Short Answer

When a bank forecloses and takes possession of a flat due to a loan default, the original member’s society membership ceases concerning ownership rights. However, the bank (or the auction purchaser) can become a member of the society after following due procedure as per the Gujarat Cooperative Societies Act, 1961 and the society’s bylaws.

Detailed Explanation

If a housing society member has mortgaged their flat to a bank or financial institution and defaults on the loan, the bank has the right to foreclose and take possession of the property under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.

Once foreclosure occurs and ownership transfers, the original member loses ownership and voting rights in the society because the title to the flat is no longer in their name. Membership in a cooperative housing society is tied directly to ownership of the property; therefore, loss of ownership automatically affects membership.

After foreclosure, the bank or the auction purchaser (buyer) who acquires the property can apply to become a member of the society. According to Section 23 of the Gujarat Cooperative Societies Act, 1961, the society cannot unreasonably deny membership to a person or institution who lawfully acquires the property and agrees to abide by the society’s bylaws.

In practice, the bank usually requests the society to transfer membership temporarily in its name or to the name of the purchaser after auction. The managing committee verifies the documents (such as sale certificate or possession letter) and approves the transfer as per law.

Real-world Scenarios

• Mr. Shah defaults on his home loan, and the bank takes over his flat through foreclosure. His membership in the housing society ceases once the bank takes possession, since he no longer owns the property.

• The bank sells the flat in an auction to Mr. Patel. Mr. Patel submits an application to the society with the sale certificate. The society verifies and admits him as a new member in place of Mr. Shah.

• The society refuses membership to the auction purchaser without valid grounds. The purchaser can file an appeal before the Registrar of Cooperative Societies under Section 23(3) of the Act, and the Registrar can direct the society to grant membership.

References

• Section 23, Gujarat Cooperative Societies Act, 1961: Official PDF

• SARFAESI Act, 2002: Official PDF