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Delhi Set-up had recommended that a fresh law governing NDMC should be passed by the Parliament for proper organization and functioning of the New Delhi Municipal Council. Consequent upon enforcement of Constitution (Seventy Fourth Amendment) Act, several provisions in Punjab Municipal Act, 1911 had to be brought in tune with Part IXA of the Constitution before 31st May, 1994. Furthermore, there were several major differences between various functional regimes prescribed under the old law governing NDMC in comparison to the Delhi Municipal Corporation Act, 1957. It was generally recognized that there was need for a greater measure of commonality in the procedure adopted by the Municipal Corporation of Delhi and the New Delhi Municipal Council in matters relating to taxation, revenue, budgeting, contracts, accounts and audits, streets and sanitation, public health, public safety and suppression of nuisances etc.

The National Capital Territory of Delhi (NCT) comprises three local bodies, MCD, NDMC and Cantonment Board. The Municipal Corporation of Delhi comprises approximately 96 per cent of the area and population of the Union Territory of Delhi. The Delhi Municipal Corporation Act, 1957 was amended in August, 1994 to bring it in tune with the Constitutional provisions of Part IXA. In respect of New Delhi Municipal Council, which consists of only 3 per cent of the area and 3 per cent of the population of National Capital Territory of Delhi, it was felt that a different kind of legal system be structured taking into account special characteristics of the New Delhi Municipal Council area.
Following are the reasons.
i. The New Delhi Municipal Council area comprises of the territory that has been described as Lutyens Delhi and which has historically come to be regarded as the seat of central authority in Union of India.
ii. It comprises of important buildings like Rashtrapati Bhawan, Parliament House, Supreme Court, North and South Blocks and buildings abutting Central Vista and also all the diplomatic missions which function as territorial entities under the sovereign jurisdiction of their Flag States.
iii. The Government of India is nearly the sole landowner and also owns about eighty percent of the buildings in the New Delhi Municipal Council area. Private ownership of property in this area. Private ownership of property in this area is marginal.
iv. Efficient function of the Municipal services in this area is critical for the internal image of the country and is a factor which has an important bearing on the functioning of the Government apparatus itself.
v. Historically, this area has enjoyed a system of Local Government very different from other parts of the National Capital Territory. On account of these special characteristics, it was felt that any scheme for the governance of this area based on conventional pattern of representative local self-government, would be unworkable and out of place since the pre-eminent character of this area is that of the seat of the Central Government.