Tuesday 13 January 2015

SINKING FUND

Advocate S Selvakumar|Property advocates in Bangalore|Property lawyers in Bangalore

In modern times buying independent houses has become a costly affair as the price runs to Crores of rupees in metropolitan cities, since the land prices have increased by leaps and bounds. Hence, the people in the urban areas have no other choice but to buy apartments which are also costly are some what affordable to the middle class people. The Government is also launching several schemes where apartments are built especially for the low income group/economically weaker sections of society. Thus, apartment culture is here to stay which was not the trend a few decades ago.

 
Apartments are a cluster of buildings where each owner of a flat is having specified common rights in the apartment buildings and also enjoys the common facilities available there.Thus, it is mandatory have apartment owners association in every apartment building to manage the affairs of the building like maintaining the common areas, providing security, maintaining of common facilities like Gym, Swimming pool,Children’s play area, paying water,electricity,taxes to the government authorities etc. All this involves expenditure which has to be shared by each member of the society. 

The managing committee of the apartment owners’ cooperative societies decides the charges payable by each flat owner as per the resolution passed by the General Body of the society. Sinking Fund is one of the major charges collected the along with other maintenance charges.This Fund is constituted under the by laws of a society with the main purpose of reconstruction of its building/ buildings or for carrying out any structural additions or alterations to the building/buildings. The alterations/ structural additions or reconstruction, carrying out heavy repairs has to be certified by the Society’s Architect. 


The benefits of the sinking fund are many and come in handy in case urgent repairs to the buildings. Recently, many apartment buildings have collapsed due to lack of repairs and negligence, leading to financial losses and loss of human lives. If proper repairs/ maintenance work had been carried out on regular basis such incidents would not have happened. Hence, there is the necessity of sinking fund in every apartment owners’ society as such funds will be very useful in carrying out periodic repairs/ maintenance or major structural constructions. As huge amount of money is required for such work, the individual flat owner will not burdened all of a sudden where such sinking funds are created and maintained on a regular basis. This fund will ensure that the society has sufficient reserve funds to carry out the required work in times of need.

For example-A complex needs to undergo renovation and the estimated expenditure is around Sixty Lakhs and the sinking fund has already Rupees fifty Lakhs, then only the balance amount of Rupees Ten Lakhs will be required. Otherwise it will become a huge burden for the members of the society.


The general body of the society decides the amount to be contributed by each member to the Sinking fund and in general the minimum amount should not be less than 0.25 percent per annum of the construction cost of each flat incurred during the construction of the building of the society and certified by the Architect excluding the cost of the land. Members have to contribute on a monthly basis along with other maintenance charges. The landlord has to contribute towards the sinking fund if the apartment is on rent. 

Sinking fund register
The amount in the sinking fund is not required to be utilized as normally the new buildings do not require reconstruction or major repair within a period of 5 to 10 years. As this is a very long period, the fund will get substantial returns to the society if invested on a long term basis. There is provision for investment of this fund in the co-operative society’s Act and under the by- laws of the society. It is covered under Section 70 of the Maharashtra Co-operative Societies Act, 1960. 

The  Co-operative Housing Society will be  allowed to invest its fund in the State Co-operative Bank or The District Central Co-operative Banks or the securities specified under Section 20 of the Indian Trust Act. For facilitating day to day banking transactions, the Registrar can permit Co-operative housing societies to invest their funds in the nationalized banks or other Commercial banks, or the Urban Commercial Banks. 

Under Section 146(c) of the Maharashtra Co-operative Societies Act, 1960 it would be considered as an offence if the society fails to invest the fund as prescribed above.  The society, officer, member, employee present or past of the society or any other person, who commits the offence will be liable to fine.


The normal laid down procedure has to be followed for utilization of the sinking fund. The approval by the General Body of the society has to be obtained and Architect has to be appointed at a general body meeting. The architect should prepare plans and estimates with specifications of structural changes required to be carried out in the building. The Managing Committee of the society has to appoint a contractor to carry out the work on the terms and conditions set out by the general body.

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