A municipality is a creature of statute that owns nothing by inheritance and earns nothing by trade in the ordinary sense; its estate is built entirely on what the legislature gives it and the public money it is allowed to collect. Chapter IV of the United Provinces (now Uttar Pradesh) Municipalities Act, 1916 answers two linked questions that recur in every judiciary and CLAT-PG paper: what property belongs to a Municipal Board, and what is the legal character of the fund out of which it governs the town. The chapter spans Sections 114 to 127 and is best read alongside the board's powers, functions and duties and its tax levies, because property, function and fund are three faces of the same self-government scheme later reinforced by the Constitution (Seventy-fourth Amendment) Act, 1992.
The scheme of Chapter IV
Chapter IV groups together the financial and proprietary backbone of a municipality. Section 114 constitutes the municipal fund; Section 114A confers borrowing power; Section 115 governs custody and investment; Section 116 vests specified property in the board; Sections 117 to 119 deal with acquisition, management and institutions held in trust; Section 120 controls how the fund may be spent and in what order of priority; Sections 121 to 123 redistribute fund and property when a municipal area is abolished or altered; Section 124 authorises transfer of property; and Sections 125 to 127 cover compensation, special police charges and the rule-making power. The design reflects a deliberate legislative choice: every rupee a board holds and every asset it controls is impressed with a public purpose, and neither can be dealt with as if it were the private estate of the corporation. This public character is the thread that runs through the whole chapter and through the case law interpreting it. The UP Municipalities Act hub places this chapter within the larger architecture of urban self-government.
The municipal fund — Section 114
Section 114 directs that there shall be a fund called the municipal fund, and that all sums received by or on behalf of the board are credited to it. The inflows are comprehensive: the proceeds of taxes and tolls imposed under Chapter V, fees and fines, rents and profits of municipal property, grants-in-aid received from the Consolidated Fund of the State, and all loans raised by or on behalf of the municipality. The provision also contemplates a development fund, with a statutory earmarking that a fixed share be reserved for basic services to the urban poor — environmental services, roads, primary education and health, housing, water supply and sanitation. The significance of Section 114 is that it creates a single consolidated pool: the board has no power to keep parallel private chests outside the municipal fund, and any money received in the discharge of its public functions falls automatically into it. The fund is therefore not the board's money in a proprietary sense but public money held for the inhabitants of the area.
Custody, investment and borrowing — Sections 114A and 115
Because the fund is public money, the Act restricts where it may be kept and how it may be augmented. Section 115 requires the municipal fund to be lodged in a Government treasury or in the State Bank of India, and permits investment in the Uttar Pradesh Co-operative Bank or a Scheduled Bank only with the previous sanction of the State Government. Section 114A confers a guarded power to borrow: a board may raise loans in the open market or from financial institutions, by debentures or other security, but again only with the previous sanction of the State Government, and subject to the Local Authorities Loans Act, 1914. These twin controls — over custody and over borrowing — express the supervisory relationship between the State and its local bodies. A board cannot pledge the town's future revenues or invest its surplus on its own motion; the State stands as the guardian of municipal solvency, which is why repayment of such loans later enjoys a high priority among the charges on the fund under Section 120.
Property that vests in the board — Section 116
Section 116 is the heart of the proprietary scheme. It declares that, subject to any special reservation and to the control of the board, the following classes of property situated within the municipality vest in and belong to the board: (a) all public town walls, gates, markets, slaughter-houses, manure and night-soil depots and public buildings constructed or maintained out of the municipal fund; (b) all public streams, lakes, springs, tanks, wells and works for the supply, storage and distribution of water; (c) all public sewers, drains, culverts and water-courses, and all works and materials appertaining thereto; (d) all dust, dung, night-soil, ashes, refuse, animal matter, filth and rubbish collected by the board; (e) all public lamps, lamp-posts and apparatus connected with them; (f) all land or other property transferred to the municipality by the Government or acquired by gift, purchase or otherwise for local public purposes; and (g) all public streets, and the pavements, stones and other materials thereof, together with the trees, erections, materials, implements and things provided for them. The list shows that vesting is tied to a function: each item is something the board must maintain for the public, not an asset it holds for profit.
The meaning of 'vesting' — streets and the soil
The most examined point in this topic is what 'vest' actually conveys, especially for public streets under Section 116(g). The Supreme Court settled the question in Municipal Board, Manglaur v. Mahadeoji Maharaj, AIR 1965 SC 1147, where the Court construed Section 116(g) of the very Act under study. It held that the vesting of a public street in the board does not transfer ownership of the soil. The board acquires only the exclusive right to manage and control the surface, and so much of the soil below and the space above as is necessary to maintain the street as a highway, with a limited possessory property sufficient to sue trespassers. Crucially, the Court ruled that the board cannot erect on a public pathway any structure that is not necessary for its use or maintenance as a pathway; the original owner of the soil retains the residue. The general principle had already been laid down in Fruit and Vegetable Merchants Union v. Delhi Improvement Trust, AIR 1957 SC 344, where the Court explained that the word 'vest' has no fixed connotation — it may vest title, mere possession, or a limited statutory interest depending on the context and object of the enactment. Read together, these cases tell the student that vesting under Section 116 is generally a vesting for a limited public purpose, not an absolute conveyance, and its content must be measured by the function the property serves.
Acquisition and management — Sections 117 and 118
Where a board needs land it does not own, Section 117 allows the State Government to acquire land on the board's behalf under the Land Acquisition Act, 1894 (in present practice, the 2013 fair-compensation Act), the cost being borne by the municipal fund; land so acquired is deemed acquired for a public purpose. Section 118 deals with property that is merely entrusted to the board's management rather than owned by it: the board may manage and control such property subject to the conditions imposed by the owner and to the next succeeding section. This distinction between owned property under Section 116 and entrusted property under Section 118 matters because the board's powers of disposal differ sharply — it cannot deal with entrusted property as if it were its own, a limitation that dovetails with the trust character recognised in Section 119 and with the link between municipal functions and the assets needed to discharge them.
Institutions held in trust — Section 119
Section 119 governs public institutions — schools, hospitals, dispensaries, libraries and the like. Institutions maintained wholly out of the municipal fund are under the control of the board. Other institutions may, under prescribed rules, be vested in or transferred to the board, but where they are, the board holds them in trust for the purposes for which they were founded. This is the statutory recognition of a fiduciary character: the board is a trustee, not a beneficial owner, and it cannot divert such an institution or its endowment to a different object. The trust principle is consistent with the broader judicial view that property and funds held by public bodies for defined public purposes carry fiduciary obligations and cannot be applied to collateral ends — the same logic that underlies the doctrine of public trust and the limits courts read into discretionary municipal action.
Application of the fund and order of charges — Section 120
Section 120 is the spending clause and it does two things. First, it confines the application of the municipal fund and property to purposes authorised by or under the Act; expenditure outside the statutory purposes is ultra vires and may be disallowed. Secondly, it fixes an order of priority — a cascade of charges on the fund — so that essential and statutorily protected payments rank ahead of discretionary spending. In substance the priority runs: the salaries and allowances of safai (conservancy) workers; sums the board is bound to pay under any trust; repayment of loans raised under the Local Authorities Loans Act, 1914; establishment and salary charges including those of the executive officer; and amounts the board is required to pay by orders made under specified provisions of the Act. Only after these prior charges are met may the surplus be applied to the board's general functions. The provision operationalises the principle in Manglaur and the trust cases — that municipal money is earmarked public money and must be spent on the purposes for which it was raised, not at the board's free pleasure.
Fund and property on alteration of the area — Sections 121 to 123
Because municipal boundaries are not permanent, the Act provides for the fate of fund and property when an area changes. Section 121 directs that when a local area ceases to be a municipality, its fund and property pass to such other local authority or to the State Government as the State directs, subject to existing liabilities. Section 122 deals with partial exclusion: where only part of a municipal area is taken out, the State Government, after such inquiry and consultation as it thinks fit, determines by notification how the fund and property are to be apportioned between the municipality and the authority taking over the excluded part. Section 123 then directs how accrued funds are to be applied — first in discharging the liabilities transferred with the area, and thereafter for the benefit of the inhabitants of the area concerned. The recurring theme is continuity of public purpose: assets and burdens travel together so that the inhabitants are neither stripped of their public infrastructure nor saddled with liabilities unmatched by resources.
Power to transfer property — Section 124
Section 124 confers, but tightly fences, the power of disposal. A board may transfer any property vested in it by sale, mortgage, lease, gift, exchange or otherwise, but only by an instrument in writing under its common seal, and subject to two crucial limits. First, it cannot deal with property it holds merely in trust under Section 119 except for the trust's own purposes. Secondly, transfers above a prescribed value, leases beyond a prescribed period, and transfers to or in favour of Government require the previous sanction of the State Government. These controls again flow from the limited, purpose-bound nature of municipal ownership recognised in Manglaur: because the board's title is itself qualified, its power to alienate is correspondingly qualified, and a sale or lease that defeats the public purpose of the asset is open to challenge. Section 124 should be read with the rule-making power in Section 127, under which the State frames detailed conditions for acquisition and transfer of municipal property.
Compensation, special police charges and rule-making — Sections 125 to 127
The chapter closes with three operational provisions. Section 125 makes the municipal fund liable to pay compensation for any damage caused by the board in the exercise of its powers under the Act — a statutory recognition that the public fund bears the cost of public action that injures private right. Section 126 enables the cost of special police protection at fairs and exhibitions to be charged to the board, and empowers the District Magistrate, on default, to direct payment out of the municipal fund. Section 127 is the enabling rule-making provision: the State Government may make rules regulating the authority competent to sanction payments from the fund, the conditions for acquisition and transfer of property, and other matters touching the fund and property. Together these sections complete the picture of a fund and an estate that are public in origin, public in purpose and public in their controls — a structure that the Constitution later entrenched through Articles 243W, 243X and 243Y, discussed below.
The constitutional overlay — Articles 243W, 243X and 243Y
Although the 1916 Act predates the Constitution, its property-and-funds scheme now operates under the umbrella of Part IXA, inserted by the Constitution (Seventy-fourth Amendment) Act, 1992. Article 243W empowers State legislatures to endow municipalities with the powers and functions listed in the Twelfth Schedule, which presuppose ownership and maintenance of civic assets of exactly the kind vested by Section 116. Article 243X authorises the State to allow a municipality to levy, collect and appropriate taxes, duties, tolls and fees, to assign State taxes, to give grants-in-aid from the Consolidated Fund of the State, and to constitute funds for crediting and withdrawing money — the constitutional counterpart of Section 114. Article 243Y requires the State Finance Commission to review municipal finances and recommend the sharing of revenues. The student should therefore present property and funds not as an isolated colonial-era chapter but as the working machinery through which the constitutional promise of municipal self-government is given financial and proprietary substance, connecting back to the functional duties of the board.
Frequently asked questions
What property vests in a municipality under Section 116 of the UP Municipalities Act, 1916?
Section 116 vests in the board public town walls, gates, markets, slaughter-houses and public buildings; public streams, tanks, wells and water-works; public sewers, drains and culverts; refuse and night-soil collected; public lamps and posts; land transferred or acquired for public purposes; and all public streets with their pavements, materials and trees.
Does vesting of a public street in the board mean the board owns the soil?
No. In Municipal Board, Manglaur v. Mahadeoji Maharaj, AIR 1965 SC 1147, the Supreme Court held that vesting under Section 116(g) gives the board only management and control of the surface, the necessary soil below and space above, plus a limited possessory interest. The soil's ownership stays with the original owner, and the board cannot build anything not needed to maintain the street as a highway.
What is the legal meaning of the word 'vest' in municipal statutes?
In Fruit and Vegetable Merchants Union v. Delhi Improvement Trust, AIR 1957 SC 344, the Supreme Court held that 'vest' has no fixed meaning. It may vest full title, mere possession, or a limited statutory interest, depending on the object of the enactment. Under Section 116 it is generally a vesting for a limited public purpose, not an absolute conveyance.
How may the municipal fund be spent, and what gets paid first?
Section 120 confines the fund to purposes authorised by the Act and fixes an order of priority: conservancy (safai) workers' salaries, trust obligations, repayment of loans under the Local Authorities Loans Act 1914, establishment and salary charges, and amounts ordered under the Act. Only the surplus may go to general functions; spending outside statutory purposes is ultra vires.
Can a municipality freely sell or lease its property?
Not freely. Section 124 allows transfer by sale, mortgage, lease, gift, exchange or otherwise, but only by a sealed written instrument. Trust property under Section 119 can be used only for the trust's purposes, and transfers above a prescribed value, long leases, or transfers to Government need the previous sanction of the State Government.
What happens to a municipality's fund and property if its area is abolished or altered?
Under Sections 121 to 123, when an area ceases to be a municipality its fund and property pass to another local authority or the State as directed, subject to liabilities. On partial exclusion the State apportions fund and property by notification, and accrued funds are applied first to discharge transferred liabilities and then for the benefit of the area's inhabitants.