The Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act, 1963 (“MOFA”) is an act to regulate the promotion of construction, sale, management and transfer of flats on an “ownership basis” in the State of Maharashtra.
In 2016, MOFA was succeeded by the Real Estate (Regulation and Development) Act, 2016 (“RERA”), a central enactment passed with a view to strengthening the regulatory framework in the real estate sector and giving a boost to the ‘pro-allottee’ and ‘pro-buyer’ approach. Both RERA and MOFA aim to regulate the rights and obligations of builders/promoters and purchasers of real estate.
Applicability of MOFA
With the Hon’ble Supreme Court of India passing its judgment in Forum for People’s Collective Efforts vs. State of West Bengal, it is clear that RERA being a central enactment and more exhaustive in nature has impliedly repealed MOFA as per the doctrine of repugnancy, in all cases where both the enactments apply. Notwithstanding such implied repeal, MOFA continues to prevail and apply to projects where RERA registration is not required in terms of Section 3(2) of RERA. Further, the limited provisions of MOFA which are excluded from the ambit of RERA including the effect of non-registration of an agreement to sell (Section 4A), the right of flat purchasers to form a society in case of failure by the promoter to do so [Section 10(1) and the proviso thereto] and the right of the society to apply for deemed conveyance [Section 11(3)], continue to have force and effect. Accordingly, MOFA continues to prevail in the State of Maharashtra, albeit limited in its application.
Registration of a MOFA Agreement
Section 4 of MOFA requires an agreement for sale to be registered under the provisions of the Indian Registration Act, 1908 before the promoter/builder accepts an advance payment of more than twenty percent of the sale price from the concerned allottee. However, Section 4A of MOFA provides for the effect of non-registration of such an agreement for sale and inter alia provides that notwithstanding anything contained in any law for the time being in force, or in any judgement, decree be or order of any Court, such an unregistered agreement for sale may be received as evidence of a contract in a suit for specific performance under Chapter II of the Specific Relief Act, 1963, or as evidence of part performance of a contract for the purposes of section 53A of the Transfer of Property Act, 1882, or as evidence of any collateral transaction not required to be effected by a registered instrument.
What is ‘Ownership Basis’ under MOFA?
As stated above, MOFA deals with flats sold on an ownership basis. Neither has the term “ownership basis” been defined under MOFA nor has its meaning under MOFA been brought out in any judicial pronouncements.
As per Black Law’s Dictionary, the term “ownership” has been defined as follows:
“The bundle of rights allowing one to use, manage, and enjoy property, including the right to convey it to others. Ownership implies the right to possess a thing, regardless of any actual or constructive control. Ownership rights are general, permanent, and heritable.”
In practice, and especially for projects which commenced prior to the RERA regime, we often come across cases where homebuyers are occupying premises in a building without having a registered agreement for sale in their favour. Such homebuyers would accept a mere share certificate along with possession of their premises in exchange of payment of purchase consideration. In such cases, homebuyers later face difficulties on account of not having a registered document in their favour to establish their ownership rights in the premises. They find it difficult to convey their premises to a third party or obtain a deemed conveyance of the land and building in favour of the society or have their rights acknowledged by a developer intending to redevelop the society.
Recently, In Re: Ace Housing and Construction Ltd., A.K. Menon, J. of the Hon’ble Bombay High Court was faced with determining whether an arbitration clause in an agreement for sale executed between the promoters and the flat purchasers is binding on the society formed by the flat purchasers. On 11th March 2020, the Hon’ble Bombay High Court passed an Order in the case (“said Order”), wherein it held that a society has a legal existence of its own and is entitled to ownership and/or leasehold rights, as the case may be, over the land and building. Accordingly, the Court opined that an arbitration clause in an agreement for sale entered into between the promoter/builder and the flat purchaser would not be binding on the society and rejected the argument that the society claims “through and under” its members.
In arriving at the aforesaid conclusion, the Court explained the meaning of “ownership” with respect to the members of a society under MOFA. On a reading on the said Order, it appears that the concept of ownership as aforesaid is twofold. Firstly, members, upon formation of a society, are entitled to what is popularly known as “beneficial ownership” by virtue of their shareholding. As per Black Law’s Dictionary, the term “beneficial ownership” is used to describe one recognized in equity as the owner of something because use and title belong to that person, even though legal title may belong to someone else. The Court observed that in the case of beneficial ownership, by fiction of law, the members’ interests under the agreements for sale are pooled together and merged into the society and consequently, the members are entitled to a beneficial right of occupancy. Secondly, the Court recognized that once a purchaser becomes a member of a society, the member is deemed to be allotted a flat by the society. The Court held that this ownership is different from beneficial ownership, which contemplates ownership only of the shares.
In theory and in practice, homebuyers without a registered agreement for sale in their favour are more disadvantaged than those who have one in their favour. However, MOFA itself provides certain remedies to such homebuyers in terms of Section 4A.
The Hon’ble Bombay High Court’s interpretation of the term “ownership basis” in the said Order, may empower such disadvantaged homebuyers even further. By merely relying on their share certificates or membership rights in the society, they may be able to establish their ownership right and title and consequently, this may allow them to seek protection under MOFA. For instance, they may participate in obtaining a deemed conveyance in favour of the society or in the redevelopment of the society.
Despite having said so, as MOFA itself insists on the existence of a registered agreement for sale and does not recognize “beneficial ownership rights”, such homebuyers will remain disadvantaged to a certain extent. For instance, they will still face difficulties in satisfying prospective purchasers of their premises and their advocates as regards their ownership right, title and interest therein.
Further, it is yet to be seen how much reliance can and will be placed on the said Order by advocates conducting title diligence of such premises and whether it can be conclusively said that a homebuyer can establish ownership rights to premises by merely relying on its membership rights and its beneficial rights of occupancy.