Vasathi Housing Limi... v. Ravinder Kumar v. Go..., Telangana High Court, Judgment, Law, casemine.com

Citation Codes

Equivalent Citations

citation codes

Case Number

Writ Petition No. 27149 of 2022

Disposition

Judges

Lalitha Kanneganti, J.

Acts

SECTION 31 SPECIFIC RELIEF ACT 1963
ARTICLE 226 CONSTITUTION OF INDIA
SECTION 7 INSOLVENCY AND BANKRUPTCY CODE
SECTION 12 SOCIETIES REGISTRATION ACT 1860
Telangana Society Registration Act, 2001
provisions of Section 3(1) of the Telangana Societies Registration Act
Section 3(1) of the Telangana Societies Registration Act, 2001
Telangana Societies Registration Act.
provisions of Section 3(1) of the Telangana Societies registration Act, 2001 Act
Section 3(1) of the Telangana Society Registration Act, 2001,
Section 3 of the Telangana Societies Registration Act.
Section 3(1) of the Telangana Societies Registration Act.
Telangana Societies Registration Act, 2001,
section 3 of the Telangana Societies Registration Act, 2001

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Smart Summary

Factual and Procedural Background

The petitioner, a company incorporated under the Companies Act and developer of the Vasathi Anandi residential project (483 apartments across seven towers), filed a writ petition under Article 226 seeking a writ of certiorari to call for records and quash/cancel Registration No. 1490/2017 dated 03.11.2017 by which Respondent No.4 was registered as a society under the Telangana Societies Registration Act, 2001. The petitioner also filed two interlocutory applications under Section 151 CPC: IA No.1 of 2022 seeking suspension of the registration pending disposal of the writ petition, and IA No.2 of 2022 seeking an order directing NCLT-II, Hyderabad to decide the legal status of Respondent No.4 under Section 3 of the Telangana Societies Registration Act before disposal of C.P. No. 50/7/HDB/2020.

According to the petitioner, the agreement with flat purchasers required formation of a Flat Owners Association and transfer of an interest-free corpus fund to it from 01.04.2014, but the purchasers delayed formation of any society until 03.11.2017 and the society took over maintenance on 29.04.2018. The petitioner claims it maintained the project until 28.04.2018, accounted for maintenance expenditures, refunded Rs. 2,07,20,000 on 22.01.2018 and contends that Respondent No.4's object clause is not within Section 3(1) of the Telangana Act, rendering the society invalid. The petitioner is defending C.P. No. 50/7/HDB/2020 (filed by Respondent No.4 under Section 7 of the IBC) and O.S. No. 180/2021 (a suit claiming corpus fund), and has sought amendment in the NCLT proceeding by I.A. No. 473/2022 (pending).

Respondent No.4 filed a counter affidavit denying the petitioner's contentions, contending the delay in formation of the society was due to the petitioner's failure to complete construction, asserting significant sums were collected by the petitioner from apartment owners (corpus and maintenance), admitting partial refund, and maintaining that the society is a financial creditor under the IBC and that its registration is valid. Respondent No.4 relied on several judicial decisions to support the validity of the registration and the limited power of registrars to cancel registrations.

The writ petition contains no interim order. After hearing, the High Court declined to decide the validity of the society's registration and disposed of the petition, giving the petitioner liberty to pursue appropriate remedies; no order as to costs; miscellaneous applications, if any, were closed.

Legal Issues Presented

Whether Registration No. 1490/2017 dated 03.11.2017 of Respondent No.4 as a society under the Telangana Societies Registration Act, 2001 is void for being contrary to Section 3(1) of that Act (i.e., whether the society's objects fall within Section 3(1)).
Whether the High Court should issue a writ of certiorari quashing/canceling the society's registration.
Whether the registration should be suspended pending disposal of the writ petition (IA No.1 of 2022 under Section 151 CPC).
Whether NCLT-II, Hyderabad should be directed to decide the legal status of Respondent No.4 under Section 3 of the Telangana Societies Registration Act as a preliminary issue before disposal of C.P. No. 50/7/HDB/2020 (IA No.2 of 2022 under Section 151 CPC).
Whether Respondent No.4 qualifies as a "financial creditor" and whether the amounts claimed constitute "financial debt" within the meaning of Sections 5(7) and 5(8) of the Insolvency and Bankruptcy Code.

Arguments of the Parties

Petitioner's Arguments

The petitioner developed the residential project and, under the sale agreements, flat purchasers were to form a society and take maintenance from 01.04.2014; purchasers delayed forming the society until 03.11.2017 and took over maintenance only on 29.04.2018.
The petitioner maintained the project until 28.04.2018, incurred maintenance expenditure, and refunded Rs. 2,07,20,000 on 22.01.2018; the petitioner contends the society is liable to refund to the petitioner.
The petitioner contends Respondent No.4's object clause is not in consonance with Section 3(1) of the Telangana Societies Registration Act, thus the society's very existence is null and void and it lacks legal validity.
The petitioner disputes that any amount claimed by Respondent No.4 is a "financial debt" under Section 5(8) or that Respondent No.4 is a "financial creditor" under Section 5(7) of the IBC.
The petitioner argues that the NCLT should decide the maintainability and locus standi of Respondent No.4 as a preliminary issue before proceeding with the main CP.
The petitioner relied on W.P. No. 3319/2013 (Nugget Estates Pvt. Ltd. v. Government of Andhra Pradesh) to contend limits on registration of resident welfare associations under the Societies Act.

Respondent No.4's Arguments

Respondent No.4 states the delay in formation of the society was due to the petitioner's failure to complete construction; several common facilities remained incomplete and maintenance could not be handed over earlier.
The respondent admits the petitioner refunded Rs. 2,07,20,000 but contends the petitioner collected a total corpus fund of Rs. 4,76,12,273 and other maintenance amounts, leaving an outstanding liability of around Rs. 2.70 crores which the petitioner has defaulted on.
Respondent No.4 asserts the society's objects are valid and that the objects listed in Section 3(1) are illustrative, not exhaustive, so registration is valid and enforceable; the registration cannot be invalidated on the petitioner's grounds.
Respondent No.4 contends it is a financial creditor and the claimed amounts are financial debt within Section 5(8)(f) (commercial effect of borrowing).
Respondent No.4 relied on precedent (including A.P. Dairy Development Corporation Federation v. B. Narsimha Reddy and other High Court decisions) to assert there is no statutory compulsion to register under a particular enactment and that registrars may lack power to cancel registrations.
Respondent No.4 characterized the petitioner's writ as an attempt to evade payment and delay proceedings before the NCLT.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Nugget Estates Private Limited v. Government of Andhra Pradesh (W.P. No. 3319/2013, order dt. 05.03.2013)	Addressed whether a resident welfare/flat owners association can register as a society under the Societies Act (as cited by the petitioner).	The judgment was relied upon by the petitioner to challenge the validity of Respondent No.4's registration; the court noted the citation but did not decide the registration issue.
A.P. Dairy Development Corporation Federation v. B. Narsimha Reddy, (2011) 9 SCC 286 : AIR 2011 SC 3298	Principle that there is no Act compelling registration of an association under a particular statute; no prohibition on choice of statute for registration (relied on by respondent).	Respondent relied on this Apex Court decision to support the validity of the society's registration; the court recorded the reliance but declined to decide the registration issue itself.
Vijayanagaram Cooperative Land Mortgage Bank Limited v. B. Ranaiah, (1968) 1 An WR 52	Principle that members may choose membership of societies of their choice (as cited by respondent).	Referenced by respondent to support the proposition that members can choose societies; court noted the precedent but did not rule on the registration question.
W.P. No. 25713 of 2019 (Order of a Coordinate Bench of the High Court)	Used to support that no Act compels registration under a particular statute; no hard-and-fast rule requiring registration under a specific statute (as cited by respondent).	Respondent relied on this High Court order; the court considered the authorities but did not adjudicate the registration validity.
The Indian Veterinary Association (Regd) v. Govt. of NCT Delhi (W.P.(C) 3265/2020)	Held that Registrar of Societies has no authority to cancel registrations while carrying out quasi-judicial duties under Section 12 of the Societies Registration Act, 1860 (cited by respondent).	Respondent cited the Delhi High Court decision to argue registrars cannot cancel registrations; the High Court recorded the reliance but declined to decide the registration/cancellation issue.
Supreme Court Bar Association v. The Registrar of Societies (W.P.(C) 3260/2010, Delhi HC)	Held that the Registrar of Societies has no power to cancel registration (cited by respondent).	Respondent relied on this decision to support its position; the High Court noted the authority but did not determine the registrability or cancel the society's registration.

Court's Reasoning and Analysis

The court reviewed the record and submissions. It identified the core dispute as a factual and legal contest over the corpus amount and related financial obligations between the developer (petitioner) and the flat owners' association (Respondent No.4), matters the court described as for a "competent court" (e.g., NCLT or civil court) to decide.

The court examined the petitioner's locus and purpose in filing the writ. It observed that:

The petitioner is not a member of the association whose registration is challenged.
The registration or non-registration of the association did not, on the material before the court, directly affect the petitioner's legal rights in a manner that justified judicial relief under Article 226.
The petition appeared to be motivated by a desire to prevent respondents from pursuing litigation (including before the NCLT) and thereby to evade or delay payment obligations asserted against the petitioner.

Having considered the parties' submissions and the cited authorities, the court concluded that it was not inclined to decide the question of the society's registration validity in the writ petition. The court therefore refrained from adjudicating the substantive challenge to Registration No. 1490/2017 and instead disposed of the petition on the basis of locus, purpose and settled law, leaving the financial disputes and maintainability issues to the appropriate forums (e.g., NCLT and civil courts).

Holding and Implications

DISPOSED OF

Holding (core ruling): The writ petition challenging the registration of Respondent No.4 as a society (Registration No. 1490/2017 dated 03.11.2017) is disposed of. The High Court declined to decide the validity of the society's registration in this writ petition.

Implications and direct effects:

The petitioner was given liberty to pursue appropriate remedies in the competent forums; the High Court did not grant the reliefs sought (it did not quash/cancel the registration nor suspend it).
The financial disputes between the parties (including the claims before the NCLT and the civil court concerning the corpus funds) remain to be decided by the competent adjudicatory bodies.
There shall be no order as to costs.
All miscellaneous applications, if any, were directed to stand automatically closed.

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Vasathi Housing Limited, Rep. By Its Director And Ceo P.v. Ravinder Kumar v. Government Of Telangana, Represented By Its Secretary Department Of Revenue And Others

Petition under Article 226 of the Constitution of India praying that in the circumstances stated in the affidavit filed therewith, the High Court may be pleased to issue a Writ or order or direction more particularly in the nature of Writ of Certiorari to call for the records from Respondent No. 3 relating to the Registration No. 1490/2017, dt. 03/11/2017 where by the Respondent No. 3 has Registered the Respondent No. 4 as a society under Telangana Societies Registration Act, 2001, and consequently quash/cancel the Registration No. 1490/2017, dt. 03/11/2017 as null and void and against the provisions of Section 3(1) of the Telangana Societies registration Act, 2001 Act and principles laid down in the decided cases and consequently cancel/Set aside the same;

IA NO : 1 OF 2022

Petition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased pleased to suspend the registration of the Respondent No. 4 association vide Registration No. 1490/2017, dt. 03/11/2017 issued by the Respondent No. 3 under Telangana Societies Registration Act, 2001 pending disposal of the WP and pass.

IA NO : 2 OF 2022

Petition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased to direct the Hon'ble NCLT-II, Hyderabad to decide the legal status of the Respondent No. 4 under section 3 of the Telangana Societies Registration Act, 2001 before disposal of the C.P. No, 50/7/HDB/2020 pending disposal of the WP;

The Order of the Court was delivered by

Lalitha Kanneganti, J.:— The writ petition is filed seeking the following relief:

“… to issue a Writ or order or direction more particularly in the nature of Writ of Certiorari to call for the records from Respondent No. 3 relating to the Registration No. 1490/2017, dt.03.11.2017 where by the Respondent No. 3 has Registered the Respondent No. 4 as a society under Telangana Societies Registration Act, 2001 and consequently quash/cancel the Registration No. 1490/2017, dt.03.11.2017 as null and void and against the provisions of Section 3(1) of the Telangana Societies registration Act, 2001 Act and principles laid down in the decided cases and consequently cancel/Set aside the same and …..”.

2. Mr. V. Murali Manohar, learned counsel for the petitioner submits that the petitioner is a company incorporated under Companies Act having its Registered office at 8-2-269/S/61, Sagar Society, Banjara Hills, Road No. 2, Hyderabad, Telangana. The petitioner has developed residential project “Vasathi Anandi or Anandi Project” and under the project the Petitioner has built 483 Apartments consisting of 7 towers and each tower is having 7 floors in an area of 23804.27 Square Yards situated at Survey No. 4/A, 4/AA, near Hanuman Temple, Peram Cheru, Gandipeta Mandal and as per the terms of the agreement executed by the petitioner with the purchasers of the flats, the flat owners shall form a Society and the society shall take the maintenance of the Project from 01.04.2014 and the petitioner shall transfer the interest free corpus fund collected from the purchasers of the flat to the said society. It is submitted that there was an inordinate delay of 4 years 4 months on the part of the purchasers of the flat to form a society and they have formed a society on 03.11.2017 and the said society has taken over the maintenance of the Vasathi Anandi on 29.04.2018.

3. Learned counsel for the petitioner submits that the petitioner was required to maintain the project from 01.01.2014 to 28.04.2018 and the money collected from the flat purchasers towards corpus fund and the maintenance fee was utilized for the maintenance of the Vasathi Anandi and the petitioner has refunded a sum of Rs. 2,07,20,000/- on 22.01.2018 being the balance available with the petitioner and has rendered account wherein the society is liable to refund to the petitioner.

4. Learned counsel for the petitioner submits that the respondent No. 4 filed C.P. No. 50/07/HDB/2020 against the petitioner before National Company Law Tribunal-II, Hyderabad under Section 7 of the Insolvency and Bankruptcy Code (for short “IB Code”) with all false allegations. It is submitted that the Respondent No. 4 also filed O.S. No. 180/2021 before the Principle District Judge, Ranga Reddy District at L.B. Nagar as the petitioner is liable to pay a sum of Rs. 3,64,50,116/- being the balance corpus fund. The petitioner is contesting the said C.P. and also the suit and it is the main contention of the Petitioner that the object clause of the Respondent No. 4 is not in consonance with Section 3(1) of the Telangana Societies Registration Act, 2001 and as such the very existence of society is null and void and the Respondent No. 4 does not hold any validity, since there is no legal existence of the Society.

5. Learned counsel for the petitioner submits that as per the terms of the Agreement of sale entered by the petitioner with the flat purchasers, the Flat owners association should have been established on or before 31.12.2013 and the Petitioner shall transfer the interest free corpus fund collected from the purchaser towards the maintenance of Vasathi Anandi. It is submitted that the petitioner filed its counter in C.P. No. 50/7/HDB/2020 and contesting the same and it is the case of the Petitioner that the Flat owners Association should have been established on or before 31.12.2013 and should take up the maintenance of the society and whereas this Respondent No. 4 society was established on 03.11.2017 and it has taken the maintenance of the Society only in the month of April, 2018 i.e., after the laps of 4 years and 4 months when the society was supposed to take the maintenance of the project. The petitioner has furnished the full details of the maintenance expenditure incurred by the petitioner from 2013 to 2018 and it is the case of the petitioner that the petitioner need not pay any amount as claimed by the Respondent No. 4 as financial debt. It is also the case of the Petitioner that there is no financial debt as defined under Section 5(8) of the IB code and the Respondent No. 4 is not a financial Creditor as defined under Section 5(7) of the IB Code. It is submitted that the Petitioner filed I.A. No. 473/2022 in C.P. No. 50/7/HDB/2020 seeking amendment of the pleading and the said I.A. is pending. It is submitted that the NCLT without deciding whether the registration of the Respondent No. 4 as society is not valid as per the provisions of Section 3(1) of the Telangana Societies Registration Act and none of the objects of the Respondent No. 4 society are not falling within the ambit of the Definition under Section 3(1) of the Telangana Society Registration Act, 2001, is trying to proceed for hearing of the main C.P. It is submitted that when the locus stand and maintainability of the C.P. is under challenge, the NCLT-II, Hyderabad shall decide the maintainability as a preliminary issue. If the NCLT-II, Hyderabad is allowed to proceed with disposal of C.P. No. 50/7/HDB/2020 without deciding the maintainability and locus stand of the Respondent No. 4 to initiate the said proceedings.

6. Learned counsel for the petitioner submits that whether a resident welfare association/Flat owner association can registrar as a society under Telangana Society Registration Act, 2001 was decided by this Court in W.P. No. 3319/2013 filed by Nugget Estates Private Limited v. Government of Andhra Pradesh vide orders dt.05.03.2013. He submits that the petitioner made a representation dt.14.06.2022 to the Respondent No. 3 requesting for cancellation of the Registration Certificate No. 1490/2017 issued in favour of Respondent No. 4 as the objects of the Respondent No. 4 as per its By-laws are meant for maintenance of common areas and allied activities which are not in consonance with Section 3 of the Telangana Societies Registration Act. He submits that if the Respondent No. 4 is allowed to function, it will cause irreparable loss and injury to the petitioner. It is submitted that the petitioner is having vast experience in the construction field and is having good reputation for quality of the work. In view of the same, the petitioner has come before this court.

7. There is no interim order passed by this court in this writ petition.

8. A counter affidavit is filed and the learned counsel for the respondent No. 4 Mr. P. Pratap submitted that the society was registered on 03.11.2017. As stated by the petitioner, there is delay of 4 years 4 months on the part of the purchasers of the flat to form a society is due to the fact that the petitioner company ought to have completed the construction on or before 31-12-2013 and it failed to do so. Whereas the true fact of the case is that even today most of the common facilities like swimming pool, Avenue Plantation and Landscaping, Two Lifts, C.C. TV Camera Surveillance System, Developer liability of Rs. 160,00,000/- towards deposit for municipal water connection (paid by the Respondent No. 4), etc., are not completed.

9. It is further stated in the counter affidavit that the society was formed on 03-11-2017 and delay is clearly due to the incompletion of the construction by the petitioner. It is further submitted that the petitioner was required to meet all the expenses of what so ever during the period of construction till the handover of the maintenance responsibility to the 4 respondent herein on 28.04.2018. However, contrary to that, the Petitioner Company has collected a total of Rs. 4,76,12,273/- from the 483 Apartment Owners under the head of Corpus Fund and also collected a sum of Rs. 1.12 Crores from the members of the society towards the maintenance fee for the period May, 2015 to May, 2018 (3 years) in addition thereof, the petitioner also collected a sum of Rs. 1.02 Crores from the members of the Society towards one year (2014-2015) as advance maintenance fee, without any right to collect. It is admitted that the petitioner has refunded a sum of Rs. 2,07,20,000/- on 22-01-2018 to the society out of total Corpus Fund collected of Rs. 4.76 Crores and it is submitted that the petitioner is liable to repay the remaining corpus fund of Rs. 2.70 Crores together with interest thereon to the society and defaulted in doing the same. It is denied that the society is liable to refund any amount to the petitioner.

10. It is further stated in the counter affidavit that thereafter, the Respondent No. 4 filed C.P. No. 50/07/HDB/2020 against the petitioner before National Company Law Tribunal-II, Hyderabad under section 7 of the IB Code. He submits that only for the purpose of evading the payment of amounts to the respondents, the petitioner has come up with a plea that the registration of the association is not valid as defined under Section 3(1) of the Telangana Societies Registration Act. It is submitted that the objects mentioned under Section 3(1) of the said Act are not exhaustive, rather they are illustrative in nature and the object of the Respondent No. 4, as mentioned in the memorandum and By-laws, as required under section. 4(1) of the Act are valid and enforceable in the eye of the law. Therefore, the registration is valid. The details furnished by the petitioner in the name of maintenance expenditure are false and fabricated and they are not the expenses paid towards the maintenance of the Respondent No. 4 society, instead majority of the expenses are consisting of the salaries of the petitioner office staff, security and housekeeping personnel engaged. Apart from that, it is manifestly apparent from the above statement that during 2013 to 2018, there cannot be any payments to the security, housekeeping, electrician etc. as the project was still under construction.

11. It is further stated in the counter affidavit that the maintenance of the association is handed over in the month of March, 2018 and therefore, till such date maintenance is required to be done by the petitioner from out of his pocket till flats are handed over to the owners. It is submitted that the Occupancy Certificate was issued by Peerancheruvu Gram Panchayath on 03.06.2016. It is submitted that the Respondent No. 4 is a financial creditor within the meaning of section 5(7) of the IB Code and the amount claimed by the Respondent No. 4 is duly admitted by the corporate debtor company, and the same is a financial debt within the meaning of section 5(8)(f) of the IB Code as the amount of Corpus Fund and other amounts due have the commercial effect of borrowing.

12. It is further submitted that law regarding the veracity of registration or its cancellation has been time and again settled by various judgments of this court and Hon'ble Apex Court. Relying on the order passed by the Co-ordinate bench of this court in W.P. No. 25713 of 2019, he submits that there is no Act, which compels the registration of an Association or Society in a particular Statue, therefore, there can be no hard and fast rule that, a person must be member of a particular Association or Society or Union registered under particular Statute and there is no prohibition under any Act of Parliament that, an Association or Society must register itself under a particular statute, followed the decision of the Apex Court in A.P. Dairy Development Corporation Federation v. B. Narsimha Reddy, reported in (2011) 9 SCC 286 : AIR 2011 SC 3298.

13. It is further submitted that earlier in Vijayanagaram Cooperative Land Mortgage Bank Limited v. B. Ranaiah, reported in (1968) 1 An WR 52, it was settled by the High Court of Andhra Pradesh that it is for the member of a society to choose one or more societies which according to them can cater to their needs and objectives and the member can take membership of any of the Societies of his choice.

14. Learned counsel for respondent No. 4 also relied on the order passed by the Delhi High Court in The Indian Veterinary Association (Regd) v. Govt. of NCT Delhi in W.P. (C) 3265/2020 and submits that the Delhi High Court has held that the Registrar of Societies have no authority to cancel registrations while carrying out his quasi-judicial duties under Section 12 of the Societies Registration Act, 1860 and the Registrar of Societies is not given any authority to cancel or withdraw a Society's registration after it has been done so. Under Section 31 of the Specific Relief Act, 1963, only a civil court can accomplish the same. He also relied on the order passed by the Delhi High Court in Supreme Court Bar Association v. The Registrar of Societies in W.P. (C) 3260/2010, wherein the Delhi High Court held that Registrar of Societies has no power to cancel the registration.

15. Having heard the learned counsel on either side, perused the entire material on record.

16. The petitioner is a builder and the respondent No. 4 association is formed by the purchasers of the flats. The whole dispute between the parties is with regard to the corpus amount which has to be handed over to the respondents and in that regard, there arose a dispute between them. The court is not concerned with the said dispute and the competent court will decide whether any amounts are liable to the paid to the unofficial respondent or not.

17. The petitioner has filed this writ petition only with a sole intention to see that respondents shall not pursue the litigation against him if this court hold that the unofficial respondent association cannot be resisted under the Telangana Societies Registration Act. That is the only endeavor on the part of the petitioner. The petitioner is not a member of the said association. With the registration or non-registration of the association, the petitioner rights are not affected. Only for the purpose of evading the payment or to delay the process before the NCLT, the petitioner has come up before this court.

18. Taking into consideration the locus of the petitioner, the purpose that is sought to achieved and in the light of the settled law, this court is not inclined to go into the issue of deciding the registration.

19. Accordingly, the writ petition is disposed of giving liberty to the petitioner to avail appropriate remedies if any. There shall be no order as to costs.

20. The Miscellaneous Applications, if any shall stand automatically closed.

Vasathi Housing Limi... v. Ravinder Kumar v. Go...