India: Civil Nuclear Liability Regime In India: A Supplier Liability Perspective

Background

The Convention on Supplementary Compensation for Nuclear Damage ("CSC") was adopted on September 12, 1997. For any country to be a party to the CSC, it has to either be a party to the Vienna Convention on Civil Liability for Nuclear Damage of 1963 ("Vienna Convention") or the Paris Convention on Third Party Liability in the Field of Nuclear Energy of 1960 ("Paris Convention"). If a country is not a party to the aforesaid conventions, it could be a party to the CSC only if it declares that it has a national legislation on nuclear liability which is in compliance with the provisions of the Annex to the CSC.

India enacted the Civil Liability for Nuclear Damage Act, 2010 ("CLNDA") on September 21, 2010 and thereafter, signed the CSC on October 29, 2010. India delivered the instrument of ratification to International Atomic Energy Agency on February 5, 2016 and the CSC entered into force for India on May 4, 2016.

Section 4(1) of CLNDA states that the operator of the nuclear installation shall be liable for nuclear damage caused by a nuclear incident. Section 4(2) provides for joint and several liability where there is more than one operator. Section 4(4) contains the principle of strict and no-fault liability of the operator. Section 8 requires the operator to cover liability through insurance or other financial security. Sections 15 and 18 provide for limitation for bringing an action for compensation. The aforesaid provisions of CLNDA are in line with the Paris and Vienna regimes, as well as the CSC.

The term "nuclear damage" has been defined under CLNDA¹ to include: (i) loss of life or personal injury (including immediate and long term health impact); (ii) loss of or damage to property; (iii) any economic loss; (iv) costs of measures of reinstatement of impaired environment caused by a nuclear incident unless such impairment is insignificant; (v) loss of income derived from an economic interest in any use or enjoyment of the environment, incurred as a result of a significant impairment of that environment caused by a nuclear incident; (vi) the costs of preventive measures, and further loss or damage caused by such measures; etc. This is in consonance with the revised Vienna and Paris regimes and the CSC.

The other provisions of CLNDA are also broadly consistent with the CSC. However, concerns have been raised regarding Section 17 and Section 46 thereof.

Supplier Liability under Section 17 of CLNDA

Section 17 provides that after paying compensation for nuclear damage in accordance with section 6 of CLNDA, the Operator shall have a right of recourse where:

(a) such right is expressly provided for in a contract in writing;

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

(c) the nuclear incident has resulted from the act of commission or omission of an individual done with the intent to cause nuclear damage.

Section 17(a) and 17(c) of the CLNDA correspond to Article 10 of Annex to CSC, Article X of the Vienna Convention and Article 6(f) of the Paris Convention. However, Section 17(b) is in addition to the situations identified for the right of recourse provided in Article 10 of the Annex to CSC.

The Ministry of External Affairs, Government of India vide response to question no.8 to the FAQs issued by way of a press release dated February 8, 2015² responded to the query whether the right of recourse against the supplier in Section 17(b) is going beyond the Annex to the CSC. As per the Indian Government, Section 17(b) is consistent with the CSC and Annex thereto. The relevant excerpt of the said response is reproduced below:

"...However, the situations identified in Section 17(b) relate to actions and matters such as product liability stipulations/conditions or service contracts. These are ordinarily part of a contract between the operator and the supplier. This situation is not novel but is rather a normal element of a contract. Thus, this provision is to be read along with/in the context of the relevant clause in the contract between the operator and supplier on product liability. ......

Article 10(a) of the CSC Annex does not restrict in any manner the contents of the contract between the operator and the supplier including the basis for recourse agreed by the operator and supplier. Therefore, in view of the above, in so far as the reference to the supplier in Section 17(b) is concerned, it would be in conformity with and not in contradiction of Article 10(a) of the CSC Annex. Its operationalization will be through contract conditions agreed to by the operator and the supplier."

By stating that Section 17(b) is to be read along with /in the context of the relevant clause in the contract between the operator and supplier on product liability, the Government has in effect suggested that Section 17(a) and 17(b) are connected with the word "and" which is not the case. In fact, a proposal to so connect Section 17(a) and 17(b) was made in the Report of the Parliamentary Standing Committee³ but the said suggestion was not upheld by the Parliament in the final version of CLNDA. It is a well settled principle of Indian law that a provision that was expressly excluded from the statute cannot be read into the statute by interpretation and that every statute is to be interpreted in accordance with the intention of the legislature⁴. It is evident that Section 17(b) exists independently of the contract which may be entered into between the operator and supplier. In the author's view, even if the operator and supplier were to provide for exclusion of the liability of the supplier in their agreement, such a provision would be void as being violative of Section 17(b).

In response to question no.9 to the aforesaid FAQs, it has been stated that Section 17 permits but does not require an operator to include in the contract or exercise a right of recourse. This response also suffers from the same fallacy as the response to question no.8. As stated above, the right of recourse against the supplier under Section 17(b) is independent of the contract and therefore, even if such a right is not included in the contract, the operator would still be entitled to the same. With respect to the option with the operator to not exercise a right of recourse, it is pertinent to mention that "operator" is defined under Section 2(m) of CLNDA to mean:

"the Central Government or any authority or corporation established by it or a Government company who has been granted a license pursuant to the Atomic Energy Act, 1962 (33 of 1962) for the operation of that installation."

The said definition of operator was inserted into the CLNDA since the Atomic Energy Act, 1962⁵ permits only the government, an authority or corporation established by the government or a government company to operate a nuclear power plant in India. Section 2(1)(bb) of the Atomic Energy Act defines a Government Company as a company in which not less than fifty one percent of the paid up share capital is held by the Central Government thereby allowing joint ventures between private and government companies. As of now, only the Nuclear Power Corporation of India Limited ("NPCIL") and Bharatiya Nabhikiya Vidyut Nigam Limited ("BHAVINI") both of which are wholly owned Government enterprises have been established for the said purpose.

Therefore, while it may be legally possible for the operator to not exercise the right of recourse, the propriety of such a waiver could be easily challenged before the Indian courts. The ground for such challenge being that the waiver / non-recourse / limited recourse against a negligent supplier is contrary to public interest as it entails a burden on the Indian taxpayer on account of the operator being a Government undertaking.

Limits to Supplier Liability under Rule 24 of CLND Rules

The Indian Government has attempted to water down the right of recourse under Section 17 through the Civil Liability for Nuclear Damages Rules, 2011 ("CLND Rules") notified on November 11, 2011. Rule 24(1) states that a contract referred to in Section 17(a) of CLNDA shall include a provision for right of recourse for not less than the extent of the operator's liability under Section 6(2) or the value of the contract itself, "whichever is less". Rule 24(1) in effect allows the operator and supplier to limit the liability of the supplier under the agreement to INR 1500 crore (equivalent to USD 198 million approx.) and if the value of the supply contract is lesser, the liability of the supplier can be limited to such lesser amount.

Rule 24(2) specifies that the provision for the right of recourse referred to in Rule 24(1) shall be for the duration of the initial license issued under the Atomic Energy (Radiation Protection Rules), 2004 (which is five years), or the product liability period, "whichever is longer". The term "product liability period" is defined in Rule 24 as the period for which the supplier has undertaken liability for patent or latent defects or sub-standards services under a contract. Therefore, it is possible for the supplier to limit the right of recourse to 5 years by ensuring that the product liability period is not longer than 5 years.

However, Rule 24(1) refers to only Section 17(a). Therefore, confinement of the supplier's liability for a specific time period would not apply in the situations covered under Section 17(b) when the nuclear incident resulted as a consequence of an act of supplier or his employee, which includes supply of equipment or material with patent of latent defects or sub-standard services, and Section 17(c) when the nuclear incident has resulted from the act or commission or omission of an individual, done with the intent to cause nuclear damage.

Section 46 of CLNDA

Section 46 of CLNDA provides as under:

"The provisions of this Act are in addition to, and not in derogation of, any other law for the time being in force, and nothing contained herein shall exempt the operator from any proceeding which might, apart from the CLNDA, be instituted against such operator."

Concerns over the broad scope of Section 46 have been raised by suppliers, both domestic and foreign. With respect to the applicability of Section 46 of the CLNDA to suppliers, the Government has stated in response to question no. 12 of the aforesaid FAQs as follows:

"....That this Section applies exclusively to the operator and does not extend to the supplier is confirmed by the Parliamentary debates at the time of the adoption of this Act. During the course of the vote on various clauses of the Bill, in the Rajya Sabha two amendments were moved for clause 46 that finally became Section 46 of the CLND Act that inter-alia sought to include suppliers in this provision. Both those amendments were negatived. It is well-settled principle of law that every statute is to be interpreted in accordance with the intention of the legislature or maker of the Statute."

The interpretation put forth by the Government appears plausible and Section 46 does not seem to extend to suppliers. However, in the absence of a specific prohibition in CLNDA on claims against suppliers under the general law of torts and on account of the fact that the liability under CLNDA is capped, the possibility of claims being made against negligent suppliers by the victims of nuclear accidents in India under the law of torts cannot be ruled out.

Another concern which has been raised is whether the victims of a nuclear accident in India can approach foreign courts seeking damages against a supplier based within the jurisdiction of such court. In this context, Article XIII of the CSC provides that jurisdiction over actions concerning nuclear damage arising from a nuclear incident shall lie only with the courts of the contracting party within which the nuclear incident occurs. Therefore, a foreign court is not likely to entertain a claim for compensation by an Indian victim against the supplier in light of Article XIII of CSC.

Indian Nuclear Insurance Pool

General Insurance Corporation of India ("GIC") along with several other Indian Insurance Companies launched the Indian Nuclear Insurance Pool on June 12, 2015 with a capacity of INR 1500 crore to provide insurance to cover the risk of liability of the Operator under Section 6(2) and of the suppliers under Section 17 of CLNDA.

GIC unveiled the Nuclear Supplier's Insurance Policy ("Supplier's Policy") for right to recourse under the CLNDA on August 12, 2016.

The suppliers could factor in the cost of insurance while quoting the price for the supply to the Operator. This would ensure that the cost of insurance is passed on to the Operator and the supplier has adequate risk cover against the right of recourse of the operator. As aforesaid, Rule 24 of the CLND Rules permits limiting the liability of the supplier under the agreement to INR 1500 crore and if the value of the supply contract is lesser, the liability can be limited to such lesser amount.

Challenge to various provisions of CLNDA Act and CLND Rules before Indian courts

The constitutional validity of various provisions of CLNDA was challenged before the Kerala High Court in Yash Thomas Mannully and Ors. vs. Union of India and Ors.[6]. The said provisions included: (i) Section 5 which absolves the operator of liability for nuclear damage in certain circumstances; (ii) Section 6 which specifies the maximum amount of liability for any nuclear incident to be the INR equivalent of three hundred million Special Drawing Rights and caps the liability of the operator to a maximum amount of INR 1500 crore; (iii) Section 15(2) which lays down a limitation period of 3 years from the date of knowledge of nuclear damage for making claims under CLNDA; and (iv) Section 18(b) which provides that the right to claim compensation for nuclear damage shall extinguish if the claim is not made within a period 20 years in the case of personal injury.

While challenging the constitutionality of Sections 5 and 6, the petitioner relied upon the judgment of the Supreme Court in M.C. Mehta vs. Union of India[7] wherein the principle of Absolute Liability was laid down and it was held that industries which are engaged in hazardous or inherently dangerous activity, pose serious threat to health and safety of persons and have an absolute and non-delegable duty to ensure that no harm is caused to the life and safety of the people. It was further held in the said case that the enterprise is strictly and absolutely liable to compensate all those who are affected by the incidents and such liability is not subject to any exceptions which operate vis-à-vis the tortious principle of strict liability.

The Kerala High Court rejected all contentions of the petitioner and held that it is not satisfied that CLNDA suffers from any infirmity, arbitrariness or violates Part III of the Constitution of India. The judgment of Kerala High Court in the aforesaid case has been challenged before the Supreme Court of India by way of SLP (C) No. 6699 of 2016.

Earlier, a writ petition⁸ challenging the constitutionality of CLNDA and seeking various other reliefs was filed before the Supreme Court in 2011. The petition inter alia challenged: (i) channeling all liability to operator and the victims not being allowed any recourse to the supplier; (ii) limiting the liability of the operator to INR 1500 crore; (iii) exclusion of liability of operators in certain circumstances. The Supreme Court issued notice only with respect to the constitutionality of CLNDA and rejected the other prayers at the threshold.

Another petition⁹ was filed before the Supreme Court in 2012 seeking the following reliefs: (i) a declaration that the nuclear suppliers of Kudankulam Nuclear Plant in Tamil Nadu would be governed by 'absolute liability' and 'polluter pays' principles and in the case of an accident, the victims would be able to file case(s) for damages against the reactor supplier even if the Government or its undertaking choose not to file the same; and/or a declaration that the nuclear suppliers of the said plant would be bound by CLNDA, irrespective of any agreement or undertaking to the contrary; and (ii) setting aside of Rule 24 of CLND Rules.

The aforesaid three petitions, i.e. SLP (C) No. 6699 of 2016, WP(C) No. 464 of 2011 and WP (C) No. 407 of 2012, have been tagged together and are pending adjudication before the Supreme Court of India.

Conclusion

India has attempted to allay the concerns of suppliers by limiting their liability under the CLND Rules and creating the nuclear insurance pool. However, as aforesaid: (i) the limitation of supplier liability would not apply to situations covered under Section 17(b) and Section 17(c) of the CLNDA Act; (ii) there is no specific prohibition in CLNDA on claims against suppliers under the general law of torts; (iii) nuclear insurance pool covers liability up to only Rs. 1500 crore which may not be an adequate cover especially for tortious liability; and (iv) petitions challenging various provisions of the CLNDA Act and CLND Rules diluting / limiting supplier liability are pending before the Indian courts.

We would require more certainty in the legal regime (which would be possible only after the petitions pending before the Supreme Court are decided), a larger insurance pool and further legislative steps to boost the confidence of the suppliers.

Footnotes

1. Section 2(g) of CLNDA

2. https://www.mea.gov.in/press-releases.htm?dtl/24766/Frequently_Asked_Questions_and_Answers_on_Civil_Liability_for_Nuclear_Damage_Act_2010_and_related_issues

3. Department-related Parliamentary Standing Committee on Science & Technology, Environment & Forests (2010), "212th Report on The Civil Liability for Nuclear Damage Bill, 2010" (Report Parliamentary Standing Committee), available at: https://www.prsindia.org/sites/default/files/bill_files/SCR_Nuclear_Liability_Bill_2010.pdf

4. M/s. Trutuf Safety Glass Industries vs. Commissioner of Sales Tax U.P., 2007 (9) SCALE 610 and State of Kerala & Anr vs. P.V. Neelakandan Nair & Ors, 2005 (5) SCALE 424

5. Section 14(1A) of Atomic Energy Act, 1962

6. W.P.C. No. 27960 of 2011, Decided on August 21, 2015; 2015 SCC OnLine Ker 25670

7. AIR 1987 SC 1086

8. WP(C) No. 464 of 2011

9. WP (C) No. 407 of 2012

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