AHMEDABAD MUNICIPALITY Vs. GOVERNMENT OF BOMBAY

JUDGEMENT

(1.) THE facts out of which this appeal arises are not in dispute. THE Ahmedabad Municipality established a Provident Fund for the benefit of its employees in 1914, and in exercise of the powers under Section 8 of the Provident Funds Act, 1925, the Government of Bombay applied the provisions of that Act to that Fund by a Notification dated July 2, 1929. THE Municipality used to invest the Provident Fund in public securities including its own debentures. Those debentures had been issued by the Municipality under the Local Authorities' Loans Act, 1914. On June 20, 1933, the Collector of Ahmedabad wrote a letter to the Municipality that the moneys of the Provident Fund could not be invested by the Municipality in its own debentures as they were not securities within the meaning of Section 20 (d) of the Indian Trusts Act, 1882. THE President of the Municipality was therefore, requested to take steps to dispose of the debentures and to reinvest the proceeds in public securities. Later on, Government issued a Circular (No.216|33 of the General Department) dated February 10, 1934, that the funds accumulated in the Provident Fund established by Municipalities, being moneys held by Municipalities in trust on behalf of their employees, could not be invested in loans or debentures issued by themselves under the Local Authorities' Loans Act, 1914, as such loans or debentures were not securities within the meaning of Section 20 (d) of the Indian Trusts Act, 1882, which applied only to securities issued by the Municipalities, Port Trusts, or Improvement Trusts of the Presidency Towns and of Rangoon and Karachi. Accordingly the Ahmedabad Municipality withdrew an amount of nearly six lacs of rupees from its own debentures and invested the amount in other public securities, although it protested against the view taken by Government. THE Municipality again took up the subject and made a representation in September, 1935, that the amount should be allowed to be invested in its own debentures. In view of the Circular issued by Government, the Collector declined to reconsider the matter, THE Municipality then invested Rs. 500 out of the Provident Fund amount in its own debentures to make a test case and requested the Collector to refer the matter to Government. Government then reconsidered the matter and gave a reply that there was no doubt as regards the legal position and asked the Commissioner to instruct the Collector of Ahmedabad to call the attention of the Municipality to the illegality of its action in investing a nominal sum of Rs. 500 out of the Provident Fund balances in its own debentures and to ask it to remedy the action. That order was issued on October 27, 1937, and being dissatisfied with the decision of Government, the Municipality gave a notice to the Collector and filed this suit on September: 23, 1938, for a declaration that it was entitled to invest the Provident Fund of its employees in loans or debentures issued by it under the Local Authorities' Loans Act, 1914, and for an injunction restraining Government from objecting to its doing so. THE defence was based mainly on two grounds, namely that the suit was time-barred under Article 14 to the first schedule of the Indian Limitation Act, 1908, and that it was unlawful for the Municipality to invest the amount of the Provident Fund in its own debentures as it contravened the provisions of Section 20 (d) of the Indian Trusts Act, 1882. THEse contentions did not find favour with the trial Court, which decreed the plaintiff's claim. In appeal the learned District Judge held that the suit was time-barred and that although the municipal debentures were public securities, yet the Municipality could not invest the amount of the Provident Fund in its own debentures both because it was against the provisions of Section 20 (d) of the Indian Trusts Act, 1882, and also because it would be illegal for the Municipality to become both a creditor and a debtor in respect of the said Fund. THE appeal was, therefore, allowed and the Municipality's suit was dismissed with costs.

(2.) THE order which is now sought to be impeached was issued by Government on October 27 1937, and this suit was filed within one year thereafter, but it is urged on behalf of Government that the cause of action really accrued in 1933 when the Collector directed the Municipality to withdraw the amount of the Provident Fund from its own debentures and invest it in other public securities. THE Collector's instructions in 1933 were in the nature of an advice. In his opinion the amount of the Provident Fund held by a Municipality could not be invested in its own debentures. He, therefore, requested the President to invest that amount in other public securities. He did not expressly say that it was "unlawful" to do so. In his letter he expressed an opinion that the debentures of the Ahmedabad Municipality were not public securities. Rule 308 of the Rules in the Ahmedabad Municipal Code is as follows: THE subscriptions of employees and contributions of the Municipality to the fund shall, every half year or oftener if necessary, be invested in public securities and the interest accruing thereon shall be placed to the credit of the Municipal accounts and the Municipality shall in return place to the credit of the subscribers' account compound interest at the fixed rate of 3| per cent. per annum calculated on the payments of each subscriber. Such interest shall be added to the employee's account at the end of the year, unless the employees' account is closed before the end of the year in which case the interest due to the date of closure shall be added. This rule authorises the Municipality to invest the subscriptions of its employees and its contributions to the Fund in public securities. Under Rule 2 (6) of the said rules all words and expressions used are to be deemed to be used in the same sense in which they are used in the Act and according to Section 3 (15) (e) of the Bombay Municipal Boroughs Act, 1925, public securities include- debentures or other securities for money issued by or on behalf of any local authority in exercise of powers conferred by an Act of a Legislature established in British India. According to this definition the expression "public securities" used in Rule 308 includes the debentures issued by the Ahmedabad Municipality. But the Collector took a different view and when he expressed his opinion to the Municipality, the Municipality, though it disagreed with that view, did withdraw all the amount of the Provident Fund from its own debentures. THErefore, there was no occasion for the Collector to issue any order, which the Municipality was bound to get set aside within one year under Article 14 of the first schedule of the Indian Limitation Act. If the Municipality had refused to accept the advice given by the Collector, and if he thought that the action of the Municipality was unlawful, then he had power to issue an order in writing under Section 214 (1) of the Bombay Municipal Boroughs Act, 1925, prohibiting future investments of the amount of the Provident Fund in its own debentures. But no such order was passed by the Collector and, therefore, there was no need for the Municipality to file a suit within one year. Such an order was passed under instructions from Government only in 1937, and as this suit was filed within one year thereafter, it is not time-barred.

(3.) BUT that section has no application to the present case. Section 20 itself allows an exception where there is any direction for investment in the instrument of trust. There is no instrument of trust in the case of the Provident Fund in the hands of the Ahmedabad Municipality, nor is it clear that the Municipality is a trustee in respect of that Fund. In the Provident Funds Act, 1925, there is no provision that the amount of the fund should be set apart and should not be utilised by the body which established that fund. It is admitted that in the case of a Government servant. Government does not separately invest the amount of the Provident Fund payable to the subscribers, but when any subscriber's amount becomes due, it is paid to him from its general funds. The employees of the Municipality allow their contributions to the Provident Fund to be deducted from their salaries and the Municipality also contributes an equal amount and agrees that when the Provident Fund of any subscriber becomes due it would be paid to him or his nominee or his successor. A separate account is maintained and the amount of each subscriber is shown as standing at his credit. Thus the Municipality becomes a debtor of the subscriber and under the provisions of Rule 308 it undertakes to pay compound interest at the fixed rate of three and three-fourths per cent, per annum. If the amount was a mere trust fund, the Municipality would have been bound to pay to the subscriber whatever interest it realised on that fund. BUT the agreement to pay a fixed rate of interest and the absence of an agreement to set apart his fund show that the Municipality is not a mere trustee in respect of that fund. BUT for Rule 308 it could utilise the amount as it chose and was only liable to pay the amount due to the subscriber when it became payable. Thus the Municipality is acting more as a debtor than as a trustee. The terms of the agreement between the subscriber and the Municipality are contained in the rules framed by the Municipality, and Rule 308 expressly authorises the Municipality to invest the Provident Fund in "public securities," a term which includes its own debentures. If it was intended that the amount should not be invested in its own debentures, such an exception would have been expressly made in Rule 308. The Municipality is given liberty to utilise in any way the amount of interest until it becomes payable to the subscriber, and that amount is not required to be invested in public securities. If the Municipality was a mere trustee, it would have been necessary to invest even that amount in the securities mentioned in Section 20 of the Indian Trusts Act, 1882. BUT Rule 308 tacitly exempts it from the application of that section. As regards the principal amount of the fund, Rule 308 requires it to be invested in "public securities" and hence Section 20 of the Indian Trusts Act is not applicable to it so as to restrict the discretion given by the rule.