National Litigation Policy: Need of the Hour
With several distinctive features, Bharat is also famous for prolonged, repetitive and frivolous litigations. In fact, one of the major impediments or deterrents to FDI and ease of doing business in Bharat is its time-consuming judicial system. Today, the Judicial system in Bharat is clogged with crores of pending cases, i.e., 4,46,05,238 as of 27th October, 20231 at the District and Taluka levels only, out of which more than one lakh cases are 30 years old, as per the National Judicial Data Grid. Majority of these cases (75.11 per cent) are criminal cases, and the balance are civil cases. The total number of cases pending at various High Courts is 61.66 lakhs, and at the Supreme Court, it is 0.79 lakhs. This shows how alarming the situation is.
1 https://njdg.ecourts.gov.in/njdgnew/index.php
In 2022, Former Chief Justice of India, Shri N. V. Ramana2 said, “It is a well-acknowledged fact that governments are the biggest litigants, accounting for nearly 50 per cent of the cases.” Even though the exact number of cases where the Government is a party cannot be known in the absence of data, it is an accepted fact that the government is the biggest litigant in India. Recently, the division bench headed by the CJI of Delhi High Court, in the case of UOI vs. Kiran Kanojia3 and other appeals, observed that “the overwhelming majority of cases currently clogging the judicial system involve either the Central Government, State Governments, or public sector undertakings (PSUs).”
2 Speaking at the Joint Conference of Chief Ministers and Chief Justices of High Courts
3 FAO 265/2014, CM APPL. 39547/2019 Judgement date 22nd September 2023
The former Finance Minister and former President of India, Bharat RatnaPranab Mukherjee4, said, “One area of concern is litigation with taxpayers. The (Income-tax) Department is filing appeals in a routine manner without careful thought and examination, leading to the Department earning the dubious distinction of being the biggest litigant in the Government of India.” Coming down heavily on frivolous cases, in May 2023, a bench headed by Justice B. R. Gavai verbally observed that at least 40 per cent of litigation filed by Central and State Governments is frivolous. Thus, the issue is not only of a large number of cases by the Government but also of them being frivolous and unjust in nature. In Urban Improvement Trust, Bikaner vs. Mohan Lal5, the Supreme Court observed that “It is a matter of concern that such frivolous and unjust litigation by governments and statutory authorities are on the increase. Statutory Authorities exist to discharge statutory functions in public interest. They should be responsible litigants. They cannot raise frivolous and unjust objections, nor act in a callous and highhanded manner.” Unfortunately, Government officials get away with frivolous claims as there is no accountability on their part. Notably, the States of Sikkim and Haryana have implemented rules / policies to hold Government officials accountable for lapses resulting in failure of cases.
4 Speaking at the 150th Anniversary of Income Tax in India in 2010
5 (2010) 1 SCC 512. Special Leave Petition[C] 29852 OF 2009 [CC NO.11768] dated 30.10.2009
It is not that the Government is not aware of this sorry state of affairs. In a pivotal move to tackle this issue, the “National Litigation Policy, 2010” (NLP) was formulated. However, unfortunately, this policy was never implemented. There were plans to introduce a revised NLP in 2015, but this, too, is yet to be implemented. On 13th June, 2017, the Government formulated the “Action Plan to Reduce Government Litigation.” This plan emphasises that appeals should only be filed in cases which touch upon significant policy matters and vexatious litigation should be promptly withdrawn. However, practical experience suggests that this, too, is not followed by Government officers. The Government came out with the “Vivad Se Vishwas” Scheme to reduce the pendency of litigation; however, it did not get the desired response for various reasons.
Regarding reasons for the Government being the biggest litigant, the Supreme Court, in Urban Improvement Trust (supra), noted as under:
“Unwarranted litigation by Governments and statutory authorities basically stems from the two general baseless assumptions by their officers. They are: (i) All claims against the Government / statutory authorities should be viewed as illegal and should be resisted and fought up to the highest court of the land.
(ii) If taking a decision on an issue could be avoided, then it is prudent not to decide the issue and let the aggrieved party approach the court and secure a decision.
The reluctance to take decisions, or tendency to challenge all orders against them, is not the policy of Governments or statutory authorities but is attributable to some officers who are responsible for taking decisions and / or officers in charge of litigation. Their reluctance arises from an instinctive tendency to protect themselves against any future accusations of wrong decision-making, or worse, of improper motives for any decision-making. Unless their insecurity and fear is addressed, officers will continue to pass on the responsibility of decision-making to courts and tribunals.”
In order to monitor the cases involving the Central Government, a portal called LIMBS — Legal Information Management and Briefing System is established. Currently, LIMBS is showing that 6.75 lakh cases involving the Central Government remain pending. This shows the dire need for a well-thought-out strategy to reduce litigation.
A step towards the reduction of tax litigation was taken by the CBDT in 20186 by increasing the monetary limits for filing Departmental Appeals. The present limit before the ITAT stands at Rs. 50 lakhs; before the High Court — Rs. One Crore and before the Supreme Court — Rs. Two Crore.
6 CBDT Circular No. 3 of 2018 dated 11th July, 2018
Almost 96 per cent of direct tax collection is by way of voluntary payments by taxpayers in the form of Advance Tax, Self-Assessment Taxes, TDS and TCS, where there is no cost of collection to the Government, but the taxpayers bear high compliance costs. Ironically, instead of thanking taxpayers for their services in tax collection, they are penalised heavily and threatened with prosecution even for minor and technical lapses. This increases litigation and harassment of honest taxpayers. The tendency to reopen cases based on change of opinion, interpretation, audit objections (often unjustified), retrospective amendments to tax laws, or decisions favouring Revenue, etc. leads to a plethora of cases. The recent spate of reopening of cases under section 148 of the Income-tax Act is a glaring example. The recent ruling by the Apex Court in the case of Nestle and others regarding giving effect of an MFN Clause in a tax treaty will surely result in a flood of fresh litigation. Isn’t it strange that all these litigations and heart burns are only to collect remaining 4 per cent of revenue.
The clogging of cases in Indian courts is a complex issue. It requires a multi-pronged strategy. There is an immediate need for a comprehensive National Litigation Policy with a definitive timeline for its implementation, along with provisions for accountability of Government Officials for frivolous and unjust applications. On the other hand, Government Officials should be empowered to take bold decisions in favour of taxpayers / citizens without fear or favour. CAG Audit objections, which are at times contrary to the law laid down by the Courts, need not be acted upon where the tax authority and his superior are of the view that no mistake has been committed. The launch of a Faceless Assessment Scheme is a step in that direction. Besides, there is a need to change the mindset on the part of officers. The Government should promote Alternative Dispute Resolution methods to reduce litigations coming to courts and expedite the decisions. When a court decision, contrary to the view taken by courts in the past, which will have large-scale repercussions on past assessments, is passed, the CBDT, in the interests of stability of business, should take a pragmatic view and implement that decision prospectively. There is a need to increase the overall efficiency in working of the judicial system by cutting the number of holidays, removing vacations, filling up vacancies and so on. In short, comprehensive Judicial reforms, along with stable, simple and pragmatic laws, can help reduce litigation and make the lives of citizens easy.
Wish you all the best wishes for a happy Deepavali and a Happy New Samvat Year, 2080!
