Twin avatars of PSUs

Government-owned companies want the best of both worlds

Being a public sector undertaking (PSU) in a welfare state has certain advantages. It need not worry unduly about making profits. The government acts as its godfather in times of crises. However, its status brings some uncomfortable obligations, too. The Supreme Court, in several judgments, has told PSUs that they should act as "model employers". They have to be fair and transparent in all transactions. This is a difficult prescription to follow these days given the business culture is changing drastically.

No wonder PSUs have tried to revive their clamour for taking them out of court purview. A draft amendment to the Constitution conferring immunity to them was reportedly nixed by the solicitor general recently, since it would fall foul of the basic structure. In 1992, the law commission had rejected the idea as "impermissible" and "ineffective".
 

Their attempt to evade accountability takes several forms. Some of them remove the PSU hat and come dressed as private enterprises. They do so assuming that by adopting that disguise, they need not follow labour laws and pursue the "hire-and-fire" policy of private firms. The camouflage can often be deceptive and blur the vision of judges. In a recent case, Calcutta High Court judges differed at four levels on the status of Balmer Lawrie & Co. If anything, it exposed the element of gamble in litigation.

When some employees moved a single-judge bench of the high court with a writ petition, he rejected it, stating a writ petition did not lie against a private company. The writ petition of another group of workers was placed before a different single-judge bench, who held to the contrary. The matter went to a bench of two judges. They also gave a split ruling. So the question was referred to a third judge. He held that it was a government company and a writ petition could be filed. The company appealed, but the Supreme Court lifted the veil and ruled that it was indeed a government company.

There have been several attempts in the past by other firms to avoid the uncomfortable role of a "model employer", expected from government companies by the courts. The mask is so subtle that a there is a massive case law on this subject. Constitution benches have laid down tests to find out whether a company is government-controlled or private. The question to be asked is whether the government has a "deep and pervasive control" over the company. The court must carry out an in-depth examination of who has the administrative, financial and functional control over the company or corporation.

The court has also to see whether the state is only a regulatory authority over the company or whether it is supervised, controlled and watched over by various departmental authorities, even with respect to its day-to-day functioning. If the power is extensive and dominant, the corporation can be taken as an instrumentality of the state.

The consequence is that under Article 12 of the Constitution, the corporation becomes part of the state, with all its obligations. They have to act reasonably, fairly and without discrimination in all aspects of their conduct. This is a tall order, and makes them vulnerable, especially when labour rights are involved. A writ petition can be moved against it in any high court or the Supreme Court, and the decision will be faster.

A modern state undertakes several welfare activities and multifarious non-sovereign functions like doing business. Article 298 of the Constitution allows the state to carry on trade. "It may not be easy for the court to determine which duties form a part of private action, and which form a part of state action," the judgment said. However, the citizen's fundamental rights cannot be taken away by a government corporation.

Since this is a grey area, the present judgment laid down a rough guide to determine the status of the corporation. It must be seen whether it carries on business for the benefit of the pubic; whether the entire share capital of the company is held by the government; whether its administration is in the hands of a board of directors appointed by the government; and even if so, whether it is completely free from governmental control in the discharge of its functions; whether the company enjoys a monopoly status; and whether there exists within the company, deep and pervasive state control. Some other indicators are whether the functions carried out by the corporation are closely related to governmental functions, or whether a department of government has been transferred to the corporation.

These guidelines might have put an end to the current controversy. But as PSUs are undergoing a period of uncertainty, they are likely to press the legislative route, despite earlier rebuffs.