RERA nd GST contd. (Supplement)

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ARTICLE I

            TEXT OF THE ARTICLE PUBLISHED IN KARNATAKA LAW JOURNAL

                            (ISSUE OF !5TH JULY 2003 - PART 14)

                                  Buying a Flat / APARTMENT?

Come week end or a holiday, any leading builder's site and office bustling with an unusual activity, and prospective buyers trooping in and out, is a common sight. The surge in the buying activity is mainly attributable to freely available bank loans on attractive terms and attached tax incentives.  But it is anybody's guess as to how many of them really know or even care to know that buying / acquiring a flat / apartment is a serious business, having its own peculiarities and pitfalls.   

For safeguarding and securing his rights in law, any purchaser, or acquirer other than by purchase (this has particular reference to the arrangement dealt with under the head of "Case Study" elsewhere herein after) of a flat / apartment in, just as any other metro, Bangalore, has to necessarily take certain precautions.

Most importantly, he ought to ascertain beforehand as to what are the local regulations governing such a transaction and their legal implications. Stamp duty is one important aspect.

The buyer needs to carefully go through, if not for anything else, at least to get to know the stipulations in, the agreement(s) the promoter / builder requires him to sign, instead of blindly signing on the dotted lines. Preferably, for making doubly sure, it is advisable for him to act, after consulting a competent legal counsel to satisfy himself as to whether the agreement(s) is, in its form and substance, in order.

He also needs to inquire and make himself aware of the procedure followed by the promoter / builder for putting through the transaction, to the end of final conveyance and/or giving possession of the property. Its legal implications could be well appreciated, only in the light of the relevant provisions of, besides the Transfer of Property Act and the Contract Act, the Apartment Ownership Act (for brevity, hereinafter referred to as the Apartment Act), read with the Rules framed thereunder, as also the Ownership Flats (Regulation, etc.,) Act (the Flats Act), read with the Rules under that Act.

It was in Maharashtra, particularly in Mumbai, that the concept of building and living in flats/apartments came in vogue for the first time, many years before, and some other States, including Karnataka, merely took the lead from Maharashtra. In fact, it is noted that the text of the Karnataka Acts and Rules are, but for certain obvious but unintended omissions/ commissions as observed elsewhere herein, in line with the Acts and Rules in force in Maharashtra.

In Maharashtra, with a view to removing certain anomalies as also difficulties in their interpretation and implementation faced over the years, some of the provisions of the law as originally enacted came to be later amended. So much so, the regulations presently in force are, in comparison, found to be much simpler, and easily understandable.

On the contrary, the text of the Karnataka Acts and Rules, though seem to have been drafted with the Acts and Rules of Maharashtra as the model, do not have the above referred amendments incorporated. The consequence is that the regulations of Karnataka are unclear on certain crucial aspects and amenable to misconception, not only by the public (that is, the promoters/ builders on the one hand and the purchasers/acquirers of flats / apartments on the other), but also by the legal advisers and the enforcing authorities themselves. All such areas call for remedial action by suitable legislative changes and / or issue of official clarifications and guidance.

In these circumstances, there is need to focus on at least some of the primary areas calling for a serious consideration and remedial steps by Karnataka.

A plain reading of the two Karnataka Acts and Rules leads one to believe that these are two independent pieces of legislation and but for a few exceptions, have separate application depending on whether the units of a building are to be sold as flats or apartments. According to the scheme of the two Acts, however, particularly if studied with the Acts of Maharashtra in the background, it should be clear that the Flats Act of Karnataka was intended to apply to both flats and apartments, not only to flats.

According to the Statement of Objects and Reasons (Preamble to each of the two Bills (Bill No. 30, and 31 of 1972, both notified in Karnataka Gazette, Extraordinary, dated 2-12-1972, enacted in 1973 as the Flats Act, and the Apartment Act), the objectives of the two Acts are different. The Apartment Act came into being primarily to declare that each apartment in a multistoried building is, for all purposes, to be regarded as a heritable and transferable immovable property. That enables each purchaser enjoy exclusive ownership of his apartment but with an undivided interest in the common areas and facilities to be used and enjoyed by all such owners jointly. 

On the other hand, the stated objective of the Flats Act is, in the interest of intending purchasers who advance funds, to regulate the construction, sale, management and transfer of flats or apartments by persons who construct such multistoried buildings. As such, in the said Act, both flats and apartments are referred to in more than one context.

There is, however, room for confusion as to whether or not all the provisions / requirements of the Flats Act govern and apply also to apartments. Such confusion seems to be worse confounded by the following:

( i ) In the Flats Act and the Apartment Act, the terms `flat' and `apartment' have been respectively defined but distinctively.

  

( ii ) In the  Flats Act, in more than one place, there is a mention of "flats or apartments". As such, either term cannot be said to have been interchangeably used, much less can the term `flat' wherever used be taken to include `apartment'.

        ( iii )`Promoter', as defined in the Flats Act (Section 2(c)), in terms, means a person who  constructs or causes to be constructed a block or building of flats or apartments for sale.

         

 In the Apartment Act, however, the term `Promoter' nowhere appears as such, but the term  used is `owner' or `grantor' of the property, or referred to as `builder'.

 Nonetheless, in Rule 9 of the Rules under the Flats Act, as also elsewhere, the term `Promoter' finds a mention even in relation to the Apartment Act.

         ( iv ) In Rule 5 of the Rules under the Flats Act, wherein are specified the particulars to be 

          contained in an agreement for sale, there are included items (Clauses (e) to (h)) that are of

          relevance not to flats but only in relation to sale of apartments.

Thus, the point of doubt is whether or not, except those provisions of the Flats Act wherein there is a specific mention of "flats or apartments", all the other provisions are of no relevance and application in relation to apartments.

In the Act of Maharashtra governing flats, the definition of `flat', as amended, includes `apartment'. Further, whereever there is a reference to `flats', the word `apartments' has been added. As such, under that Act, there is no scope for disputing that all its provisions are of equal application to apartments.

As was seen herein before, the Flats Act of Karnataka has the stated objective of protecting the general interests of buyers of not only `flats' but also `apartments'. That being so, there is no reason why only some of its provisions, and not all the provisions, should apply to apartments.

To illustrate, let us take Section 4 of the Flats Act. It enjoins the seller to, before accepting any advance payment or deposit, enter into an agreement for sale and have it registered. In the said Section, there is a mention of `flat' but no mention of `apartment'. If the said Section is taken to have no application to a sale of `apartment', then the protection to the buyer as intended therein will be denied to buyers of apartments. Certainly this position runs counter to the stated objective of the Act. In this context, it calls for a special mention that in the Act of Maharashtra governing flats, the corresponding Section 4 of that Act has been specifically made applicable also to apartments.

Similar points of difference come to be noted even in regard to certain other corresponding provisions of the Acts of Karnataka and Maharashtra.

In Maharashtra, the Act governing flats was, as mentioned supra, made applicable to also apartments by suitably amending the definition therein, of the term `flat'. There could be no valid reason as to why in the Flats Act of Karnataka, though framed with the Act of Maharashtra as its model, this crucial aspect had been overlooked, and remain to be so even till date.

Incidentally, under Section 4 of the Act of Maharashtra, unlike in Bangalore, for sale by the promoter/builder, be it of a flat or apartment, an agreement for sale is, as mandated by the provision, invariably registered. Moreover, as per the requirement of the Maharashtra Stamp Act, for which purpose even an agreement to sell / for sale is construed, rightly so, as being tantamount to conveyance, every such agreement is subjected to levy and payment of stamp duty on the value of the property.

   For the buyers of flats / apartments governed by the Karnataka Acts, the following check list may be of  guidance:

Check List :

Flats Act -

1)    Section 3 requires the promoter to, in all transactions with intending takers, among other, -

specify in writing the date by which possession of the flat is to be handed over;

         specify in writing the precise nature of the organisation of the takers to be constituted and to which title is to be passed, and the terms and conditions governing such organisation; and

      make a true and full disclosure of such other information and documents in the prescribed manner and give true copies thereof , if demanded.

2) Section 4 mandates the promoter to, before taking any advance payment or deposit (not to exceed 20% of sale price), enter into a written agreement for sale, containing the prescribed particulars and attaching the prescribed documents, and have the agreement registered under the Registration Act.

3) Section 7 (sub-section 2) enjoins the promoter to construct and complete the building in accordance with the plans and specifications approved by the authority.

4) Section 10 requires the promoter to take steps for forming and registering the organisation of the flat takers, that is, a co-operative society or a company, as soon as the minimum number of persons required for the purpose have taken flats.

5) Section 11 mandates that the promoter should convey by execution and delivery of the necessary documents, his right, title, and interest in the land and building to the registered organisation of the flat takers, or to an association of flat takers, as the case may be, within the agreed or prescribed time limit.

6) Section 14 provides for conviction and punishment of any promoter who, without reasonable cause, fails to comply with or contravenes any provisions of the Act or the Rules.

Certain other regulatory measures are to be found in the Rules, some of which are as under:

(i)  Rule 4 -True copy of , among other, a Certificate of an Advocate with regard to the promoter's title to the land is required to be given by the promoter, on demand and payment of a charge by the flat taker .  

(ii) Rule 6 - A copy each of the Advocate's Certificate (referred to in (i) above), and of the plans and specifications of the flat are required to be attached to the agreement for sale of the flat referred to in section 4.

    (iii) Rule 9 lays down the period for submission of application by the promoter, for registration of the  co-operative society or company to be formed by the flat takers.

    (iv) Rule 10 lays down the period for conveyance by the promoter, of his title, to the organization of the flat takers. 

Apartment Act:

1) Section 2 lays down that in order that the Act applies to a property, its owner / grantor  constructing on his land a multistoreyed building consisting of apartments for sale is required to execute and register a Declaration in the prescribed form and manner (Rule 3, Form A). 

2) Section 3, clause (b) defines "apartment owner " as the person(s) owning an apartment and an undivided interest in the common areas and facilities in the percentage specified and established in the Declaration executed and registered under Section 2. For this purpose, the term "common areas and facilities" is defined in clause (f) thereof.

3)    Section 5 requires each apartment owner to execute a Declaration submitting his apartment to the provisions of the Act (Rule 4, Form B) and a Deed of Apartment in relation to his apartment in the prescribed manner.

As to what should be the contents of such Declaration and Deed are specified in Sections 11 and 12, respectively.   

4) Section 6(1) stipulates that each apartment owner shall be entitled to an undivided interest in the common areas and facilities in the percentage specified in the Declaration filed under Section 2 and computed by taking as a basis the value of the apartment in relation to the value of the (whole) property.

5) Section 13 requires the Declarations and the Deeds of Apartments of all the apartment takers, together with the floor plans of the building(s), to be registered under the Registration Act. 

6) Section 14, sub-section (1) provides for the apartment owners to jointly opt out of the application of the Act by executing an instrument to that effect.

On their doing so, as laid down in sub-section (2), the property shall be deemed to be owned in common by the apartment owners, with each apartment owner having an undivided interest in the property apportioned on the same percentage as before. For other consequences, one may refer to the applicable Model Form No.11.

 7) Section 15 enables the apartment owners to subsequently re-submit their apartments to the provisions of the Act.

Rules:

(i) Rule 5 stipulates that any transfer of an apartment by the owner of the property / grantor to an apartment taker, or by an apartment owner to another, shall be by a Deed of Apartment.

(ii) Rule 7 lays down what should be the contents of the Deed of Apartment, and requires filing of a copy thereof with the competent authority (Registrar of Co-operative Societies) within 30 days of its execution.

Income-tax Act :

In the Income-tax Act, there are special provisions (Chapter XX-C - sections 269 U to 269 UO) applicable to a transfer of an immovable property in any of the specified geographical areas and of value exceeding the prescribed amount. The term "immovable property" as defined for this purpose will cover a flat as also an apartment. For Bangalore Metropolitan Region, the prescribed minimum value is Rs 25 lakhs. Accordingly, the parties with respect to any agreement for transfer of a flat / apartment in Bangalore, of value exceeding Rs 25 lakhs, if effected before 1^st July, 2002, should ensure proper compliance with the said provisions, including, among other, registration of the agreement for transfer with the competent authority constituted for the purpose. 

     An intending flat or apartment taker will be well advised to make himself aware of the aforementioned and other governing regulations, and ensure that the builder strictly complies with all the applicable formalities and requirements, in letter and spirit, as expected of him by the law. 

Another matter also calls for a special mention: According to the scheme of the provisions of the Flats Act as well as the Apartment Act, read together with the general provisions of the Transfer of Property Act, it is abundantly clear that the land owner and the promoter / builder are obligated to convey and assign the absolute ownership in the land and the building, including in the annexed common areas and facilities (that is, all rights, title and interests in the whole of the property) to the organisation formed by the flats / apartments takers, be it a society or company or an association, and/or to the apartment takers, as the case may be, in the manner respectively laid down in the said Acts. As such, after the construction has been completed in all respects, and the sale / final conveyance has been made and formal possession has been handed over, the land owner or builder can by no means lawfully have or retain any right whatsoever in any portion of the property. Much less, can he have any access or entry into the property for doing anything affecting/impairing either directly or indirectly, the exclusive ownership rights to and peaceful enjoyment of the property of the flats / apartments owners, or of the society or the company or the association constituted by them. Nonetheless, one is aware of instances where the land owner or the promoter / builder, either knowingly or otherwise, tries and have incorporated in the agreement(s) with the buyers, a highly objectionable stipulation reserving for himself the right to use/exploit common areas, or a portion thereof, such as the terrace of the building or compound, for his own commercial purposes (eg. for putting up advertisement signs/hoarding or mobile phone base station) even after the property has been lawfully transferred and the buyers of the flats/apartments have become the absolute owners thereof. What is more intriguing is the fact that such builders are, in drafting the agreement(s), invariably guided by their legal advisers who also do not seem to consider it objectionable to have any such stipulation as aforementioned.

In such matters, found generally wanting are the public awareness to their rights under the law on the one hand, and on the other, the requisite drive and initiative on the part of the government in taking all the necessary steps, such as issue of appropriate guidelines from time to time, for ensuring that the gullible public is not taken for a ride by any unscrupulous builder.

Case Study:

If it is a transaction of sale of flat / apartment, stamp duty is payable by the buyer on the value of the property.

For reducing the incidence of stamp duty, however, a special arrangement (herein after referred to as the "subject arrangement"), not being one of sale of flat/apartment, is generally being resorted to. Such an arrangement is usually covered in two independent agreements. One agreement is for the person owning land, selling to each of the proposed takers of flats / apartments, an undivided proportion of the land on which the building comprising two or more flats/ apartments is to be constructed. Under the other agreement, a builder, being other than the seller of the land, undertakes the work of construction of a building, on the land already acquired and owned by the individual purchasers as aforesaid.

Under this arrangement, stamp duty is claimed to be payable only on the value of the portion of the land paid for by the purchaser. The separate agreement with the builder is, on the ground that it constitutes a works contract, claimed to be not a transaction of transfer / sale of property and therefore, not liable for stamp duty.

Of course, a works contract is liable for sales tax according to the law of the State, but its quantum is, in comparison with stamp duty, far less.

Be that as it may, in order to be construed a works contract, the terms and conditions attached to the work of construction of the building should satisfy, and in no manner vitiate, the necessary attributes, namely, 

(a) even from day one, the work done should be for and on behalf of the purchaser-owner of the land as the contractee;

(b) the property in the work-in-progress, that is, all rights, title, and interest what so ever should exclusively vest, and remain vested in the purchaser-owner of the land, but the builder as the contractor can have no right, title or interest therein; and

(c) the builder can have only the right of access to enter the land, merely as a licensee, for the limited purpose of carrying out the construction for and on behalf of the purchaser -owner of the land.

Any multi-unit building has its own peculiar characteristics, in that all the flat / apartment owners have joint interests in the building. As such, for the builder to carry out the construction work without any hindrance from the individual flat/apartment takers, it is understandable if the agreement stipulates to the effect that while under construction, and until completion and handing over the possession, none of the flat / apartment owners can interfere with the construction. Further, the builder may rightly have a charge on the building created in his favour, in order to safeguard his right to recover the payments due from the contractee(s) towards the agreed price for the construction.

However, it is observed that, in framing the agreement, proper care is, more often than not, not taken. On the other hand, in his own interests and just to secure his own position, the builder, in his over enthusiasm, chooses to, may be unwittingly, introduce certain controversial clauses in the agreement. For instance, one often finds a stipulation to the effect that the flat / apartment taker shall have no right, title or interest in the building until its completion and handing over the possession. By necessary implication, that would mean that the property in the flat / apartment will pass to the buyer only on completion of the building and handing over the possession. Such a stipulation apparently runs counter to the concept of works contract. In the result, the separate agreement for construction might not be accepted to have the characteristic(s) of a works contract within its legal concept. Instead, there is the imminent danger of the entire arrangement being construed as one of sale of the flat / apartment. If so, it will attract stamp duty, not just on the value of land, but on the entire value of the property, that is, inclusive of the value of the construction.

To mention a couple of other instances militating against the concept of works contract:

(i)            Where the builder starts the construction work, even before the intending individual flat/apartment takers have become owners of the land by purchasing from its original owner.

(ii)          The original owner of the land and the builder is one and the same person (in its general as well as legal connotation). 

Even in a given case where the agreement(s) clearly and indisputably bears out the subject type of arrangement as intended, the other vital point invariably overlooked is that the flats / apartments acquired thereunder might fall foul of an essential requirement of the Apartment Act, as mentioned below:

(1)  The Act, among other, envisages a Deed of Conveyance being executed by the Grantor or builder in favour of each of the apartment takers.

(2)  As stipulated in the bye-law 5., of the model Bye-laws prescribed under the Apartment Act, in order to become a member of the Association, he should be a person who has `purchased' the apartment.

        

There could conceivably be no such conveyance or purchase of the apartment as envisaged above, should a building comprising flats / apartments be constructed in terms of a works contract. For this reason, the acquirers of flats / apartments under the subject type of arrangement cannot have recourse to the Apartment Act, for forming an Association as envisaged in the Act, so as to be governed by that Act and the Rules, as also the Bye-laws thereunder.

Now, turning to the Flats Act, flats that come within the purview of that Act are only those that are `sold' by the promoter to any specified organisation of the takers. It needs to be noted that, among other, section 2(c) and section 4 of the Act speak of only a `sale'. That being so, for the same reason as aforesaid in respect of the Apartment Act, the Flats Act also will not apply to the subject type of arrangement.

In summing up, the special advantages, benefits, and legal protection accorded under the Flats Act and the Apartment Act would not be available to the acquirers of flats / apartments under the subject type of arrangement. So much so, in the absence of any enforceable obligation or compulsion, and human nature being what it is, in that, generally speaking, harmony and co-operation from among the co-owners of the building will prove a myth, effectively and jointly enjoying, managing and maintaining the building might be impossible. Perhaps, the co-owners would have to consider and decide about forming among themselves, given again, of course, the necessary co-operation and consensus, either a co-operative society or a company and have it registered under the general law, that is, the Karnataka Co-operative Societies Act, or the Companies Act, as the case may be. That is, of course, subject to the requirement of the minimum number of persons under either of those Acts being fulfilled.

Be that as it may, there are builders who, if one were to infer from the recitals in the documentation they use, seem to believe otherwise, wrongly so, and lead the flat / apartment takers also to so believe. Looking at the practice in vogue, which has been going on all these years, obviously without being questioned, the concerned authorities (including Stamp Duty authorities, the Registrar under the Registration Act, and the Registrar of Co-operative Societies) also do not seem to be any wiser. 

Tamil Nadu is another State where the subject type of arrangement is commonly in use, again with a view to saving on stamp duty. However, in that State also, there is a similar (though not identical) legislation in force that governs flats / apartments, as in Karnataka. So much so, the acquirers also in that State, of flats / apartments under the subject type of arrangement are bound to be exposed to the same difficulties as outlined above, as in Karnataka.

Maharashtra is one State where, because of its more stringent stamp duty regulations, the subject type of arrangement is, generally speaking, not resorted to.

Perhaps, the concerned governments will do well, in the interests of the public, to have suitable changes effected in the subsisting regulations governing flats / apartments, so as to bring within their fold also those who acquire flats/ apartments under the subject type of arrangement. 

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ARTICLE II 

               TEXT OF THE ARTICLE PUBLISHED IN MADRAS LAW JOURNAL

                                  (ISSUE (2003) 3 MLJ (6-11-2003))

                                   Own an Apartment in Chennai?

             

If you own an apartment in Chennai, or intend owning one, only then keep reading:

Introduction

The regulations governing owners of apartments in Tamil Nadu, particularly in Chennai (where construction of, and owning and living in, a multi-unit building has, in recent years, just as in any other metro, been picking up at an alarming rate), are to be found in the legislation of the State - The Tamil Nadu Apartment Ownership Act, 1994 (herein after referred to as the TN Act), and the Rules thereunder (Rules).

It is common knowledge that, it was in Maharashtra, particularly in Mumbai, that the concept of building and living in flats/apartments came in vogue for the first time, quite many years before, and some other States, including Karnataka and Tamil Nadu, in that order, merely took the lead from Maharashtra.

In fact, in Tamil Nadu, the idea of the subject legislation was conceived by introducing in the Legislative Assembly a Bill as long back as in the year 1981. However, the Bill had to be reintroduced, and was enacted only in the year 1994, and with the assent of the President received in April 1995, came into force long thereafter through a Notification in April 1997. These facts speak for themselves, of the speed and enthusiasm (rather lack of these) exhibited by the Government in seeing through such an important legislation.

The T N Act has, it is understood, been drafted following the scheme and model of the Maharashtra Apartment Ownership Act, 1970 (Act XV of 1971). Even so, if studied in comparison, the TN Act is found to be far less comprehensive in that, it does not encompass all the relevant facets as the Acts of Maharashtra. Further, some of the provisions of the TN Act are too brief to enable one to clearly understand their purport or implications. Of course, brevity is the soul of wit. That is not to say, brevity, at the cost of clarity, can by any means be regarded a virtue.

It may be helpful to study the TN Act and Rules, not in isolation, but in the light of, and in comparison with, the Acts and Rules in force in Maharashtra . Only by making such a comparative study, one can be clear about not only what the TN Act provides, but also what it ought to have but has not provided. Also will enable one to identify any anomalies or ambiguities or loopholes therein.

1. Acts and Rules of Maharashtra:

Maharashtra was the first of the States to come out with enactment for specially making the ownership of even a part of a building called flat/apartment, in spite of its peculiar characteristics, heritable and transferable; also, for regulating the activities in relation to the construction and sale of flats/apartments.

Besides, with the object of enforcing discipline among the flat/apartment owners, in their common interests, this aspect also came to be covered in the framing of the Rules and Bye-laws. To elaborate, persons of different cultural backgrounds, hues, outlook, temperament, and the like, choosing to own and/or live in a flat/apartment, unlike in an independent house, have to perforce get attuned to a basically different social behaviour and mindset. In a sense, no different from those expected of persons, though strangers before but obliged and therefore, coming to stay together in a hostel, with a warden in control. Particularly, any person owning and/or living in a flat/apartment, though entitled to exclusive possession and use of his flat/apartment, is nonetheless obliged to observe and abide by certain norms for the common good - such as, mutual friendliness and co-operation, give and take attitude, and in general, do or refrain from doing anything always keeping in mind the interest, convenience and the like, of the co--owners or co-tenants. To be more precise, the owner is expected to use/enjoy, not only what are known as common areas and facilities, but also his own flat/apartment, in accordance with the respective purposes for which those are intended; but do so without hindering or encroaching upon the lawful rights of the other flat/apartment owners.  However, human nature being what it is, these special qualities are too much to expect in the natural course. Hence, the need for an external force or compulsion in the form of governmental regulations coming into play.

Presently in force are-

The Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act, 1963 (the Flats Act);

The Maharashtra Apartment Ownership Act, 1970 (the Apartment Act); and

the Rules framed under those two Acts (Rules).

Some of the relevant provisions of those Acts and Rules may be summarized thus:

Flats Act:

(1)  "Flat", as defined (Section 2(a)), includes an "apartment" (also specially but differently defined in the Apartment Act).

(2)  `Promoter', as defined (Section 2(c)), means a person who constructs or causes to be constructed a block or building of flats or apartments for sale.

(3) The promoter is required (Section 3) to, in all transactions with intending takers, among other,

specify in writing the date by which possession of the flat is to be handed over (also hand over the possession accordingly);

        specify in writing the precise nature of the organisation of the takers to be constituted  and   to which title is to be passed, and the terms and conditions governing such organisation; and

   make a full and true disclosure of such other information and documents in the prescribed  manner and give true copies thereof , if demanded.

(4) Section 4 mandates the promoter to, before taking any advance payment or deposit (not to exceed 20% of sale price), enter into a written agreement for sale, containing the prescribed particulars and attaching the prescribed documents, and have the agreement registered under the Registration Act.

(5) Section 7 (sub-section 2) enjoins the promoter to construct and complete the building in accordance with the plans and specifications approved by the concerned authority.

(6) Section 10 (sub-section (1)) requires the promoter to take all necessary steps for forming and registering the organisation of the flat takers, that is, a co-operative society or a company, as soon as the minimum number of persons required for this purpose have taken flats.

     Sub-section (2) of Section 10, however, provides to the effect that if any property has been submitted to the provisions of the Apartment Act by the promoter executing and registering a Declaration under that Act (Section 2, Rule 3), then in such a case, it shall not be lawful to form a co-operative society or company as envisaged in sub-section (1).

(7) Section 11 mandates that the promoter should convey by execution and delivery of the necessary documents, his right, title, and interest in the land and building to the registered organisation of the flat takers, or to an association of the apartment owners, as the case may be, within the agreed or prescribed time limit.

(8) Section 13/14 provides for conviction and punishment of any promoter who, without reasonable cause, fails to comply with or contravenes any provisions of the Act or the Rules.

Certain other regulatory measures are to be found in the Rules, some of which are as under:

(i)  Rule 4 -True copy of , among other, a Certificate of an Advocate with regard to the promoter's title to the land is required to be given by the promoter, on demand and payment of a charge by the flat taker .  

(ii) Rule 5 - A copy each of the Advocate's Certificate (referred to in (i) above), and of the plans and specifications of the flat as approved by the concerned authority are required to be attached to the agreement for sale of the flat referred to in section 4.

    (iii) Rule 8 lays down the period for submission of application by the promoter, for registration of the co-operative society or company to be formed by the flat takers.

    (iv) Rule 9 lays down the period for conveyance by the promoter, of his title, to the organisation of the flat purchasers. 

Apartment Act:

(1)  Section 2 lays down that in order that the Act applies to a property, its owner or all owners  (compendiously referred to as grantor)  constructing on his/their land a multistoreyed building consisting of apartments for sale is/are required to execute and register a Declaration in the prescribed form and manner (Rule 3, Form A). 

  (2) Section 3, clause (b) defines "apartment owner " as the person(s) owning an apartment and an undivided interest in the common areas and facilities in the percentage specified and established in the Declaration executed and registered under Section 2. For this purpose, the term "common areas and facilities" is defined in clause (f) thereof.

In the Declaration to be filed in Form A as per Rule 3 (see item (1) above), besides specifying the above referred common areas and facilities, require to specify also "restricted common areas and facilities", located in each of the upper floors, that is other than the ground floor.

(3)  Section 5 requires each apartment owner to execute and register (besides a Declaration submitting his apartment to the provisions of the Act (Rule 4, Form B)- this requirement since dispensed with, by an amendment)) a Deed of Apartment in relation to his apartment in the prescribed manner.

Before the amendment of Section 5 (effecting deletion of Rule 4 and Form B) as aforementioned, each apartment owner also was required to execute and register a Declaration, for submitting his apartment to the provisions of the Apartment Act. It is to be noted that, that requirement having become redundant, has since been dispensed with. The reason is that, as per the later inserted sub-section (2) of Section 10 of the Flats Act (see item (6) under the topic head - Flats Act), unlike before, if the Promoter has executed and registered a Declaration as required by Section 2 of the Apartment Act (see item (1) herein), that becomes final, being binding on the apartment owners. 

   As to what should be the contents of such Declaration and Deed are found specified in

   Sections  11 and 12, respectively.

(4)  Section 6(1) stipulates that each apartment owner shall be entitled to an undivided interest  in the common areas and facilities in the percentage specified in the Declaration filed under  Section 2 and computed by taking as a basis the value of the apartment in relation to the value of the (whole) property.

(5)  Section 13 requires the Declarations (no longer so, after the amendment) and the Deeds of Apartments of all the apartment takers, together with the floor plans of the building(s), to be registered under the Registration Act. 

The aforesaid Declarations, it needs to be specially noted, were required to be executed and registered by all the apartment takers, in addition to the Declaration (which in its scope and contents, is much more detailed and comprehensive) required to be executed and registered by the sole owner/ all owners (obvious reference is to the original owner(s) of the property, from whom the individual takers purchase- also see Rule 5 referred herein after) under Section 2 as mentioned herein before.

(6)  Section 14, sub-section (1) provides for the apartment owners to jointly opt out of the application of the Act by executing an instrument to that effect.

   On their doing so, as laid down in sub-section (2), the property shall be deemed to be owned in common by the apartment owners (that means, they, unlike before, become co-owners of the property), but with each apartment owner having an undivided interest in the property apportioned on the same percentage as before.

 (7) Section 15 enables the apartment owners to subsequently resubmit their apartments to the provisions of the Act.

Rules:

(i) Rule 5 stipulates that any transfer of an apartment by the sole owner or all owners of the property (ie. the grantor) to an apartment taker, or by an apartment owner to another, shall be by a Deed of Apartment.

(ii) Rule 7 lays down what should be the contents of the Deed of Apartment, and requires filing of a copy thereof with the competent authority (Registrar of Co-operative Societies) within 30 days of its execution.

It is thus seen that, in Maharashtra, the Acts and Rules in force are quite comprehensive in that, among others,:

·     Those cover both flats and apartments.

       

As earlier mentioned, "flat" as defined in the Flats Act includes "apartment". By virtue of such inclusive definition of "flat", the provisions of the Flats Act are, unless otherwise stated, of equal application to also apartments. Just as flats, apartments also are units of a multistoreyed building.

But then what is the difference, conceptually or otherwise, between a flat not being an apartment, and an apartment? The answer has to be found in what follows:

The Apartment Act as well as the Flats Act, in several contexts, refer to "apartment owner". In the Apartment Act, the term "apartment owner" has been specially defined. However, "flat owner" is not a term so referred and defined. The obvious reason is that under the scheme of the Flats Act, in respect of a flat not being an apartment, though there is envisaged, just as in respect of an apartment, a sale by the promoter/ builder and purchase by the flat taker, the flat taker does not become the "owner" of the flat in its absolute legal sense. For a flat, just as for an apartment, the price paid by the buyer, of course, includes the proportionate price for the common areas and facilities appurtenant to the flat (this is required to be shown separately as specified in clause (m) of sub-section (2) of Section 3 of the Flats Act). Nonetheless, the flat taker acquires merely a limited right, title and interest in the property, in that he becomes entitled to an exclusive possession and enjoyment of the flat, but heritable and transferable by virtue of and in accordance with the special regulations governing the property. That this is so is obvious from the fact that, in case of flats, it is to the society or company constituted by the flat takers that all the right, title and interest in the entire property (being the whole of the land and building) is eventually conveyed and transferred.

On the other hand, the purchaser of an apartment, to whom the property is finally conveyed, becomes the absolute "owner" (within its legal meaning) of the apartment and an undivided proportionate share in the common areas and facilities appurtenant to the apartment.

Thus, the answer to the question as to whether the independent Units of a multistoreyed building are to be appropriately called flats or apartments will largely depend upon the intention of the parties and the real transaction as borne out by the relevant documentation (that is, the Declaration, if so executed and registered by the promoter/builder, as required by Section 2 of the Apartment Act, and/or the agreement for sale).

It needs to be added that, in Maharashtra, particularly in Mumbai, it is the system of `flats' that is preferred and mostly adopted.

·           The promoter / builder is made responsible for complying with the several requirements, right from  his entering into an agreement for sale, to the end of completion of the construction, handing over possession, and final conveyance / transfer of the entire property to the organisation of the takers formed for the purpose, or to the individual takers, as the case may be.

·           The takers of flats or apartments in a building are required to constitute, for the purpose of administration of all its common affairs, including up-keep and maintenance of the building, either a Society or a Company, and register it under the State Co-operative Societies Act, or the Companies Act, as the case may be, or an Association registered under the Apartment Act.

·           The promoter/ builder is entrusted with the primary responsibility for so forming and registering a Society or Company, or an Association.

·           In case what is constituted by the takers of flats/apartments is a Society or Company, besides having agreed to sell and eventually transfer possession of the flats or apartments to the individual takers, the promoter/builder is obligated to also finally convey/transfer all his right, title and interest in the property (land and building) to the Society or Company; or if it is an Association, to so convey and transfer the right, title and interest in the apartment(s), together with an undivided proportionate share in the common areas and facilities, to the individual owner(s).

2. TN Act and Rules:

(1) The Preamble to the TN Act setting out its objectives recites thus:

Quote

Whereas with a view to securing that the ownership and control of the material resources of the community are so distributed as to subserve the common good, it is expedient to provide for the ownership of an individual apartment in a building and of an undivided interest in the common areas and facilities appurtenant to such apartment, and to make such apartment and interest heritable and transferable immovable property and to provide for matters connected therewith or incidental thereto; (italics supplied for highlighting)

Unquote

The real purport of the words italicized herein above, especially in the context and setting in which these find place, is rather difficult to readily perceive, not only by a layman but also by one well versed in studying and interpreting any law. However, as one may infer, the purported object of the enactment seems to be to encourage construction of multistoreyed residential buildings, in order to secure optimum utilization of land available for construction, that has increasingly been in short supply in recent years. Even so, as to whether proliferation of high rise buildings, that too in the mostly preferred hubs of metros, more so in the scenario of, among other, the ever depleting natural resources, especially the basic needs of electricity, and pure water and air, is for the "common good", is, to say the least, a matter generally riddled with a grave controversy. Further, the enactment of Tamil Nadu does not, as underlined elsewhere herein in more than one place, encompass the most important area of regulating the initial but crucial stages namely, the activities of construction, and sale, management, and transfer, of apartments by the builders. As such, how far the enactment, at least in course of time, is going to "sub-serve the common good" as proclaimed, is hard to assess or speculate.      

       

(2)  The scope of the provisions of the TN Act and Rules is not so exhaustive as those of  Maharashtra in that, its limited objectives, as made clear in the Preamble itself, are merely to -

(a) provide for the ownership of an individual apartment in a building and of an undivided interest in the common areas and facilities appurtenant thereto; 

(b) to make such apartment and interest heritable and transferable immovable property; and

(c) to provide for matters connected therewith or incidental thereto.

It is thus seen that, unlike the Acts of Maharashtra, the TN Act does not concern itself with regulating, and/or providing, in the common interests of the takers, for any preventive or remedial measures to curb or obviate the possible abuses, malpractice, etc., in the promotion of construction, much less sale, management and transfer of the individual units of a multistoreyed building.

(3) The Act is made applicable to every apartment in a building constructed whether before or after its coming into force (Section 2).

As per the Proviso to Section 2, in order that the Act so applies, besides the requirement that the building should contain five or more apartments or three or more floors, the construction of the building is required to have been made in accordance with a planning permit and also a building plan duly sanctioned by the appropriate authority. If the words in italics were to be strictly construed, that would mean that to any building construction whereof is not in accordance with the Plan as approved, that is, if there be any violation/deviation, the Act will be inapplicable. Is this what was  intended?

       Going by Press reports from time to time, instances are not wanting where the promoter/ builder has not, knowingly or unknowingly, strictly adhered to the building Plan as approved but  there are deviations of a minor or serious nature. If so, the persons owning the apartments in any such building cannot form and register a Society or Association as provided in Section 12 of the  Act, so as to be governed by the Act and Rules, and the applicable Bye-laws. Looking at from a different angle, the Government cannot have any say in regard to and against the owners of the apartments in such a building if they do not form and register an Association , much less do not comply with the other requirements or formalities under the Act.

In this context, it may pertinently be mentioned that in the scheme of things obtaining in Maharashtra, there is no such scope for the governing regulations being rendered inapplicable to a  building because of any violation or deviation by the builder in doing the construction. Of course, there also it is very much a requirement of the law that any building constructed should accord with  the Plan as approved, but any violation/deviation is left to be taken care by other consequences as  elsewhere provided.

(5)  For the purposes of the Act, have been defined certain terms, among others, - "apartment owner", "common areas and facilities",  "competent authority", "limited common areas and facilities" and   

       "society"  (Section 3).

Of these, the definition of the term "limited common areas and facilities", though on the face of it looks innocuous, is prone to dispute or disagreement among the apartment owners. The term has been defined to mean those common areas and facilities designated in the Deed of Apartment as reserved for certain apartment or apartments to the exclusion of the other apartments. While there could possibly be more than one valid reason to take an exception to the unreasonably wide definition, to say the least, it is prima facie not compatible with the basics of a multiunit building, much less with the underlying concept of - common (italic to supply emphasis) prefixing "areas and facilities".

In the Apartment Act of Maharashtra also, of course, there is envisaged "limited common areas and facilities". Though not defined in the Act, in Form "A" (in which the Promoter/Grantor is required to furnish and register a Declaration as mentioned supra), it has been specifically listed (letter (h) of sub-paragraph 2 of paragraph Fifth in Form "A") as to what facilities are to be covered by the term "restricted common areas and facilities" (again, the word used therein is restricted, not limited as elsewhere). As seen from that list, those are facilities located only in each of the upper floors, not the ground floor, and further, are merely facilities such as, lobby which gives access to the elevators, to the family unit, to the corridor, to Stairway, and the like. Besides, it is inconceivable that, even such facilities, by their very nature, could be "reserved for certain apartment or apartments to the exclusion of the other apartments" as envisaged in the TN Act as aforementioned. At best, the use of such facilities could only be limited or restricted for the "other apartments". Human nature being what it is, any such selective "exclusion" as aforesaid will, instead of contributing to the apartment owners living in peace and amity, lead to chaos and confusion, besides disputes and complications.    

In the TN Act, in certain contexts (eg., in paragraphs 8,12,15,16,17 of  the document - "Contents of….. "  ( see K S Mahalingam's Book on the T N Apartment Act, pages 30 to 36)) has been used a different prefix - "restricted"(not defined in the Act or Rules), presumably but inadvertently, in place of the prefix  "limited ".

      The other terms as defined in Section 3 of the TN Act have, in material respects, more or less the  same meaning as under the Acts of  Maharashtra.  

(6)  Section 6 provides, among others, THAT each apartment owner shall be entitled to an

undivided interest in the common areas and facilities in the percentage specified in the Deed of Apartment, computed by taking as the basis the plinth area available in the apartment in relation to the total extent of the plinth area available in the building.

It further provides that the aforesaid percentage shall have a permanent character, but with a Rider to the effect that such percentage shall not be altered without the consent of all the apartment owners. The need for or relevance of such a Rider is far from being understood. Be that as it may, any such alteration as envisaged, though only remotely possible but if at all made, may involve a "transfer" in relation to a capital asset within the meaning of Section 2(47) of the Income-tax Act and if so, attract tax, should capital gains arise.

(7)  Section 10 lays down as to what should be the contents of the Deed of Apartment required to be executed by each of the Apartment owners and registered (as made compulsory by Section 11) along with a copy of the Floor Plan.

Section 12 provides that, soon after the Deeds of Apartments have been executed and registered as aforesaid, in any case not later than 3 months from the date of such registration, the Apartment owners shall form, -

(i)   a  Society registered under either the TN Co-operative Societies Act or the TN Societies Registration Act, or

(ii)        an Association of Apartment owners (under the TN Apartment Act).

       It is seen that, there is no prescribed time limit by which all the Apartment owners have to execute and register the Deeds of Apartment. As such, compliance with the requirement of forming and registering a Society or an Association might get deferred or delayed, even indefinitely, depending on the date by which all the Deeds come to be executed and registered, as the only prescribed outer time limit of 3 months is to be reckoned only from that date.

 Be that as it may, broadly speaking, preference would be  to form an Association under the Apartment Act, instead of a Society, for the obvious reason that the statutory formalities calling for compliance are, in comparison, far less in number and rigor, as also less time-consuming.

(8)  Section 14 makes it clear that for the purpose of forming as aforementioned, a Society registered under either the TN Co-operative Societies Act or the TN Societies Registration Act, the minimum number of members required shall, notwithstanding what those Acts provide, be taken to be five.

Further, it declares to the effect that, to the extent any of the provisions of the TN Co-operative Societies Act and the TN Societies Registration Act, and the Rules thereunder, are repugnant with the provisions of the TN Apartment Act, the latter mentioned provisions shall prevail (be given effect).

Though the purport of the said declaration prima facie sounds simple, it might, in implementation, prove rather difficult to even say with reasonable certainty as to which of the provisions inter se are so repugnant (meaning - inconsistent, incompatible) as envisaged, more so to what extent.

To make life the least complicated, Tamil Nadu could have simply followed the same pattern of legislation as in Maharashtra, as also in Karnataka. Particularly, in those two States, the flat/ apartment takers, in case they opt to form a Society (or a company), instead of forming an Association under, and being governed by, the special Act applicable to Apartments, are left to be entirely and exclusively governed / taken care of by the Co-operative Societies Act (or the Companies Act, as the case may be). 

Even so, that is not the end of the matter. It is anybody's guess as to how many of the multiunit buildings that have come up in recent years, particularly in Chennai, after the coming into force of the TN Apartment Act, have taken steps to, and formed and registered an Association, apart from complying with the other provisions of the Act.  One only hopes that the Government is fully aware that unless compliance with the provisions of the Act is strictly monitored and enforced in respect of every building to which the Act is applicable, the necessary casualty is none other than the common interests of the apartment owners, protection whereof is the primary object of the Act.

(9)  In the Appendix to the Rules, may be found Form 1 in which the Deed of apartment has to be executed and registered under Sections 5 and 11, read with Rule 4.

As mentioned herein before, the Deed of Apartment is the only instrument that is required to be    executed under the Act, that too by each apartment owner.  That is so obviously because of the fact that there are no provisions in the Act, unlike in the Act(s) of Maharashtra, by way of regulating the activities in relation to construction and sale of apartments. Even the Development Control Rules for Chennai Metropolitan Region separately framed cover only some of the related aspects, not all as may be warranted, with a view to regulating and enforcing discipline in the field of building activities.

(10) According to the tenour of the Deed in Form1, it is styled as a "declaration", and such declaration is intended to be made by each apartment owner.

In Paragraph 1.of Form 1, the words "the building", are followed by the words - "now on the construction /already constructed". Reading further, in paragraph 2., the opening words are " I derived title to the said apartment by Sale Deed bearing …… ".  The term "Sale Deed", in its normal connotation, can only refer to the final deed of conveyance where under all the right, title and interest of the original owner (it could be either the promoter, or land owner or builder) get transferred to the apartment owner. Further, even according to the scheme of the other relevant provisions, the execution and registering the Deed of Apartment is posterior to the point of time when the taker becomes the apartment owner (in its general as well as legal sense). If so, what the words italicized herein before - now on the construction, are intended to convey, is not clear.

(10) In K S Mahalingam's Book on the TN Apartment Act (Year 2000 Edition), on pages 30 to 36, there appears a document titled - " Contents of Deed of Apartment to be made by the sole owner or all owners submitting the property to the provisions  of …." (italics supplied). It is not at all clear whether the said document is intended to form part and parcel of the Deed of Apartment in Form 1 on page 29.

Nowhere in the Act or Rules there appears to be a mention of any such document, "the sole owner or  all owners" ( the same expression, as used in the Act of Maharashtra,  refer to the original owner(s) of  land and building from whom the taker purchases the individual apartment and becomes the owner  thereof) is/are required to execute. The confusion is worse confounded by the fact that the Deed in Form 1 is required to be executed separately by each individual apartment owner, not by all collectively.

(11) In the model Bye-laws (Annexure to the Rules), under the bye-law 4 (1)(d)((ix), in relation to one of the objects of the Association being to provide for and do all or any of the specified matters, there is a mention - "not set forth in the declarations".  Again, in the bye-law 9. dealing with the matter of Voting, there is a mention- "in the Declaration". As to what these expressions "declarations" and "declaration" refer to is not at all understood.

In this context, it needs to be recalled that, in Maharashtra, besides a Deed of Apartment required to be executed at a later stage by each apartment owner, there is a document specifically named "Declaration" required to be initially executed by the "sole owner or all owners", in Form `A', and registered, for submitting the property to the provisions of the Apartment Act.

Bye-laws:

The model Bye-laws as set out in the Annexure to the Rules provide, among other, the following:

 1) Model Bye-laws shall have to be adopted by the Association of Apartment Owners in the manner provided (bye-law 3).

2) All persons who have purchased apartments and executed a deed of apartment shall automatically become the members of the Association (bye-law 5).

3) Every apartment owner must hold at least one share of the Association (bye-law 7).

    No provision is to be found, either in the Rules or elsewhere, covering the procedural aspects, including the time limit, for issue of such shares.

4) Voting shall be on percentage basis as specified (bye-law 9).

5) Vote shall be cast in person (no proxy) (bye-law 11).

6) The Association shall open a bank account for its purposes (bye-law 48).

     By necessary implication, the bank account has to be only in the name of the Association.

Certain other matters covered in the Bye-laws that call for a special mention:

(a) The committee (the board or the governing body)members / office bearers have to be necessarily elected/constituted by, and from among, the members (that is, the apartment owners).

By necessary inference, no outsider, including any relative, is permitted; for that matter, in case of joint owners, the person whose name stands first in the share certificate, being the one having the right to vote (see bye-law 6), can obviously be the only person qualifying  for all the other purposes as well. 
 

(b) The overall administration of the common affairs of the apartment owners is the responsibility of the Association, and such responsibility has to be discharged through the Board and office bearers on a  democratic basis as laid down and in accordance with the bye-laws being the basic charter for this purpose.

  3. Case Study:

  As is generally known, in Chennai, for owning an apartment, a special arrangement is, instead of the otherwise usual transaction of sale and purchase, being widely resorted to, obviously with a view to reducing the incidence of stamp duty.

Such an arrangement is usually covered in two separate independent agreements. One agreement is for sale, by the owner of the land on which the building comprising apartments is to be constructed, of an undivided proportion thereof to each of the proposed takers of such apartments. Under the other agreement, a builder, not being the owner/seller of the land, undertakes the work of construction of the building, on the land so already acquired and owned by the individual purchasers as aforesaid.

Under this arrangement, stamp duty is claimed to be payable only on the value of the portion of the land paid for by the purchaser. The separate agreement with the builder is, on the ground that it constitutes a works contract, claimed to be not a transaction of transfer / sale of property and therefore, not liable for stamp duty.

Of course, a works contract is liable for sales tax according to the law of the State, but its quantum is, in comparison with stamp duty, far less.

Be that as it may, in order to be construed a works contract, the terms and conditions attached to the work of construction of the building should satisfy, and in no manner vitiate, the necessary attributes, namely, -

(a) even from day one, the work done should be for and on behalf of the purchaser-owner of the land as the contractee;

(b) the property in the work-in-progress, that is, all right, title, and interest should exclusively vest, and remain vested in the purchaser-owner of the land, but the builder as the contractor can have no right, title or interest therein; and

(c) the builder can have only the right of access to enter the land, merely as a licensee, for the limited purpose of carrying out the construction for and on behalf of the purchaser -owner of the land.

Any multiunit building has its own peculiar characteristics, in that all the apartment owners have joint interests in the building. As such, for the builder to carry out the construction work without any hindrance from the individual apartment takers, it is understandable if the agreement stipulates to the effect that while under construction, and until completion and handing over the possession, none of the apartment owners can interfere with the construction. Further, the builder may rightly have a charge on the building created in his favour, in order to safeguard his right to recover the payments due from the contractee(s) towards the agreed price for the construction.

However, it is observed that, in framing the agreement, proper care is, more often than not, not taken. On the other hand, in his own interest and just to secure his own position, the builder, in his over enthusiasm, chooses to, may be unwittingly, introduce certain controversial clauses in the agreement. For instance, one often finds a stipulation to the effect that the apartment taker shall have no right, title or interest in the building until its completion and handing over the possession. That, by necessary implication, cannot but mean that the property in the apartment will pass to the buyer only on completion of the building and handing over the possession. Such a stipulation apparently runs counter to the concept of works contract.

To mention a couple of other instances militating against the concept of works contract:

(i) Where the builder starts and goes ahead with the construction work, even before the intending individual apartment takers have become owners of the land by purchasing from its original owner.

(ii)The original owner of the land and the builder is one and the same person (in its general as well as legal connotation).

In this connection, it needs to be borne in mind that, as ruled by court, under the Stamp Act, as per Article 5(i) (as amended by the Tamil Nadu Act 38 of 1987), if the owner having sold the land (or a portion), also agrees to put up a building thereon under a works contract(s), then stamp duty is to be levied on both the value of the building and the construction.

In case for anyone or more of the reasons mentioned above, the separate agreement for construction is not accepted to be a works contract within its legal concept, there is the imminent danger of the entire arrangement being construed as one of purchase and sale of the apartment and the appurtenant land. If so, the transaction will be held to attract stamp duty, not just on the value of the land, but on the entire value of the property, that is, inclusive of the value of the construction.

There is another important aspect that is most likely to escape attention, if the TN Act is not studied closely:

 

(1)  The Act, among other, envisages the Apartment owner deriving his title to the Apartment by virtue of a "Sale Deed"(see paragraph 2.of the prescribed Deed of Apartment - Form1).

(2)  As stipulated in the bye-law 5. of the model Bye-laws, in order to become a member of the Association, he should be a person who has `purchased'  the apartment.

        

There could conceivably be no such Sale Deed or purchase of the apartment as envisaged above, should a building comprising apartments be constructed by a builder in pursuance of a works contract with each of the apartment takers. For this reason, to the apartments so acquired, the TN Act will not be applicable. In other words, such apartment owners cannot have recourse to the Act, for forming an Association as envisaged therein, so as to be governed by the Act and Rules, as also by the Bye-laws thereunder. Needless to add, that very reason could provide an escape route to recalcitrant apartment owners.

 If not governed by the TN Act as aforesaid, then the necessary consequence is that the apartment owners, for administration and management of their common affairs (eg., for opening and maintaining a bank account) will not be able to form and/or claim to act as an "association" of persons in its legal connotation. For a better appreciation of the point made, one needs to know that any group of persons coming together, either of their own volition or otherwise, for whatever purpose, is, unless so recognised under any statute, not a legal entity. To put it differently, only any "association of persons" that is a creature of the law can claim to be a legal entity. To illustrate, one may refer the Income-tax Act, where under, in the definition of the term "person", have been specifically included, inter alia, two categories -"association of persons" and "body of individuals", only with a view to making these separate assessable/ taxable entities under that Act.

Be that as it may, that such is the strict legal position does not seem to be realised even by concerned institutions, such as banks. Otherwise, how does one explain the instance where a bank is heard to have permitted the opening of an account in the name of a 'building' comprising apartments? Can, by any stretch of imagination, a building ever be regarded a "person" qualifying to have an account opened in its name, and is there no clear guide line in this regard under the banking regulations? 

In summing up, the special advantages, benefits, and legal protection accorded under theTN Apartment Act would not be available to the acquirers of apartments under the subject type of arrangement. So much so, in the absence of any enforceable obligation or compulsion, and human nature being what it is, in that, generally speaking, harmony and co-operation from among the co-owners of a building cannot be expected, effectively and jointly enjoying, managing and maintaining the building might become impossible. The alternative course of action open to the co-owners may be to consider and decide about forming among themselves, given again the necessary co-operation and consensus, either a co-operative society or a company and have it registered directly under the general law. That is, not through the route of the TN Act, but under the TN Co-operative Societies Act, or the TN Societies Registration Act, or the Companies Act, subject, of course, to fulfilling, and in accordance with, the respective requirements of those Acts.

Karnataka is another State where the subject type of arrangement is commonly in use, again with a view to saving on stamp duty. In that State also, there is a similar (though not identical but more comprehensive) legislation in force that governs flats / apartments. So much so, the acquirers also in that State, of flats / apartments under such an arrangement are bound to be exposed to the same difficulties as outlined above, as in Tamil Nadu.

Maharashtra is one State where, because of its more stringent regulations and other reasons, the subject type of arrangement is, generally speaking, not resorted to.

The concerned governments will do well, in the interests of the public, to have suitable changes effected in the subsisting regulations governing apartments, so as to bring within their fold also those apartments acquired under the subject type of arrangement. Such changes would, for obvious reason, require to be made with retrospective effect.

4. Conclusion:

Even a random survey will reveal that there are builders who, if one were to infer from the recitals in the documentation they use, do not seem to know, or even care to know, the legal implications of the several aspects as highlighted herein. Besides, they try and lead the apartment takers also to toe the line with them. More disturbing is the fact that the promoters/builders are, in respect of such matters, including the drafting of documentation,  invariably guided by, and/or act in consultation with, their legal advisers. Looking at the way the transactions are generally put through and concluded, which has been going on so far obviously without being questioned, also the concerned authorities (including the Registrars and Stamp duty authorities) do not seem to be any wiser.

In such matters, generally found wanting is public awareness of their lawful rights on the one hand, and on the other, the requisite drive and initiative on the part of the government to take all the necessary steps, such as issue of appropriate guidelines on a timely basis, for ensuring that the gullible public is not taken for a ride by any unscrupulous builder.

The Government will be well advised to, keeping particularly in view the several aspects highlighted herein, have a thorough fresh look at the Act and Rules, and come out with suitable clarifications and/or amendments of the law, so as to make the provisions of the Act and Rules as clear, complete and foolproof as possible. It is imperative that such effective remedial steps are taken sooner than later, in order to ensure that the Act and Rules fully sub-serve the intended objects.

(The views expressed by the writer in this Article are based on his own study and understanding of the subject Acts and Rules.) 

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