Diluting Nuclear Supplier's Liability

A news item appeared in the The Hindu on September 3, 2013 to the effect that government of India is planning to permit the Nuclear Power Corporation of India Limited (NPCIL) to enter into arrangement with American nuclear vendors wherein the written contract between the NPCL and the American vendors would contain a clause to the effect that the operator NPCIL has abdicated and waived off the ‘right of recourse’ as provided under section 17 of the Civil Liability for Nuclear Damage Act. The news item stated that this stand was based on the opinion of the Attorney General for India, to the effect that section 17 of the Act expressly provided for a contract in writing and it was the operator to choose an incorporation in such a contract which itself may exclude the ‘right to recourse’. 

The government of India under pressure from the nuclear vendors wanted to eliminate the ‘right of recourse’. The original Bill as introduced in the Lok Sabha was referred to the Standing Committee contained a provision in section 17 which made it mandatory for the light of recourse to emanate from a wilful act of gross negligence. Section 17(b) as originally drafted made it a pre-requisite for the exercise of the right of recourse that the act of the suppliers must be wilful act which resulted in a tort. This provision was referred to the Standing Committee. The government of India entered into negotiations with the opposition parties and particularly with the principal opposition party, the BJP. A series of amendments were suggested by the BJP to the gGovernment. I was a privy to these discussions.

Section 17(b) was re-written and a consensus language arrived at which introduced the principle of strict liability. A wilful act or gross negligence of the supplier was not necessary if it could be demonstrated that the equipment supplied by the supplier had a patent or latent defect or that the services rendered were sub-standard. This altered language which was amongst various alternative suggestions to the government was much to the discomfort of the vendors. Even though clauses 17(a) and 17(b) of the Bill were independent of each other— one not being dependent on the other— without any discussion on the subject the word ‘and’ was introduced in the report of the Standing Committee. It was a shabbily done exercise where the word ‘and’ was not in the original draft of the Standing Committee report which was circulated to the members. It was added as a stapled page as an after-thought replacing the original page of the Standing Committee’s recommendations. I had strongly objected to this on the ground that section 17(a) and 17(b) of the Bill were distinct from one another. The exercise of the operators right of recourse could not be made dependent on an agreement in writing if there was a patent or latent defect in the equipment. The efficacy and utility of clause 17(b) was completely destroyed by the supplier if the right of recourse was dependent on an agreement in writing which could result in abdication of this right. 

The UPA government’s bluff on this issue was called off. The pressure of the ‘hidden hand’ of the nuclear vendors continued to remain. The language of section 17(b) was again altered and a word ‘intent’ was smuggled into the provision of section 17(b) thereby eliminating the principle of strict liability and make it conditional on the defect being intentionally created by the supplier. I again objected to the same and had it deleted. Section 17(b) which operates independent of the agreement in writing under section 17(a) was approved by both Houses of Parliament. This distinction is adequately borne out in my speech in the Rajya Sabha and the Minister’s reply. 

But a leopard never changes its spots. The government’s intention to dilute the right of recourse and make it dependent on an agreement continued. When the Rules under the Act were notified such an intention as apparent in the language of Rule 24. Rule 24 deals with section 17(a) of the Act and permitted the contract to specify the duration of initial licence. The ‘product liability period’ is defined as a period for which the supplier has taken responsibility for a patent or latent defect in the product. Even though Rule 24 deals with section 17(a) of the Act, the language of section 17(b) of the Act was lifted bodily and incorporated in the definition of the product liability period thereby creating an ambiguity that clauses 17(a) and 17(b) would be read in conjunction with each other and not dis-conjunctively. The fact that sections 17 (a) (b) and(c) are independent of each other is further apparent from the language of section 17(c) in which a right of recourse is even available for an act of omission or commission of causing nuclear damage. Obviously, such an individual is a person other than the nuclear supplier. 

Having been associated in negotiations between the government and the opposition when the Bill was being drafted and re-drafted and having been a privy to the Parliament debate wherein this Bill was legislated, I have not the least doubt that for invoking section 17(b) of the Act the existence of an agreement in writing under section 17(a) of the Act is not a condition precedent. The two provisions operate independent of each other. The repeated efforts of the government at the drafting stage to dilute section 17(b) of the Act had failed. Contemporaneous media reports would evidence this. Any attempt now to permit the NPCIL to abdicate the right given to an operator— a Govt. company, would be compromising with state revenue. It would be a contract contrary to the provisions of section 17(b) of the Act. If a Public sector company wilfully enters into an agreement with a foreign vendor and abdicates its right to recourse which section 17(b) otherwise provides for its benefit, it would not only be violating the provisions of the Civil Liability for Nuclear Damages Act but also section 13(1)(d) of the Prevention of Corruption Act wherein a wrongful loss would be caused to the revenue of a Public Sector company. 

Annexure A: Initial Suggestions to the Draft Bill

Points to be considered before the Standing Committee in relation to the Civil Liability For Nuclear Damage Bill 2010

1. A provision to be made to the effect that the bill deals with "only" with plants operated by the government or a government company.
2. Operator's liability to be enhanced to a minimum of Rs. 1500 crores or such other enhanced amount to be notified from time to time.
3. Total liability of the incident to be kept at 300 SDRs or such other enhanced amount to be notified from time to time.
4. The amended language in relation to the liability for suppliers under section 17(b) to include a special provision which may refer to the liability during transportation.
5. We may check up a comparitive language of other laws dealing with Suppliers Liability which refers to words like "Patent" or "Latent" defects in equipment (Section 17(b)).
6. A bill may contain a statement in the main enactment as also in the Preamble that all liability under this Act shall be "No fault Liability".
7. There will be no reference direct or indirect to any international convention such as the "Convention on Supplementary Compensation (CSC)".

Annexure B: Objection to the use of the word ‘and’ between clause 17(a) and 17(b)

Deletion of the word "and" recommended by the Standing Committee between clause 17(a) and 17(b) of the Civil Liability for Nuclear Damages Bill 2010

1. The word "and" did not exist in the original Bill introduced in the Lok Sabha
2. During the Discussion with the Standing Committee or with the Opposition, this subject was not discussed.
3. Clause 17(a) provides for an agreement in writing in order to enable the Operator to exercise the right of recourseagainst the Supplier. Clause 17(b) deals with the liability of the supplier in case of defective or sub standard Plants being supplied. If there is an agreement in writing between the Operator and the Supplier, the agreement will operate on its own terms, No statutory support is required from Clause 17(b).
4. In case the right of recourse for supply of defective or sub- standard equipment is made conditional on the Supplier agreeing to an agreement in writing with the Operator, Clause 17(b) will be operative only when the supplier agrees to an agreement in writing. Then the efficacy and utility of Clause 17 (b) is completely destroyed by the Supplier not agreeing to an agreement in writing. Thus, what clause 17(b) gives as a protection to the Operator, the word "and" snatches it away.
5. Since the Nuclear power plants are to be operated only by the Government or GOvernment Companies, it would be to our own advantage to delete the word "and".

Annexure C: Alternatives for deletion delete the word ‘intent’ in clause 17 (b).

Government Amendment Page No. 7, for lines 42 and 43, substitute - 

(b) "the nuclear incident has resulted as a consequence of an act of supplier or his employees, done with the intent to cause nuclear damage and such acts include supply of equipment or material with patent or latent defect or sub standard services". 

Government latest Ammendment No. 13

The words "done with the intent to cause nuclear damage and such act" be deleted and replaced by the word "which" "

17(b)  the nuclear incident has resulted as a consequence of an act of supplier or his employees, which includes supply of equipment or material with patent or latent defects or sub standard services."

Annexure D: Brief talking points of my speech in the Rajya Sabha on 30/08/2010 while participating in the debate on the Civil Liability for Nuclear Damages Bill, 2010

This Bill has already been passed by the Lok Sabha. My Party supports this Bill in its amended form. We support this Bill though we have reservations with regard to the Indo-US Civil Nuclear Deal. Even today, we are of the opinion that India's vast energy potential through alternative technologies and other means remains largely untapped. The cost of nuclear energy is higher than other competing technologies. However, we support this bill in its amended form only for three reasons.

Firstly, the concerns that we have had against the bill in its original form as introduced have been substantially addressed.

Secondly, this bill will only create an option for nuclear energy in India while still being unsure of its commercial viability in the current scenario.

Thirdly, this bill is also about providing to the victims of a Nuclear accident an easier remedy for claims. The manner of legislation, the manner of preparation of this bill and its evolution is a text book illustration of how not to legislate. Landmark legislations of this kind have to be a subject matter of a sustained national debate. They cannot be rushed through both in the Standing Committee and the Parliament without an adequate debate. It appeared that the Government somehow wanted to clear the Bill in the Monsoon Session since it would have otherwise defeated the deadline that it had set for itself on account of an important visit by an international dignitary.

The Bill, as originally introduced, was unacceptable. The Atomic Energy Act, 1962 categorically provides that nuclear reactors in India can only be operated either by the Government or by a Government company i.e a company in which Government has a majority share-holding. Yet, the structure of the Bill, as originally drafted, gave an indication that the Government was not forthcoming with its real intentions. It was structured for the Government to assume the liability of a Private Sector operator, while the Government maintained that it had no immediate intention of allowing a Private Sector entry.

This bill does not deal with the question as to who can operate nuclear power plants in India. That issue is within the domain of Atomic Energy Act, 1962. This bill merely deals with the issue of bearing the liability of tortuous claims in the event of a nuclear accident/incident. The Bill was structured to put a cap on the liability of the Operator and the subsequent cap on the liability of the Government. The caps imposed were inadequate.The bill deviated from the principle of strict liability of defaulter which is otherwise applicable in India.

Dilution of the " Polluter Pays " Principle

The present legal framework in India, with regard to those who deal with hazardous material, has given rise to two judicial principles. They are :- 

a) If any form of pollution or injury is caused by a polluter, the polluter must pay.

b)The principle of strict liability is imposed against the polluter.

The victim does not have to prove negligence of the polluter. The fact that there is a leakage in the nuclear plant, which is capable of causing havoc itself is a conclusive proof, which must entail the liability of the polluter. The Bill as originally framed sought to reverse both the above principles. It was, therefore, extremely important for us, in the Opposition, to ensure that the balance is maintained between an internationally recognized system of channeling of legal liability to the Operator, in the case of a nuclear accident with the judicial principles applicable in India. The two need to be harmonized, for otherwise the Bill may even fall foul of Indian Constitutional obligations .

My party, therefore, offered concrete suggestion to be incorporated in the Bill while the same was pending consideration before the Standing Committee. The suggestions that we offered were as follows :-

1. The Government can certainly assume the liability of a Government company but it can not assume the liability of a Private operator. If that were so , the victims of a nuclear accident would be the Indian citizens, and the compensation would be paid by the Indian taxpayers. This was wholly unacceptable. Therefore, the BJP sought a declaration in the Bill, that it deals with only plants operated by the Government or a Government company, since that would involve the Government paying for a company, which it runs and controls. A corresponding amendment was also suggested for the definition of the word "operator" in the Act.

2. The capping of Operator's liability at Rs. 500 Crores was inadequate. We are glad that the liability has been increased to Rs. 1500 Crores or such other enhanced amount, which may be notified from time to time.

3. Similarly, we suggested the Government liability, which is presently capped at 300 million SDR to be made flexible by enhancing it through notification from time to time.

4. We wanted a special provision to be made with regard to the liability during transportation.

5. We wanted the right of recourse under Section 17 to be specifically extended to the Supplier for latent or patent manufacturing defects in the Reactors or for any insufficient or deficient services provided by the Supplier.

6. We wanted the structuring of the Bill in such a manner that the victims were entitled to an expeditious disposal of their claims before the Claims' Commissioners on the principle of - 'no fault liability', i.e a strict liability. We did not want the multiplicity of proceedings before the Claims Commissioner and a Civil Court because that would have involved undue harassment and prolonged litigation to the victims.

7. We did not want any direct or indirect reference to any international convention such as the CSC (Convention on Supplementary Compensation) so that India could keep its options open. I am glad that, after some reluctance, the Government did accept all these amendments.

Unfortunately, what happened thereafter, again cast a shadow of doubt about the motive of the Government. Having accepted the above amendments, the discussions in the standing committee concluded on a note of satisfaction. However, there was a 'hidden hand' operating. This hidden hand was not of the 'aam admi.' The addition of the word 'and' in Section 17 The whole nation was surprised when the word 'and' appeared through 'a stapling and fixing exercise' on Page 30 of the report of the Standing Committee. The original page did not have the word 'and'. It is only the stapled page which contained this word.

The phony argument of the Suppliers and their well wishers .

The Suppliers and their well wishers were raising a phony argument that if liability of the supplier was mentioned in the Bill in Section 17 (b) , no Supplier would make supplies to India. This argument is devoid of any merit. Assuming that there was no Section 17 (b) in the Bill, the Law of Torts would still continue to hold the field between the operator and the supplier. This bill in that event would only be concerned with claim of the victims against the Operator. There is nothing in the Bill excluding the liability of the Supplier, if the Operator were to invoke the right to recourse. Clause 17 (b) is only a statutory incorporation of the existing Law of Torts. In any case, India will now enter the global market as one of the largest potential buyers of the nuclear reactors. There are at least four, if not, more Suppliers eager to make supplies to India. The character of the bazaar is going to alter. It will be a market where Suppliers chase buyers rather than otherwise. By introducing Section 17 (b). India is not deviating from the international practice . India is not acting contrary to the international mainstream. It is only protecting the interests of the Operator i.e Government of India, or a Government company. Korea has a similar provision. India has been in the forefront on several issues pursuing the interests of the developing and poorer nations. When we took an independent position on elimination of agricultural subsidy in the WTO, it was alleged that we were acting contrary to international practice. When we introduced section 3 (d) to the Patents Act in 2005 to make a provision for cheaper medicines and prevent evergreening of patents, it was alleged that we acted contrary to international practice. History has shown repeatedly that the direction of the mainstream 'had to alter' in favour of the direction that India was taking.

Deletion of the word 'and' in Section 17

Section 17 (a), (b) and (c) are alternatives. They are disjunctive. The inclusion of the word 'and' after Section 17 (a) made the operation of Section 17(b) contingent upon a written Contract between the Operator and the Supplier mandated by Section 17(a). This would have defeated the very objective of Section 17 (b) since a Supplier by simply refusing a right to recourse in the written contract would have escaped the clutches of Section 17 itself. The Government tried to bring in the word 'and' surreptitiously through the backdoor. The word 'and' had to be exited through the front door.

The smuggling of the word 'intent' in Section 17 (b)

The ' hidden hand' of the nuclear suppliers and their well wishers did not give up. After the word 'and' was deleted in Section 17, the 'intent' to supply such equipment as would create a nuclear accident/incident was introduced in Section 17 (b). The introduction of the word 'intent' in Section 17 (b) rendered it as a dead letter. No manufacturer or supplier would create any equipment intended to create a nuclear accident. Suppliers are not saboteurs. It would be an impossible onus to discharge in proving this. Faced with criticism, and expose, the government was compelled to delete the requirement of 'intent' in Section 17 (b). It is clear that the intention of the Government was always suspect. It tried and failed.

We, in the Opposition, take satisfaction in the fact that we protected India's national interest as an important watchdog of Indian democracy. The Bill has come up before the House in its present amended version now. I would only urge the Government to draw the correct lessons from this legislative exercise. The lesson is not that that all is well that ends well. The lesson is that when you legislate in the interest of the Nation, be forthright and straightforward.