Are
Members of Housing Society “Consumers” !!
1. The
1993 Amendment in Consumer Protection Act: In 1993 the “Housing Construction” Services were brought
under the purview of Consumer Protection Act 1986. The Consumer Courts, in this
backdrop, extended their jurisdiction to common services provided by Housing
societies to their members. There is a basic fallacy in Consumer Courts
assuming jurisdiction to Complaints filed by Members against their Housing
Societies, alleging deficiency in services.
2. The
object of Consumer Protection Act:
A fair and comprehensive reading of the relevant provision of Consumer
Protection Act, 1986, more particularly the Preamble of the Act, the
definitions of Consumer, Manufacturers, Restrictive Trade practices, Unfair
trade practices, as defined under the said Act, it would reveal that Consumer
Courts were conceived for the better protection of interests of common man,
from Enterprises who are engaged in the business of supply of Goods and
Services, at price, with the primary aim of earning profits.
3. The
Issue: Now, are Housing Societies render
Services at “Price”, and whether Housing Societies are constituted for the
purposes of earning profits ? The answer is emphatic No.
4. Cooperative Housing Societies are not business entities, nor
they earn any profits from the moneys it collects from their Members, and
therefore are not amenable to Jurisdiction of Consumer Courts. And having
regard to the elementary attributes possessed by a Member qua their Housing
Society; and having regard to the nature and constitution of a Cooperative
Housing Society, it is impossible to regard Members as “Consumers” of their
Housing Society.
5. Basic
attribute of a Cooperative Society: International Cooperative Alliance Statement on the
Cooperative Identity was adopted in Manchester, United Kingdom on 23.09.1995.
The cooperative is defined as: A co-operative is an autonomous association of
persons united voluntarily to meet their common economic, social, and cultural
needs and aspirations through a jointly-owned and democratically- controlled
enterprise.
6. The Statement also provides for values on which cooperatives
should model themselves, which reads as follows: Co-operatives are based on the
values of self-help, self-responsibility, democracy, equality, equity and
solidarity. In the tradition of their founders, co-operative members believe in
the ethical values of honesty, openness, social responsibility and caring for
others.
7. The fundamental distinction between a Member of a
Cooperative Housing Society and a Consumer of goods and services, lies in the
nature and the constitution of a Cooperative Society vis a vis to Enterprises
engaged in the business of supply of goods and Services, the Enterprises who
are otherwise subjected to the regime of Consumer Protection Act, 1986.
8. The fundamental distinction also lies in the attributes
possessed by a Member of a Cooperative Society, in contradistinction to
attributes possessed by a Consumer of Goods and Services.
9. The
principle of Mutuality: The
Cooperative Societies are constituted / established on the principle of
Mutuality. The doctrine of Mutuality is based on the conception where certain
people come together, to achieve certain defined objectives and benefit,
contributes towards common fund, and themselves controls their activities. The
law envisages a complete identity of the contributors, the participants, and
the beneficiaries.
10. Receipts
from Members is not “Income” of the Society: The Hon’ble Apex Court in a recent ruling [ITO versus Venkatesh CHS Ltd
(24.03.2018)] reiterated the principle
of Mutuality, which exists between the Cooperative Societies and their Members.
The essence of the principle of mutuality lies in the commonality of the
contributors and the participants, who are also the beneficiaries; and
therefore the “Income” earned by the Society from the contributions made by
their Members, are not considered as “Income” for the purposes of levying tax.
Even the surplus of receipts over expenditure is exempted from tax on
principles of mutuality. (AIR 1997 SC 2312).
11. The receipts of the Cooperative Society, whether by
contribution by their Member, or otherwise collected, are utilized for the
common benefit of all the Members. These charges are levied on the basis of
resolutions passed by the society and in consonance with its bye-laws. The
receipts are used for mutual benefit towards maintenance of the premises,
repairs, infrastructure and provision of common amenities. Even if any amount
was left over as surplus at the end of the financial year after meeting
maintenance and other common charges, that would constitute surplus fund of the
society to be used for the common benefit of members and to meet heavy repairs
and other contingencies and will not partake the character of profit or
commerciality. (2010) 328 ITR 362 (Bom);
12. Housing
Societies not Industry: The
Hon’ble Bombay High Court in a very recent ruling in the case of Arihant Siddhi
CHS Ltd versus Pushpa Vishnu [WP 787 of 2007, Judgment dared 22.06.2018] have
observed to say that Cooperative Housing Society was not carrying out any
business for earning profits, and the Court thus have held that Cooperative
Housing Societies are not Industry. The Hon’ble Court have held that, merely
because the society charged some extra from a few of its members for display of
neon signs, the society cannot be treated as an industry carrying on business of
hiring out of neon signs or allowing display of advertisements.
13. Origin,
history and the basic constitution of Cooperative Societies: The Hon’ble Apex Court in the case of Vipulbhai M.Chaudhary
Versus Gujarat Cooperative Milk Marketing Federation Limited (AIR 2015 SC 1960)
found the occasion to recapture the origin, history and the basic constitution
of Cooperative Societies in India.
14. The essence of the observation of Hon’ble Apex in the
aforesaid case is – the Cooperative Societies, as an institution came into
being, or, rather encouraged, to establish entities with the object of
promoting the economic interests of their Members in accordance with the
cooperative principles, autonomy in their governance, democratic control and
professional management. The Members, collectively, constitute the cooperative
institution.
15. The Co-operative are autonomous association of persons
united voluntarily to meet their common economic, social, and cultural needs
and aspirations through a jointly-owned and democratically- controlled
enterprise. In contradistinction to this, the Enterprises engaged in the
business of supply of goods and services (who are made amenable under Consumer
Protection Act, 1986), whether as a Limited Company, or a Proprietor or
Partnership firms, are constituted for the main purpose of earning profits.
16. When compared to constitution of other forms of Business
Enterprises, such attributes and principles of Cooperative Societies, outlines
hereinabove, are clearly absent in any such Business Enterprises. The very
spirit of Cooperation with which the Cooperative Housing Societies are
constituted materially differs from the nature of relationship which otherwise
exists between a Consumer and Manufacturer / Supplier of goods and Services.
17. Members
Consumers !!: Now let us
appreciate the attributes of a Member of a Cooperative Society qua its supposed
“Service provider”, i.e. the Society, in contradistinction to attributes of a
Consumer, defined under Consumer Protection Act, 1986.
18. A Member of a Housing Society is an integral branch of its
Society. The identity of a Consumer is totally distinct from the Enterprises
engaged in the business of supply of goods and services.
19. A Member of a Housing Society actively participates in the
decision making of its Society, including any major decisions of its Society. A
Member of a Housing Society may even helm (controls) the affairs of the
business of its Society. It is inconceivable in the case of a Consumer qua
Enterprises engaged in the business of supply of goods and services.
20. Thus, the very nature of rights, privileges and position
enjoyed by a Member qua his Housing Society, makes it impossible to regard a
Member as a Consumer of his Housing Society.
21. Ruling
of Lucknow Development Authority [AIR 1994 SC 787]: Again, an instructive observation by the Apex Court in the
case of Lucknow Development Authority proves beyond doubt that Members of a
Cooperative Housing Society can never be regarded as Consumers, under the
Consumer Protection Act, 1986.
22. The Apex Court in the aforesaid case, inter alia, have
observed to say that the Consumer Protection Act aims to protect the economic
interest of a consumer as understood in commercial sense as a purchaser of
goods and in the larger sense of user of services. The common characteristics
of goods and services are that they are supplied at a price to cover the costs
and generate profit or income for the seller of goods or provider of services.
23. The Hon’ble Apex Court in the case of Thirumurugan
Co-operative Agricultural Credit Society Versus M.Lalitha (Dead) Through L.Rs.,
(AIR 2004 SC 448) have held that Consumer Courts have jurisdiction to decide
disputes against Coop Societies. The entire thrust of reasoning was that the
remedies available under the Consumer Protection Act, are in addition to the
remedies available under the Coop Societies Act, and therefore Consumer Courts
would have the jurisdiction under Consumer Protection Act.
24. However, regrettably, neither the Petitioner Coop. Society,
nor the Hon’ble Apex Court dwell upon the attendant legal issues raised
hereinabove in support of the contention that Cooperative Societies cannot be
amenable to jurisdiction of Consumer Courts.
25. The
central submission: The
absence of element of commerciality in the operation and working of Cooperative
Housing Societies, clearly excludes them from the purview of Consumer
Protection Act. The insertion of “Housing Construction” in the definition of
Services in the Consumer Protection Act, by no means can be construed as
inclusion of Cooperative Housing Societies under Consumer Protection Act, 1986;
and any such interpretation is against the legislative intent. The Legislatures
have never intended that “Housing Societies” would be included in the
expression Housing Construction; and both expressions are manifestly distinct.
Nevertheless, the Cooperative Society. Or Housing Society, like any other
“Person” can always be a Consumer, and can invoke the jurisdiction of Consumer
Courts.
Sandeep Jalan
Advocate
https://www.litigationplatform.com/
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