The Act aims at revitalizing and strengthening the urban governments so that they function effectively as units of local government. The salient features of the Act are:

1. Three Types of Municipalities:

The Act provides for the constitution of the following three types of municipalities in every state.

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(a) A Nagar Panchayat (by whatever name called) for a transitional area, that is, an area in transition from a rural area to an urban area.

(b) A Municipality for a smaller urban area.

(c) A Municipal Corporation for a larger urban area

A transitional area, a smaller urban area or a larger urban area means such area as the Governor may specify by public notification for this purpose with regard to the following factors.

(a) Population of the area

(b) Density of population

(c) Revenue generated for local administration

(d) Percentage of employment in non-agricul­tural activities

(e) Economic importance or such other factors as the Governor may deem fit.

2. Composition:

All the members of a municipality shall be elected directly by the people of the municipal area. For this purpose, each municipal area shall be divided in territorial constituencies to be known as wards.

The state legislature may provide the manner of election of the chairperson of a municipality. It may also provide for the representation of the following persons in a municipality.

I. Persons having special knowledge or experience in municipal administration without the right to vote in the meetings of municipality.

II. The members of the Lok Sabha and the state legislative Assembly representing constituencies which comprise wholly or partly the municipal area.

III. The members of the Rajya Sabha and the state legislative council registered as electors with the municipal area.

IV. The chairpersons of committees (other than wards committees).

3. Wards Committees:

There shall be constituted a wards committee, consisting of one or more wards, within the territorial area of a municipality having population of three lakhs or more.

The state legislature may make provision with respect to the composition and the territorial area of a wards committee and the manner in which the seats in a wards committee shall be filled. It may also make any provision for the constitution of committees in addition to the wards committees.

4. Reservation of Seats:

The Act provides for the reservation of seats for the scheduled castes and the scheduled tribes in every municipality in proportion of their population to the total population in the municipal area.

Further, it provides for the reservation of not less than one-third of the total number of seats for women (including the number of seats reserved for women belonging to the SCs and the STs).

The state legislature may provide for the manner of reservation of offices of chairpersons in the municipalities for the SCs, the STs and the women.

It may also make any provision for the reservation of seats in any municipality or offices of chairpersons in municipalities in favour of backward classes.

5. Duration of Municipalities:

The Act provides for a five-year term of office for every municipality. However, it can be dissolved before the completion of its term.

Further, the fresh election to constitute a municipality shall be completed (i) before the expiry of its duration, of five years; or (ii) in case of dissolution, before the expiry of a period of six months from the date of its dissolution.

6. Disqualifications:

A person shall be dis­qualified for being chosen as or for being a member of a municipality if he is so disqualified

(i) under any law for the time being in force for the purposes of elections to the legislature of the state concerned; or (ii) under any law made by the state legislature.

However, no person shall be disqualified on the ground that he is less than 25 years of age if he has attained the age of 21 years. Further, all questions of disqualifications shall be referred to such authority as the state legislature determines.

7. State Election Commission:

The superinten­dence, direction and control of the preparation of electoral rolls and the conduct of all elections of the municipalities shall be vested in the State Election Commission.

8. Powers and Functions:

The state legislature may endow the municipalities with such powers and authority as may be necessary to enable them to function as institutions of self- government.

Such a scheme may contain provisions for the devolution of powers and responsibilities upon municipalities at the appropriate level with respect to (i) the preparation of plans for economic development and social justice; (ii) the implementation of schemes for economic development and social justice as may be entrusted to them including those in relation to the 18 matters listed in the Twelfth Schedule.

9. Finances:

The state legislature may (i) authorize a municipality to levy, collect and appropriate taxes, duties, tolls and fees; (ii) assign to a municipality taxes, duties, tolls and fees levied and collected by state government; (iii) provide for making grants-in-aid to the municipalities from the Consolidated Found of the state; and (iv) provide for constitution of funds for crediting all moneys of the municipalities.

10. Finance Commission:

The Finance commission (which is constituted for the Panchayats) shall also, for every five years, review the financial position of municipalities and make recommendation to the Governor as to:

(i) The principles which should govern:

(a) The distribution between the state and the municipalities, the net proceeds of the taxes, duties, tolls and fee levied by the state.

(b) The determination of the taxes, duties, tolls and fees which may be assigned to the municipalities.

(c) The grants-in-aid to municipalities from the Consolidated Fund of the state.

(ii) The measures needed to improve the financial position of the municipalities.

(iii) Any other matter referred to the Finance Commission by the Governor in the interests of sound finance of municipalities.

The Governor shall place the recommen­dations of the Commission along with the action taken report before the state legislature.

The Central Finance Commission shall also suggest the measures needed to augment the Consolidated Fund of a state to supplement the resources of the municipalities in the state (on the basis of the recommendations made by the Finance Commission of the state).

11. Audit of Accounts:

The state legislature may make provisions with respect to the maintenance of accounts by municipalities and the auditing of such accounts.

Application to Union Territories:

The President of India may direct that the provisions of this Act shall apply to any union territory subject to such exceptions and modifications as he may specify.

12. Areas Kept Out:

The Act does not apply to the scheduled areas and tribal areas referred in Article 244 of the Indian Constitution. It shall also not affect the functions and powers of the Darjeeling Gorkha Hill Council of the West Bengal.

13. District Planning Committee:

Every state shall constitute at the district level, a District Planning Committee to consolidate the plans prepared by Panchayats and municipalities in the district, and to prepare a draft development plan for the district as a whole. The state legislature may make provision with respect to the following points.

(i) The composition of such committees;

(ii) The manner of election of members of such committees;

(iii) The functions of such committees in relation to district planning; and

(iv) The manner of the election of the chair­persons of such committees.

The Act lies down that four-fifths of the members of a District Planning Committee should be elected by the elected members of the district panchayat and municipalities in the district from amongst themselves.

The representation of these members in the committee should be in proportion to the ratio between the rural and urban populations in the district.

The chairpersons of such committees shall forward the development plan to the state government.

14. Metropolitan Planning Committee:

Every metropolitan area shall have a Metropolitan Planning Committee to prepare a draft development plan. Metropolitan area means an area having a population of 10 lakhs or more, comprised in one or more districts and consisting of two or more municipalities or Panchayats or other contiguous areas. The state legislature may make provisions with respect to:

(i) The composition of such committees;

(ii) The manner of election of members to such committees;

(iii) The representation in such committees of the Central Government, state government and other organisations;

(iv) The functions of such committees in relation to planning and coordination for the metropolitan area;

(v) The manner of election of chair persons of such committees.

The Act lies down that two-thirds of the members of a Metropolitan Planning Committee should be elected by the elected members of the municipalities and chair­persons of the panchayats in the metropolitan area from amongst themselves.

The representation of these members in the committee should be in proportion to the ratio between the population of the municipalities and the panchayats in that metropolitan area.

The chairpersons of such committees shall forward the development plan to the state government.

15. Continuance of Existing Laws and Municipalities:

All the state laws relating to municipalities shall continue to be in force until the expiry of one year from the commencement of this Act.

In other words, the states have to adopt the new system of municipalities based on this Act within the maximum period of one year from 1st June 1993, which is the date of commencement of this Act.

However, all municipalities existing immediately before the commencement of this Act shall continue till the expiry of their term, unless dissolved by the state legislature sooner.