28 Sep 2010

'Public Sector Undertakings' vulnearable to litigation: Supreme Court


In a recently reported decision [Bharat Sanchar Nigam Ltd. v. Telephone Cables Ltd., AIR 2010 SC 2671] the Supreme Court of India has acknowledged that governmental companies are vulnerable to litigation. Taking notice of the factors which require the government companies to incur more than rationale expenditure and incurring such responsibilities and liabilities which come in the way of competing with those in the private sector, the Supreme Court went only to pose issues required to be dealt within providing any answers.

The Supreme Court on this note observed as under;
24. The second issue relates to the vulnerable position of public undertakings. More and more they are subjected to vexatious litigations and other travails which their competitors in the private sector do not normally face. When public undertakings used to have monopoly and discharged public duties, control by the government and legislature and judicial review by the Judiciary was an absolute necessity to safeguard public interest and ensure transparency and accountability. But when public undertakings are required to compete with private sector, in commercial areas, controls by the executive and legislature (sometimes referred to as political bondage) and judicial review of their action, became a handicap which impedes their progress. A public undertaking is required to ensure fairness, non-discrimination and non-arbitrariness in their dealings and decision making process. Their action is open to judicial review and scrutiny under the Right to Information Act, 2005. They are required to take out advertisements and undergo elaborate and time-consuming selection processes, whether it is purchase of materials or engaging of contractors or making appointments. Just to ensure that everyone is given a fair and equal opportunity, public undertakings are required to spend huge amounts and enormous time in elaborate tender processes. A proposal for a purchase of the value of Rupees Ten lakhs may involve a `material procurement expenditure' of Rupees Two Lakhs in advertisements and tender evaluation cost, and a total tender process period ranging from three to six months. A competing private undertaking can go straight into market and negotiate directly and get the same material for Rupees five lakhs without any expenditure in a week. Public undertakings to avoid being accused of malafides, bias or arbitrariness spend most of their time and energy in covering their back rather than in achieving development and progress. When courts grant stay, the entire projects or business ventures stand still or get delayed. Even if ultimately the stay is vacated and the complaint is rejected as false, the damage is done as there is enormous loss to the public undertaking in terms of time and increase in costs. The private sector is not open to such scrutiny by courts. When the public sector is tied down by litigations and controls, the private sector quietly steals a march, many a time at the cost of the public sector. We are not advocating less of judicial review. We are only pointing out that if the public sector has to survive and thrive, they should be provided a level playing field. How and when and by whom is the question for which answers have to be found. Be that as it may.

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