Compensation to blame: Amendments to strengthen law on industrial accidents

Proposed amendments to the Public Liability Insurance Act may end the high level of non-compliance among companies

The horrendous toll from the Bhopal gas tragedy of December 2-3, 1984, helped India draw up a far-sighted social welfare legislation that also stipulated the extent to which the public is entitled to compensation in the event of an industrial accident. This was the Public Liability Insurance Act, 1991 (PLI Act).
 
Once the law was passed, everybody forgot about it.
 
A stock-taking exercise conducted in March 2020 by Debadityo Sinha for Vidhi Centre for Legal Policy found an insurance pool set up under this Act to finance citizens, who sue companies for injury or death caused by hazardous substances used in an industrial unit, has fattened to a corpus of Rs 810 crore. But this fund has rarely paid out any money.
 
Some of this apathy could change now, with the proposed amendments to the PLI Act that the government hopes to push through in this current session of Parliament. Some of the alterations in the law could also be hugely beneficial for industries as well, as the government plans to drop certain punitive clauses and decriminalise lapses such as delay or incorrect filing of reports.
 
Overall, however, the changes also widen the ambit of the Act by bringing many more types of environmental damage under its jurisdiction (the exception is damage from nuclear power plants, which is governed by a separate — and controversial — supplier liability law). The intent behind the amendments is to prod industries to become more conscious of their social obligations, though it will 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 brownie points ahead of the 2024 parliamentary elections by securing the rights of the public and imposing obligations on industry.
 
As it stands, the PLI Act 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 carcinogenic chemicals into public drains, emitted lethal gas into the atmosphere or caused an explosion that puts at risk those who live near the unit, all these transgressions 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 of law firm Khaitan & Co.
 
To ensure the public’s right is not short-changed, the Act made it mandatory for companies to take out a specific insurance policy. If the claims are higher than a single insurance company can pay out, the government maintains the environment relief fund (ERF) as a pool with the state-run United India Insurance Company to pay for them. It can do this because a sum is sequestered to the ERF from every premium that is paid.
 
Despite these obvious benefits, progress has been snail-paced for a variety of reasons. For one, the maximum liability of the company for any environmental disaster was limited to just Rs 50 crore. This meant that the premium it would pay out was 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 second is knowledge of the law. “Premium payable under the Act is low, though it is supposed to be compulsory. Payouts are ordered by the district collector. Many companies, especially the medium-sized ones, are quite ignorant about the law,” said S Mohan, managing director, Paavana Insurance Brokers, one of India’s largest in the sector.
 
The Vidhi Centre paper noted that of the 116 judgments of the National Green Tribunal delivered between 2014 and 2019, 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.
 
Matters have also been complicated because there is a similar sounding public liability insurance to cover a wider umbrella of risks like fiduciary responsibility and so on. Insurance companies actively market this policy because it has a higher premium, while successive governments have not helped matters by not goading high-risk industries to take out the insurance under the PLI Act.
 
For the first time, almost 25 years after the PLI Act came into force, the environment ministry rapped the Central Pollution Control Board (CPCB) 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 the PLI Act insurance. Essentially the issue of an insurance policy was supposed to be “one of the check points”. Based on those reports, a Press Information Bureau release explained, “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 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. The amendments also propose a stronger mechanism for addressing grievances.
 
For one, the amendment has raised the amount of insured value per company by 10 times to Rs 500 crore. Second, the penalties for non-compliance have been restructured. As Bhargava explained, “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.” Damage to the environment and public property has also been included as part of the amendments so that the restoration exercise is comprehensive, she added.
 
Since the amendment has significantly raised the insurance value, non-life insurance companies may be incentivised to push such policies more actively. The question, of course, is how quickly citizens impacted by industrial operations get to receive their compensation. The Bhopal gas tragedy, where many victims are awaiting compensation decades later, points to the problems here.
 

The proposed amendments

• Amount of relief sought is to be made commensurate with the extent of damage
• Provisions concerning restoration of public property and environmental damage by utilising the ERF have been inserted
• Provides for an adjudi­cating officer for awarding penalty and compensation
• Omits the schedule in the Act pertaining to amount of relief and transfers it to the PLI Rules to ensure regular updating keeping in account the inflation and so on