Transaction Flows From Membership, Not Commerce — Bombay High Court Upholds Cooperative Court Jurisdiction Over Housing Society’s Allotment of FSI

Bombay High Court dismissed a challenge under Article 227 of the Constitution against concurrent findings of the Cooperative Court and Appellate Court. The judgment, delivered by Hon’ble Justice Amit Borkar, decisively held that a dispute arising from the allotment and utilization of additional FSI/TDR by a cooperative housing society to one of its members squarely falls within the jurisdiction of the Cooperative Court under Section 91 of the Maharashtra Cooperative Societies Act, 1960.

The Court upheld the validity of the Memoranda of Understanding (MoUs) executed between the society and the disputant-member, and refused to entertain procedural objections and pleas of fraud in the absence of cogent evidence. Importantly, it condemned the cancellation of MoUs through resolutions passed in defiance of a judicial order of status quo, terming such resolutions “void ab initio”.

“The Source of the Right Lies in Membership, Not Commercial Dealings” — Dispute Held Maintainable Under Section 91

The case revolved around a decades-old arrangement between the Linking Road Housing Society Ltd. and its founding member, late Dr. Harshad Pandya, for the allotment of 1500 sq. ft. of additional FSI. The society’s land had been partially acquired by the municipal corporation in 1977, and in lieu of the setback, compensatory FSI was granted. By resolutions of its general body in 1988 and 1989, the society decided to allot this FSI to a member through a restricted tender process.

When Dr. Pandya emerged as the highest bidder and paid Rs. 7,00,000 (in installments), MoUs were executed with him on 14 November 1989, and later supplemented in 1992 and 1997 to allow for the use of Transferable Development Rights (TDR), following changes in municipal policy.

Despite continued acts of recognition, the society eventually sought to cancel these MoUs in 2003, allegedly under the cloud of collusion and lack of authority. Dr. Pandya initiated disputes before the Cooperative Court seeking enforcement of the MoUs, which were allowed by both the Cooperative and Appellate Courts.

The High Court was now called upon to decide the maintainability of such disputes under Section 91 and the validity of the MoUs.

“Eligibility Was Confined To Members; Mere Newspaper Publication Does Not Open A Transaction To Outsiders”

Justice Borkar emphasized that the true test under Section 91 is whether the right asserted by the disputant flows from his status as a member. Relying on Clause 1 of the tender conditions, which expressly limited participation to members of the society holding share certificates, the Court observed:

“The test is not who saw the advertisement, but who was legally entitled to bid. If only members were entitled to bid, the transaction flows from membership.”

The Court dismissed the petitioner’s reliance on the disputant’s own pleading that tenders were invited from “outsiders,” clarifying that:

“Pleadings cannot override documentary evidence. The bye-laws, resolutions, and tender conditions constitute the legal source of the right in question.”

This, the Court held, brought the dispute squarely within the phrase “touching the business of the society” under Section 91. The activity of development, including use of FSI and TDR, was authorized by the society’s bye-laws and undertaken for member benefit. It was not an external commercial venture.

“Sub-Committee Was Lawfully Constituted To Implement General Body Mandate” — MoUs Not Unauthorised

The petitioners alleged that the managing committee unlawfully delegated its authority to an FSI sub-committee, rendering the MoUs void. The Court rejected this, stating:

“Formation of a sub-committee is a permissible internal mechanism in cooperative societies. It is an administrative convenience, not an abdication of power.”

It noted that the general body, by its resolution dated 12 November 1989, had expressly authorised the managing committee to finalize the terms and conditions for FSI utilization. The sub-committee, acting on this authority, executed the MoUs. Moreover, the society issued receipts for payments made by the disputant, sought legal opinion affirming the MoUs’ validity in 1998, and passed subsequent resolutions reaffirming them.

“At no point during this period did the society treat the MoUs as void or unauthorised. Only much later, when disputes arose, did it attempt to challenge them.”

“The Society Cannot Blow Hot And Cold” — Promissory Estoppel Applies

The Court invoked the doctrine of promissory estoppel and legitimate expectation, holding that the society could not resile from its commitments after accepting benefits:

“Once the society gave its consent, received consideration, and allowed the disputant to proceed, it cannot later turn around and say those decisions were invalid.”

The Court reaffirmed that cooperative societies operate on trust among members and must honour their collective resolutions. The disputant, having altered his position and invested resources, had a legitimate expectation that the society would implement the MoUs.

“Resolution Cancelling MoUs Was Passed In Defiance Of Status Quo Order” — Declared Void

One of the most serious infractions considered was the society’s 2003 resolution cancelling the MoUs, despite a status quo order passed by the High Court in 2002. The Court strongly condemned this act, stating:

“Such conduct amounts to willful defiance of a binding judicial direction. The resolution dated 2 October 2003 is void and unenforceable.”

Both the Cooperative Court and the Appellate Court had rightly held that the resolution was passed without jurisdiction and in violation of the interim protection extended to the disputant. The rights created under the MoUs continued to subsist.

“Precedents Cannot Be Applied Mechanically; Nature Of Society’s Business Must Guide The Test Under Section 91”

The petitioners relied on judgments including Deccan Merchants Cooperative Bank Ltd. v. Dalichand Jugraj Jain (1968), Belganda Sahakari Sakhar Karkhana Ltd. (1994), and Cargill India Pvt. Ltd. (2013) to argue that the dispute did not “touch the business” of the society.

The Court distinguished these, noting that:

“Unlike cited cases, here the housing society’s bye-laws expressly authorised real estate development. The transaction was internal and between the society and its member.”

Accordingly, the transaction did not fall within the commercial realm or involve an outsider. Instead, it arose from internal resolutions and was connected to the society’s objects.

The High Court held that the Cooperative and Appellate Courts had not committed any jurisdictional error or legal perversity warranting interference under Article 227. It upheld their findings and directed the society to implement the awards and give effect to the MoUs within three months.

The Court also reiterated the principle that writ jurisdiction under Article 227 is supervisory and not appellate in nature, and that concurrent factual findings based on proper appreciation of evidence should not be lightly disturbed.

Date of Decision: 14 October 2025