Collection of ‘transfer fee’ on resale of flats: Madras High Court stays single judge’s order

File photo of the Madras High Court
| Photo Credit: K. Pichumani

A Division Bench of the Madras High Court has stayed an order passed by a single judge who had prevented an apartment owners’ welfare association from demanding a ‘transfer fee’ of ₹50 per square foot or 1% of the sale consideration (whichever was higher) during every resale of a flat on its premises.

The Division Bench of Justices D. Krishnakumar and P.B. Balaji granted the interim stay for a period of eight weeks following a writ appeal filed by Ankur Grand Owners Association (AGOA) at Kilpauk in Chennai. The appellant association had challenged the verdict passed by the single judge on May 25, 2023.

Representing the association, senior counsel T. Mohan told the court that the authority of the District Registrar to declare the ‘transfer fee’ clause in the association bylaws as null and void had been questioned in the present appeal and therefore, the single judge’s order must be stayed until the disposal of the appeal.

It was in 2016 that AGOA had filed a writ petition in the High Court challenging the District Registrar’s declaration on the basis of a complaint lodged by one of the flat owners. Justice S.M. Subramaniam had dismissed the petition in 2023 and ordered a refund of the ‘transfer fee’ collected from the flat owner.

While doing so, the single judge had held that the corpus fund of a flat owners’ welfare association could not be enhanced by demanding a ‘transfer fee’ during every resale of a flat on the basis of its super built-up area. He said it would amount to collecting corpus fund on multiple occasions for the same flat.

“In the absence of any statutory provision, the flat owners’ association, which is a society, cannot levy and collect the transfer fee from the sellers/purchasers of pre-owned flats… The apartment owners association is not a profit-making association,” the judge had said.

He went on to state: “It is a right conferred on a property owner to sell or transfer his flat to any person. Such basic right cannot be interfered with by the apartment owners’ association. The owners’ association cannot physically or otherwise prevent any owner from dealing with his own property.”

Justice Subramaniam had also said: “Any flat owner is empowered to sell, settle, gift, write a Will or transfer his/her/their property in the manner known to law. It is a constitutional right which cannot be infringed at the instance of the apartments owners’ association. Once the flats are transferred, the association can claim only maintenance charges.”

Though it was argued on behalf of AGOA that it had amended its bylaws in order to enable collection of ‘transfer fees,’ the judge took note of the submission of Additional Government Pleader S. Ravichandran that such amendment had not been approved by the District Registrar.

When AGOA argued that no such approval was required under the Tamil Nadu Apartment Ownership Act of 1994, the judge said such approval was necessary under the Tamil Nadu Societies Registration Act of 1975 and AGOA was bound by the latter since it had been registered as a society.

Holding that any amendment to the bylaws would come into effect only on approval of the District Registrar, the judge had said, permitting an apartment owners’ association to pass/amend any kind of bylaw would only lead to anarchy and also defeat the object behind the applicable laws.

“Unguided power to an apartment owners association is not intended under the provisions of the Apartment Ownership Act. Thus, the very argument made by the petitioner that mere presentation of amendment before the competent authority would be sufficient, deserves no merit,” the judge had concluded.