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Report No. 126

Chapter VI

Evaluation of the Arrangements Arrived at for Settling Disputes without Resort to Court

6.1. It cannot be gainsaid that the mounting litigation to which Government and public sector undertakings are exposed has not evoked any response from them. The attempts so far made to resolve disputes without reference to courts may now be noticed. Since the public sector undertakings proliferated, Government of India has set up, what is called, a Bureau of Public Enterprises. The Bureau seems to be something like a co-ordinating body.

The Bureau has sent copies of various circulars issued from time to time specifying the methodology for settlement of disputes involving a public sector undertaking. The emerging scenario from various circulars focusses upon arbitration as a method of amicably resolving disputes involving public sector undertakings and avoiding recourse to litigation. To make this suggestion operational, the circular recommended that public sector enterprises undertaking commercial activities should in their agreements provide for arbitration by and arbitrator to be nominated in the manner prescribed in the circular.

One method suggested is to draw up a panel of standing arbitrators under which a designated officer acts as the sole arbitrator. An enquiry revealed that the system appears to be in vogue in the Department of Director General of Supplies and Disposals and Central Public Works Department. It was assumed that the circular will be implemented in letter and spirit. However, a social audit by the Public Accounts Committee of the Parliament on the effect of the circular has been summed up as under:-

"The Committee cannot understand why it has not been possible to resolve a dispute between two Governmental organisations by mutual consultation. Instead the parties have had to resort to litigation, thus incurring avoidable expenditure. The Committee desire that the existing instructions for settlement of disputes between Government Departments and public sector undertakings should be reviewed thoroughly and a suitable machinery evolved for the resolution of interdepartmental and intergovernmental disputes."1

In the light of the Audit Note of the Public Accounts Committee, a review was undertaken about the litigation policy in the matter of inter-departmental disputes or where in the case of public sector undertaking and Government there is a nodal Ministry, an attempt should be made at the Ministers' level to resolve the dispute, failing which the matter should be referred to Cabinet for final decision which must be binding. The litigation in the court has to be eschewed.

Pointing out the nature of disputes involving public sector undertakings and Government, it was emphasised that regardless of the type of dispute, the concerned Departments and the undertakings must resolve their disputes amicably by mutual consultation or through the good offices of empowered agencies of Government, failing which through arbitration. Litigation at any cost has to be avoided. The suggestions include the manner of selecting the arbitrator and the tilt is in favour of bureaucrats.

The Law Commission would not be able to subscribe to this suggestion because a charge of bias against a Government officer is easily entertained and now the Supreme Court is examining whether such appointment, to be unilaterally made by the Department, assures principles of natural justice, one of which is that no one shall be a judge in one's own cause. The policy statement also frowns upon appointment of a lawyer as an arbitrator.

Being aware of the fact that mere resort to arbitration proceeding is not an end of litigation, the policy statement desires a directive to be issued that the award of the arbitrator should ordinarily be accepted as final unless there is an error apparent on the face of the record and it is of such a gross nature that a challenge becomes inevitable. But before doing this, the Secretary, Ministry of Law may be consulted.

1. 154th Report of the Public Accounts Committee.

6.2. In the matter of disputes between the Income-tax Department and public sector undertakings, it was suggested in the circular issued in consultation with the Central Board of Direct Taxes that in the event of a difference of opinion between public sector undertaking and the Income-tax Department, the procedure therein prescribed must be followed. But the procedure prescribed is hardly conducive to reducing or eliminating litigation.

A further suggestions was that the machinery for settlement of direct tax disputes outside the court may be devised consisting of representatives of Central Board of Direct Taxes, Bureau of Public Enterprises and the Ministry of Law. To that a caveat was entered that if Revenue is represented, the concerned public sector undertaking must also have representation in the machinery.

6.3. A fresh attempt was made as late as 1981 to tackle this problem by issuing a circular that public sector undertakings and Departments of the Government in the event of a dispute between them should refer it to the sole arbitration of an arbitrator to be appointed by the Department of Legal Affairs. And to facilitate the appointment of arbitrator, a standard form of agreement was also prescribed and circulated.

A suggestion was made that on the arbitrator giving the award, ordinarily it should be accepted. The Law Secretary is free to nominate a suitable officer as arbitrator, superseding the earlier directive that the arbitrator should be a serving law officer of the rank of Joint Secretary from amongst the Joint Secretaries in the Department of Legal Affairs.

6.4. Even with this elaborate procedure prescribed by competent authority to bring disputes between public sector undertakings and Departments of the Government to arbitration, the situation has hardly improved because there is a loophole in the arrangement, namely, that if the dispute involves a question of law not hitherto decided by the Supreme Court, the matter should be taken to the court. What is a question of law has defied any scientific definition. Therefore, anything can be twisted into a question of law. This report would keep in view all these past attempts and considerably improve upon them to achieve the desired result.

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