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Report No. 145

3.2. Major objections.-

We will deal with the problems seriatim, as stated in the reference material, to consider whether the judicial decisions holding the public sector undertakings to be "Authority" within the meaning of Article 12 have affected the efficiency of these undertakings or created serious hurdles in carrying on the activities of these undertakings in a business-like manner. Before doing so, we consider it necessary to examine the major objectives of public undertakings. In order to ascertain the main objectives of public undertakings, it is necessary to bear in mind the Directive Principles of State Policy enunciated in Part IV of the Constitution.

Article 38 enjoins the State to promote the welfare of the people by securing and protecting effectively a social order in which justice, social, economic and political, shall inform all the institutions of the national life. The State is further directed to strive to minimise inequalities in income, and endeavour to eliminate inequalities in status, facilities and opportunities, not only among individuals, but also amongst groups of people residing in different areas or engaged in different vocations. This Article, and other Articles, e.g. 39, 39A, 41, 42 and 46, lay down fundamental policies, which the State is required to follow in making laws with a view to securing a welfare State.

Though Directive Principles are not justiciable and the Courts cannot enforce them, still those are binding on the various organs of the State. The Union Government, with a view to securing a welfare State, prepared Five Year Plans for the transformation of society. It took steps for growth and increase in the sphere of industrial development, as stated in the Industrial Policy Resolutions of 1948 and 1956. The Industrial Policy Resolution of 1956 clearly stated that for the adoption of the socialistic pattern of society as a national objective, and also for planned and rapid development, it was required that all sectors which are of basic and strategic importance, or which are in the nature of public utility services, should be in the public sector.

In furtherance of this Industrial Policy, a number of public sector undertakings were constituted. The legislative history leading to the establishment of the public sector undertakings is discussed in detail in Chapter 1 of the 126th Report of the Law Commission. The public sector undertakings function under the control and direction of the Government; and, as such, they have to function in a manner expected from "State", even in its commercial sphere. No doubt, the primary purpose of public sector undertaking is to promote economic growth by increased production and to secure adequate return which would help the State in providing social, economic, educational and medical facilities to the people.

Nonetheless, unlike private undertakings, the public sector undertakings are not required to be profit-oriented only. Since some of the undertakings deal with public utility services, they have to frame and mould their policies to serve the people even though there is no profit. The Supreme Court in the case of Oil and Natural Gas Commission1 held that "the notion that the cost plus basis can be the only criterion for fixation of prices in the case of public enterprises stems basically from a concept that such enterprises should function either on a no profit-no loss basis or on a minimum profit basis.

This is not a correct approach. In the case of vital commodities or services, while private concerns must be allowed a minimal return on capital invested, public undertakings or utilities may even have to run at losses, if need be and even a minimal return may not be assured. In the case of less vital, but still basic, commodities, they may be required to cater to needs with a minimal profit margin for themselves. But, given a favourable area of operation, commercial profits need not be either anathema or forbidden fruit, even to public sector enterprises."

1. O.N.G.C. v. Association of Natural Gas Consuming Industries of Gujarat, 1993 (1) SCALE 900, para. 31.

Article 12 of the Constitution and Public Sector Undertakings Back

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