Claims that former Transport Secretary Stephen Byers deliberately pushed Railtrack into administration have not been proven, the High Court has heard.
Mr Byers had the public's interest in mind, asserts QC
Railtrack bosses and their "remarkable history of mismanagement" were to blame, Jonathan Sumption, QC for the Department of Transport said.
The case rested on whether Mr Byers had acted "maliciously" against investors or in the public interest, he added.
Shareholders allege that the government deliberately allowed the firm to fail.
More than 48,000 investors launched the case, accusing Mr Byers of taking action in a deliberate effort to avoid paying compensation to Railtrack's shareholders. The group are demanding a payout of £157m ($271.5m).
However, Mr Sumption denied the claims, arguing that Railtrack's managers "borrowed money on a scale which swamped the value of the company".
Mr Byers, faced with making a "classic policy decision", had put the interests of rail travellers and the taxpayer before the interests of shareholders in a private company when he called the administrators into Railtrack in October 2001, Mr Sumption said.
He added that it was for the judge to decide whether the insolvency of Railtrack was the result of, or the cause of, Mr Byers's decision to seek administration.
If no malice was proved against Mr Byers, then the action would have failed, Mr Sumption added.
The case continues on Thursday with final submissions on behalf of shareholders.