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 Art. 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 Art. 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.) According to Section 20 of the Indian Trusts Act, 1882, where the trust-property consists of money and cannot be applied immediately or at an early date to the purposes of the trust, the trustee is bound (subject to any direction contained in the instrument of trust) to invest the money in certain specified securities and in no others. Such securities in Clause (d), as amended by Act III of 1908, are: debentures or other securities for money issued, under the authority of any Act of a Legislature established in British India, by or on behalf of any municipal body, port trust or city improvement trust in any Presidency-town, on in Rangoon Town, or by or on behalf of the trustees of the port of Karachi.