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Report No. 126

Chapter II

Government and Public Sector Undertakings as Litigants-View from Courts as a Vantage Point

2.1. The courts' dockets are clogged by litigation undertaken or contested by the Government, both State and Central, and public sector undertakings. Administration of justice is still not treated as a social overhead in a developing economy, and accordingly, investment in administration of justice is generally insufficient and inadequate. Not only the court procedures are of 19th century vintage but even their equipment, namely, court buildings, typewriters, library and other facilities are also of the same vintage.

While resort to litigation by Government and public sector undertakings is prodigious, when it comes to grants for administration of justice, it is styled as non-plan expenditure and receives a back seat. This led to a remark that while Government are stingy on courts and Judges, they are prodigal with litigation. This betrays a lack of litigation policy either at the State or public sector level. Even though absurd policy resort to litigation cannot be checkmated, more often resort to court litigation is an escape route for accountability for decision.

To illustrate, an officer having been satisfied that the claim against the Government or the public sector undertaking is genuine, yet, to avoid taking an affirmative decision by a policy of do nothingness, the litigation is invited. Once the court intervenes, it is assumed that the concerned Department or the undertaking should not take any decision and leave it to the court to adjudicate the claim. The matter does not rest there.

The indifference arising out of a lack of social audit encourages such officer to prefer an appeal if the decision is adverse and by vertical movement, the matter generally reaches the apex court. The officer continues to litigate at the cost of the public exchequer or the corporation itself. A social audit might reveal that more than half the litigation involving Government and public sector undertakings is the outcome of irresponsible indifference of the claim made against it or inability to take affirmative action.

In the absence of any effective grievance-resolution mechanism, the employees of the Government and the public sector undertakings freely resort to litigation. The officer who initiates litigation is so much involved into it that his own work as an employee suffers. The officer who deals with the litigation on behalf of the corporation equally wastes his time on litigating incidentals. A type of largesse is distributed in selecting lawyers who receive fat fees for appearing for public sector undertakings and Government.

Till today, no concerted effort has been made to devise and lay down litigation policies and strategies involving the dictum 'don't litigate, if necessary, arbitrate',1 nor has any attempt been made to find any alternative method for resolution of disputes involving Government and public sector undertakings. The whole approach manifests a kind of drift and its spill over is unmanageable court dockets, unending litigation and utterly wasteful expenditure diverting scarce resources of the society to unproductive non-plan expenditure.

1. Ramji Dayawala and Sons (P) Ltd. v. Invest Import, (1981) 1 SCC 80.

2.2. The justice system, which has to carry the load and burden of unimaginative approach on the part of the Government and public sector undertakings in the matter of their litigation policies, has often sounded a warning reminding the Government and the public sector undertakings the expectations from it especially to eschew litigious culture.

The courts have also pointed out that the fight between an individual on the one hand and the Government or the public sector undertaking on the other is, by any stretch, an unequal fight inasmuch as the resources of the individual are limited and the State or public sector undertakings have unlimited resources to be invested in futile litigation so as to exhaust and exasperate the individual who has taken cudgels to bring the matter to the court. The fight was described as one between a Goliath and a dwarf in such a situation.

The civil remedies for administrative wrong-doing thus depend upon the action of individual citizens. In such an action the individual is pitted against the State-always an unequal contest. The individual does not have even the few procedural devices that the common law imports into criminal actions; to try to redress the balance.

At his own expense, he must challenge the vast panoply of State power, with all its resources in personnel, money and legal talent, by a civil action for a declaratory judgment or for an extraordinary remedy-injunction, writ of mandamus or writ of prohibition. Aside from the manifold technical insufficiencies of these forms of action, the financial impediments to such an action are staggering.

As a result of these impediments, in the United States, where almost the sole institutional protection against administrative error or arbitrariness is such an action, usually only great corporations or individuals who are supported by large voluntary associations have been able to carry through litigation.'1 Having said this, it was included that in the backdrop of African conditions, to rely upon such individual actions as a primary means of policing administrative action is to rely upon what is non-existent2 The observation will apply mutatis mutandis to Indian conditions.

1. Robert Sideman in Wisconsin Law Review, Vol. 1966, pp. 999 & 1064, extracted. in Fertilizer Corporation Kamgar Union (Regd.) v. Union of India, (1981) 1 SCC 568 (583).

2. Id., p. 584.

2.3. Lack of accountability either to Public Accounts Committee of the Parliament or to the Parliament itself has to some extent contributed to this policy of do nothingness and the litigation multiplies. More and more administrative actions directly affect the people at large. A lack of credibility about the actions taken by the Government and the public sector undertakings has also contributed to the litigation explosion involving Government and public sector undertakings.

Ordinarily, when in course of commercial activity, plants or equipment belonging to the Government or public sector undertaking are sold, the court would be reluctant to examine the fairness or correctness of the decision, in the Directorate of a Government company has acted fairly, even if it faltered in its wisdom, the court cannot, as a superauditor, take the Board of Directors to task. The function, from the point of view of court, is limited to testing whether the administrative action has been fair and free from the taint of unreasonableness and has substantially complied with the norms of procedure set for itself by rules of public administration.1

The Chief Justice of India, presiding over the Bench in the case, observed that: 'If public property is dissipated, it would require a strong argument to convince the court that representative segments of the public or at least a section of the public which is directly interested and affected would have no right to complain of the infraction of public duties and obligations. Public enterprises are owned by people and those who run them are accountable to the people'.2

It was for the first time that the jurisdiction of the court was widened to inquire whether public property has been dealt with in public interest because, after the introduction of the expression 'socialist' in the Preamble in 1976, public properly partook the character of socialist property and the courts' interference, though very limited in character, has sometimes worked wonders and, therefore should not be abhored.

1. Robert Sideman in Wisconsin Law Review, Vol. 1966, pp. 999 & 1064, extracted in Fertilizer Corporation Kaingar Union (Regd.) v. Union of India, (1981) 1 SCC 568 (583).

2. Id., p. 580.

2.4. In exercise of the power conferred by Haryana Minor Minerals (Vesting of Rights) Act, 1973, the State of Haryana declared its intention to grant a lease for winning minor minerals. Avoiding the details, it may be stated that the bids received at the auctions were found to be unsatisfactory as not procuring an adequate price. After rejecting the bid at the three auctions, the Chief Minister granted lease to one person who approached at the price of Rs. 4,50,000 per year, the contract being for five years.

This action of the Chief Minister was challenged by the person whose highest bid was already rejected contending that the surreptitious disposal of the public property has adversely affected public interest and he, as the highest bidder, should have been given one opportunity after receipt of the letter to whom the contract was given. The matter reached the Supreme Court of India.

In order to test the argument whether the price of Rs. 4,50,000 per year was adequate and sufficient to dispose of public property, the highest bidder who had moved the Court was invited to give his bid in the Court and an auction followed in the Supreme Court itself leading to the highest bid of Rs. 25,00,000 per year in respect of a contract covering a period of five years. The State of Haryana would thus get Rs. 1,25,00,000 against the disposal of the property by the Chief Minister for a party amount of Rs. 22,50,000.

Could this be rejected on the tenuous plea that neither the wisdom nor the fairness of the action of the Chief Minister could be questioned in a court of law? The situation is res ipsa loquitur. The Court, while interfering and allowing the appeal observed that one would require multi-layered blind-fold to reject the appeal on a tenuous ground such as sanctity of administrative action so that the State is denied its real value and the respondent may enjoy aggrandised unjust enrichment. In reaching this conclusion, the Court said as under:

"An owner of private property need not auction it nor is he bound to dispose it of at current market price. Factors such as personal attachment, or affinity, kinship, empathy, religious sentiment or limiting (all limit sic) the choice to whom he may be willing to sell may permit him to sell the property at a song and without demur. A welfare State as the owner of the public property has no such freedom while disposing of the public property.

A welfare State exists for the largest good of the largest number, more so when it proclaims to be a socialist State dedicated to eradication of poverty. All its attempt must be to obtain the best available price while disposing of its property because the greater the revenue, the welfare activities will get a fillip and shot in the arm. Financial constraint may weaken. the tempo of activities. Such an approach serves the larger public purpose of expanding welfare activities primarily for which the Constitution envisages the setting up of a welfare State."1

1. Ram and Shyam Company v. State of Haryana, (1985) 3 SCC 267 (277).

2.5. The litigation is thus sometimes engendered by failing to perform duty as if discharging a trust. Power inheres a kind of trust. The State enjoys the power to deal with public property. That power has to be discharged like a trust keeping in view the interests of the cesti que trust. Failure on this front has been more often commented upon by the court which, if it was taken in the spirit in which it was made, would have long back energised the Government and the public sector to draw up its litigation policy.

When entirely frivolous litigation reaches the doorsteps of the Supreme Court, one feels exasperated by the inaction and the policy of do nothingness evidenced by blindly following litigation from court to court. Dismissing a special leave petition by the State of Punjab, the Court observed that the deserved defeat of the State in the courts below demonstrates the gross indifference of the administration towards litigative diligence. The Court then suggested effective remedial measures. It may be extracted:

"We like to emphasize that Governments must be made accountable by parliamentary Social audit for wasteful litigative expenditure inflicted on the community by inaction. A statutory notice of the proposed action under section 80, CPC is intended to alert the State to negotiate a just settlement or at least have the courtesy to tell the potential outsider why the claim is being resisted. Now section 80 has become a ritual because the administration is often unresponsive and hardly lives up to the Parliament's expectation in continuing section 80 in the Code despite the Central Law Commission's recommendations for its deletion.

An opportunity for setting the dispute through arbitration was thrown away by sheer inaction. A litigative policy for the State involves settlement of governmental disputes with citizens in a sense of conciliation rather than in a fighting mood. Indeed, it should be a directive on the part of the State to empower its law officer to take steps to compose disputes rather than continue them in court.

We are constrained to make these observations because much of the litigation in which governments are involved adds to the case load accumulation in courts for which there is public criticism. We hope that a more responsive spirit will be brought to bear upon governmental litigation so as to avoid waste of public money and promote expeditious work in courts of cases which deserve to be attended to."1

Nearly a decade has passed since the observations but not a leaf has turned, not a step has been taken, and the Law Commission is asked to deal with the problem!

1. State of Punjab v. Geeta Iron & Brass Works Ltd., (1978) 1 SCC 68.

2.6. A little care, a touch of humanism, a dossier of constitutional philosophy and awareness of futility of puerile litigation would considerably improve the situation which today is distressing. More often it is found that utterly unsustainable contentions are taken on behalf of Government and public sector undertakings. Notice under section 80, CPC has become a trap for the unwary.

If those on whom power to take decisions is conferred exercise the power in a reasonable manner, resolution of disputes can never be said to be intractable and, in the context of a welfare State, litigation and socially beneficent activities cannot co-exist. The public sector undertakings are inseparably adjuncts of a welfare State.

2.7. The temptation to refer to some more cases in order to convince even the most rugged that by and large Government and public sector undertakings are guilty encouraging, pursuing and perpetuating frivolous litigation. It is not for a moment suggested that private sector corporate undertakings and even groups of individuals have not avoided initiating utterly useless litigation for unjust enrichment.

To take only one illustration, most of the tax litigation has the avowed object of not only not paying the tax if possible by raising technical contentions but even if the tax is payable, the attempt to use the court to delay the payment of tax as long as possible is clearly discernible. To illustrate, approximately 15,000 cases involving indirect taxes were pending in the High Courts and the Supreme Court, blocking roughly a revenue of Rs. 3,816.17 crores.1

Similarly, 6,502 tax appeals commencing from the year 1972, were pending in the Supreme Court of India on June 30, 1986.2 The tendency to use courts as an instrument of unjust enrichment deserves to be put down with a heavy hand. And, in this process, the Government and public sector undertakings can contribute a lot.

1. LCI, 115th Report on Tax Courts.

2. Ibid.

2.8. At any rate, philosophy of welfare State must permeate every action of Government/public sector undertaking but more often it is found to be sadly lacking. The workmen employed by the contractors for Asian Games Project realised that they were not being paid minimum wage prescribed for construction workers.

It is well-settled that minimum wages can never be denied under any pretext. The court, when its attention was drawn to it, pointed out that the provisions of labour laws are strictly observed otherwise the workmen would be comprehended in the expression 'forced labour' within the meaning of Article 23 of the Constitution of India, and the situation arose because the Government did not remain vigilant while paying to the contractors that they did not observe rigorous requirement of minimum wage laws.1

1. People's Union for Democratic Rights v. Union of India, AIR 1982 SC 1473.

2.9. Numerous socially beneficent legislations have been enacted by the parliament in implementation of the Directive Principles of State Policy enunciated in Articles 41, 42 and 43. One such Act is the Contract Labour (Regulation and Abolition) Act, 1970. The underlying intendment of the Act is to regulate in the first place but in final analysis to abolish contract labour. The goal to be achieved is the abolition of contract labour.

The Government and the public sector undertakings must pursue this goal relentlessly. Food Corporation of India was set up under an Act of Parliament, called 'The Food Corporations Act, 1964,' to provide, amongst other, for the establishment of Food Corporations for the purpose of trading in foodgrains and other foodstuffs and for matters connected therewith and incidental thereto.

The Corporation has numerous depots at various places in India, one such place being Siliguri. At the relevant time, 464 workmen were attached to the depot for handling foodgrains. Even though the work was round the year, they were employed by a contractor engaged by the Corporation. Later on, Corporation became wise to social accountability and abolished contract system and brought the workmen on its own roll as its employees.

The workmen had certain standing grievances and served a notice of demand. Forthwith, exhibiting the culture of private sector, the Corporation reintroduced the contractor system and fought the litigation brought by the workmen till the Supreme Court of India where the Court pointed out that the abolition of the contract system by the Corporation and the introduction of a direct payment system brought about a basic qualitative change in the relationship between the Corporation and the workmen and these cannot be altered to the disadvantage of workmen by the unilateral action of the Corporation.

There are other numerous such socially beneficent statutes, such as, Employees State Insurance Act and Employees Provident Funds Act. Under both these statutes, apart from the Corporation set up under each statute, the workmen covered by the Acts also contribute to the coffers of the Corporation. There can be disputes between the workmen and the Corporation, between the employer and the Corporation, and between the employer and the workmen.

In all these areas, it is largely found that there is no attempt at settlement of the dispute but a perpetuation of the litigation. Should the workmen, who contribute to the coffers of the Corporations for enjoying the benefits to be extended by the Corporation for which they are set up, be denied the same by spending on litigation involving the workmen themselves? Cases have come to Court where it was found that for paltry amounts, the matters were dragged up to the Supreme Court.1

1. Workmen of the Food Corporation of India v, Food Corporation of India, (1985) 2 SCC 136.

2.10. The contractors working on Salal Hydroelectric Project failed to observe the mandatory provisions of the labour laws applicable to the workmen. It was found as a fact that the workmen were being exploited by the contractors. In a petition before the Supreme Court of India, a direction was given to the State of Jammu and Kashmir to tighten up its inspection machinery to see that the contractors discharge their obligations under the labour laws. Should the workmen be compelled to come to the court, not for specific cause but for a direction that the labour laws, which are mandatory in character, be implemented?1

1. Labourers working on Salal Hydro-Project v. State of Jammu and Kashmir, AIR 1984 SC 177.

2.11. Repeatedly it is pointed out that the indifference of the Government/ public sector undertakings compels people to come to courts in search of relief and thereby the Government/public sector undertakings enjoy the dubious distinction of being the largest litigants in the courts involving a big drought on public exchequer.

Commenting on the absence of litigation policy on the part of the State, it was pointed out that in the context of expanding dimensions of State activity and responsibility, is it unfair to expect finer sense and sensibility in its litigation policy, the absence of which in the case before the court led the railway callously and cantankerously to resist an action by its employee, a small man, by urging a mere technical plea which has been pursued right up to the summit Court and was ultimately negatived by it.1

1. Dilbhag Rai Jerry v. Union of India, AIR 1974 SC 130.

2.12. Echoing this very sentiment, the Kerala High Court pointed out that the State is no ordinary party trying to win a case against one of its own citizens by hook or crook; for the State's interest is to meet honest claims, vindicate a substantial defence and never to score a technical victory or overrule a weaker party, to avoid just liability or score an unfair advantage simply, because legal devices provide such an opportunity.

The State is a virtuous litigant (like an ideal employer) and looks with unconcern on immoral forensic success so that when on the merit the case is weak, Government shows a willingness to settle the dispute regardless of prestige and other lesser motivations which move private parties to fight in courts.

The lay out of the litigation costs and executive time by the State and its agencies is so staggering these days because of the large amount of litigation in which it is involved that a positive and wholesome policy of cutting back on the volume of law suits by the twin methods of not being tempted into forensic show down where a reasonable adjustment is feasible and ever offering to acceding a pending proceeding on just terms, giving legal mentors of Government some initiative and authority in this behalf. The learned Judge further proceeded to observe that:

"I am not indulging in any judicial homily but only echoing the dynamic national policy on State litigation evolved at a Conference of Law Ministers of India way back in 1957."1

1. P.P. Abubacker v. Union of India, AIR 1972 Ker 103.

2.13. The Supreme Court was constrained to point out that a Government company like Central Coal Fields went on disputing the statutory liability and attempted to protract the litigation by carrying the matter from court to court on frivolous grounds.1

1. Central Coal Fields. Ltd. v. State of Bihar, AIR 1985 SC 107.

2.14. Unquestionably, municipal corporation set up under a statute is comprehended in the expression 'other authorities' in Article 12 and must consequently, therefore, eschew litigation wherever it is avoidable. A municipal contractor under the terms of contract was to complete the work contracted for within a year. It was found that the grant under the head was inadequate and was insufficient to meet his bill.

He was requested to split the work over a period of three years and ultimately he agreed to split it over two years subject to the condition that some extra payment will have to be made relevant to the increased rates of materials and wages which he may have to pay. On the completion of the work, the contractor submitted his bill claiming 20% extra charges over and above agreed to in the contract and the corporation declined to pay the extra charges.

A suit followed and fell into the lap of the Supreme Court which held that both under the contract and in law and equity, the contractor was entitled to recover extra charges as claimed by him. Obviously this was an avoidable litigation pursued relentlessly, disclosing a myopic vision and adding to the workload in the courts. It discloses a case of managerial failure.1

1. Hyderabad Municipal Corporation v. M. Krishnaswami Mudaliar, AIR 1985 SC 607.

2.15. Numerous cases can be quoted manifesting an ugly feature that either two public sector undertakings fight each other or a public sector undertaking on the one hand and the State or the Central Government on the other resort to litigation. Is it not necessary that these bodies should have a standing machinery outside the court area for resolving the disputes irrespective of the fact that the State and the Central Government may be ruled by political parties of different hue and colour?

A few illustrative cases may be noted here. State of Rajasthan instituted a suit in the District Court against the Union of India for recovery of compensation for loss on account of damage caused to the goods of the State Government. In this case, the Union of India represented the Railway Administration. A contention was taken that the suit is not maintainable in view of Article 131 of the Constitution which provides that Supreme Court of India alone, to the exclusion of any other court, will have original jurisdiction in any dispute-(a) between the Government of India and one or more States.

Suing Railway Administration for recovering damages for the loss suffered is not a suit comprehended in Article 131. Obviously, therefore, the contention can be styled as frivolous and yet the matter was litigated up to the Supreme Court which held that the District Court had jurisdiction to try this suit.1

1. Union of India v. State of Rajasthan, AIR 1984 SC 1675.

2.16. Another illustrative case is equally instructive. Special Area Development Authority, Korba, is constituted under section 65 of the Madhya Pradesh Nagar Tatha Gram Nivesh Adhiniyam, 1973, which under the relevant law, could exercise powers of a Class I municipality constituted under the Madhya Pradesh Municipalities Act, 1961.

Armed with this power, the Authority levied and demanded property tax which Western Coalfields Ltd., a Government of India undertaking, and Bharat Aluminium Company Ltd., another Government of India undertaking, resisted on the ground that the property belonging to these two companies were the properties of the Union of India and, therefore, shall be exempt from taxes imposed by State or by any authority within a State in view of the provision contained in Article 285(1) of the Constitution.

Does it require long argument to convince anyone that a property belonging to a Government company registered under the Companies Act could by no stretch of logic be said to be the property belonging to the Union, notwithstanding the fact that the companies were Government companies within the meaning of section 617 of the Companies Act, 1956?

If this contention was raised for the first time, one can even over look the indulgence into avoidable litigation but there were numerous precedents such as the one in the Heavy Engineering Mazdoor Union v. State of Bihar and A.P.S.R.T.C. v. I.T.O., and yet the matter was pursued up to the Supreme Court without success.1 But there is another and more serious objection to such type of litigation in that both the appellant and the respondent were public sector undertakings and yet the litigation was pursued with vengeance spending more money than the stake involved in the matter.

1. Western Coalfields Ltd. v. Special Area Development Authority, Korba, (1982) 1 SCC 125.

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