The efforts to review litigation between two PSUs or between a PSU and the central government have been age-old. For instance, in 1991, the Supreme Court had noted, “Public sector undertakings of central government and the union of India should not fight their litigations in court” in a dispute between state-run oil producer ONGC and the Collector of Central Excise (CCE).
This renewed push follows the law ministry’s recognition of escalating legal costs involving government bodies. Law and Justice Minister Arjun Ram Meghwal signed off on the policy in June, shortly after taking office, as part of broader efforts to rein in these expenditures.
“For instance, consider two PSUs with similar mandates locked in a tender dispute. Both are ultimately owned by the government of India. The national litigation policy will address such cases,” said one of the officials.
The rollout comes as India’s judiciary grapples with an overwhelming backlog of cases. As of 2 October, over 50 million cases remain unresolved, 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. High courts are similarly overburdened, handling more than 2.5 million pending cases.
The profitability of PSUs is often at stake in such disputes. For instance, in March 2024, state-run Indian Oil Corporation Ltd. (IOCL) won a dispute against the union of India over freight charges worth a little over ₹1.5 crore. In the dispute, the Indian Railways – another state-run institution—billed IOCL for moving freight for 444km. However, after revisions in the way the Railways calculated distances, the distance to be covered narrowed to 334km. IOCL moved the court against the Railways, and sought a refund for the distance not covered—roughly 110 km—and won the case in the apex court.
In this matter, IOCL had already emerged victorious before the Allahabad High Court, before Indian Railways appealed it to the Supreme Court—adding legal costs to both sides, according to the judgement. The apex court had to use the law laid down in 1996 case between the Union of India and Steel Authority of India Ltd (SAIL) to resolve this dispute worth about ₹1.3 crore; SAIL had also challenged the Railways’ freight charges.
This is not the first time the government has sought to manage its legal liabilities. With court delays persisting for decades, the government has earned the title of the country’s biggest litigant. It has previously attempted to implement cohesive national litigation policies in 2010 and 2015, according to public documents.
The new policy, now under inter-ministerial review, represents a renewed push to ease the government’s litigation burden.
An emailed query to the law ministry regarding the new policy, sent on 30 September, went unanswered.
Previous attempts
In June 2010, the Department of Legal Affairs, under the ministry of law and justice, had launched a national litigation policy following consultations aimed at reducing court backlogs. The central government not only introduced its own policy but also encouraged states to adopt similar frameworks to ensure responsible litigation practices.
A status note from the department highlighted the scale of the issue, noting, “Many litigations are undertaken 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 litigant.”
The 2010 policy was later reviewed, and by 2015, the government considered a revised version to further reduce litigation and court pendency. However, not all states have implemented their own policies, though some, like Madhya Pradesh, introduced clear guidelines. Madhya Pradesh’s 2011 policy stated its goal was to “transform government into an efficient and responsible litigant,” moving away from its reputation as a “compulsive” litigant.
The 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 carry significant financial stakes.
For example, in a 2019 Supreme Court case, Hindustan Construction Company Ltd. and others vs. Union of India, contractors claimed that state-run firms owed them over ₹6,000 crore due to project delays. Although the dispute centred on arbitration, the case underscored the high stakes involved in government litigation.
Recently, the law ministry identified litigation arising from arbitration proceedings as a significant concern and requested data from ministries spanning the past 24 years in an effort to amend the Arbitration and Conciliation Act.
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