Multiple companies one premises :A co-operative society ‘s Guide to Byeblaw 43 complience
Interpretation of Bye-law No.43 of the Model Bye-laws under the Maharashtra Cooperative Societies Act, 1960. Permissibility of Members/Tenants allowing multiple companies to operate from a single office premises and displaying signage without intimation to the Society and duties and liability of the Managing Committee
Frequently Asked Questions & Answers
FAQ 1. Can a member/owner or tenant/licensee of commercial premises permit more than one company, firm, LLP, or other entity to operate from the same premises?
- Does Bye-law No. 43 permit such multiple occupation/use?
- Does each entity require separate intimation or permission from the Society?
- Does the answer change where the entities are group companies, associate concerns, sister concerns, or entities controlled by the same person?
ANS: Bye-law 43 operates on two independent limbs: (i) user of the premises must conform to the sanctioned purpose (commercial/office, as the case may be); and (ii) occupation by anyone other than the member requires prior written intimation.
Where the registered member/owner permits one or more separate legal entities (companies, LLPs, firms) distinct from himself/itself to occupy and operate from his office premises, this squarely amounts to “parting with possession” or “allowing use” by third parties, even if no formal lease or leave-and-licence agreement is executed. It is settled position that introducing a third party into the flat/unit without the society’s consent constitutes a breach of the bye-laws through sub-letting / induction of a stranger (see O.N. Bhatnagar v. Rukibai Narsindas, (1982) 2 SCC 244; Dr. Chiranji Lal (D) by LRs v. Hari Das (D) by LRs, (2005) 10 SCC 746,
FAQ 2. Can a member permit a group company, associate company, sister concern or another company to occupy or use the flat without informing the Society?
No, not as a matter of right.
Under the commonly adopted Maharashtra Model Bye-laws namely 43, parting with possession, sub-letting or giving the premises on leave and licence/caretaker basis is subject to the prescribed procedure and the Society’s permission/intimation requirements.
A group company does not automatically become the same “person” as the individual member merely because there is common ownership, common directors, common management or a holding/subsidiary relationship.
A company has a separate legal personality. The principle in Salomon v. Salomon & Co. Ltd., [1897] AC 22, has been consistently recognised in Indian law, including in Vodafone International Holdings B.V. v. Union of India, (2012) 6 SCC 613.
Each company is a separate juristic person and the fact that companies are group/associate/sister concerns does not, by itself, dispense with the requirement of disclosure.
Legal basis
- Maharashtra Co-operative Societies Act, 1960 (“MCS Act”)
- Registered bye-laws of the Society
- Model Bye-law 43 concerning sub-letting/leave and licence/parting with possession
- General obligations of members under the bye-laws
- Salomon v. Salomon & Co. Ltd., [1897] AC 22
- Vodafone International Holdings B.V. v. Union of India, (2012) 6 SCC 613
FAQ 3. Does the presence of the group company’s name/signboard on the premises make a difference?
Yes. It can be important evidence of actual or constructive knowledge.
If the premises visibly display the name/signboard of a company other than the recorded member, this may constitute evidence from which the Society’s knowledge of third-party occupation can be inferred.
Particularly between a situation where visible signage exists and one where the Society genuinely has no knowledge.
The practical question would therefore be:
Did the Society have actual or reasonably inferable knowledge of the occupation and, despite such knowledge, fail to take action?
Evidence may include:
- Signboards
- Security registers
- Visitor records
- Courier/delivery records
- Correspondence
- Electricity/utility records
- GST records
- Complaints by other members
- Communications exchanged with the Society
- Photographs of the premises
FAQ 4. If the member did not intimate the Society, can the Society simply say that it had no responsibility?
There are two separate issues:
1. The member’s obligation to comply with the bye-laws, and
2. The Committee’s statutory and administrative responsibility to manage the affairs of the Society diligently.
A member cannot ordinarily rely upon the Society’s failure to detect a breach as a defence to the member’s own violation.
Conversely, the Society cannot necessarily contend that it had no responsibility merely because the member did not formally intimate the occupation, if the Society had actual knowledge or circumstances strongly indicating the occupation.
States that the plea of non-intimation does not automatically discharge the Society from its own administrative responsibilities.
FAQ 4. Is the Managing Committee under a duty to enquire into unauthorised occupation?
Yes, where circumstances reasonably call for an enquiry.
The Committee is a fiduciary body for the Society and its members. The MCS Act expressly imposes on every officer and committee member the duty to act honestly, diligently, and in the best interest of the society. Failure to enforce the bye-laws is itself a dereliction.
The Committee’s duties, as flowing from Section 73, Bye-law 47, Bye-law 138/139 (functions of the Committee) and the Model Bye-laws (particularly Bye-laws,30, 43, , 47, 65–70, 138 and 139). These duties flow from the Committee’s trusteeship character and are enforceable through Sections 83, 88, 91 include:
- Maintaining an updated register of occupants including non-member users;
- Calling upon members to disclose the identity of every occupant and the basis of occupation, particularly where multiple signboards or entities are visibly operating;
- Granting/refusing written permission for parting with possession, with recorded reasons;
- Levying and recovering non-occupancy charges;
- Placing before the general body any material breach and the action proposed;
- Initiating proceedings under Sections 83, 88 or 91 against defaulting members.
FAQ 5. What can happen if the Managing Committee repeatedly ignores an apparent breach?
Depending upon the facts, several statutory mechanisms may become relevant.
(a) Section 78 – persistent default/negligence
Section 78 empowers the Registrar to take action where the Committee is persistently defaulting in its duties, is negligent in performance of its duties or is otherwise not discharging its functions properly and diligently, subject to the statutory procedure.
The statutory text specifically refers to persistent default, negligence and failure to discharge functions properly and diligently.
(b) Section 78A – Prejudicial Acts
Section 78A concerns situations where the Committee or a member has committed an act prejudicial to the interests of the Society or its members, amongst the other circumstances specified in the provision.
(c) Section 83 – Inquiry
An inquiry into the constitution, working and financial condition of a Society can be undertaken in accordance with Section 83.
(d) Section 91 – Dispute
Dispute proceedings under Section 91 may become relevant depending upon the facts and circumstances.
FAQ 6. Can Committee members be made personally liable for losses suffered by the Society?
Answer
All Committee members are joint and severally responsible for relevant decisions and acts/omissions detrimental to the Society.
FAQ 7. Can the Society levy non-occupancy charges when a member shares the unit with a group company?
Answer
The crucial question is whether the group company is merely an incidental user or is actually occupying/using the premises as a separate entity.
That a group/associate company is not equivalent to a family member and that nonoccupancy charges may therefore become leviable where a separate juristic entity is actually using the premises.
Where a separate juristic person is permitted to use or occupy the premises, the Society is entitled to examine the arrangement under its registered bye-laws and the Government’s binding directions concerning non-occupancy charges. The mere description of the company as a group/associate/sister concern does not automatically bring it within the family exemption.
FAQ 8. Does the “family” exemption apply to a group company?
Answer
No.
The exemption concerning occupation by members of the member’s family is conceptually different from occupation by a company.
A company is a separate juristic person and is not a “family member” merely because:
- The member owns the company
- The member is its director
- The company is a subsidiary
- The company is a holding company
- The company is an associate
- The company has common directors
This distinction is supported by the sarate legal personality principle recognised in Salomon.
FAQ 9. What is the maximum non-occupancy charge that a Society can levy?
Answer
FAQ 9. What is the maximum non-occupancy charge that a Society can levy?
The operative ceiling is:
10% of the service charges, excluding municipal taxes.
This was upheld by the Bombay High Court in Mont Blanc Co-operative Housing Society Ltd. v. State of Maharashtra
A Society cannot say: “Our bye-laws permit the General Body to determine the rate, therefore we can charge whatever the General Body decides.”
The statutory direction under Section 79A prevails.
FAQ 10. Can the General Body resolve that no non-occupancy charges will be levied?
Answer
No, if the charge is otherwise attracted under the applicable statutory directions and byelaws.
A General Body resolution cannot override a binding statutory direction issued under Section 79A.
Mont Blanc is particularly important on this issue. The Bombay High Court held that the Government’s direction fixing the maximum non-occupancy charge at 10% was binding upon housing societies.
The judgment explains that Section 79A permits the State Government to issue directions
FAQ 11. Does “joint occupation” with a group company avoid non-occupancy charges?
Answer
Not merely because the arrangement is labelled “joint occupation”.
The Society and, ultimately, the adjudicating authority should examine the substance of the arrangement.
Relevant evidence may include:
- Who actually uses the premises
- Who has possession/control
- Whether the company conducts its business there
- Whether the company has a signboard
- Whether correspondence is addressed to the company at that premises
- GST/business registrations
- Utility consumption
- Leave-and-licence documentation
- Police verification
- Whether the company has independent employees operating there
FAQ 11. Can the Society treat a company occupying the premises as a tenant/licensee even if there is no formal leave-and-licence agreement?
Answer
The absence of a written agreement does not necessarily end the inquiry.
Actual possession and use may be established through circumstantial evidence.
For example:
Company signage + employees working there + correspondence addressed there + security records + use of facilities
may collectively establish occupation even in the absence of a formal leave-and-licence deed.
However, the Society should avoid mechanically labelling an entity a “tenant” unless the legal ingredients of tenancy are established. The safer expression is “third-party occupant/user” or “parting with possession/use in favour of a separate juristic entity.”
FAQ 12. Can the Society initiate action against the member for unauthorised occupation?
Answer
Yes, subject to the registered bye-laws and applicable statutory procedure.
Possible consequences may include:
- Notice calling upon the member to explain
- Direction to discontinue unauthorised occupation
- Requirement to obtain Society permission
- Levy of applicable non-occupancy charges
- Recovery of dues
- Dispute proceedings under Section 91, where maintainable
- Other action authorised by the bye-laws and the Act
FAQ 13. Can any member approach the Registrar to inquire into the Committee’s conduct?
Answer
Yes, where the statutory requirements for an inquiry are satisfied.
This can become relevant where there is an allegation that:
- The Committee knew of unauthorised occupation
- The Committee deliberately failed to act
- Non-occupancy charges were not recovered
- The Society suffered financial loss
- The Committee acted contrary to the bye-laws
- The affairs of the Society were being conducted improperly
FAQ 14. Can Section 78A be invoked against individual Committee members?
Answer
Potentially, yes.
Section 78A addresses circumstances where the Committee or a Committee member has committed an act prejudicial to the interests of the Society or its members, amongst the other grounds specified by the provision.
FAQ 15. Whether there would be any accountability of the Society for collecting information of the Occupant who is running the business without leave & license agreement and police verification?
Answer
The Model Bye-laws 20 contemplate a structured system whereby a sub-lettee, licensee, caretaker or other possessor is brought to the Society’s knowledge and, where eligible, admitted as a nominal member. Bye-law 20 specifically provides that a sub-lettee, licensee, caretaker or eligible occupant may apply through the original member for nominal membership and that such person may be admitted by the Committee.
Further, the sub-letting provisions bye law number 43 require the member to furnish the prescribed application concerning the proposed sub-lettee/licensee/caretaker and contemplate the Committee’s consideration of the arrangement. The older Model Byelaws expressly require the proposed occupant’s application for nominal membership and place the matter before the Committee.
Accordingly, the Managing Committee is not merely a passive recipient of information. Once an application, intimation, complaint or other material comes before it indicating third-party occupation, it has a duty to deal with the matter in accordance with the registered bye-laws.
FAQ 16. What if there is no signboard and the Society genuinely did not know about the third-party occupation?
Answer
The Society’s position becomes materially stronger.
The factual inquiry would then focus upon whether the Committee exercised reasonable supervision.
The source material identifies:
- Security registers
- Visitor logs
- Member declarations
- Correspondence
- GST/MCA records
- Complaints
- other available evidence
as relevant to determining whether the Society actually knew or ought reasonably to have known.
Thus:
No intimation + no signboard + no other evidence of knowledge + reasonable supervision = substantially stronger defence for the Society.
But:
No intimation + obvious occupation + signboard + repeated visibility + complaints/correspondence = substantially weaker defence.
FAQ 17. What is the strongest legal position for the Society?
Answer
The strongest position would be:
The member was independently bound by the registered bye-laws to disclose/obtain permission for third-party occupation; the group company is a separate juristic person and cannot claim the family exemption; the Society, upon acquiring knowledge of the arrangement, was entitled and required to enforce its registered bye-laws; non-occupancy charges are governed by the binding Section 79A directions and cannot exceed the prescribed ceiling; and any action against the member or Committee must follow the statutory procedure prescribed under the MCS Act and Rules.
This position is substantially supported by Mont Blanc, the MCS Act, Rule 29 and the Model Bye-laws.
FAQ 18: What is the accountability of an occupant who uses the Society premises as his/her GST address without proper authority or documentation?
Answer
An occupant who uses a Society premises as the Principal or Additional Place of Business for GST purposes must have a lawful basis for occupying and using the premises and must furnish truthful particulars and appropriate supporting documents to the GST authorities. Mere GST registration does not, by itself, confer any right to occupy or use the premises.
Where a person is occupying a Society unit as a licensee, sub-licensee, caretaker or otherwise, without a valid arrangement or without the requisite disclosure/recording with the Society, the person cannot rely upon the GST registration to regularise or legitimise such occupation.
If the occupant has represented the Society premises as his/her business address despite having no valid authority to use the premises, or has furnished false, misleading or fabricated documents/consent to obtain GST registration, the occupant may be liable for appropriate action under the applicable law. The GST registration and the legality of occupation are two separate matters. The Society is also entitled to require the occupant/member to establish the legal basis on which the premises is being occupied and used for business purposes.
FAQ 19: What is the responsibility of the Society/Managing Committee where an occupant is residing or carrying on business without police verification, and can the police take action?
Answer
The Managing Committee has a responsibility, under the applicable registered bye-laws, to maintain proper records of the persons occupying the units of the Society and to regulate and record occupants such as licensees, sub-licensees and caretakers in accordance with the prescribed procedure. Where the Committee has knowledge that a person is occupying a unit, particularly as a licensee/sub-licensee/caretaker, it cannot simply disregard the occupation and fail to maintain the requisite record.
If the Managing Committee knew or had reason to know that an occupant was residing in or using the premises, but nevertheless failed to record the occupant, failed to obtain the prescribed documents, or knowingly permitted an unauthorised occupant to continue in possession, such conduct may constitute failure or dereliction in the discharge of the Committee’s obligations under the bye-laws and may invite appropriate action under the Maharashtra Cooperative Societies Act/Rules and the registered bye-laws.
The police can take action where the facts disclose an independent violation of law for example, false or fabricated documents, cheating, impersonation, criminal trespass, threats, nuisance, unlawful activities or any other offence within police jurisdiction. However, the mere fact that police verification/intimation was not carried out does not automatically establish a criminal offence. The police would have to determine whether the facts disclose a violation warranting police action.
Accordingly, where an occupant is not recorded by the Society, has not complied with the applicable police requirements, and is simultaneously using the Society premises as a GST/business address, the Managing Committee should be called upon to explain when it became aware of the occupation, what documents it obtained, whether the occupant was recorded under the applicable bye-laws, whether the prescribed policeintimation/verification requirement was complied with, and what action was taken upon discovering any non-compliance.
FAQ 20. In practice, many Co-operative Housing Societies allow a member’s group company, associate concern or sister company to occupy the premises without objection or non-occupancy charges. Does such long-standing practice make the arrangement legally valid?
Answer
A. No. Mere non-objection, silence, acquiescence or long-standing practice does not by itself cure a breach of the registered bye-laws or override a statutory direction. A practice may explain what has happened in fact, but it does not necessarily determine what is legally permissible. Widespread practice does not legalise what the bye-laws prohibit. General Body may, within limits, choose to moderate its own commercial claims (subject to the Mont Blanc ceiling and the Section 79A framework). What it cannot do is direct the Committee to remain wilfully ignorant of who occupies the premises
Nirupama Kar
Advocate |Registered Independent Director/Company Secretary (Executive level)/ Notary.
Corporate Contracts /Corporate law/ Real Estate Law and estate planning | Insolvency & Bankruptcy | Banking & Regulatory Matters | Dispute Resolution & Arbitration.