On October 1, 2025, political tensions in Punjab reached a new pitch as a Congress delegation, led by Leader of Opposition Partap Singh Bajwa, urged Governor Gulab Chand Kataria to withhold his assent to the Punjab Town Improvement (Amendment) Bill, 2025. The Bill, which had just been passed during the Vidhan Sabha session on September 29, has ignited a fierce debate over the future of urban development funding and the autonomy of local bodies in the state.
At the heart of the controversy lies a fundamental shift in how urban development money is managed in Punjab. For more than a century, the Punjab Town Improvement Act of 1922 has governed the creation and functioning of Improvement Trusts—quasi-autonomous entities tasked with planning, financing, and executing key urban projects like street layouts, slum clearance, housing, and vital infrastructure within their respective municipal areas. According to both Times of India and OneIndia, these Trusts have operated on a simple but powerful principle: funds generated from land sales, betterment charges, rents, and other local sources must be reinvested directly back into the same locality, ensuring that the people who pay into the system are the ones who benefit from it.
But the new amendment, as outlined in the Bill, introduces a Municipal Development Fund (MDF) that upends this long-standing arrangement. Under the new law, a portion of the money raised from Improvement Trust property disposals would be transferred to the MDF—a state-level fund under the direct control of the executive. This means that, for the first time, funds that were once earmarked for local projects could now be pooled and spent anywhere in Punjab, even outside municipal areas.
According to the Congress delegation, which included MLAs Aruna Chaudhary and Vikramjit Singh Chaudhary, as well as former deputy chief minister O P Soni and former speaker Rana K P Singh, this change strikes at the very foundation of public trust in the system. In their memorandum to the governor, Bajwa argued that, "the new Bill diverts locally generated funds into a state-level pool. This pool could be used anywhere in the state, including areas not connected with the originating Trust or even non-municipal regions." He stressed that the original Act's "beneficiary-pays, beneficiary-benefits" loop was the bedrock of the Trusts' legitimacy and public confidence.
Bajwa's letter to Governor Kataria went beyond administrative worries, raising sharp constitutional questions. He pointed to Article 14 of the Indian Constitution, which prohibits arbitrariness, and argued that the Bill delegates the crucial fiscal decision—how much of a Trust's property proceeds must be diverted, and under what conditions—to rule-making without statutory guardrails. "This risks unequal treatment of similarly situated Trusts and their beneficiaries," Bajwa wrote, emphasizing that the Assembly had abdicated an essential legislative function by moving these core fiscal questions to subordinate legislation.
But the concerns did not stop there. The Congress leader highlighted that Trust funds are not just any public money; they arise from public land monetisation and beneficiary payments tied to specific improvement schemes. These funds, he argued, carry a fiduciary character and a moral obligation to be used for the benefit of those who contributed. Pooling them into the MDF without a statutory "return-to-origin" mandate or prioritisation of scheme liabilities, Bajwa warned, undermined the public trust doctrine and defeated the legitimate expectations of allottees, ratepayers, and residents.
The Bill's critics say it also undermines the spirit of the 74th Constitutional Amendment, which sought to empower urban local bodies with predictable, purpose-linked finances. Bajwa warned of practical harms, including the loss of scheme-wise accountability once proceeds are pooled into the MDF, solvency risks for ongoing projects carrying infrastructure obligations and debt, and the potential for incomplete assets due to cash flow constraints.
According to OneIndia, the government has argued that the Bill is intended to allow urban local bodies broader access to funds, potentially helping weaker municipalities that struggle to raise enough revenue on their own. Local Government Minister Dr. Ravjot Singh, while introducing the Bill, stated that its purpose was to enable urban local bodies to tap into Improvement Trust funds to meet their development needs. However, the Congress delegation remains unconvinced, countering that the same goal could be achieved without violating the foundational principles of the original Act.
In a detailed set of alternative proposals, Bajwa suggested that if the government truly aims to support weaker municipalities, it should amend the principal Act to include a liability-first covenant—ensuring no diversion of funds until all scheme obligations and debts are covered. He also called for a "return-to-origin" floor, mandating that a minimum percentage of funds be reinvested in the originating municipal area, a transparent allocation formula for equalisation, scheme-tagged grants with public dashboards, and independent oversight with double-key releases tied to project milestones.
Bajwa's letter asked the governor to reserve the Bill for the President's consideration under Article 200, citing national constitutional principles and the broader implications for federalism and decentralisation in India. He wrote, "If the government's objective was to support weaker municipalities, this could be achieved without violating first principles, by amending the principal Act itself to include a liability-first covenant... and independent oversight with double-key releases tied to project milestones."
The Congress delegation's intervention has put Governor Kataria in a delicate position, caught between the state government's push for fiscal flexibility and the opposition's insistence on constitutional safeguards and local accountability. The debate is more than just a technical dispute over municipal finance; for many, it is a test of whether Punjab's urban governance will remain rooted in local empowerment or shift toward greater centralization.
As the governor considers his next steps, the stakes for Punjab's cities and towns could hardly be higher. With urban populations growing and infrastructure needs mounting, the outcome of this conflict will shape not just the flow of funds, but the very nature of public trust and democratic accountability in Punjab's urban future.
For now, all eyes are on Raj Bhavan, where the fate of the Punjab Town Improvement (Amendment) Bill, 2025 hangs in the balance—a decision that could reverberate far beyond the corridors of Chandigarh.
