After Death of Member in CHS (in Maharashtra) Legal Heir becomes "Provisional Member" via Nomination

The Maharashtra Co-operative Societies Act, 1960 ("the Act") allows a member to nominate a person or persons to whom his share and interest in the co-operative society will be transferred by the society in the event of the member's death.

Section 25 of the Act provides that a member would cease to be a member of a society on death. However, his holding and other interests do not lapse, but they pass on to his heirs or legal representatives and the society is bound to transfer the shares or interest to them as provided in section 30 of the Act. Section 30 of the Act provides that the society shall transfer the share or interest of the deceased member to a person/s nominated in accordance with the Maharashtra Cooperative Societies Rules, 1961, and if no such person is nominated then the committee of the society shall transfer it to such person as may appear to the committee to be the heir or legal representative of the deceased member.

Therefore, on the death of a member, the society shall transfer the share or interest of the deceased member to a person nominated in accordance with the rules. The purpose of nomination is to make clear the person with whom the society has to deal upon the death of a member. It does not create any interest in favour of the nominee, to the exclusion of those who are in law entitled to the estate of a deceased member. The nominee does not become the absolute owner of the property. He is only empowered to hold the property in trust for the real owners for the purpose of dealings with the society. He has no power, authority or title to alienate the property to the exclusion of the other legal heirs of the deceased member.

Nominee:

The word nominee means a person who holds or acquires right, property or any other kind of liability incurred on behalf of others. Nominee means a trustee. A nominee holds a property on behalf of other legal heirs. Thus, the simple meaning derived from above proposition is that a nominee cannot be a real owner but, in fact a trustee who has legal control of property that is kept or invested for another person, company or organization. Nomination is not a will

Status of a Nominee The provisions of nomination is found in various Acts, Rules Instructions of Regulators like RBI, SEBI, L.I.C., Provident Fund, Gratuity, but the nomination does not create any title or interest in favour of the nominee.

CHAPTER XIII-B

CO-OPERATIVE HOUSING SOCIETIES

(Gazetted on 20th June 2019)

The cooperative societies having been conferred a constitutional status by the 97th Amendment; the whole concept of cooperatives has undergone a major change. Now with Introduction of Chapter XIII-B in the form of Section 154B, a separate Chapter has been introduced to deal exclusively with issues in Co Operative Housing Societies (CHS) in Maharashtra. This amendment was incorporated vide Maharashtra Co-operative Societies (Amendment) Act, 2019, which was notified on 20th June, 2019. Ordinance for this was originally issued on 26th October, 2018, which was re-promulgated on 9th March, 2019 and thus becomes legal requirements applicable to all CHS from 26th October, 2018 onwards.

Section 154B

Clause (18) (C) defines “provisional Member” means a person who is duly admitted as a Member of a society temporarily after death of a Member on the basis of nomination till the admission of legal heir or heirs as the Member of the society in place of deceased Member.

The Maharashtra Co-operative Societies Act, 1960 ("the Act") allows a member to nominate a person or persons to whom his share and interest in the co-operative society will be transferred by the society in the event of the member's death as per Bye Laws No.32.

Section 25 of the MCS Act provides that a member would cease to be a member of a society on death. However, his holding and other interests do not lapse, but they pass on to his heirs or legal representatives and the society is bound to transfer the shares or interest to them as provided in section 30 of the Act.

Section 30 of the Act provides that the society shall transfer the share or interest of the deceased member to a person/s nominated in accordance with the Maharashtra Cooperative Societies Rules, 1961, and if no such person is nominated then the committee of the society shall transfer it to such person as may appear to the committee to be the heir or legal representative of the deceased member.

Therefore, on the death of a member, the society shall transfer the share or interest of the deceased member to a person nominated in accordance with the rules. The purpose of nomination is to make clear the person with whom the society has to deal upon the death of a member. It does not create any interest in favour of the nominee, to the exclusion of those who are in law entitled to the estate of a deceased member.

The nominee does not become the absolute owner of the property. He is only empowered to hold the property in trust for the real owners for the purpose of dealings with the society. He has no power, authority or title to alienate the property to the exclusion of the other legal heirs of the deceased member.

Transfer of interest on death of a Member.

Section 154B-13

“On the death of a Member of a society, the society shall transfer share, right, title and interest in the property of the deceased Member in the society to a person or persons on the basis of testamentary documents or succession certificate or legal heirship certificate or document of family arrangement executed by the persons, who are entitled to inherit the property of the deceased Member or to a person duly nominated in accordance with the rules : Provided that, society shall admit nominee as a provisional Member after the death of a Member till legal heir or heirs or a person who is entitled to the flat and shares in accordance with succession Act or under Will or testamentary document are admitted as Member in place of such deceased Member ; Provided further that, if no person has been so nominated, society shall admit such person as provisional Member as may appear to the Committee to be the heir or legal representative of the deceased Member in the manner as may be prescribed.”

It is therefore clear that till any one of these documents (testamentary documents or succession certificate or legal heirship certificate or document of family arrangement) are produced by the legal heir, Provisional Member cannot be treated as regular Member.

What do these documents mean?

The letter of testamentary is a document issued by a probate court. A probate court is the type of court that validates and processes Wills after someone dies. A probate is granted with the court seal and has a copy of the Will attached to it. Under Section 57 of the Indian Succession Act, the Will is required to be probated. The transfer of property by inheritance takes place in 3 Metropolitan Cities i.e. Bombay, Calcutta and Madras only by Letter of Probate. While in other cities, it can be on the basis of the documents in support thereof with an affidavit or declaration before the appropriate authority. Succession is testamentary if the deceased has executed a Will which is a legal declaration of the intention of the testator with regard to his properties to be carried into effect after his death.

A Succession Certificate is a document that is granted by a civil court to the legal heirs of a deceased who dies without leaving a will. So a person who dies has either made a ‘Will’ or died ‘intestate’. If a person has made a ‘Will,’ the ‘Will’ has to be submitted for Probate after the death of the person. If a person dies ‘intestate,’ then all the legal heirs have to apply to a competent court for a ‘Succession Certificate’ so that his property can be transferred upon his successors.

Legal Heir certificates are issued by the tahsildar of the district to recognize the actual deceased person living heirs.

A Family Arrangement is an agreement between members of the same family, intended to be generally and reasonably for the benefit of the family, either by compromising doubtful or disputed rights or by preserving the family property or the peace and security of the family by avoiding litigation or by saving its honour. The intention of the arrangement is to shield the family from long drawn litigation or perpetual strives which mark the unity and solidarity of the family and create hatred and bad blood between the various members of the family. Family arrangements are governed by a special equity peculiar to themselves, and will be enforced if honestly made, although they have not been meant as a compromise, but have proceeded from an error of all parties, originating in mistake or ignorance of fact as to that their rights actually are, or of the points on which their rights actually depend.

Old Cases where “Transfer” has already been done by CHS

The question also arises of old cases, prior to amendment. In those old cases, where transfer of name has been carried in CHS, based on nomination and the nominee`s name is still there as Member and as such Nominee will be treated as “provisional member” in Society`s records and CHS has to insist on Probate (or other documents specified above)before transfer of flat happens by sale or otherwise by “Provisional Member”. If any such transaction of sale or transfer takes place now or in the past then the buyer of the Property would get property with inherent defect in its title and runs the risk associated with such matter.

Issue:

The issue that arises from this is that whether Probate (or other documents specified above) is mandatory for transmission of flat in CHS, particularly when Society has already transferred the share in the name of “Nominee”?

Based on reading of the section 154B, it appears that Probate (or other documents specified above) is necessary.

The two-judge bench of the Bombay High Court took into account the laws governing the nomination of shares under the Companies Act, 1956, the succession laws governing the estate of a deceased in case of intestate (without making a will) or testate succession (estate bequeathed under a will) as per the Indian Succession Act, 1925 and the byelaws under the Depositories Act, 1996, and concluded that the provisions relating to nomination do not override the law in relation to testamentary or intestate succession.

Indrani Wahi Case (Supreme Court)

In the Indrani Wahi Case, the apex court had observed that it would be open for other members of the family of the deceased, to pursue their case of succession or inheritance. Therefore, those who are claiming their rights under inheritance will be entitled to claim the title to the shares in the society on the basis of inheritance.

What`s The Way Out?

Prepare Family Arrangement Deed which should be in sync with Nominations and Will.