Hon’ble Supreme Court of India in Forum for Peoples Collective Efforts (FPCE) & Anr vs The State of West Bengal (2021) 8 SCC 599 has while discussing various similar statutes like KOFA in the states of India has held that, Section 89 read with the proviso to Article 254(2) impliedly repeals such provisions to the extent to which they overlap with the RERA. In view of the above, those provisions in KOFA which are not inconsistent with the provisions in RERA, can be looked into as regards the formation of the Apartment Owners Association or the Association of the Allottees as it is referred to in the RERA. Section 10 of KOFA requires a Promoter to take steps for formation of co-operative society or company as soon as a minimum number of persons required to form a co-operative society or company have taken flats by submitting an application to the registrar for registration of the organization of the persons who take the flats as a co-operative society or as the case may be, as a Company, in which the Promoter is also required to join in respect of the flats which have not been taken. Rule 9 of KOFA Rules prescribes that the application for registration of Co-Operative Society or Company of flat purchasers shall be submitted within four months from the date on which the minimum number of persons required to form such organisation have taken flats. It further prescribes that where the apartment takers proposed to submit the apartments to the provisions of KAOA by executing Declaration and Deeds Of Apartments as required by the Act, the Promoter shall inform the registrar as defined in the Karnataka Co-Operative Societies Act 1959 as soon as possible after the date on which all the apartment owners (being not less than five) have executed such Declarations and Deeds of Apartment. The aforesaid provisions of KOFA and the rules thereunder would show that while Section 10 of KOFA specifically prescribes that the Promoter upon a minimum number of persons required to form a Co-Operative Society or a Company have taken flats, to file an application for its registration within the prescribed period, Rule 9 KOFA Rules 1975 while prescribing the period as four months from the date on which the minimum number of persons required to form such organisation have taken flats clarifies that in the event that the apartment takers propose to submit the apartments to the provisions of KAOA , the Promoter shall inform the registrar as defined in the Karnataka Co-Operative Societies Act, 1959 as soon as all the apartment owners( being not less than five) have executed such declarations and Deeds of Apartment. On an interpretation of the above provisions it can be made out that the KOFA prescribes the formation of a Co-Operative Society or a Company only if the apartment takers do not intend to execute the Declaration And Deeds of Apartment as required under KAOA, which can then only lead to the conclusion that the Co-Operative Society or a Company would be required to be formed only in cases of the buildings being commercial buildings intended to be used as office or showroom or shop or godown and not for residential Apartments in respect of which the Deed of Declaration is required to be executed under KAOA . Further, since KAOA defines an ‘Association of Apartment Owners’ as apartment owners acting as a group in accordance with the bye laws and declaration, there is a clear distinction drawn between Association of Apartment Owners which is contemplated under KAOA and the Co-Operative Society or a Company that is required to be formed in case of a building consisting of flats. Section 11 (4) (e) of RERA makes it a function and a duty of the Promoter to enable the formation of an Association or Society or Co-Operative Society, as the case may be, of the allottees or a federation of the same under the laws applicable. The proviso to Section 11 (4) (e) prescribes that in the absence of local laws, the Association of Allottees, by whatever name called, shall be formed within a period of three months of the majority of allottees having booked their plot or apartment or building, as the case may be in the project. Since the provisions of RERA have an overriding effect on KOFA, the provisions of Section 11 (4) (e) of RERA override the provisions of Section 10 of KOFA, which mandate formation of a co-operative society or a company and it can be said that by virtue of Section 11 (4) (e) of RERA in case of an apartment project an Association or Society or Co-Operative Society may be formed under the laws applicable.
Real Estate (Regulation And Development) Act 2016 And Karnataka Co-Operative Societies Act, 1959 ( 1959 Act)
Under Section 17 of Real Estate Regulatory Authority, it is required that the Promoter shall execute a registered conveyance deed in favour of the allottee along with the undivided proportionate title in the common areas to the Association of the allottees or the competent authority, as the case may be and hand over the physical possession of the plot, apartment of building, as the case may be, to the allottees and the common areas to the association of the allottees or the competent authority, as the case may be, in a real estate project. In Karnataka the transfer/conveyance of the common areas which includes the undivided interest in the project as on this date , viz., September 2023 cannot be done for two reasons, (i) for conveyance of the entire project land along with common areas there is no know process legally or a document under which the same can be conveyed and it is also not know what will be the stamp duty and registration fees that is to be paid (ii) presently under the Sale deed as required under KAOA the undivided interest is being conveyed in favor of the Purchasers/Allottees, which them cannot be further conveyed in favour of the Association unless all Sale Deeds are amended to remove the UDS. However, if an when the common areas can be conveyed/transferred to the Association of Allottees, it cannot be done in favour of the Association formed by virtue of the Declaration and the annexed Bye-Laws since the same being an Association of Persons (AOP), it cannot be treated as a juristic person capable of taking conveyance of the property and further individual members cannot hold shares in the same, which can then be transferred to subsequent purchasers, in view of which for the purpose of transfer of the common areas which includes the entire land on which the project is developed as defined in Section 2(n) of RERA, it will become necessary for the apartment owners to come together and form a Co-operative Society under the Karnataka Co-operative Societies Act, 1959 or incorporate a Company, as the case may be.
In order to incorporate a Co-Operative Society, the requirement of 20 persons/apartment owners coming together as the initial Promoters has to be complied with and further all the other statutory requirements under the KCS Act, 1959 have to be complied with. This also necessarily implies that in an apartment project where there are less than 20 Allottees/Owners a Co-operative Society cannot be formed at all, which also means that the same cannot be treated as a mandatory requirement under law , because the same yardstick would have to applied for small and large projects. It is also noteworthy to point out that unlike Maharashtra, where the provisions of the Co-Operative Societies have been amended to include Housing Society similar to an Apartment Owners Association within the definitions of the Act, no such amendments have been carried out to the Karnataka Co-Operative Societies Act, 1959 and though some apartment complexes have chosen to register the associations under the Karnataka Co-Operative Societies Act, 1959, the process of formation of such co-operative societies is certainly not easy since the government has not eased the process and the officials at the Registrar of Co-Operative Societies across the state are not aware as to how the co-operative societies in respect of apartment complexes are to be registered in view of which at present, it not only becomes difficult but in some cases impossible to register a Co-Operative Society.
It is also to be noted that at present, in addition to what is clarified above, Section 17 of RERA which requires transfer of the common areas cannot be complied with in the State of Karnataka for the reasons that the document under which the entire project land can be transferred to the Owners’ Association (co-operative society) is not notified either by the Department of Stamps and Registration or by the Government. Further, presently under the Sale Deed, the Promoters in Karnataka are conveying the super built up area along with the undivided interest in favour of the purchasers/allottees, the same will have to be re-conveyed to the Promoter or Land Owner, as the case may be before it can be conveyed to the Association by the Promoter.
In view of all the present, it can be said that at present there is no requirement of registering a Co-Operative Society in the State of Karnataka for the purpose of having an Apartment Owners’ Association to carry out the basic functions of maintenance of the Common Areas and the Association formed by virtue of the Bye-Laws annexed to the DOD can carry out the said functions. A Co-Operative Society can be formed at any point of time when the need arises to take conveyance of the entire land including the common areas, viz., or by any Apartment complex which desires to form the Association as a Co-Operative Society. It is also to be noted that the Government of Karnataka should issue necessary guidelines in this regard for registration of Apartment Owners Associations, even those with less than 20 Promoters/Owners as Co-Operative Societies and also provide for their administration in a smooth and unambiguous manner.
Karnataka Societies Registration Act, 1960
Earlier, the Apartment Owners’ Associations were also being registered under the Karnataka Societies Registration Act, 1960 and even to this day, many such societies are functioning which are carrying out the activities of maintaining the apartment complexes. It is now not permissible to do so for two reasons, firstly, Section 3 of the Karnataka Societies Registration Act, 1960, which sets out the objects with which societies can be formed only has charitable objects and the activity of carrying out the maintenance of an apartment complex is not a charitable object and the society may also earn profits from various sources in the complex including leasing of some of the common areas. Secondly, the Government of Karnataka, by virtue of a circular issued in the month of November 2018, has barred registration of associations which are essentially Apartment Owners Association carrying out the functions of maintenance of apartment complexes to be registered under the Karnataka Societies Registration Act, 1960. For the said reasons, it is not permissible and advisable to form Apartment Owners’ Associations under the Karnataka Societies Registration Act, 1960
Conclusion: In view of all the above, in the present scenario, in the State of Karnataka what is advisable is to execute a Deed of Declaration, register the same along with the Bye-Laws and submit a true copy of the same to the jurisdictional Registrar of Co-operative Societies as required under Section 11(2) of KAOA, 1972 and thereafter start functioning as an Association of Apartment Owners for the limited purposes of receiving the corpus funds, the common areas maintenance charges and carrying out the activities of maintenance of common areas and administration of the Apartment complex and do all other activities related to the common areas in the apartment complex. If desired for any purpose, including taxation benefits, a Co-Operative Society may also be registered, however it is not mandatory.
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Disclaimer: The information provided in this Article does not, and is not intended to, constitute legal advice and is for general informational purposes only. No reader of this Article should act or refrain from acting on the basis of information on this Article without first seeking legal advice from counsel in the relevant jurisdiction.
Author Bio
We need help to form a owners association. We are a community of 60 flats. The chances of getting an OC is very grim. Builders have abandoned. Could you help us?