Madhya Pradesh High Court
Indore Mitra Mandal vs The State Of M.P. on 27 June, 2025
Author: Vivek Rusia
Bench: Vivek Rusia
NEUTRAL CITATION NO. 2025:MPHC-IND:15710
1
W.P. No.447 of 2003
IN THE HIGH COURT OF MADHYA PRADESH
AT I N D O R E
BEFORE
HON'BLE SHRI JUSTICE VIVEK RUSIA
&
HON'BLE SHRI JUSTICE BINOD KUMAR DWIVEDI
WRIT PETITION No. 447 of 2003
INDORE MITRA MANDAL AND OTHERS
Versus
THE STATE OF M.P. AND OTHERS
Appearance:
Shri A.K. Chitale, learned Senior Counsel assisted by Shri Kartik Chitale,
learned counsel for the petitioners.
Shri Sudeep Bhargava, learned Deputy Advocate General for the respondents /
State.
Reserved on : 17th June, 2025
Delivered on : 27th June, 2025
ORDER
Per : Justice Vivek Rusia
The petitioners have filed the present petition under Article
226 of the Constitution of India, like a Public Interest Litigation
(PIL), raising issues regarding financial empowerment and
institutional autonomy of Urban Local Bodies (ULBs), with
particular reference to the Indore Municipal Corporation. The
petitioners are comprised of civil associations, public-spirited
individuals and professional bodies that have approached this Court
seeking enforcement of the constitutional obligations imposed upon
the State Government under Articles 243-I & 243-Y of the
Constitution of India which pertains to the constitution and
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implementation of recommendations of the State Finance
Commission.
02. The petitioners are alleging that the failure of the State to
implement recommendations and to lay the relevant reports before
the Legislature as well as to ensure fair and transparent financial
devolution has resulted in fiscal neglect of municipalities. The
petition raises issues regarding the role of State Finance
Commissions in devolving financial resources to municipalities and
the obligation of the State Government to act in furtherance of the
mandate of the 74th Constitutional Amendment.
03. The petitioners have contended that the abolition of octroi,
formerly the primary source of revenue for ULBs and its replacement
by entry tax under the Madhya Pradesh Entry Tax Act, 1976 was
effectuated without ensuring a commensurate and predictable
revenue-sharing mechanism. Although entry tax was initially stated
to be ''instead of octroi'', but the phrase was later deleted, and no new
transparent compensation mechanism was instituted which resulted in
significant financial loss to corporations.
04. The First State Finance Commission report in 1996
recommended that 8.669% of the State tax and non-tax revenue be
devolved to ULBs. However, the State Government sanctioned only
0.514% without assigning any reasons and failed to lay the report
before the State Legislature as mandated by Article 243Y (2).
Subsequent Finance Commission reports like the Second, Third,
Fourth and Fifth Commissions between 1999 and 2017 were also
neither published nor placed on record despite numerous applications
under the Right to Information Act to the State.
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05. Numerous accepted recommendations of the Finance
Commission such as the creation of an Urban Development Finance
Corporation, data banks, rational formula-based allocations and
internal audits remain unimplemented or inadequately addressed. The
petitioners further allege that the State continued practice of
allocating municipal grants on the basis of ''Abhimat'' or discretion of
the Department of Urban Administration and Development without
any statutory or policy framework which is arbitrary, non-transparent,
and in violation of Article 14 of the Constitution.
06. The petitioners are seeking a series of directions in the nature
of mandamus to ensure financial empowerment and constitutional
compliance by the State Government in relation to the Indore
Municipal Corporation and other local authorities. Some of the reliefs
are as follows:
Implementation of recommendations of the State Finance
Commission and constitution of a new Commission to submit a
fresh report after hearing stakeholders;
Formation of an Urban Development Finance Corporation
and Infrastructure Fund for civic redevelopment;
Fulfilment of constitutional obligations under Articles 243P
to 243Y regarding the empowerment of local bodies; or
Appointment of a monitoring body to oversee financial
intergovernmental relations.
SUBMISSION OF THE PETITIONERS
07. Learned Senior Counsel appearing for the petitioners
submitted that the scheme envisaged under Articles 243-I and 243-Y
of the Constitution and the provisions of the M.P. Municipal
Corporation Act, 1956 imposes a constitutional obligation upon the
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State to ensure meaningful fiscal devolution to municipal bodies.
Learned Senior Counsel submitted that although the
recommendations of the State Finance Commission may not be
binding in the strictest legal sense, they are not to be disregarded
arbitrarily and need to be dealt with in a transparent and reasoned
manner. Learned Senior Counsel further submitted that the deliberate
omission on the part of the State Government to lay the report of the
Finance Commission and before the Legislative Assembly, as
mandated, has denied the representatives the opportunity to examine,
debate or even be informed of the fiscal needs and suggestions for
urban local bodies, thereby frustrating the legislative intent behind
the finance commission.
08. Learned Senior Counsel further submitted that leaving the
financial fate of municipal bodies without any codified rules or
regulations by the State amounts to an arbitrary and opaque system
which has led to instances of discrimination, political favoritism and
systemic fiscal inequality among various urban local bodies across
the State. Learned Senior Counsel submitted that inaction of the State
on vital recommendations such as the establishment of an Urban
Infrastructure Fund, rationalization of tax distribution and support for
capital expenditure has severely impaired the autonomy, planning and
service-delivery capacities of municipalities across the State. Learned
Senior Counsel further submitted while Indore Municipal
Corporation is highlighted as a specific instance of fiscal success by
the State, the broader grievance extends to the systemic weakening of
municipal governance structures across Madhya Pradesh which
requires immediate action. Hence, necessary directions be issued to
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the Government by this Court.
SUBMISSIONS OF RESPONDENTS
09. Learned Deputy Advocate General appearing for the
respondents / State submitted that the recommendations of the State
Finance Commission under Article 243-I of the Constitution of India
are advisory in nature and do not have binding force upon the
executive. Learned Dy Advocate General submitted that fiscal
devolution to local bodies is a matter of policy decision determined
by the council of ministers keeping in view the financial capacity and
administrative exigencies of the State. It is further submitted that any
deviation from the recommendations of the Finance Commission
does not amount to a constitutional violation, as such matters lie
within the prerogative of the executive. Learned counsel placed
reliance upon a judgment delivered by the Apex Court in State of
Maharashtra & Another v/s Bhagwan & Others reported in 2022
LiveLaw (SC) 28, wherein it was held that the Court should refrain
from interfering with financial or policy decisions of the State,
especially where such decisions have long-term fiscal implications
and are not manifestly arbitrary.
10. Learned Deputy Advocate General further submitted that with
the introduction of the Goods and Services Tax (GST) regime, the
earlier fiscal arrangement that included entry tax and octroi has
undergone a complete transformation and also emphasized that the
municipal corporations now independently collect and utilizes
revenue through property tax and other taxes and is financially self-
sufficient. It is further submitted that the municipal corporations are
empowered under Section 88 of the M.P. Municipal Corporation Act,
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1956 to decide the applicability of municipal funds. It is also
submitted that in view of the comprehensive shift to the GST regime
and the financial autonomy available to municipal bodies, the issues
raised in this petition are already dealt with. Hence, no interference is
liable to be called for and the writ petition be dismissed.
APPRECIATION & CONCLUSION
11. Upon perusal of the documents on record, it appears that the
petitioners have raised grievances relating to the non-implementation
and non-publication of recommendations made by the State Finance
Commission and the arbitrary and inequitable allocation of financial
resources to the Indore Municipal Corporation and other urban local
bodies. The relief relating to the distribution of taxes like octroi, entry
tax etc. to municipal corporations and other ULBs does not need
further action as after the implementation of the Goods and Service
Tax Act, 2017, there is establishment of a proper mechanism for
devolution and distribution of tax between Union, State and all other
authorities.
12. So far as the other reliefs in relation to the Finance Commission
are concerned, it has come to the notice of this Court that over time
since the filing of this petition to this date, the institutional landscape
has undergone substantial transformation and that recently the Central
Government has constituted the 16 th Finance Commission which is
currently functional and is adequately represented by political
representative from each State (including M.P.) as well as by experts of
different diverse domains. A publicly accessible digital platform/website
has also been developed where prior Finance Commission reports,
applicable constitutional and statutory provisions, explanatory
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memoranda and relevant institutional data have been made available to
the general public at large. Moreover, the ongoing consultative process
also invited stakeholder inputs indicating a movement towards greater
transparency, participation and institutional robustness. Furthermore, the
website has a separate section which allows any person to give
suggestions ensuring a degree of participation in the preparation of
Finance Commission reports regarding various public issues.
13. In light of these developments and considering the nature of the
reliefs originally sought, we are of the view that the concerns raised in
the petition are currently being addressed by the functioning and
mandate of the Finance Commission and the corresponding
administrative machinery. Thus, it is not necessary, at this stage, to issue
any further directions in this matter as institutional remedies and forums
are presently available and appear to be operational. In our view, the
questions of financial allocation and devolution though rooted in
constitutional obligations and involving policy considerations are best
addressed by expert bodies and the legislature and the judicial function
in such matters should only be limited to ensuring due adherence to
constitutional norms procedure and ensuring non-arbitrariness.
14. The petitioners approached this court in the year 2003 now
after the lapse of 23 years entire financial setup of the country and
state has undergone drastic changes. The petitioners have not
accordingly changed the averments and relief in this writ petition.
The petitioners have not collected data from the central, state and
local bodies regarding funds sharing after and before implementation
of GST. Except for averments, allegations and carious concerns of the
petitioners nothing substantial material has been brought on record.
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15. In view of the intervening changes and developments, the
Writ Petition stands disposed of with liberty to the petitioners to
pursue any specific grievance before the competent authority in
accordance with the law.
No order as to costs.
(VIVEK RUSIA) (BINOD KUMAR DWIVEDI)
JUDGE JUDGE
Ravi
