Dissolution of a Housing Society

August 27, 2019

Team MyGate

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A co-operative housing society is a beacon of good governance and peaceful co-existence. An unfortunate but true reality is that some societies meet with an untimely demise and move to dissolution by choice and sometimes by coercion. This article explores the various factors for dissolution of the society and step by step procedure to be followed, and sheds light on unavoidable consequences as a result of dissolution.

The most common reasons for a housing society to be dissolved are bankruptcy, inability to meet its objectives, involvement in illegal acts, inadequate number of members, ceasing of functioning over a period of time, contravention of law, or irreconcilable dysfunction. A society can be dissolved by a) its members b) the Registrar c) the Court or d) the Government. Below is the procedure for dissolution.

  1. A special body meeting has to be called upon where it has to be decided if the society intends to dissolve forthwith or at a later time agreed upon by the members.
  2. A notice should be sent to the members, creditors, vendors and to any associated societies and entities with which it may have entered into a contract.
  3. Such a resolution should be passed by 3/5th majority votes.
  4. As per the rules of the society, disposal and settlement of the society has to be undertaken. This includes settling claims and liabilities.
  5. Within 15 days of the authorised resolution at the meeting, the society should send a copy of it to the Registrar, as without their approval, the resolution cannot be considered valid. A report of the settlement has to be sent along with details of any surplus left over. If the State Government is a member/contributor/affiliate of the society in any form, its approval is needed for dissolution too.
  6. The Registrar inspects the case and if he is satisfied with the due process undertaken by the society and ensures that no liabilities or assets, he passes the order to dissolve the society and deletes the name of the society from the register of societies and issue a certificate of dissolution to the society.
  7. If the Registrar is not satisfied after review, he issues a notice in the official gazette (the cost of which is to be borne by the society) of the proposed dissolution, thereby inviting objections, appeals from members and for the disposal of unpaid dues towards claimants and creditors within 2 to 3 months.
  8. If no objection is raised and no member comes forth to appeal against the resolution, the order is considered passed after the expiry of the time period of 2-3 months. If an objection is raised during that period, the order is not considered in effect until the Appellate steps in and takes the process ahead.

Section 13 of the Societies Registration Act 1860 includes the following provision – “In case of any dispute relating to adjustment of affairs of a society in case of dissolution, the matter has to be referred to the Principal Court of Civil Jurisdiction of the District where the Registered Office of the society is situated.”

There have been instances where the society does not intend to dissolve itself but the Registrar or the government intervenes and dissolves it for the following reasons:

  1. unlawful activities
  2. object clause has not been fulfilled
  3. members are below the required number of seven
  4. contravention of the provisions of the Societies Act
  5. society has ceased to function for more than three years
  6. society is insolvent and cannot pay its debts and liabilities

Before passing such resolutions, the Registrar asks the society to produce a show-cause in order to stop the dissolution. If the Registrar is not satisfied with the show-cause, he may move the court for resolution.

No profits for members

Once the society is dissolved, its activities come to a standstill, and even after the settlement of claims and pending dues, the profits (if any) are not distributed among the members. Instead, the law states explicitly that profits are handed over to ‘some other society, to be determined by the votes of not less than three-fifths of the members present personally or by proxy at the time of the dissolution’. Some states have a subsection clause which states that if the members decide by a majority, the property after settlement may be conferred to the State Government for utilisation in any other project.

As such, a society founded on strong rules, efficient financial management and watchful managing committee members thrive for a really long time, handing over its reins to its inheritors in a sound and wholesome manner. If a society is truly dysfunctional and can no longer bear its own burden, or if deemed by the Registrar to be involved in criminal acts, its Managing Committee should turn to the rightful legal procedure for dissolution to avoid further repercussions.

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