Public Company

The forms of organisation which a public enterprise may take are as follows:

(i)                 Departmental undertaking

(ii)               Statutory corporation

(iii)             Government company

 

1.  Departmental Undertakings

This is the oldest and most traditional form of organising public enterprises. These enterprises are established as departments of the ministry and are considered part or an extension of the ministry itself. The Government functions through these departments and the activities performed by them are an integral part of the functioning of the government. They have not been constituted as autonomous or independent institutions and as such are not independent legal entities. They act through the officers of the Government and its employees are Government employees. These undertakings may be under the central or the state government and the rules of central/state government are applicable. Examples of these  undertakings are railways and post and telegraph department.

Features

 The main characteristics of Departmental undertakings are as follows:

(i)                 The funding of these enterprises come directly from the Govern[1]ment Treasury and are an annual appropriation from the budget of the Government. The revenue earned by these is also paid into the treasury

(ii)                They are subject to accounting and audit controls applicable to other Government activities

(iii)             The employees of the enterprise are Government servants and their recruitment and conditions of service are the same as that of other employees directly under the Government. They are headed by Indian Administrative Service (IAS) officers and civil servants who are transferable from one ministry to another

(iv)             It is generally considered to be a major subdivision o f the Government department and is subject to direct control of the ministry

(v)               They are accountable to the ministry since their management is directly under the concerned ministry.

 

Merits

 Departmental undertakings have certain advantages which are as follows:

(i)                 These undertakings facilitate the Parliament to exercise effective control over their operations

(ii)               These ensure a high degree of public accountability

(iii)             The revenue earned by the enterprise goes directly to the treasury and hence is a source of income for the Government

(iv)             Where national security is concerned, this form is most suitable since it is under the direct control and supervision of the concerned Ministry.

 

Limitations

 This form of organisation suffers from serious drawbacks, some of which are as follows:

(i)                 Departmental undertakings fail to provide flexibility, which is essential for the smooth operation of business

(ii)               The employees or heads of departments of such undertakings are not allowed to take independent decisions, without the approval of the ministry concerned. This leads to delays, in matters where prompt decisions are required

(iii)             These enterprises are unable to take advantage of business opportunities. The bureaucrat’s over-cautious and conservative approval does not allow them to take risky ventures

(iv)             There is red tapism in day-to-day operations and no action can be taken unless it goes through the proper channels of authority

(v)               There is a lot of political interference through the ministry

(vi)             These organisations are usually insensitive to consumer needs and do not provide adequate services to them.

Statutory Corporations

Statutory corporations are public enterprises brought into existence by a Special Act of the Parliament. The Act defines its powers and functions, rules and regulations governing its employees and its relationship with government departments. This is a corporate body created by the legislature with defined powers and functions and is financially independent with a clear control over a specified area or a particular type of commercial activity. It is a corporate person and has the capacity of acting in its own name. Statutory corporations therefore have the power of the government and considerable amount of operating flexibility of private enterprises.

Features

 Statutory corporations have certain distinct features, which are discussed as below:

(i)                 Statutory corporations are set up under an Act of Parliament and are governed by the provisions of the Act. The Act defines the objects, powers and privileges of a statutory corporation

(ii)               This type of organisation is wholly owned by the state. The government has the ultimate financial responsibility and has the power to appropriate its profits. At the same time, the state also has to bear the losses, if any

(iii)             A statutory corporation is a body corporate and can sue and be sued, enter into contract and acquire property in its own name

(iv)             This type of enterprise is usually independently financed. It obtains funds by borrowings from the government or from the public through revenues, derived from sale of goods and services. It has the authority to use its revenues

(v)               A statutory corporation is not subject to the same accounting and audit procedures applicable to government departments. It is also not concerned with the central budget of the Government

(vi)             The employees of these enterprises are not government or civil servants and are not governed by government rules and regulations. The conditions of service of the employees are governed by the provisions of the Act itself. At times, some officers are taken from government departments, on deputation, to head these organisations.

 

Merits

 This form of organisation enjoys certain advantages in its working, which are as follows:

(i)                 They enjoy independence in their functioning and a high degree of operational flexibility. They are free from undesirable government regulation and control

(ii)               Since the funds of these organi[1]sations do not come from the central budget, the government generally does not interfere in their financial matters, including their income and receipts

(iii)             Since they are autonomous organisations they frame their own policies and procedures within the powers assigned to them by the Act. The Act may, however, provide few issues/ matters which require prior approval of a particular ministry

(iv)             A statutory corporation is a valuable instrument for economic development. It has the power of the government, combined with the initiative of private enterprises.

 

Limitations

 

 This type of organisation suffers from several limitations, which are as follows:

(i)                 In reality, a statutory corporation doesnot enjoy asmuchoperational flexibility as stated above. All actions are subject to many rules and regulations

(ii)               Government and political interference has always been there in major decisions or where huge funds are involved

(iii)             Where there is dealing with public, rampant corruption exists

(iv)             The Government has a practice of appointing advisors to the Corporation Board. This curbs the freedom of the corporation in entering into contracts and other decisions. If there is any disagreement, the matter is referred to the government for final decisions. This further delays action.

Government Company

 A government company is established under The Companies Act, 2013 and is registered and governed by the provisions of The Act. These are established for purely business purposes and in true spirit compete with companies in the private sector. According to the section 2(45) of the Companies Act 2013, a government company means any company in which not less than 51 per cent of the paid up capital is held by the central government, or by any state government or partly by Central government and partly by one or more State governments and includes a company which is a subsidiary of a government company. Under the Companies Act 2013, there is no change in the definition of a company. All provisions of the Act are applicable to government companies unless otherwise specified. A government company may be formed as a private limited company or a public limited company. There are certain provisions which are applicable to the appointment/retirement of directors and other managerial personnel. From the above it is clear that the government exercises control over the paid up share capital of the company. The shares of the company are purchased in the name of the President of India. Since the government is the major shareholder and exercises control over the management of these companies, they are known as government companies.

Features

 Government companies have certain characteristics which makes them distinct from other forms of organisations. These are discussed as follows:

(i)                 It is an organisation created under the Companies Act, 2013 or any other previous Company Law.

(ii)               The company can file a suit in a court of law against any third party and be sued

(iii)             The company can enter into a contract and can acquire property in its own name

(iv)             The management of the company is regulated by the provisions of the Companies Act, like any other public limited company

(v)               The employees of the company are appointed according to their own rules and regulations as contained in the Memorandum and Articles of Association of the company. The Memorandum and Articles of Association are the main documents of the company, containing the objects of the company and its rules and regulations

(vi)             These companies are exempted from the accounting and audit rules and procedures. An auditor is appointed by the Central Government and the Annual Report is to be presented in the Parliament or the State Legislature

(vii)           The government company obtains its funds from government shareholdings and other private shareholders. It is also permitted to raise funds from the capital market.

Merits

Government companies enjoy several advantages, which are as follows:

(i)                 A government company can be established by fulfilling the requirements of the Indian Companies Act. A separate Act in the Parliament is not required

(ii)               It has a separate legal entity, apart from the Government

(iii)             It enjoys autonomy in all management decisions and takes actions according to business prudence

(iv)             These companies by providing goods and services at reasonable prices are able to control the market and curb unhealthy business practices.

Limitations

 Despite the autonomy given to these companies, they have certain disadvantages:

(i)                 Since the Government is the only shareholder in some of the companies, the provisions of the Companies Act does not have much relevance

(ii)               It evades constitutional responsibility, which a company financed by the government should have. It is not answerable directly to the Parliament

(iii)              The government being the sole shareholder, the management and administration rests in the hands of the government. The main purpose of a government company, registered like other companies, is defeated.