Why the newly notified Civil Liability for Nuclear Damage Rules, 2011 are unjustified in principle and policy.
Prime Minister Manmohan Singh's statement following his meeting with President Obama in Bali, that any concerns the United States may have regarding India's nuclear liability regime would have to be resolved “within the four corners of the law” and in accordance with “the law of the land” was timely and assertive. It signalled that India would not be cowered into making legislative amendments to satisfy the demands of American nuclear suppliers, specifically regarding the controversial Section 17 of the Civil Liability for Nuclear Damage Act, 2010 (“Act”), dealing with the right of recourse. However, the statements were also slightly disingenuous, since beneath this strident posturing lay a much more accommodating and pliable policy position, best exemplified by Rule 24 on the right of recourse in the Civil Liability for Nuclear Damage Rules, 2011 (“Rules”), notified only a matter of days prior to the meeting. Not only does this rule fundamentally alter “the four corners of the law” that the Prime Minister referred to, it does so in a manner that ingeniously seeks to negate the effective will of Parliament, expressed in the Act passed last year with a large majority. In light of this significant impact that Rule 24 has, its exact terms need to be scrutinised carefully.
Rule 24 revisits the issue of the right of recourse contained in Section 17 of the Act, widely acknowledged as a major sticking point for nuclear suppliers. Crucially, sub-section (b) of Section 17 which allows operators recourse, i.e. to claim damages from suppliers when the nuclear accident happens owing to the fault of a supplier, such as a patent or latent defect or sub-standard services, caused particular consternation when the Act was passed. This was because Section 17(b) was not in conformity with the Convention on Supplementary Compensation for Nuclear Damage, which represents international best practice, and would consequently entail greater liability on suppliers. Its effect on suppliers would be all the more onerous owing to the vaguely worded Section 46, whose effect, if not its intention, was arguably to allow tort claims against operators in the event of a nuclear accident, which they could, in turn, claim from suppliers if the accident was caused due to the latter's fault. At the time of the passing of the Act however, the government and Parliament favoured retention of Section 17(b) in its current form, well aware of these concerns, since they reasoned that such a provision would afford greater protection to victims and conform with India's own fundamental principle of public policy of not providing immunity to those at fault, especially for those responsible for causing a disaster of the scale of a nuclear accident.
Rule 24 retracts from this position of high principle. It stipulates limits, both with regard to the amount for which suppliers can be held liable by way of recourse, as well as the number of years for which such liability can be imposed. It achieves this by making such limits on the availability of recourse, standard terms in the contract between the operator and the supplier, a position expressly permitted by Section 17(a) of the Act. It thus seeks to bypass both Section 17(b) and any effect Section 46 may have on supplier liability, rather than directly limit these provisions, a fairly ingenious solution that avoids any glaring illegality.
The government's underlying objective in passing such a rule is expressly clear. By limiting recourse in this manner, it is incentivising potential suppliers into stipulating a contractual provision for recourse in accordance with Rule 24, thereby diluting the onerous effect of Section 17(b) of the Act. Per se, such an objective is neither illegal nor unethical. If nuclear suppliers have genuine concerns which make the supply of equipment or material doubtful, then the government must respond appropriately and ensure that the legislation does not only espouse high principle, but is pragmatic and effective at the same time. However, what is alarming about this particular response is the extent to which Rule 24 panders to the purported grievances of nuclear suppliers, oblivious to strong public policy arguments to the contrary and flying in the face of the opinion of the majority of Parliament expressed last year.
Three concerns
Three key concerns make Rule 24 deeply problematic. First, it limits the amount which can be claimed by exercise of the right of recourse to the extent of the operator's liability or the value of the contract, whichever is less. This means, theoretically, that even if the damages paid by the operator to victims of a nuclear accident, owing to the fault of the supplier, run into crores of rupees, if the value of the contract is say one lakh rupees, the supplier will not be liable for anything more than the value of the contract. This is an indefensible proposition as it allows suppliers to split large contracts into several smaller-value contracts thereby effectively limiting their liability. Besides, when damages to be paid by the supplier by way of recourse are to be computed, the only relevant amount is what has been paid by the operator by way of damages to the victims. A criterion such as the value of the contract has no rational nexus with the object sought to be achieved and ought to have no role in limiting supplier liability.
Second, the Rule limits the time during which the right of recourse is available to operators to the product liability period in the contract or the period of initial licence issued under the Atomic Energy Rules, 2004 (a maximum period of 5 years), whichever is higher. In this regard, making the time contingent on a contractual provision of product liability is highly questionable, since suppliers, who enjoy a stronger bargaining position, can manoeuvre operators into greatly reducing such liability periods. Even otherwise, the five-year outer limit presents an arbitrary limitation of time. Suppose, a major nuclear accident is caused due to the fault of the supplier eight years after the supply (well within the life-cycle of the nuclear plant): the supplier, albeit at fault, cannot be held liable. To allow suppliers to go scot-free despite being at fault owing to an arbitrary time limitation goes squarely against the public policy of any state that claims to uphold the rule of law and fails to deter unreliable and untested supplies.
Attempt to limit supplier liability
Finally, this Rule represents an arguably illegal backdoor attempt to limit supplier liability owing to recourse. Legally, there is no specific warrant in the Act to prescribe rules regarding the right of recourse. Though Rules can be formulated for “carrying out the purpose of this Act” it is difficult to argue that contractually limiting the right of recourse is a “purpose of the Act” which these rules are filling in the details for. Even otherwise, the Supreme Court has held that in the absence of a specific warrant, delegated legislation (rules) “cannot be so exercised as to bring into existence substantive rights or obligations or disabilities not contemplated by the provisions of the Act itself” (Kunj Bihari Butail v. State of Himachal Pradesh, AIR 2000 SC 1069). Rule 24 clearly specifies a substantive limitation that operates as a disability on operators seeking to claim recourse, and such a limitation is not contemplated by the Act. On the contrary, the Act specifically omits to mention any limitations whatsoever regarding the exercise of the right of recourse, despite several proposals to this effect having been suggested.
One would have hoped that having passed an Act that unequivocally privileges India's public policy of holding suppliers at fault liable for damage caused by their acts over the interests of nuclear suppliers in limiting their liability, the government would have had the gumption to stick to its articulated policy position. Rule 24 however represents an unfortunate, yet somewhat inevitable volte face caused seemingly by considerable international pressure on the government. It is essential that Parliament, which has 30 days to approve of the Rules, rejects Rule 24 in its current form and displays the gumption that the government lacks. The country cannot allow such a dangerous sleight of hand to become ‘the law of the land.'
(Arghya Sengupta is pursuing his D.Phil. in Indian constitutional law at the University of Oxford and is the founder of a think-tank The Pre-Legislative Briefing Service.)
Keywords: nuclear liability, nuclear damage rules
Comments:
The nuclear equipment suppliers are like the car manufacturers. No body can hold the car manufacturer liable for accidents on the road because of the negligent driving, inappropriate road construction, or poor maintenance of the road or the car. The maintenance of any equipment is the responsibility of the operator with the assistance of the supplier. It is not justifiable that the supplier of any equipment is liable for unlimited time and monetary damages for accidents if the operator of the equipment grossly ignore the maintainence and repair of the equipment. The nuclear equipment supplier agrees to liability for the accident limited for specific monetary amount and time, if the equipment is at fault. The damages are to be assessed by a neutral agency other than the supplier or the operator of the nuclear plant, in case of a nuclear accident. Why India cannot accept the international Convention on Supplementary Compensation for Nuclear Damage?
Well that's pretty much a gist of disaster in making by Govt. Of India. Like the author, I too hope that parliament thwart this attempt of Govt. to almost dilute clause 17(b) of nuclear liability act. Thanks to author to bring all these point to our notice which many of us were not aware of.
Limiting recourse to initial licensing period (5 yrs max) does not seem to have a technical basis. License to operate a plant would be given for the shortest practical time so that Regulator may periodically review plant performance and re-issue the license, if acceptable, while liability period should be as long as possible to cover for delayed discovery of latent defects, as is common in nuclear tech. On occasion, Regulator may even have reasons to adopt a watch & monitor policy, and initially license the plant for only (say) 3 years. In this case nuclear liability would be only 3 years!
If liability is to be same as quoted Supplier guarantee period, then Buyer (NPCIL) must be enjoined to stipulate in each and every bid document, the technically appropriate minimum required guarantee period. By Clause 35 of the Act it seems that even SC cannot go into the Commission's adjudications. Implications of this need some elaboration for one who is not an expert in legal wordings.
Thanks to author for bringing the provisions of various clauses to public notice.Many people may not be aware of detailed provisions of clause-24,which revisits and proposes limits on the right of recourse of operators as it is depicted in this article.Now one must admit that this national security issue regarding safety of Nuclear plants is not a trivial one which can be walked on the soft rules framed on the liabilities and accountable accounts.It is deplorable that when one strong consensus was formed on the provisions on clause-17(b),another clause-[24] ,diluting the provisions of 17(b) is inserted to sooth the international players.One can argue that "suppliers can not be held accountable for unlimited time" but one must think for "the strong liability framework",which other countries also enforce on suppliers.In the context of catastrophic dangers of nuclear accidents,We must enforce strong policy rules,having the capacity to drag suppliers out of their comfort zone.
I strongly feel that nuclear energy is the need of the hour. nothing survives without energy. but not at all at the cost of poor people. why is it so that it is always a poor man who is put at peril. offcourse there need to be a time limit but a reasonable one, taking life span of the plant. and a cap on the extent of liability is also justified. but it should be a reasonable cap taking into consideration the number of the people surrounding the area of the plant. the plant must not be placed in a seismic zone.
thank you.
It is very bad on the part of the indian govt. that signs this type of
agreements. This government always try to deceive own people.
The main purpose of the law and the rules is that victims get
compensation, in the event of damage to property etc resulting from
nuclear accident in hassle free environment and without proving the
fault.This is retained in tact. The artcle 46 controversy is too add
the confusion. This was there before the law and is applicable after
the new law. The liability law is in addition to other national laws,
tort included.The law is applicable for all reactors indigenous or
foreign. There are hundreds of India suppliers for equipment/ services
etc. How can each one then be asked to provide for recourse
liability.it is not clear from the article how splitting in smaller
contracts would reduce the liability. Imagine a contract of 1800 crore
with a recourse liability of 1500 crore. Splitting in two contracts of
900 crore would take the total recourse to 1800 crore which is not a
reduction.The rules are balanced and fair both to suppliers and
operators.
Well-written piece. The volte-face on the part of the government was inevitable. The pressure on the centre to acquiesce to Western demands is immense. There is a recognition, both by the government AND by the Americans, of the need for energy for India's development. This screaming need for energy makes the Indian government more pliable to American assertiveness. The centre has perhaps turned a blind eye to the concerns of the public vis-a-vis the Bhopal disaster. Justice has yet to be served in that case. Under the current Nuclear Liability rules proposed a similar miscarriage of justice could take place. Of course, the supplier cannot be indefinitely held responsible for equipment failures. Perhaps a decade is a sufficiently long insurance period. And of course the maximum monetary liability ought to be realistic given the possible fallout of a nuclear disaster.
It is high end corruption to deceive people and nation.
The matter needs to be debated.
I am not sure whether the leading political parties like BJP,BSP,SAPA of
Mulayam singh,NCP,etc are keen to interfere for their known affiliations
and weaknesses.Only NGOs and leading Citizens only can take up the
issue.
Pl do not believe the PM and his political group on this issue.
One pertinent fact to note is the Japanese Govt's own estimate of all round damages in the Fakushima disaster is US$64 billion! And Indian Govt is limiting the liability ( at max) to $300 million! Since most of the key Indian personalities involved in the framing of rules/laws may not be around after 8-10 years ( since all are so old, many 70+)the poor victims of any accident, God forbid, won't see these people. Let us recall how the GOI negotiatd a measly compensation from Union Carbide after the Bhopal disaster. Let us also note that even highly disciplined western countries like Germany have resolved to shut down all nuclear plants and never to launch a nuclear reactor, given the gravity of safety concerns. Then how can a loosely administered country like India take bigger risks having nuclear reactors, especially when our track record with disaster management/ reliefs is pathetic ( ref. Bhopal disaster, 2004 Tsunami, Sikkim earthquakes, etc)
Some body should file a PIL in Supreme Court to declare the rules repugnant to the Civil Liability for Nuclear Damage Act, 2010 (“Act”).
When rule is in conflict the LAW, the law shall prevail.
The author, while making points that appear to hold well in legalese, is ignoring economics and basics of modern business decision making. No major international supplier would expose itself to unlimited liability over an unlimited period of time as seems to be the intent of the original law passed by the parliament. Let us say if a disaster does take place, what do we expect to happen? Take the BP Deepwater example, while the public would file claims agains the operator, the operator would like to point at vendors and other partner entities. Such incidents almost always go to arbitration courts and eventually blame tends to get spread on all entities as it is extremely difficult to track back at a single source after an explosion or a meltdown. Safety experts will actually tell you that in modern systems and processes, there are so many safeguards that it actually has to be a series of ignoring warnings to result in a disaster. How then do you expect the vendors to accept this?
The estimated total damage of $67 billion due to Fukushima nuclear disaster in Japan is not comparable to the liability limit of $300 million against the nuclear equipment suppliers because (1) the estimated damages in Japan is not limited to the nuclear equipment suppliers,(2) the GDP of Japan is several times that of the GDP of India,(3)the Japanese government is liable for permitting the approval of the nuclear plant in a seismic and tsunami prone area and (4) the infra-structure damages caused in Japan is several times more than the possible infra structure damages in India. Internationl liability limitation is not exclusive for nuclear equipment suppliers. The purchase of civilian aircraft does not even require liability clause for monetary damages or duration applicable for damage claim but the Internationl Civil Aviation Convention limit the liability to the operator of the aircraft whether the accident is due to poor maintenance, weather, equipment failure or human error.
This is the government which callously allowed Union Carbide to go not only scot free but gave the company's CEO a royal send off after thousands of people died and more dying long after the deadly gas leak and which is now almost in the process of ensuring that more people will die without anyone being held liable.This government which has already forfeited its right to continue governing is now attempting to ram Rule 24 down the nation's throat and may well succeed.If it does,then there is only one last alternative left for the people to nullify the action and that is to protest strongly like the people of Jaitapur in Maharashtra,Koodankulam in TN and every place where the government is planning to set up nuclear power plants and stop it from doing so.Human lives are not as cheap as the government thinks.
If a rule and an act contradict with each other, as is the case with
Rule 24 and the Act itself, the Act prevails - does it not?
Well argued piece. Regardless of what one thinks of the merits of nuclear power, the rules should not undermine the Act they are meant to implement.
Cars, aircrafts or any equipment manufacturer have guarentees for a limited period and/or mileage within which period the manufacturer of the equipment will fix any equipment problem free of cost or replace the equipment. The equipment manufacturer is liable for the accident due to equipment failure within the guarantee period. The IAEA is the final authority to inspect the nuclear plants to assure the safety. The IAEA is the final arbitrator to determine the cause of the nuclear accident. There is international convention of nuclear nations to cover the damages due to nuclear accidents, if the country cannot afford to pay the damages. The government is liable for damages due to nuclear accidents in a populated area because the government licensed the nuclear plant in the populated area. Can the government prevent the population moving closer to the nuclear plants after licensing the nuclear plant in a non-populated area?