Report No. 126

Part I

8.2. Public sector undertakings are of heterogeneous character because they are set up with specific goals to be achieved. Commercial banks were nationalised with a view to ensuring better banking facilities in all parts of the country, to make banking services available to a wider public especially the neglected segments of society treated non creditworthy, and allied objects. Nationalised Banks, financial institutions like Industrial Development Bank of India, Industrial Credit and Investment Corporation of India, et al, are under the overall supervision of the Reserve Bank of India.

However, in its supervisory role, the Reserve Bank of India hardly maintains effective check or control over the litigious culture developed by these public sector undertakings. The litigation which the banks either face or initiate arises from their commercial transactions and their administrative policy decisions dealing inter alia with their employers.

8.3. Manufacture of steel requires coking coal. Coal and steel industries are in public sector except a body like Tata Iron and Steel Company Ltd. and mini steel plants. The Coal India Limited and the authorities in charge of nationalised collieries have also to supply coal to private consumers and industries. The type of litigation they face is slightly different from what the banks face. In brief, public sector undertakings rendering service or consumers' goods face different type of litigation. Different approaches and methodologies have to be worked out to avoid litigation on behalf of such public sector undertakings.

8.4. Let it be made distinctly clear that in a constitutional democracy, litigation cannot be wholly eschewed. Attempts must be to minimise, restrain, reduce or control the same by vigorous approach disclosing enlightened self-interest to avoid puerile and futile litigation.

8.5. It is undoubtedly true that with all its limitations, arbitration is a desirable alternative to court litigation. But there are certain inbuilt limitations hindering the access to this alternative forum. To compel arbitration, the parties must be having amongst themselves a subsisting valid arbitration agreement. Now the public sector undertakings have disputes inter se or with the taxing authorities.

There would be no subsisting arbitration agreement to cover such disputes. At best they can expand the scope of arbitration when dealing with their contractors and consumers, suppliers of goods and services to them, by entering into an arbitration agreement before dealing with them. However that would at best marginalise litigation but would not avoid it.

8.6. Therefore, the first thing that is required to be done is that the Government of India must issue a compulsory directive binding on public sector undertakings that in the event of a dispute between any one or more public sector undertakings or between two or more public sector undertakings on one hand and Government on the other, the parties shall refer the dispute to arbitration. It shall be presumed by a legal device, if the parties to a dispute are two or more public sector undertakings or public sector undertakings on one hand and Government on the other, excluding the tax authorities, that a valid arbitration agreement subsists.

8.7. In order to provide teeth and effectiveness to this suggestion, the Government of India should set up an arbitration panel composed of retired Supreme Court Judges and High Court Judges from which the parties can agree to the selection of one or more arbitrators and failing agreement, the appointment will be made by the Minister of Law from the panel.

There must be a fairly good number of panelists so that the work can be distributed amongst them. The fees to be paid to the panelists shall be fixed by executive order in advance and those who agree to accept the fees so prescribed may be empanelled. There is no dearth of retired Supreme Court and High Court Judges willing to put to constructive use their experience and expertise for the national good.

8.8. If necessary, an amendment to the Arbitration Act, 1940, should be made which would empower the court before which any public sector undertaking has initiated litigation without resorting to arbitration to compel the undertaking to go to arbitration and not merely stay the suit but dismiss the same.

8.9. The award of the arbitrator shall be final and unless the Minister of Law permits the challenge of the award on a valid and rational ground, the same shall not be challengeable before any court.

8.10. In the matter of tax disputes between public sector undertaking on one hand and taxing authorities on the other, ordinarily the dispute would arise before an Income-tax Officer or Inspecting Assistant Commissioner or a Commissioner of Income-tax or the lowest grade tax officer functioning under statutes levying indirect taxes. So far, the law should be allowed to take its own course.

Once the Commissioner decides the dispute, the aggrieved undertaking may approach the nodal Ministry under which it is functioning seeking permission whether the matter should be litigated further at all. If need be, an opinion from one of the panelists in the arbitration panel may be obtained and that should become binding. If, however, the recommendation of the Law Commission for setting up Tax Courts1 is accepted and implemented, the matter may be litigated up to the Central Tax Court and must end there.

1. LCI, 115th Report on Tax Courts.

8.11. Dealing with the disputes between the public sector undertaking and its employees, every public sector undertaking must set up a Grievance Cell composed of management and workmen's representatives not exceeding three on either side and presided over by a retired Judge who has functioned as a Judge of the Supreme Court or High Court or Chairman of the Industrial Court/ Tribunal.

Every dispute involving individual employee must be brought, if need be by amending the standing orders or service rules, before the Grievance Cell. The decision of the Grievance Cell shall be binding. If the dispute involves more than one employee but not all the employees of the undertaking, same procedure has to be followed. Even the disputes as to seniority, promotion and allied issues must be brought before this Cell. Promotion has long since ceased to be a management function.1

Therefore, the Grievance Cell would be competent to deal with the same. In the first instance, the promotion may be decided by the management but the dispute arising out of promotions granted or refused may be brought before the Grievance Cell. The decisions of the Grievance Cell will be binding and if any one, despite this arrangement and effective implementation, takes the matter to the court, the court must decline to entertain the dispute.

1. Workmen employed by Hindustan Lever Ltd. v. Hindustan Lever Ltd., (1984) 4 SCC 392.

8.12. Some suggestions have come from the All-India Law Officers Association but the overall view of the letter leaves an impression that they are self-serving suggestions in which Law Commission is not interested.

8.13. In the matter of selection of a lawyer for appearing on behalf of the public sector undertaking, a panel should be drawn up with fixed fees casewise and only those should be empanelled who are prepared to accept it on these terms.

8.14. Any officer sanctioning or initiating litigation contrary to the policy herein indicated and if implemented, must be subject to disciplinary proceedings.