Government versus government: new litigation policy to target costly disputes between public sector companies

Efforts to examine disputes between two PSUs or between a PSU and the central government are old. For example, in 1991, the Supreme Court had said that “public sector undertakings of the Central Government and the Union of India should not fight their disputes in court” in a dispute between state-owned oil producer ONGC and the Central Collector excise duties (CCE). ).

This new push follows the Justice Department’s acknowledgment of escalating legal costs involving government agencies. Law and Justice Minister Arjun Ram Meghwal approved the policy in June, soon after taking office, as part of broader efforts to rein in such spending.

“For example, consider two PSUs with similar mandates locked in a tender dispute. Both ultimately belong to the Government of India. The National Dispute Policy will deal with such cases,” said the one of those responsible.

This deployment comes as the Indian justice system is grappling with a considerable backlog of cases. As of October 2, more than 50 million cases remained pending, including nearly 5.6 million civil suits and 27.2 million criminal cases in district courts alone, according to data from the National Judicial Data Grid. The high courts are also overburdened, dealing with more than 2.5 million pending cases.

The profitability of PSUs is often at stake in such disputes. For example, in March 2024, the state-owned Indian Oil Corporation Ltd. (IOCL) has won a dispute against the Union of India over freight charges worth just over a year. ₹1.5 crore. As part of the dispute, Indian Railways – another public institution – billed IOCL for transporting goods over 444 km. However, after revisions to the way the railways calculated distances, the distance traveled was reduced to 334 km. IOCL filed a lawsuit against the railways and sought reimbursement for the distance not covered (around 110 km) and won the case in the apex court.

In this case, IOCL had already emerged victorious in the Allahabad High Court, before Indian Railways appealed to the Supreme Court, leading to additional legal costs for both parties, the judgment said. The apex court had to use the law laid down in the 1996 case between the Union of India and the Steel Authority of India Ltd (SAIL) to resolve this dispute worth around ₹$1.3 million; SAIL had also challenged the railways’ freight charges.

This is not the first time the government has sought to manage its legal responsibilities. While legal delays have persisted for decades, the government has earned the title of the country’s leading litigator. It previously attempted to implement consistent national litigation policies in 2010 and 2015, according to public documents.

The new policy, currently undergoing interdepartmental review, represents a further push to ease the government’s litigation burden.

An emailed question to the Justice Department regarding the new policy, sent Sept. 30, went unanswered.

Previous attempts

In June 2010, the Department of Legal Affairs, under the Ministry of Law and Justice, launched a national litigation policy following consultations aimed at reducing court delays. The central government has not only introduced its own policy but also encouraged states to adopt similar frameworks to ensure responsible litigation practices.

A status note from the ministry highlighted the scale of the problem, noting: “Much litigation is being initiated or contested by the government, both at the state and central levels, and by public sector undertakings. It is often said that the government is the biggest litigator.”

The 2010 policy was subsequently revised, and in 2015 the government considered a revised version to further reduce litigation and court proceedings. However, not all states have implemented their own policies, although some, like Madhya Pradesh, have introduced clear guidelines. The Madhya Pradesh Policy of 2011 stated that its aim was to “transform the government into an effective and responsible litigator”, moving away from its reputation as a “compulsive” litigator.

Profitability at stake

The profitability of PSUs is often at stake in such disputes.

Legal experts note that while disputes between government entities are not common, those involving PSUs often involve significant financial stakes.

For example, in a 2019 Supreme Court case, Hindustan Construction Company Ltd. and others against the Union of India, entrepreneurs claimed that public companies owed them ₹6,000 crore due to project delays. Although the dispute centered on arbitration, the case highlighted the high stakes involved in government litigation.

Recently, the Ministry of Justice identified disputes arising from arbitration proceedings as a major concern and requested data from ministries covering the last 24 years with the aim of amending the Arbitration and Conciliation Act.