Liability rules leave very little recourse

Why the newly notified Civil Liability for Nuclear Damage Rules, 2011 are unjustified in principle and policy.

December 01, 2011 12:22 am | Updated December 04, 2021 11:09 pm IST

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.)

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