Transport Secretary Chris Grayling is being threatened with legal action over his handling of the failed East Coast rail franchise.
A group which campaigns for the re-nationalisation of Britain's railways claims it will seek a judicial review unless the companies which own Virgin Trains East Coast are banned from bidding for future train contracts.
Bring Back British Rail has instructed lawyers to write to Mr Grayling with a request to confirm whether "the costs of terminating the franchise have in fact been met or could be expected to be met by the fulfilment of Stagecoach's obligations".
A Department for Transport spokesman said: "There is no basis for legal action. Virgin Stagecoach have met all of their financial commitments as set out in the East Coast franchise agreements."
In November 2014 Virgin Trains East Coast - a joint venture between Stagecoach (90%) and Virgin (10%) - was awarded the franchise to run trains on the line between London King's Cross and Edinburgh for eight years.
Stagecoach reported losses on the line and in November last year Transport Secretary Chris Grayling announced the franchise would be terminated in 2020 to enable it to become a public-private railway.
But in February Mr Grayling told the Commons the franchise would only be able to continue in its current form for a "very small number of months".
He said Stagecoach had "got its numbers wrong" and had "overbid", with Labour describing the decision as a "bailout".
Ellie Harrison of Bring Back British Rail said the East Coast franchise is a "fiasco" which "exemplifies the problems" of privatisation.
She went on: "The current Virgin Trains East Coast franchise has failed within three years yet the Secretary of State for Transport Chris Grayling is allowing its operators, Stagecoach and Virgin, to simply walk away, free to bid for rail franchises again.
"We want an investigation and we want action to stop this happening again."
The group has raised almost £7,000 in support of its legal campaign.
Rosa Curling, of law firm Leigh Day which is representing Bring Back British Rail, said its client will have "no option but to seek the court's intervention" if Mr Grayling refuses to stop Stagecoach and Virgin from bidding for more rail franchises.