Mumbai Housing Society Queries: Can Secretary Be Held Liable For Misappropriating Funds And Retaining Society Documents After Selling Flat?

Q. What actions can be initiated against the secretary who moves society funds back and forth from the official account to his personal one? Can the treasurer and chairman also be held accountable? What is the legal recourse if the secretary has sold his flat, now lives in it on rent without submitting a leave and license agreement and still keeps society cheque books and FD receipts in his possession?

A B Fernandes, Bandra

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A. Moving society funds directly into a personal bank account amounts to financial fraud and criminal breach of trust. Firstly, the committee can move a no-confidence motion in accordance with bylaw 125(b) against the secretary. A notice in this regard signed by at least one-third of the committee's strength must be submitted to the registrar. Subsequently, the committee should pass a resolution with a two-thirds majority present at a special meeting presided over by the registrar or an officer not below the rank of assistant registrar. The committee should immediately cancel the authority of the secretary to operate the society accounts and inform the bank, supported by a resolution. It should also take charge of the banking documents possessed by the secretary.

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Secondly, a criminal complaint can be lodged and further, you can file a complaint with the jurisdictional deputy/assistant registrar. As per Section 83 of the Maharashtra Cooperative Societies (MCS) Act, the registrar can order a formal fact-finding inquiry. If the inquiry confirms fund diversion, the registrar has the authority under Section 88 of the said Act to frame charges and pass an order forcing the secretary to repay the misused funds with interest. Besides, a civil suit can also be filed for recovery.

Action against chairman and treasurer

As per Section 73(1AB) of the MCS Act read with bylaw 137, the committee members are collectively and individually responsible for any acts, omissions or financial losses detrimental to the society. Any member or office-bearer may absolve themselves from such liability if they report the wrongdoing to the registrar well in time. If your chairman and treasurer have turned a blind eye towards the secretary's acts, they will be equally responsible.

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Action against secretary for non-compliance with bylaws

Once the secretary sells his flat, he ceases to be a society member and is required to hand over all the society documents, including the FD receipts and cheque books. No objection and no dues certificates are two important documents required to be obtained from the society during a sale transaction. Generally, a no dues certificate is issued only upon completion of formalities of the handover of documents if the member is an officebearer. The buyer is the new member responsible for submitting a copy of the leave and license agreement. In case of non-compliance, the committee may send a notice to the new member and levy a penalty (not exceeding Rs5,000 in any fiscal year) if the agreement is not received even after the notice.

The questions are answered by Sharmila Ranade, a legal expert associated with Mumbai Grahak Panchayat. The questions, in brief, may be sent to [email protected]

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