Rewriting an industrial hazards law that followed the Bhopal gas leak

While it is easier now to sue a firm for adopting harmful manufacturing processes, successive govts have dragged their feet on goading companies to take out adequate insurance

The horrendous toll of the Bhopal gas tragedy helped India draw up a set of far-sighted social welfare legislations that also wrote down the extent to which the public is entitled to compensation in the event of an industrial accident. But then, almost everyone forgot those pieces of law.

A stock-taking exercise, conducted in March 2020 by Debadityo Sinha for Vidhi Centre for Legal Policy, found an insurance pool set up under the Public Liability Insurance Act, of 1991 (PLI Act) to finance citizens who sue companies for injury or death caused by hazardous substances used by an industrial unit, has fattened to a corpus of Rs 810 crore. But this Environment Relief Fund (ERF) has rarely paid out any money from its purse.

Some of this apathy could now change, with proposed amendments to the PLI Act. Surprisingly, the alterations in the law could also be hugely beneficial for industries as well, as they drop certain punitive clauses and decriminalise lapses such as delay or incorrect filing of reports. However, the changes also widen the ambit of the Act by bringing many more types of environmental damage under its jurisdiction. The amendments will help industries become more conscious of their social obligations, and should also provide a hefty increase in a hitherto scant-used line of business of non-life insurance companies. In all of this, the winner could also be the central government, which could end up scoring major brownie points by securing the rights of the public and imposing obligations on industry.

All of these follow from the amendments the government plans to bring into the PLI Act. The original law was a follow-up not only of the Union Carbide-led Bhopal gas disaster of 1984, but also of less lethal, yet widely reported industrial gas leakage, ironically exactly a year later. Oleum gas leaked in Delhi from one of the units of Shriram Foods and Fertilizer Industries. The incidents on December 5 and 6, 1985, also gave birth to one of India’s oldest laws for environment protection, The Environmental Protection Act of 1986.

The PLI Act is simple. It grants an individual the right to sue the owner of a company that has injured her or members of her family by the improper use of hazardous substances in its manufacturing process. Whether a manufacturing unit has emptied a vat of carcinogenic chemicals into public drains, or put lethal gas in the air or there is an explosion that puts at risk those who live near the unit, all of them come under the PLI Act. “It provided public liability insurance to ensure immediate relief to persons affected by accidents based on no-fault liability’, noted Vanita Bhargava, Partner, Khaitan & Co.

To ensure the public’s right is not shortchanged, the Act made it mandatory for companies to take out a specific insurance policy. If the claims are high, the government maintains the ERF as a pool with the state-run United India Insurance Company, to pay for them.

Despite these obvious benefits, progress has been very slow. Industry was obviously not going to publicise the Act, but successive governments too have not helped matters by dragging their feet on goading them to take out the insurance. The Vidhi Central paper noted that of the 116 judgments of the National Green Tribunal delivered between 2014-2019, where Rs 645 crore was awarded as compensation for environmental damages, the role of the pool has been minimal. Only in 13 such cases had the tribunal explicitly asked the respondents to deposit the compensation amount of a cumulative Rs 90 lakh to the ERF.

For the first time, almost 25 years after the PLI Act came into force, the environment ministry once rapped the Central Pollution Control Board, in September 2015. The Board was asked to issue directions to all the state-level pollution boards to ensure that no industrial unit could get the vital Consent to Establish (CTE) or The Consent to Operate (CTO) licences or have them renewed, till  they took out an insurance. Essentially the issue of an insurance policy was supposed to be “one of the check points”. Based on those reports “The CPCB will submit the first compliance report within 60 days and the quarterly progress report till next three years to the Central Government thereafter”. The insurance did not cost much. Under the PLI Act, the maximum liability of the company for any environmental disaster was limited to Rs 50 crore. This meant that the premium it would pay out is a fraction of this ceiling. It seemed a vast sum in 1991, but in 2022 it is less than the turnover of many small industries.

The amendments floated on June 30 by the ministry of environment and forests recognises the need for redrafting the Act to help create the right set of incentives for compliance and stiffer penalties for non compliance.

“For violations, companies will now face exemplary penalties as compared to the earlier versions of the Act, but non-payment of penalty/additional penalty will attract criminal liability, thereby strengthening enforcement. Thus, the objective of the Act will be taken forward,” says Bhargava of Khaitan & Co.

It has the carrot of a big business plan too. Almost any company in the manufacturing sector would be aware of the hazards its processes can unleash on the public, through leaks, explosions or just about anything else that malfunctions. The amendments proposed offer a stronger mechanism for sorting grievances. Damage to the environment and public property has also been included as part of the amendments, making the restoration pursuant to a damage, holistic, adds Bhargava.

Since the amendment has raised the quantum of insured value per company by ten times to Rs 500 crore in order to achieve these goals, this is a big opportunity for insurance companies to cash in. That should align the interests of industry and the public, quite timely as Indian public policy tries to give a second wind to the manufacturing sector.