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What if you don’t file the Indemnity Bond in time?

Saturday, November 05, 2011
By J B Patel

Most managing committee members of cooperative housing societies (CHS) feel that they cannot be held responsible by the society members, and as they are “doing service on a voluntary basis”. But quite often, the spirit of service and humility is missing. Dirty politics, bullying and petty corruption are normal in most societies. Some people develop vested interests, become entrenched, and hold the society to ransom.

Within weeks of assuming office, many of us show our true colours. We start overlooking rules and laws to favour someone, and suppressing those who don’t agree with us. We shout and create scenes at meetings if somebody asks us to justify or clarify. We misinform and manipulate general body meetings and write minutes in a way that suits our personal interests.

If someone succeeds in proving that we have done wrong, we argue that it wasn’t our individual decision, but the decision of the whole managing committee, or even the entire general body! As a last resort, we make a big show of resigning in a huff to win sympathy and avoid taking responsibility.

To remedy all this and to fix responsibility on each and every managing committee member, Maharashtra state legislature has enacted a provision for mandatory Indemnity Bond to be signed by them.

TWO LANDMARK JUDGMENTS

(i) Gulab Khote Vs. State of Maharashtra
(ii) Shashikant Jesrani Vs. Assistant Registrar

These two judgments of Bombay High Court give us the below lessons.

Issues regarding the M-20 Bond
1) MANDATORY REQUIREMENT BY LAW. Filing M-20 Bond is not just a formality. It is compulsory for all managing committee members as per Rule 58-A of Maharashtra Coop Society (MCS) RULES and amended MCS Act 1960.

2) TO BE FILED WITHIN 45 DAYS. Each managing committee member of a CHS must file M-20 Indemnity Bond within 45 days after elections and/or assuming office. This period is 15 days in case elections were held prior to 14 January 2011, the date of the above amendment.

3) IGNORANCE OF THIS LAW IS NOT AN EXCUSE. All the usual arguments made by managing committee members were dismissed by Bombay High Court, which repeatedly stressed that filing M-20 Bond within the time limit is “MANDATORY, NOT DIRECTORY”.

4) ON THE 46TH DAY OF NOT FILING THIS INDEMNITY FORM, the member’s election will stand annulled, and his authority will be lost. He loses all power to sign any document on behalf of the society, including cheques, statement of accounts, circulars, agenda and minutes of meetings, letters and representations to Registrar of Cooperative Societies, court cases, etc.

5) ALL DECISIONS ARE NULL & VOID. All decisions taken in his official capacity will be without authority. All papers that he has signed, including cheques and agreements, will be invalid in the eyes of law. All resolutions and actions of the entire managing committee with his involvement, INCLUDING REDEVELOPMENT ACTIVITIES, will be null and void, even if the other members filed their M-20 Bond in time. The society will be thrown into a management crisis.

6) RISK OF CRIMINAL PROSECUTION. If a person who has not signed M-20 Bond continues to sign on society documents, then he can be prosecuted for serious crimes including fraud, cheating, misrepresentation and forgery. For example, the managing committee members of Rachna Co-Operative Housing Society on Hill Road, Bandra, Mumbai were slapped with fraud and forgery charges for entering into a redevelopment agreement without filing M-20 Bonds.

7) ABETMENT OF CRIME. If other managing committee members (who signed M-20 Bond in time) try to uphold, support or cover-up the actions of a defaulting managing committee member, then they also will become party to his crimes, and may be prosecuted for abetment.

8) RISK OF CLAIMS ON OTHER MANAGING COMMITTEE MEMBERS. As per No. 138 of New Model Bye Laws (2009), “The members of the committee shall be jointly and severally responsible for making good any loss which the society may suffer on account of their negligence or omission to perform any of the duties and functions cast on them under the Act, Rules and the bye laws of the society.” Section 73(1AB) says almost exactly the same thing in respect of “acts and omissions detrimental to the interests of the society”. If members who have themselves filed M-20 Bonds knowingly or unknowingly allow their defaulting colleagues to continue working, then they will be guilty of negligence. If the defaulting member causes any loss to the society through acts of commission or omission, then criminal and financial liabilities will also fall on them.

9) NEXT MANAGING COMMITTEE ALSO DISQUALIFIED. If a managing committee has a chairman or honorary secretary who failed to file a valid M-20 Bond, then this committee will not even have the authority to call for fresh elections. If a disqualified managing committee calls fresh elections, those elected at such elections will be disqualified ab initio, even if they file their M-20 Bonds in time. This chain reaction will continue to all the subsequent elections and managing committees.

10) ONLY ONE REMEDY: DY. REGISTRAR APPOINTS ADMINISTRATOR, WHO CALLS ELECTIONS. If the managing committee of your cooperative housing society has failed to file a valid M-20 Bond, then the only remedy is that any member of that society should approach the Deputy Registrar to appoint an administrator, who will call for fresh elections.

(Please note: Other shortcut solutions may be acceptable to Registrar’s office for reducing their own workload. However, shortcuts are not legally foolproof; they may return to haunt the society if any dispute arises even years later. If, in future, a dispute goes to court, such a patchwork solution can become a major legal infirmity for the managing committee, and may result in years of wasteful court proceedings. Please avoid shortcuts at all costs.)

(With key inputs from Dilip Shah, senior counselor for CHS redevelopment)
 

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