M/S Century Galaxy Developers Pvt. Ltd. Vs the Registrar of Societies

M/S.DIAMOND DISTRICT A PARTNERSHIP FIRM HAVING ITS PRINCIPAL PLACE OF BUSINESS AT SHERIFF CENTRE, NO.73/1 ST. MARKS ROAD,BANGALORE-1 REP BY ITS PARTNER MR. ZIAULLA SHERIFF

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…APPELLANTS

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Digitally signed by AL BHAGYA Location: HIGH COURT OF KARNATAKA

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(BY SRI. A. SAMPATH, ADVOCATE)

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AND:

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THE REGISTRAR OF SOCIETIES BANGALORE URBAN DISTRICT OFFICE OF THE REGISTRAR OF FIRMS AND SOCIETIES GANDHINAGAR, BANGALORE-9.

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DIAMOND DISTRICT APARTMENT OWNERS WELFARE ASSOCIATION NO.N-11, 24^TH MAIN, J P NAGAR 1^ST PHASE, BANGALORE-78 REP BY ITS SECRETARY

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MR. S K ARYA S/O NOT KNOWN TO THE APPELLANTS MAJOR D24, GOLDEN ENCLAVE AIRPORT ROAD, BANGALORE-17.

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MR. G.K. KHANNA S/O NOT KNOWN TO THE APPELLANTS MAJOR

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TCCL, GOLDEN ENCLAVE AIRPORT ROAD, BANGALORE-17.

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SRI. R.K. SUNDARAM S/O NOT KNOWN TO THE APPELLANTS MAJOR TCCL, GOLDEN ENCLAVE AIRPORT ROAD, BANGALORE-17.

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SRI. NARASIMHAN RAGHAVAN S/O NOT KNOWN TO THE APPELLANTS MAJOR

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TCCL, GOLDEN ENCLAVE AIRPORT ROAD, BANGALORE-17.

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MR. ATUL RASTOGI S/O NOT KNOWN TO THE APPELLANTS MAJOR SENAVIHAR, BANASWADI BANGALORE-43.

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MR. SANJAY K. BAJAJ S/O NOT KNOWN TO THE APPELLANTS MAJOR BAJAJ OVERSEAS, NO.12 17^TH CROSS, CUBBONPET BANGALORE-2.

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MR. H. BHATNAGAR S/O NOT KNOWN TO THE APPELLANTS MAJOR D-61, GOLDEN ENCLAVE

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AIRPORT ROAD BANGALORE-17.

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MR. S. SWAMYNATHAN S/O NOT KNOWN TO THE APPELLANTS MAJOR 3-26, GOLDEN ENCLAVE AIRPORT ROAD, BANGALORE-17.

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MR. ANANTH KISHOR S/O NOT KNOWN TO THE APPELLANTS MAJOR S51, GOLDEN ENCLAVE AIRPORT ROAD, BANGALORE-17.

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MR. P. BALAJI S/O NOT KNOWN TO THE APPELLANTS MAJOR 301, RANKA APARTMENT CAMBRIDGE LAYOUT, BANGALORE-8.

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MR. S.K. BHASIN S/O NOT KNOWN TO THE APPELLANTS MAJOR 1739, 9^TH CROSS, J.P. NAGAR 2^ND PHASE, BANGALORE-78.

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MR. SATISH C. GUPTA S/O NOT KNOWN TO THE APPELLANTS MAJOR 504, GOLF MANOR, NAL WIND TUNNEL ROAD, BANGALORE-17.

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MR. N.K. PANDEY S/O NOT KNOWN TO THE APPELLANTS MAJOR 29, IAS COLONY, 16^TH MAIN, S C CROSS BTM LAYOUT II STAGE, BANGALORE-76.

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MRS. BHUVANESHWARI SWAMYNATHAN W/O SWAMINATHAN MAJOR

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E-26, GOLDEN ENCALVE AIRPORT ROAD, BANGALORE-17.

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MR. NITESH AHUJA S/O NOT KNOWN TO THE APPELLANTS MAJOR

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S-22, GOLDEN ENCLAVE AIRPORT ROAD, BANGALORE-17.

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MR. G. KUMAR S/O NOT KNOWN TO THE APPELLANTS MAJOR

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C/O M/S DIAMOND DISTRICT APARTMENT OWNERS WELFARE ASSOCIATION

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NO.N-11, 24^TH MAIN, J P NAGAR 1^ST PHASE, BANGALORE-78.

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THE CHIEF SECRETARY GOVERNMENT OF KARNATAKA VIDHANA SOUDHA BANGALORE-560001.

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…RESPONDENTS

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(BY SRI. KIRAN KUMAR, HCGP FOR R1 AND R19; SRI. M.V. VEDACHALA, ADVOCATE FOR R2 TO R18; SMT. SHOBHA BAVIKATTI, ADVOCATE FOR R15)

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THIS RFA IS FILED U/S 96 OF CPC., AGAINST THE JUDGMENT AND DECREE DATED 20.1.2010 PASSED IN OS.NO.6043/1998 ON THE FILE OF THE IX ADDL. CITY CIVIL & SESSIONS JUDGE, BANGALORE, (CCH 5), DISMISSING THE SUIT FOR DECLARATION & PERMANENT INJUNCTION.

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THIS APPEAL, COMING ON FOR DICTATING JUDGMENT, THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER:

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CORAM: HON'BLE MR. JUSTICE SACHIN SHANKAR MAGADUM

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ORAL JUDGMENT

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The captioned first appeal is by the unsuccessful plaintiffs calling in question the judgment and decree dated 20.1.2010 passed in O.S.No.6043/1998 on the file of IX Additional City Civil and Sessions Judge, Bengaluru, whereby the suit filed by first plaintiff/company seeking for a declaration that the formation and registration of defendant No.2/Apartment Owners Association is null and void and for consequential relief of injunction is dismissed by the Court below.

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For the sake of convenience, the parties are

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referred to as per their rank before the trial Court.

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The facts of the case are as under:

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Plaintiff No.1, a private limited company, claims to be

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the absolute owner of the schedule property and asserts that it entered into a development agreement with plaintiff No.2 for construction of a multi-storied building thereon. It is the specific case of plaintiff No.1 that it floated a

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scheme under which shares of the company were issued to intending purchasers and, corresponding to the shares so issued, specific commercial/residential units were agreed to be allotted. According to the plaintiffs, defendants 3 to 18, who are stated to be the office bearers of defendant No.2–Association, are merely allottees under the said scheme. It is therefore contended that such allottees can at best be treated as licensees in occupation of the respective units and cannot claim ownership, as the title to the land and superstructure is asserted to have been retained by plaintiff No.1/company.

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Plaintiff No.1/company further contends that no registered sale deeds have been executed in favour of the allottees and that mere allotment of shares proportionate to the area of the flats does not amount to transfer or conveyance of title in immovable property. It is also pleaded that the entire scheme is governed exclusively by the provisions of the Companies Act, 1956 and that the relationship between the company and the allottees is

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contractual in nature under company law. On that premise, it is urged that the provisions of the Karnataka Societies Registration Act, 1960 (for short, “Act, 1960”) have no application to the present arrangement.

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Proceeding on the said foundation, the plaintiffs assert that the formation and registration of defendant No.2–Association do not fall within the scope of Section 3 of the Act, 1960. It is also contended that the provisions of the Karnataka Apartment Ownership Act, 1972 are inapplicable to the project in question. On these grounds, the plaintiffs have sought a declaration that the formation of defendant No.2–Association is illegal and not binding on plaintiff No.1/company.

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Per contra, defendant No.2–Association,

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comprising the allottees who are in physical possession of the flats, has contested the suit by raising a preliminary objection as to maintainability. It is contended that defendant No.2 is a society duly registered under the Act,

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1960 and that defendants 3 to 18 are its members, having been allotted flats by plaintiff No.1/company proportionate to the shares held by them. The defendants assert that possession of the respective flats was delivered to the purchasers and that the allottees are in settled possession. It is therefore contended that plaintiff No.1/company has no subsisting right, title or possession so as to maintain the present suit. The defendants further urge that in view of Section 34 of the Act, 1960, the suit is barred and that plaintiff No.1/company lacks locus standi to question the formation or functioning of the Association.

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On the basis of the rival pleadings, the trial Court framed appropriate issues. Both sides adduced oral and documentary evidence in support of their respective stands. The trial Court, upon appreciation of the material on record, dismissed the suit by answering Issue Nos.1 to 3 in the negative. While dealing with Issue No.1, the trial Court drew an adverse inference against plaintiff No.1/company for non-production of its Articles of

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Association. The trial Court further held that clause (ff) of Section 3 of the Act, 1960 enables allottees to form a society for purposes including promotion of conservation and proper use of natural resources and infrastructural facilities. The contention of the plaintiffs that the assets of the company are exclusively governed by the Companies Act and that the formation of defendant No.2-Association under the Act, 1960 is impermissible was not accepted.

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This Court has heard the learned counsel appearing for the plaintiffs and the learned counsel appearing for the defendants. The pleadings, documentary evidence and the findings recorded by the trial Court have been independently examined.

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In the light of the rival contentions and the

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material on record, the following points arise for consideration:

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(i) Whether plaintiff No.1/company could have maintained the present suit without seeking a

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declaration of ownership and without producing

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its Articles of Association?

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(ii) Whether plaintiff No.1/company has the locus standi to challenge the formation and registration of defendant No.2–Apartment Owners’ Association?

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(iii) What order?"

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Findings on Points (i) and (ii):

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Before adverting to the core points formulated for consideration, this Court deems it appropriate to extract the relevant pleadings in the plaint as well as the prayer column, which read as under:

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"03. The first plaintiff i.e. said company namely M/s. Century Galaxy Developers Pvt. Ltd., had floated a scheme under which the subscribers to the scheme on booking a flat and subsequently on becoming a member of the company and holding a specified number of shares and maintaining a specified amount as security deposit with the company, will be allotted with a specific commercial/residential unit with/without car parking unit

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and with/without exclusive right of use of Terrace Area together with a right to use and enjoy such unit and the common area and facilities along with right to exploit, letout or otherwise enjoy the same and appropriate the income, usufruct and other benefits therefrom with such other members and also having the right to dispose off all such share, deposit and right of enjoyment of the unit allotted by a document inter-vivos or otherwise. Some of the defendants 3 to 18 (who are stated to be the office bearers of the alleged M/s.Diamond the District Apartment Owners Welfare Association), under the scheme floated by the first plaintiff-M/s.Century Galaxy Developers Pvt. Ltd., are presently nothing but allottees but not the owners of any residential unit in the proposed construction under the name "Diamond District" over the plaint schedule lands. At best such persons can be termed as LICENSEES. The entire scheme floated by M/s.Century Galaxy Developers Pvt. Ltd., is subject to the dictum, rules, regulations under the provision of the Companies Act, 1956.

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04. Hence it is clear from the above scheme floated by the first plaintiff company for which some of the defendants who are stated to have subscribed along with such other persons, and such a person's right over such identified flat can be considered as licensee and the said right shall devolve on such person only on delivery, of the respective residential unit in conjunction with delivery of share certificate (identifying shares held by such person/s) on payment of entire consideration to the

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company through the 2nd plaintiff being its agentdeveloper and such a person under the scheme of the company shall be entitled to posses, use the unit identified with the shares subject to easements. As such, the defendants 3 to 18 ог any of them who are stated to be the members of the 2nd defendant-association above named can not be considered as the owners of the unit since the ownership lies with the first plaintiff-M/s.Century Galaxy Developers Pvt. Ltd."

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PRAYER:

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"WHEREFORE, the plaintiffs pray that this Hon'ble Court may be pleased to pass a judgment and decree against the defendants, their agents, successors in interest and persons claiming through or under them: (a) declaring that the second defendant-the Diamond District Apartment Owners Welfare Association registered in the office of the first defendant vide registration No.

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109/98-99 dated 12/05/1998 as null and void, inoperative and contrary to law and the same do not and cannot bind the plaintiffs in any manner who have been functioning under the provisions of Companies Act of 1956,

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(b) for permanent injunction restraining the defendants, their agents, successors in interest and persons claiming through or under them including their servants from in any way interfering or meddling with the affairs of the suit schedule property owned and possessed by the first plaintiff and functioning under the provisions of the Companies Act of 1956, and

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(c) grant such other reliefs together with costs of the proceedings, in the interests of justice, equity and law. "

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The principal plank of the first plaintiff’s

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argument is that mere issuance of shares proportionate to the flat area does not amount to conveyance of title in immovable property and that ownership can pass only by way of a registered instrument in accordance with the provisions of the Transfer of Property Act, 1882 read with the Registration Act, 1908. It is further contended that issuance of shares is an act governed exclusively by company law and confers only contractual or membership rights, and therefore, the allottees cannot claim proprietary rights in the respective flats.

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While the legal proposition that title to immovable property ordinarily passes through a registered conveyance is unexceptionable, the said contention cannot be accepted in its abstract form divorced from the peculiar factual matrix of the present case. The pleadings extracted

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above clearly demonstrate that the scheme itself conferred not merely a bare licence, but a bundle of rights including exclusive possession of a specified unit, right to use and enjoy common areas, right to exploit, let-out, appropriate income and even to transfer the “right of enjoyment” inter vivos. The nomenclature employed by the plaintiff cannot override the substantive nature of the rights created and acted upon.

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The records disclose that plaintiff

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No.1/company invited members of the public to subscribe to the scheme, issued shares proportionate to the area of the flats, collected full consideration, and delivered possession of specific residential/commercial units corresponding to such shares. The allottees were put in exclusive occupation of identifiable units and were enabled to collectively use and manage the common areas and facilities. The scheme, as pleaded by the plaintiff itself, contemplated enjoyment and even transfer of such rights.

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Having consciously structured the transaction in such a manner and having voluntarily parted with possession of specific units in favour of the allottees, plaintiff No.1/company cannot now be permitted to turn around and contend that the occupants are mere licensees without any enforceable rights. The doctrine of estoppel by conduct squarely operates against the plaintiff. A promoter who has induced purchasers to invest, accept possession and enjoy the property as their own, cannot subsequently deny the legal incidents that naturally flow from such possession and enjoyment.

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It is not in dispute that defendants 3 to 18 and other similarly placed allottees are in exclusive and settled possession of their respective flats. Once possession of specific, demarcated flats has been delivered and the allottees have been allowed to deal with the same in terms of the scheme, plaintiff No.1/company, being a promoter engaged in real estate development, cannot maintain the present suit seeking a negative declaration that the

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Association formed by such flat holders is null and void, while at the same time avoiding any substantive prayer for declaration of its own subsisting ownership vis-à-vis the individual units.

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A careful reading of the prayer extracted above makes it manifest that the suit is conspicuously silent on any substantive relief seeking declaration of title in favour of plaintiff No.1/company over the individual flats. The plaintiffs have merely sought a declaration that the second defendant–Association is null and void and a consequential injunction restraining interference, while consciously avoiding a prayer for declaration of ownership in respect of the units admittedly allotted and delivered to the purchasers. When the very foundation of the dispute revolves around competing claims of ownership and possessory rights over identified flats, omission to seek a declaratory relief as to title renders the suit fundamentally defective. The drafting of the plaint, therefore, appears to be deliberate and misconceived, inasmuch as it attempts

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to secure a negative declaration against the Association without inviting adjudication on the company’s own title vis-à-vis the flat holders.

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The position is further compounded by the fact that plaintiff No.1/company has not produced its Articles of Association, though its entire case is premised on the internal corporate scheme allegedly governing the rights of subscribers. When the company asserts that the relationship between it and the allottees is exclusively regulated by its Articles and the provisions of company law, non-production of such foundational document justifies an adverse inference. In the absence of the Articles, the Court is deprived of examining whether the scheme truly reserved ownership with the company or whether it contemplated eventual transfer of proprietary rights upon allotment and delivery of possession.

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The material on record unmistakably indicates that plaintiff No.1/company, though engaged in real estate

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development, adopted a device of issuing shares

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proportionate to flat area and delivering possession of specific residential flats to purchasers. By structuring the transaction in the guise of a shareholding arrangement rather than executing registered conveyances, the company effectively enabled occupation and enjoyment of immovable property while avoiding execution of sale deeds. Such a mechanism, if accepted at face value, would result in circumvention of statutory requirements under the Transfer of Property Act, 1882 and the Registration Act, 1908, besides depriving the State exchequer of legitimate stamp duty and registration charges ordinarily payable on conveyance of immovable property. A promoter who has consciously adopted such a course cannot subsequently seek equitable relief from the Court by branding the very flat holders, who have paid consideration and are in settled possession, as mere licensees.

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Having parted with possession, permitted

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exclusive enjoyment of demarcated units, and enabled collective use of common areas, plaintiff No.1/company cannot now question the formation of an Association by such flat owners for management of the property. Once the purchasers are in settled possession and are asserting rights flowing from the very scheme floated by the company, the company’s locus to challenge the registration of their Association becomes highly tenuous. The suit, in effect, seeks to retain de jure control over the property while having divested de facto possession and beneficial enjoyment. Such an approach not only lacks bona fides but also disentitles the plaintiff from invoking the discretionary relief of declaration and injunction.

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In the considered view of this Court, the plaintiffs, having parted with possession and having clothed the allottees with substantive rights of enjoyment and exploitation, cannot approbate and reprobate. The present suit, founded on a purely technical plea that title

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remains with the company notwithstanding delivery of possession and creation of enforceable rights, is therefore liable to be rejected in the light of the plaintiffs' own conduct and the equitable principles governing such transactions. Accordingly, point no.(i) and (ii) are answered in the ‘ Negative’.

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Finding on point No.(iii):

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