Formation of Apartment Owners’ Associations in Karnataka: Laws and Process

1. Definition

Section 3(d) of the Karnataka Apartment Ownership Act, 1972 defines an Association of Apartment Owners as all apartment owners acting as a group in accordance with the Declaration and Bye-Laws. Under Section 11, the sole owner or all owners of the property may submit the land, building, common areas and facilities to KAOA by executing the Declaration in Form A. The Bye-Laws must be annexed to the DOD. The DOD is registered with the jurisdictional Sub-Registrar and a true copy of the DOD and Bye-Laws is filed with the competent authority, the Registrar of Co-operative Societies.

The individual apartment owner executes Form B to submit the apartment to KAOA. The article notes that Form B may also be executed after the sale deed has been registered. It interprets the combined statutory framework as supporting execution of the DOD before the first sale deed, while acknowledging that KAOA does not expressly specify that timing.

2. Karnataka Ownership Flats Act, 1972 (KOFA)

KOFA regulates the promotion, construction, sale, management and transfer of flats. Section 10 contemplates the promoter taking steps to form a co-operative society or company when the requisite number of purchasers has taken flats. Rule 9 of the KOFA Rules prescribes a four-month period for applying for registration in the circumstances it describes, and separately addresses purchasers who submit apartments to KAOA through declarations and deeds.

These provisions can be read alongside RERA, referring to the Supreme Court decision in Forum for Peoples Collective Efforts (FPCE) & Anr. v. State of West Bengal, (2021) 8 SCC 599, on the extent of inconsistency between RERA and earlier state regulatory legislation. KOFA provisions can be considered insofar as they are not inconsistent with RERA.

3. RERA and the formation of an Association of Allottees

Section 11(4)(e) of RERA requires the promoter to enable formation of an association, society or co-operative society of allottees, or a federation thereof, under the applicable laws. Its proviso refers to formation within three months of a majority of allottees booking their units where local laws are absent.

It is important to distinguishthe RERA obligation to enable an Association of Allottees from the particular legal form through which apartment owners organise under Karnataka law. Apart from this, KAOA also provides a mechanism for owners to act as a group through a Declaration and Bye-Laws, without necessarily forming a separate co-operative society merely for maintenance.

4. Karnataka Co-operative Societies Act, 1959

Section 17 of RERA addresses conveyance and transfer of common areas to the Association of Allottees or competent authority, as applicable. An Association of Persons formed under the KAOA Declaration and Bye-Laws is distinct from a juristic entity capable of taking conveyance of property.

In the absence of a notified conveyance mechanism, questions over stamp duty and registration fees, and the practice of conveying undivided share (UDS) to individual purchasers complicate the transfer of the entire project land and common areas to an association. Hence forming a co-operative society or company if a separate entity is needed to take conveyance.

The statutory framework also provides the statutory threshold of 20 persons for forming a co-operative society under the Karnataka Co-operative Societies Act, 1959, and the practical difficulty this may create for smaller projects. These are historical observations and should not be taken as a verified statement of the present registration process.

5. Karnataka Societies Registration Act, 1960

Some apartment associations historically registered under the Karnataka Societies Registration Act, 1960, but questions whether routine maintenance of an apartment complex falls within the charitable objects contemplated by Section 3 of that Act. In a Karnataka Government circular issued in November 2018 restricting registration of apartment-maintenance associations under that legislation.

On this basis, it is better to avoid the Karnataka Societies Registration Act as the formation route for an association whose principal function is apartment-complex maintenance.

The choice of legal structure affects how an apartment complex manages common areas, receives maintenance contributions and corpus funds, maintains records and, where applicable, approaches questions of title and conveyance. A distinction exists betweenan owners’ association acting under KAOA from a co-operative society or company with a separate legal structure.

Deed of Declaration and Form A

Form A submits the property to KAOA. The Deed of Declaration is registered with the Sub-Registrar, accompanied by the Bye-Laws, and a true copy is filed with the competent authority. Section 16 specifies the governance role of those Bye-Laws.

Form B and individual apartment ownership

Individual apartment owners execute the declaration in Form B under Section 5(2) of KAOA. Form B can be executed after registration of the sale deed, even though it advocates earlier planning of the overall declaration process.

Association operations, PAN and maintenance funds

An association operating under the registered DOD and Bye-Laws may apply for PAN, open bank accounts, receive corpus and common-area maintenance charges, and conduct maintenance activities. It discusses income-tax return filing and GST registration where applicable, with operations governed by the Bye-Laws.

Conveyance of common areas and legal status

Conveyance of land and common areas under Section 17 of RERA is a distinct legal requirement from the day-to-day maintenance of an apartment complex. While an Apartment Owners’ Association may administer maintenance activities under KAOA, the transfer of ownership and common areas involves separate statutory requirements. Promoters and apartment owners must consider the applicable legal provisions when determining the appropriate structure for conveyance.

The Karnataka Apartment Ownership Act, 1972 provides a statutory framework for apartment owners to collectively manage and maintain their apartment complex through a registered Deed of Declaration and the accompanying Bye-Laws. For receiving corpus funds, collecting maintenance charges and administering common areas, the formation of a separate co-operative society is not necessarily required.

However, the legal requirements for managing an apartment complex and those relating to conveyance of land and common areas are distinct. The appropriate organisational structure must therefore be considered in light of the purpose for which the association is being formed and the applicable statutory provisions.