Public Undertaking in Administrative Law

Public undertakings, also known as public enterprises or public sector undertakings (PSUs), play a significant role in the socio-economic development of a country. In administrative law, public undertakings refer to government-owned or government-controlled enterprises that are created by a specific statute to perform public functions or provide services. These enterprises are a hybrid between government departments and private business organisations, operating with a degree of autonomy but still subject to government control and legislative oversight.

In India, public undertakings have been integral to the nation’s planned economic development since independence. Their creation was seen as a necessary tool for managing key sectors of the economy, including infrastructure, manufacturing, and services. 

Definition and Characteristics of Public Undertakings

A public undertaking, in the context of administrative law, can be defined as a legal entity created by the government, through a statute or legislation, to carry out specific functions or provide services. These entities operate with a legal personality distinct from the government, meaning they can own property, enter into contracts, sue, and be sued in their own name.

Key characteristics of public undertakings include:

• Government Ownership: Public undertakings are either wholly or partially owned by the government. In India, the central or state governments hold a majority of the shares in these enterprises.
• Statutory Creation: Public undertakings are often created by a special act of Parliament or the state legislature, which defines their powers, functions, and scope of operation. The statute serves as the “charter” of the corporation.
• Autonomy: While public undertakings enjoy a certain degree of autonomy in their day-to-day management, they are still subject to government control and oversight, particularly in policy matters.
• Public Accountability: These enterprises are accountable to the public and the government. Their activities are subject to scrutiny by the Parliament, the Comptroller and Auditor General (CAG), and the judiciary.

Types of Public Undertakings

Public undertakings can be broadly categorised into three types, based on their functions and objectives:

• Commercial Undertakings: These public enterprises engage in commercial activities and aim to generate profits. Examples include Bharat Heavy Electricals Limited (BHEL), Steel Authority of India Limited (SAIL), and Indian Oil Corporation Limited (IOCL).
• Financial Undertakings: These enterprises provide financial services, including banking, insurance, and industrial financing. Notable examples are the Reserve Bank of India (RBI), Life Insurance Corporation of India (LIC), and the State Bank of India (SBI).
• Developmental Undertakings: These undertakings focus on promoting economic development by managing resources and infrastructure. Organisations like the Oil and Natural Gas Corporation (ONGC), Damodar Valley Corporation (DVC), and the Food Corporation of India (FCI) fall under this category.

Laws Governing Public Undertakings

Public undertakings in India are governed by a complex legal framework that includes statutes, rules, regulations, and government policies. Some of the key components of this legal framework are as follows:

Statutory Acts

Public undertakings are typically created through a statute passed by Parliament or the state legislature. These statutes define the structure, powers, and functions of the enterprise. For instance, the Damodar Valley Corporation Act, 1948, and the Air Corporations Act, 1953 are examples of statutes that govern specific public undertakings. The statute acts as the corporation’s constitution, outlining the scope of its activities and the regulatory framework within which it operates.

Companies Act, 2013

Many public undertakings are incorporated under the Companies Act, 2013, particularly those that are engaged in commercial activities. These companies are subject to the provisions of the Companies Act concerning corporate governance, financial reporting, and regulatory compliance. Public sector companies listed on stock exchanges also follow the guidelines of the Securities and Exchange Board of India (SEBI).

Public Accountability Mechanisms

Public undertakings are subject to various accountability mechanisms to ensure transparency, efficiency, and responsibility in their operations:

• Comptroller and Auditor General of India (CAG): The CAG conducts audits of public undertakings to ensure that public resources are used efficiently and that financial practices adhere to sound principles. The CAG’s reports are submitted to Parliament for review.
• Parliamentary Control: Public undertakings are accountable to Parliament through mechanisms such as questions, discussions, and the Committee on Public Undertakings (established in 1964). The Committee reviews the reports of public undertakings and ensures that they are operating in the public interest.
• Judicial Control: Public undertakings are subject to judicial scrutiny under Articles 226, 227 (High Courts) and Article 32 (Supreme Court) of the Constitution. Courts can intervene if a public undertaking violates constitutional rights or engages in ultra vires (beyond its legal authority) actions.

Role of Public Undertakings in Administrative Law

Public undertakings play a critical role in administrative law by performing functions traditionally associated with government administration while operating with the efficiency and flexibility of a private entity. This hybrid nature requires a delicate balance between autonomy and accountability, which is reflected in the legal provisions governing their creation, operation, and oversight.

Implementation of Government Policies

One of the primary roles of public undertakings is the implementation of government policies, particularly in sectors deemed strategic or vital for national development. For instance, public sector enterprises in industries like oil and gas, steel, and telecommunications have played a crucial role in ensuring self-sufficiency and promoting industrial growth. These undertakings are often the instruments through which the government fulfills its economic and social objectives, such as poverty alleviation, employment generation, and infrastructure development.

Public Service Provision

Public undertakings also serve as providers of essential public services, such as electricity, transportation, and healthcare. Entities like the National Thermal Power Corporation (NTPC) and the Indian Railways have a monopoly in their respective sectors and are responsible for ensuring that essential services are delivered to the public at affordable prices. The provision of these services is often accompanied by a public service obligation, meaning that the undertakings must prioritise service delivery over profit maximisation.

Autonomy and Government Control

A key aspect of public undertakings in administrative law is their semi-autonomous nature. While they enjoy operational independence, they remain subject to government oversight in policy matters. This balance is intended to allow public undertakings to operate with the efficiency of a private business while ensuring that they remain aligned with national priorities.

However, excessive government control can sometimes undermine the autonomy of public undertakings, leading to inefficiency and bureaucratic delays. The Mundhra Affair (1958), a scandal involving the misuse of public funds in a public undertaking, highlighted the dangers of inadequate government oversight and led to reforms aimed at strengthening accountability mechanisms.

Control Mechanisms Over Public Undertakings

Public undertakings, despite their autonomy, are subject to various forms of control to ensure they operate in the public interest. These control mechanisms include:

Parliamentary Control

Parliamentary control over public undertakings is exercised through the submission of annual reports and the auditing of their accounts by the CAG. Parliamentary committees, such as the Public Accounts Committee (PAC) and the Committee on Public Undertakings (CPU), play a crucial role in scrutinising the performance of these enterprises and ensuring that public funds are used appropriately.

Government Control

The government exercises control over public undertakings through its power to appoint key officials, approve budgets, and issue directives on policy matters. Government control is particularly strong in financial matters, where public undertakings must seek approval for major investments and borrowing. This control ensures that public undertakings remain aligned with national economic and social objectives.

Judicial Control

Public undertakings are subject to judicial review under the Constitution. Courts can intervene if a public undertaking violates constitutional provisions, engages in unlawful activities, or acts beyond its statutory powers. The landmark case of Rajasthan State Electricity Board v. Mohanlal (1967) established that public undertakings are “other authorities” under Article 12 of the Constitution, meaning they are subject to fundamental rights and judicial scrutiny.

Public and Regulatory Control

In addition to government and judicial oversight, public undertakings are also accountable to the public and regulatory bodies. Public undertakings in sectors like telecommunications, banking, and insurance are subject to regulation by independent authorities such as the Telecom Regulatory Authority of India (TRAI) and the Insurance Regulatory and Development Authority of India (IRDAI). These regulatory bodies ensure that public undertakings adhere to industry standards and operate in the public interest.

Challenges Facing Public Undertakings

Despite their importance in administrative law and national development, public undertakings face several challenges, including:

• Inefficiency and Bureaucracy: Public undertakings often suffer from inefficiency due to bureaucratic delays, political interference, and rigid administrative structures. The lack of competition in some sectors also leads to complacency and poor service delivery.
• Financial Losses: Many public undertakings, particularly those providing essential services, operate at a loss due to their public service obligations. This places a financial burden on the government and raises questions about the sustainability of some public enterprises.
• Privatisation and Disinvestment: In recent years, there has been a push for the privatisation and disinvestment of public undertakings to improve efficiency and reduce the fiscal burden on the government. However, this has raised concerns about the potential loss of public control over strategic sectors and the impact on employment and service delivery.

Conclusion

Public undertakings occupy a unique position in administrative law, serving as instruments of government policy while operating with the flexibility of private enterprises. Their legal framework, characterised by statutory creation, autonomy, and accountability, reflects the need to balance public service with efficient management. 

While public undertakings have been essential to India’s development, they face challenges related to inefficiency, financial sustainability, and the growing trend of privatisation. The legal mechanisms governing public undertakings, including parliamentary, government, judicial, and public controls, ensure that they remain accountable to the state and the public while fulfilling their role in the nation’s economic and social development.