• Suggestions for Co-operative Dept, Govt of Maharashtra in response to Sept 30, circular. The term ‘Relative’ to be defined in the context of Redevelopment. The process for society entering into contracts in which MC members have an Interest needs to be laid down. Suggests framework to provoke thought. Protecting society member’s interest is paramount. 

Earlier articles on redevelopment were framework for redevelopment of housing societies in Mumbai, Income-tax issues on redevelopment of a housing co-operative society – in Brief and in Detail

DRAFT 

Most people I spoke to welcomed the Amendment of the Provisions Regarding Redevelopment of Buildings of Co-operative Housing Societies dated 30/9/2026 issued by the Co-operative Department of the State of Maharashtra.

A couple of suggestions.

1. Feasibility Report must be approved by the General Body as against being approved only the Managing Committee.

2. Area considered by the PMC in the Feasibility Report should be as per BMC Approved Plans. This shall give members a realistic picture of additional area to expect.

3. The PMC Report, should by law, clearly state the Assumptions made in arriving at the saleable area post redevelopment and include a Sensitivity Analysis meaning if an any assumption goes wrong, what would be the impact on the additional area for members and consequently on the saleable area .

4. Word ‘Relative’ referred to in a circular should be defined. (article proposes)

5. A framework for Contracts in which MC members are interested should be suggested. (article proposes)

6. The GO states, “According to the size of the redevelopment project, the period for completing the redevelopment / construction project of the society from the date of the first /foundation certificate shall not be more than 2 years, and in exceptional circumstances not more than 3 years.” Point 13 (1). In large size plots, adhering to this timeframe might be difficult.

7. Applicable to multi-building societies, guidelines for use and distribution of fixed deposits and Sinking Fund bank deposits should be spelt out.

Can the state government give a table that gives time for completion of a redevelopment project, based on plot size?

8. In case members who want redevelopment but are insecure about the manner in which the MC is going about the redevelopment process, the government should have a city wise Omnibudsman. (do not mean Regulator)

Proposed Definition of ‘Relative’ 

Point 13 of the GO reads, Agreement to be made with the Developer: sub-point 11 reads, “No committee member or office bearer of the society shall be a developer or relative of a developer.” The word ‘relative’ is not defined in the GO. The questions that came to mind are –

1. Definition of relative under the MCS Act 1960 or Byelaws.

2. Does committee member mean only Managing Committee (MC) members or would it include member of Redevelopment Committee (elected or selected does not matter).

3. Are Contracts in which MC members are interested permitted and how would that work?

On Q1, the byelaw xxv provides definition of Family “means group of persons which includes husband, wife, mother, sister, brother, son, daughter, son-in-law, brother-in-law, sister-in-law, daughter-in-law, grandson/granddaughter.” 

I would extend the definition of family to include MC member’s brother or sister son, daughter, son-in-law, brother-in-law, sister-in-law, daughter-in-law, grandson/granddaughter, HUF members and as provided for in the Companies Act Step-mother/father/brother/sister. (see below) . 

Q2 can be clarified by the State government.

Q3 Should Contracts with Family as defined above be banned or allowed with safeguards. I prefer the safeguards option, hence suggesting a framework.

Proposed Framework for Contracts in which MC members are interested

The purpose of this suggestion is to bring in transparency, have guidelines and not debar any professional services firm just because the entity is related to a MC member. A proposed framework-

Such contracts should be permitted between the family and society/Developer (excluding what the 30/9/ GO prohibits).

If there is a conflict of interest, the related member in the Committee should recuse himself from all meetings and decision making related to the award of the contract. He should disclose his interest to the Society. The Society should have a code of governance laid down, ensure adequate Policies are present to avoid conflict of interest and obtain declarations from each member in the Committee.

The MC member must in writing, inform the Secretary of the nature of interest in a proposed contract.

The Secretary shall place the disclosure at the next MC meeting. If the proposal is accepted by a majority of MC members the Family can go ahead with the contract with the society or the Developer.

All such disclosures, including nature and amount of contract between Family and the Society shall be part of the Agenda at the next General Body Meeting. If such a meeting is not held within four months, the Secretary shall inform all members of disclosure etc in writing and put up the said letter on the Society Notice Board for a period of one month.  

If the process for disclosure of interest by an MC member is stipulated the government then the Society has to only follow it. Once the Disclosure of Interest by the MC is approved by the General Body, the same should be sent to the Deputy Registrar.

Details of such contracts shall be recorded in a register titled ‘Contracts in which MC members are interested’. The statutory auditor is to review such a register and confirm that the process as laid down as the government was followed by the MC w.r.t each contract and no such contract was prejudicial to the interests of the housing society. 

A few more guardrails –

If any MC member had business or financial dealings prior to such a Developer being chosen by Members, the nature of such dealings must be disclosed to the MC first and then to the General Body.

No MC member, if he is a consultant/advisor/broker to a Developer in the past, can take part of any negotiations with the Developer even during the evaluation stage. In addition, the MC member needs to make full disclosure of past association.  

Every MC member shall get a flat size, in the redeveloped building, as any other member having a similar flat would. Naturally, the flat size would be based on earlier and new BMC Approved Plans. In case of any violation of this provision the Developer and MC member shall be singly and jointly responsible.

I am unsure about this proposal but included it for wider debate – Should members who are part of the MC when the Developer Agreement is signed be prevented from selling their flat or rights in the flat of the redeveloped building till the Occupation Certificate is received. This shall ensure that MC members carry responsibility till the end. 

But what happens if the MC term gets over during the construction period. Would they be automatically re-elected? Or if there is an election and they lose how will it work. This needs some more thought.

How is Relative described in the Companies Act and Contracts in which Directors are interested?

“A related party transaction is a contract between a company and someone close enough to it to influence the terms, such as a director, a director's relative, or a company under common control. Indian company law does not prohibit these transactions. It regulates them, because a deal with an insider can quietly move value out of the company at the expense of other shareholders. Section 2(76) of the Companies Act, 2013 defines who counts as a related party in relation to a company.” Source equitylist.co Who is a relative is defined below.  

According to section 2 (77) of the Companies Act, 2013 the word Relative includes – “Father, including step-father, Mother including step-mother, Son including step-son, son’s wife/daughter, daughter husband, brother including step-sister, sister including step-sister, spouse, HUF members.”

“The board cannot approve blind. Rule 15(1) of the Companies (Meetings of Board and its Powers) Rules, 2014 requires the agenda of the board meeting to disclose a defined set of particulars. The agenda must state the name of the related party and the nature of the relationship, the nature and duration of the contract, the material terms including value, any advance paid or received, the method of determining the pricing, and whether all relevant factors have been considered. This means the board is deciding two things at once: whether the transaction is in the company's interest, and whether its terms are defensible against the arm's length standard.” Source equitylist.co

Under Section 189 every company has to maintain a Register of contracts or arrangements in which directors are interested. Reference

According to CA2013.com Section 188 Related Party Transactions, “Except with the consent of the Board of Directors  given by a resolution at a meeting of the Board and subject to such conditions as may be prescribed, no company shall enter into any contract or arrangement with a related party with respect to—

(a) sale, purchase or supply of any goods or materials;

(b) selling or otherwise disposing of, or buying, property of any kind;

(c) leasing of property of any kind;

(d) availing or rendering of any services;

(e) appointment of any agent for purchase or sale of goods, materials, services  or property;

(f) such related party’s appointment to any office or place of profit in the company, its subsidiary company or associate company; and

(g) underwriting the subscription of any securities or derivatives  thereof, of the company.”

Hope this piece provokes thought. Suggestions are welcome.

The author is a Senior Chartered Accountant