INDIA BUSINESS WORLD - NOVEMBER 2005
THE MONTH THAT WAS

LAW MINISTRY NOT TO AMEND ARTICLE 12

The Law ministry has rejected the proposal to amend Article 12 of the constitution for redefining a Public Sector Enterprise (PSE). The amendment had been sought to empower the PSE management to take decisions without running the risk of being challenged in the court. As of now, decisions by the state-run companies are liable to be challenged by an employee in court.

The recommendation made by the AGE (ad hoc group of experts) under ex-Planning Commission member Arjun Sen Gupta was forwarded by the department of public enterprises (DPE) to the law ministry for its comments.
"The law ministry has said it is not feasible. The fundamental basics on which the entire structure rests cannot be changed. It will be taken up in the Cabinet later," said a government official.

The amendment was sought to seek greater autonomy for the management of public companies that lose out vis a vis private sector companies. The move was considered necessary to increase competitiveness of state run companies in the wake of increased globalisation and liberalisation. In the absence of a distinction between the government per se and public enterprise, employees have the right to question individual actions and decisions of the management of PSEs in a way similar to actions taken against the state.
At present, public enterprises are declared to be an extension of the 'state' under Article 12 of the constitution. In other words, government enterprises can function only as government departments and in accordance with the modalities similar to government administration which impedes decision making in PSEs. This situation undermines the entrepreneurial and commercial functioning of public enterprises, putting them at a disadvantage vis a vis their private sector counterparts.

A suggestion for inserting an explanation below Article 12 specifying that a company formed under the Companies Act, 1956 shall not be considered as 'state' was made in 1987. The law ministry had rejected the suggestion claiming that such an amendment would not be the answer to the difficulties faced by PSEs in matters relating to the award of contracts, rejection of tenders and service matters arising out of the applicability of Article 12.

The issue was taken up by the AGE which yet again reccomended a review of the definition of a public sector company.