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Updated: September 20, 2013 02:04 IST

Don’t waver now on nuclear liability

    Mohit Abraham
    M. P. Ram Mohan
Comment (16)   ·   print   ·   T  T  

India’s Civil Liability for Nuclear Damages Act, 2010 (the Act), was a watershed moment in international nuclear liability jurisprudence because of the unique way in which it dealt with supplier liability. Up until this enactment, all liability in relation to a nuclear power plant was channelled exclusively to the operator. The only two situations in which a operator could claim a subsequent right of recourse against a supplier under international liability law as well as under domestic law of other countries were i) where the nuclear incident arose out of an act or omission by the supplier with an intent to cause damage (which is covered under Section 17(c) of the Act); and ii) a contractual right of recourse (which is covered under Section 17(a) of the Act).

The Act however, also introduced a novel concept of supplier liability in Section 17(b) by which the operator would have the ability to reclaim any compensation it may pay, from a supplier, if the product supplied has patent or latent defects or the service provided is substandard.

Section 17(b)

This expanded concept of supplier liability is vehemently resisted by major supplier countries including the United States, Russia and France, on the ground that these provisions are not consistent with international norms pertaining to nuclear liability. Parliament, however, deemed it fit to deviate from these international norms owing to India’s history with industrial accidents, particularly the Bhopal gas tragedy, and felt that this additional requirement contained in Section 17(b) was necessary in the Indian context.

Recent news reports (19 September 2013, The Hindu) now indicate that the Attorney General has provided a legal opinion to the government opining that Section 17(a) provides for a right of recourse if such right is expressly provided for in a contract in writing and the operator is therefore free to choose not to incorporate such a provision in its contract with the supplier. It is understood that the opinion goes on to confirm that the operator can either incorporate a clause in the contract to cover the right of recourse under Section 17 or can waive such a right. It is also understood that the Attorney General gave this opinion from a strictly legal point of view and not policy.

An important point to note here is that a plain reading of Section 17 seems to suggest that Section 17(a), (b) and (c) are distinctive and separate. Merely because a contractual right of recourse in terms of Section 17(a) has been used or not used by an operator in his contract with a supplier, would have no bearing on Sections 17(b) and (c). This argument is strengthened, as it would be unthinkable for the government to waive a right of recourse in situations covered under Section 17(c) that deals with causing of nuclear damage with an intent to cause such damage. In other words, hypothetically, can the operator take a stand that it would waive its right of recourse against a supplier who causes nuclear damage intentionally? The answer would obviously be no. Therefore, if the exclusion cannot be made for sub-clause (c), exclusion for sub-clause (b) is also not possible and Section 17(a) cannot be the basis for reading such a right of waiver.

Another point to note is that in India, the nuclear operators, viz. the Nuclear Power Corporation of India Limited (NPCIL) and the Bhartiya Nabhikiya Vidyut Nigam Limited (BHAVINI), are wholly government owned. Therefore, the entire responsibility of setting up and running a nuclear power plant rests with these entities. Consequently, under nuclear liability laws, in the event of a nuclear accident, compensation that may be payable would have to be borne by these entities. Since these entities are government entities, the funding is also entirely by the government and, therefore, ultimately by the taxpayers of India. In this backdrop, can the Indian operator contractually agree with a supplier to waive its right of recourse under Section 17(b) of the Act to recover such compensation from a supplier who may have provided a component with “patent or latent defects”?

Unsustainable

A preliminary analysis suggests that it would be difficult to legally sustain such a blanket waiver. The law in relation to waiver of a statutory right is well settled. The Supreme Court of India has held that a statutory right in favour of a party can be waived by such party as long as no public interest or public policy is adversely affected (see for e.g. Krishna Bahadur v. Purna Theatres (2004)). If NPCIL were to waive its right to claim subsequent compensation against a supplier who has provided a product with a “patent or latent defect” or has provided “substandard service,” it would mean that the compensation is ultimately being footed by the taxpayer despite the fact that there is a law which enables NPCIL to seek such compensation from a negligent supplier. This would squarely be against public interest and appears to be legally unsustainable.

If Parliament, in its wisdom, has decided to introduce an expanded concept of supplier liability in the Act, it can also be argued that this forms part of the public policy of India — a consideration, which it is understood, is expressly excluded from the Attorney General’s legal opinion. Further, Section 23 of the Indian Contract Act, 1872 also provides that the consideration or objects of a contract would be unlawful if it would defeat the provisions of a law or is opposed to public policy. While a strong case can be made out that such waiver would defeat the provision of the Act, it can also be argued that it would be against the public policy of India. The Supreme Court in Rattan Chand Hira Chand v. Askar Nawaz Jung (1991) held that a contract which has a tendency to injure public interests or public welfare is one against public policy and what constitutes an injury to public interests or welfare would depend upon the times in which the issue arises. It is therefore important to remember that the ultimate interpretation of these provisions and contractual arrangements is going to be by an Indian court in the backdrop of a nuclear incident. In such a backdrop, it is more likely for an Indian court to adopt an interpretation that rejects an attempt at circumventing the provision of the Act by providing a waiver of a right of recourse, as this would be against public interest.

Parliament has framed a law that has an expansive concept of supplier liability and all entities, foreign or Indian, are subject to this law. If there were problems in the implementation of the law, then the right course would be for Parliament to amend such laws. The Act, as it stands, has various ambiguities in relation to the scope of supplier liability. These ambiguities are undoubtedly a hurdle for foreign suppliers and ought to be clarified or removed.

Some of these hurdles can be avoided by providing for contractual provisions by which the Indian operator provides timely feedback to the supplier in relation to the functioning of a particular component or perhaps even certifying after a period of time of usage of the component, that the component does not suffer from a “patent or latent defect”. This kind of an approach by the operator may be more helpful for the supplier community rather than an approach in which the Indian operator says it is giving a blanket waiver of its statutory right of recourse.

The Act does have its flaws but it has raised some key challenges to international liability principles that historically insulated the supplier from liability in practically all situations. It should be borne in mind that these provisions will be interpreted by an Indian court in the context of a nuclear incident. Any watering down of the law by the operator offering waivers of statutory provisions would only increase the ambiguities, and is in no one’s interests, including those of the foreign suppliers.

(Mohit Abraham is a Partner with PXV Law Partners and M.P. Ram Mohan is Fellow, The Energy and Resources Institute (TERI). Both are on the governing board of the Nuclear Law Association of India. Views expressed are personal)

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The unholy haste with which this congress government wants to flout Indian laws and enter into an agreement endangering lives of Indian people shows that congress wants to collect its kick back from the nuclear supplier of US before it is thrown out. The current Indian PM is a stooge of the party and has already allowed many scams to happen under his watch. He can't be trusted to safeguard national interest. Hence all Indians must protest and stop this Bhopal Tragedy -NO-2.

from:  surinder
Posted on: Sep 22, 2013 at 22:08 IST

The rules for implementation of the Act clearly (para 24 of the rules)
state that the contract SHALL include a provision for the right to
course. AG's view is sustainable only if the legal meaning of "SHALL" is
" may or may not".

from:  sudhinder thakur
Posted on: Sep 21, 2013 at 22:08 IST

In times when reputation of Govt. has eroded as a "protector of public interest and prevent corporates from unlawful enrichment" (rather now its the opposite with Govt. hiding facts and reports to protect so-called 'reputed' Corporate in the KG case), there has to be clear unambiguity in all liability laws.
Also, as rightly pointed out, with the country's experience with industrial accidents and subsequent shielding and escape of the foreign management / company, it does not matter how the world policy (dominated an sometime even forced by these very Corporation leaders) with vested interest may or may not provide. The interest of the people and the nation has to be above all else.

from:  Rahul
Posted on: Sep 21, 2013 at 18:40 IST

Instead of the compensation given by supplier to operator he can improve the quality... so that there ll not be any threat...

from:  Rajkumar
Posted on: Sep 20, 2013 at 19:05 IST

Nuclear Agreement with US is not a stand alone issue. let us ponder for
a moment what US can do to world. The mere possibility of TAPER by US
Federal Reserve brought world currencies to knee. And remember apart
from lot of hubris, Indians panic easily whether because of sms on
mobile in Bangalore or bird flue in Pune or sliding of Rupee. So let us
go with US and be like Japan, S. Korea, Taiwan, Saudi Arabia, rather
than Iran, N. Korea, Syria, ..Even Russia and China cannot ignore US.

from:  masa
Posted on: Sep 20, 2013 at 16:39 IST

One of the main reasons a section of informed population fought (and are fighting)
against Nuclear power is India's track record in addressing man-made disasters like
Bhopal gas leak, where even decades later thousands of affected people are
languishing for want of meaningful Government support. Now, such anti-nuclear-
power voices are being provided substance. Even at this signing stage if the
Government behaves in such shady manner, what will be their reaction and action
when, God forbid, a nuclear power plant disaster were to take place ? The mere 3%
contribution of Nuclear power can be easily offset If we spend our precious tax money
in bringing down the transmission/theft losses from 30% or so to even 20%. That
would provide for much more energy than all the nuke power plants running and
planned, can provide. With their world-shaking financial might, even Japan is staring
helplessly at the uncontrolled spread of toxic waste from Fukushima. Nuclear power is
anti-people.

from:  Ramki KS
Posted on: Sep 20, 2013 at 16:20 IST

Can we look at it differently? There is no denying that if there is a accident - then damages would need to be paid.

For a supplier - who takes insurance to protect against such liability - what is the cost of this in terms of insurrance premium? Whatever it is will flow through to the nuclear power tariff. One way or the other - this cost is paid by either the electricity consumer in India in terms of a higher power charge or the tax payer in case of an accident.

This seems to be a zero sum argument (purely in terms of the commercial impact). Can we resolve it early to allow projects to take off in India?

from:  Rohit Ajit
Posted on: Sep 20, 2013 at 15:01 IST

Irrespective of the number of clauses, however cleverly worded, they are all inadequate as the damage caused by a nuclear failure whether supplier related or operators' negligence is colossal and beyond any magnitude of compensation. A nuclear devastation is not quantifiable in terms of dollars. It is a catastrophy that causes long term damages to the flora and fauna of the region and perpetuates its radiation ill effects to the generations to come. These serious and unquantifiable consequences cannot be compensated in terms of money nor can they be reversed or remedied; secondly, in the event of a failure, it would be a never
ending legal wrangle as the magnitude of claim will be beyond the capacity of the supplier;
this being so quibbling on the clauses is an infructuous exercise in the context of a nuclear
related deal. Nuclear energy option in the first place should not have been proposed.

from:  M.R.Sampath
Posted on: Sep 20, 2013 at 14:44 IST

The additional clause in which the operator has the right to waive the liability of nuclear supplier in case of an accident due to faulty and defective equipment has raised several misconceptions. It is sure that India will bow down against the wishes of US. Before the enacting such clause, India must rethink about the consequences.

from:  GIRIJAVALLABHAN NAIR T
Posted on: Sep 20, 2013 at 14:18 IST

This is a helpful, clear and timely citizen and indeed all life security oriented nuclear policy discussion. It craves for wide debate by the involuntarily and perpetually affected fellow earth residents. It can be easily and legally argued on the basis of this law that ignorance of natural law is no excuse to escape the charge of intentional damage by the supplier and operator of nuclear programmes anywhere. This is because of the nature of the nuclear fuel cycle programme whose lethal all pervading effects will last practically for thousands of years, right from the day the asli fuel is mined till it becomes nuclear waste and all life become so by contamination. There are other immediate reasons inherent in the design. Accidents unpredictably dangerous are a part and parcel of nukes.See by google search the discussion at Human beings cannot assure acceptable nuclear safety.Modern civilization has ensured that cumulative effects of the world's dams cause nukes to explode.Stop nukes!

from:  R. Ashok Kumar
Posted on: Sep 20, 2013 at 11:29 IST

Such a lucid explanation of a complex problem! If the issue can be resolved in so simple a manner,
why don't the responsible people act expeditiously?

from:  Sparsh
Posted on: Sep 20, 2013 at 11:21 IST

I agree entirely. Besides the legal aspect, I think it would the gravest sin, if the government intends to circumvent the provisions contained in Section 17 (b) to get some investment in the nuclear power generation sector. If the foreign suppliers are not happy with the Section, let them not supply, period. But we do not want another Nuclear Bhopal tragedy. It is understood that the cost of proposed projects is around Rs.90000 crores. This is a huge investment and will be done by Indian PSU operators. USA and France would be happy to supply nuclear plants and wash their hands off subsequently. It is we,India who will bear the consequences of such huge investment in the nuclear power generation. All pros and cons need to be thouroughly examined and alternatives considered before investing. PM Man Mohan Singh seems to be in a great hurry, as only 7/8 months of his tenure are left. But the country need not indulge in such a thoughtless exercise.

from:  Pramod Patil
Posted on: Sep 20, 2013 at 08:09 IST

The passage of the landmark Civil Liabilities for Nuclear Damages Act of 2010 by the
Indian Parliament is one of the best laws passed in India to protect its people and the
environment in event of a nuclear mishap. It was a spineless Government headed by
Manmohan Singh that attempted to appease suppliers with loopholes concerning
liability issues, but it was stopped dead in its tracks by Parliament.

Nuclear reactor manufacturers are a shady lot and have operated all over the world
with few restrictions until now and their markets are closed in several countries
including Japan. India is a greenfield territory with "low hanging fruit" and they were
ready to expand their dangerous footprint and make tons of money. With the rupee
in the doldrums the cost of nuclear plants is going to be astronomical. India would
be well advised to expand its renewable energy and cut down the power
transmission losses to ensure a safe supply of power. There should be NO dilution
of this Act.

from:  Srinivasan
Posted on: Sep 20, 2013 at 06:30 IST

India should assess possibility of creating more BHEL / NTPC / NHPC, rather than just giving tens of billions of dollar to MNCs. This is further to be looked into as per AEC reports peak power shortage average in the country is just 10%.

from:  vkt
Posted on: Sep 20, 2013 at 04:47 IST

I wonder what this govt is going for. This PM of India can give away safety of the nation as gift to the corporate's of the west. What a shame! Why can not they see their own nation's interest first! This is the saddest time in indian history! I hope the good sense prevails!

from:  Kumar
Posted on: Sep 20, 2013 at 04:47 IST

It is nice to wax eloquent on "wavering" on nuclear liability law. The
Russians do NOT CARRY ANY LIABILITY for the Kudankulam plant -- under
what law did we bend rules to placate the Russians?

from:  Jay Ravi
Posted on: Sep 20, 2013 at 04:09 IST
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