Why Government Is The Biggest Litigant In The Country And How That Can Be Corrected

Take a hypothetical situation — custom authorities seize a vehicle laden with certain goods and charge the owner with violation of customs duty. The matter is taken into adjudication where it is decided in favour of the owner — the goods were indigenous and not chargeable to customs duty and thus, the seizure was illegal.

The government appeals the matter till the Supreme Court and loses after five years of litigation. The Supreme Court orders the government to return the goods. Instead, the government releases a cheque to the owner for 50 per cent of government assessed value of the goods, stating that the goods were auctioned without notice to the owner (again illegal), and that this was the sum of the proceeds received.

After three years of litigation and losing every appeal on every point contested, the government refuses to pay the cost of the goods let alone pay any interest for the five years. Likely, the matter will be subject to another round of litigation. I wish this was merely a hypothetical and even if true, was a rarity.

However, unfortunately, that is not the case. This is a regular occurrence across all government departments. The government litigates without an intelligible policy in place, and that is evident.

There should not be any hesitation in acknowledging that the government is the biggest litigant in the country. From the Prime Minister to a former Chief Justice of the Supreme Court, everyone has raised concerns about this.

Recently, the Delhi High Court also expressed its displeasure on the same. Few reports indicate that the government is a party to 46 per cent of the cases that are pending in courts across India. As per Legal Information Management and Briefing System (LIMBS), as of 21 June 2021 there are 514,915 cases involving various government departments.

The vengeance with which the Defence Ministry fights veterans in courts is well known as well. The tax department is notoriously famous for frivolous litigations. This is an enormous problem, and the government sees it. Yet, little is being done to cure this massive waste of time, effort, goodwill, and government resources.

Why Is Government So Involved In Litigations?

The simple answer to this question is that the government litigates because it can and not because it should. There are multiple reasons for why such little focus and attention is given on treating every matter on its merits: The primary reason is that it is easier to pay under a court order than to take responsibility of a decision allowing payments to private parties.

The fear of audit committees and finance teams is real. In the words of a former bureaucrat, who wishes to remain anonymous, “it is a well-oiled machinery where legal cases are filed by default and not by choice. You don’t have to work that hard to deny payments to third parties as you must, to justify these payments to the finance team or the auditors. So, we generally deny and pay when the court orders.”

In many cases related to army pensions, army personnel unofficially advise the veterans to adopt legal routes to bypass any impediments created by the accounts section.

Such fears are not unfounded as well. Most of these sections are run by officials who haven’t been involved in on-ground execution of projects and thus, are unconcerned with practical considerations.

There is a fear of media as well due to journalists with inadequate understanding of business transactions and commercial contracts making click-bait accusations.

Allegations of corruption are made generously, without any understanding of the actual situations and realities. I recall a matter where the initial sanctioned cost for a road widening project was approximately Rs 172 crore.

However, later, the government decided to increase the width even further, and the final payment cleared for the contractor was Rs 191 crore. Necessary approvals and documentation were in place for the increase in the width as well as the additional payment.

However, an enthusiastic reporter affiliated to a national daily compared the two figures and alleged a scam leading to the concerned officers being transferred to irrelevant posts.

Later, the inquiry was closed under a judicial order and the money was released to the contractor after nine years along with interest and legal costs.

This kind of injudicious journalism also causes a chilling effect in decision making, and government officials are more comfortable paying under a judicial order rather than taking the onus of deciding upon themselves.

The second reason is corruption. There are few cases where every level of government — project team, technical team, finance team and the legal team seeks to make gains — either from the contractor by delaying payments or from referrals earned from the lawyers engaged to defend such cases.

The officials know that the department will eventually have to pay the contractor with interest, but the matter is still litigated all the way to the apex court. What could have been settled at the actual demand gets compounded with interest and legal costs causing more financial burden on the government.

The third reason is lack of legal awareness. The government departments tend to act in a hyper-technical and mechanical manner oblivious to judicial precedents and legal developments. There are times where appeals are filed based on dated laws and judgements.

There are very few instances when independent legal opinion is sought prior to instituting a legal case. Most of the cases are filed having been influenced by the value of the matter rather than the merits.

The fourth reason is failure of the government to accept that it can be wrong. Take this example —India lost an international arbitration against a Mauritius-based company — Devas. In order to defeat the award, it has amended the Arbitration and Conciliation Act, 1996.

The amendments are draconian and archaic in nature and in fact, set us back by at least 10 years. This is a repeat of the 2012 retrospective tax debacle, where the law was amended to annul the Supreme Court judgement in favour of Vodafone.

The fifth reason is judicial overreach. Judiciary has its own share of blame — from entertaining writ petitions in matters of commercial contracts by government entities, to the expanding definition of ‘State’ under Article 12 of the Constitution, the judiciary has also contributed to this mess.

While courts have explicitly stated multiple times that matters covered under arbitration agreements should not be litigated in courts, they have shown least regard when it comes to effecting the same.

The concept of public interest litigation (PIL) which has reached a level of pandemic in the country has also contributed to the state being involved in numerous litigations — many of them being unquestionably frivolous.

Failed Attempts To Reform A Stubborn System

The problem of government and its eagerness to be involved in litigation has been judicially criticised since early 1970s.

Since then, it has been termed as ‘insensible’, ‘unfair, ‘shocking’ and ‘wasteful expenditure’ by various courts.

However, little has been done to address these concerns.

However, for obvious reasons, the NLP could not be implemented and despite the enthusiasm surrounding its release, it was shelved. NLP was revived yet again in 2015 with an announcement that the same was under active revision and consideration.

However, nothing has progressed on that count since then. In January 2021, the Union government informed the Delhi High Court that a revised NLP was under consideration. There is little information in public domain as to why it has been in cold storage for so long.

So far as the public perception goes, the reasons are obvious. The failure of the government to give shape to the NLP for last 11 years is reflective of the inherent resistance and pressure that it faces from within.

In 2017, an action plan to reduce government litigation was also published. However, the plan was merely a braggadocio about the already existing and inadequate systems and there were negligible suggestions on any tangible action.

Admittedly, there have been certain indirect and small-scale reforms. There have been steps taken to provide a minimum pecuniary threshold in taxation matters and the government is permitted to appeal only in matters above the prescribed threshold.

The government has established a national dispute board in National Highways Authority of India (NHAI) to allow pre-arbitral settlement of disputes.

The government has also developed the Legal Information Management and Briefing System (LIMBS), which allows various government departments to check the status of their cases in real-time.

The portal allows a designated nodal officer in the department concerned to track disputes and seek their redressal efficiently. There has also been a renewed focus on institutional arbitration with unceasing amendments to the Arbitration and Conciliation Act, 1996 (except the most recent one) to reduce judicial interference.

However, these steps, no matter how well-intentioned, are doubtful to succeed in absence of a coherent and intelligible policy.

Time For Holistic And Coordinated Reforms

The Covid-19 pandemic has accentuated the problem of pendency in Indian courts. The courts have barely functioned in the last 15 months and are still running with limited functionality.

The docket is likely to explode once the courts reopen and the limitation starts running again. In a situation that is likely to worsen, a serious and decisive intervention from government is needed.

One thing that must be clarified at the outset is that the reforms cannot be incremental. The reforms, now, must aim to transmogrify and not merely improve.

Any reforms to reduce government litigation must be centred around a focussed and well-demarcated NLP. There is no debate on the criticality and need of such policy.

However, before proceeding with such a NLP, there must be a detailed study of government litigations. The problem with 2010 NLP was that it was based on conference and departmental discussions rather than a meaningful study.

Any policy which is formulated without consulting all the stakeholders is likely to fail. The policy must be based on data, evidence, and experience rather than conjectures and theories.

Therefore, the first step should be to implement multi-disciplinary, time-bound, and independent studies of government litigations. It would be prudent to engage various national law universities and divide specific ministries between them for evaluation.

The government may also consider a simultaneous social audit of the departments to assess these litigations and reasons leading to such litigations.

Upon completion of the studies, the NLP must focus on three crucial aspects — objectivity, defined thresholds and outcomes, and a timeline for implementation.

First, there must be goals which can be assessed objectively and critically. For instance, the departments must be directed to reduce the case burden by 25 per cent subject to certain expressly provided exceptions.

Second, there should be negative lists of matters in which appeals by government departments are barred internally.

Third, obtaining a legal opinion from an independent advocate/law firm should be made mandatory prior to institution of any case. The advocate should not be on the panel of the said department or ministry.

Fourth, the culture of following the mechanical system of filing appeals like a myrmidon must be deracinated. In this regard, any second appeal/appeal to the apex court should not be filed without being accompanied by an affidavit by the MD/chairman of the PSU and/or principal secretary of that ministry as to why the appeal involves a crucial question of law that requires settlement by the court and is indispensable, and that s/he has perused the papers and taken independent legal advice in the matter before proceeding. This will reduce frivolous and mechanical appeals.

Fifth, there should be accountability for filing appeals in matters already settled by courts. The courts, as a matter of policy, should impose costs in such matters which should be recoverable from the salary of the erring officials.

Sixth, every department should be obligated to disclose as much data as possible relating to litigations of their department, on their website — including the monthly expenditure on litigations, the overall amount of money involved in litigations and the data of the cases filed, pending, won, lost, and appealed.

Seventh, the government must encourage departments to favour arbitration and accept reasonable awards without challenging them as a matter of routine. It will have to let go of its desire to challenge every award that is passed.

Last, there should be a social/non-governmental audit of government litigations. There must be a periodic assessment which will allow the government to be more aware of the issues. The government would do well to involve law schools and law firms to collaborate and carry out such audits regularly.

These steps are only few of the elements that are required in a comprehensive NLP and a detailed study will certainly be more helpful.

The pendency in courts is in large parts due to government litigations and the easiest way to reduce them is to target the biggest contributor. The government will have to act fast considering the pandemic has only made the problem more acute, and courts, more burdened.

Such a policy will also help the country in ease of doing business rankings, something this government has religiously pursued.

The government must govern and regulate, not litigate as a matter of routine.