The Denouement

Written by  //  August 27, 2010  //  National Politics  //  1 Comment

The wait is finally over. After months of haggling, posturing, and disagreements real and imagined, running to a script resembling a Bollywood movie, the Civil Liability for Nuclear Damages Bill, 2010 passed in the Lok Sabha last Wednesday. 17 of the 18 amendments proposed by the Union Cabinet were accepted without excessive questioning. Jaswant Singh eloquently supported the Bill. Prithviraj Chavan gallantly reciprocated. Manmohan Singh robustly defended himself against allegations of being an American stooge. The Left continued to bicker about their ideology which resembled a broken record being played again and again by its stubborn owner with the irrational hope that one day it will magically restart. No such magic ensued. At the end of it all, a simple voice vote settled it. The nuclear bill was through.

At the heart of the debate was the contentious issue of recourse against suppliers in Clause 17 of the Bill. Much newsprint and television airtime has been spent on this provision. Most of it was well spent, representing critical public opinion on a matter of significant national interest. But as the issue became a knotty legal imbroglio, I wish the television anchors realised their limitations. Or perhaps they switched to attempting stand-up comedy. In which case they were doing a fantastic job. See

The Newshour Debate

In this post I deal with possible implications of “Clause 17: Right of Recourse” the major bone of political contention in the home stretch of the Bill. Contrary to popular belief, a provision for recourse is not focally about the liability of American suppliers representing a complete sellout by the Indian government of national sovereignty and our millions of impoverished citizens who may be affected by a potential nuclear catastrophe. If you believed it, the Left’s PR machine did its job very well. Legally, the provision deals with the issue of situations under which the operator of a nuclear establishment, who has exclusive liability in compensating victims in nuclear accidents can recover such amounts paid to the victims from suppliers. Thus at the outset it is clear that the provision has nothing to do with victims at all. Irrespective of who is at fault, the victim is not left uncompensated. It is a provision dealing with the bilateral relation between the operator of a nuclear plant and the supplier.

Having clarified this, let’s look at the details of the provision as suggested by the Cabinet (not the final draft). Clause (a) stated that recourse would exist when it was provided for in the contract between the operator and the supplier. Clause (b) stated that when the accident was caused due to the supplier’s defect, with the supplier intentionally providing such defective equipment or material or services, the operator would have recourse. Clause (c) contained a similar provision but replaced supplier with an individual intentionally causing the said damage. Insofar as Clause (a) is concerned international practice shows that contracts between suppliers and operators rarely contain and most often specifically exclude provisions for recourse. Hence in essence it would be a dead letter. For clauses(b) and (c), it does not require a lawyer to figure out the absolute inanity of the provisions. Of course, no supplier would supply equipment with the intention of causing damage– even Arnab Goswami got that! Then why did the Cabinet, clearly a set of smart people aided by a technically competent bureaucracy settle on these words?

The answer, I believe, lies in a perusal of the Convention for Supplementary Compensation for Nuclear Damage, 1997 (CSC). The provisions for recourse in the Annex to the said Convention, which any state, desirous of ratifying the Convention, would have to comply with, allowed recourse only when it was contractually provided for or when there was intention to cause damage on the part of an individual. Supplier liability of any form was thus absent from this international treaty regime. Not studying the provisions of the CSC carefully at the outset, was the biggest faux pas on the part of the government. As a consequence it set the cat among the pigeons (possibly with entirely honourable motivations) by including Clause 17(b) in its first draft of the Bill which allowed operators to sue suppliers when there was a “wilful act” (same as intent) or “gross negligence” (a lower standard than intent). As this was not CSC-compliant, the government sought to retract the said provision before the Standing Committee. It failed, given the bipartisan nature of the Committee, and attempted it again by inserting the word “and” between clauses 17(a) and (b) possibly by subterfuge in the final Standing Committee Report. The effect of insertion of the “and” meant that irrespective of what caused the damage, the operator would not be able to proceed against the supplier unless recourse was contractually provided for. Which, as I earlier said, rarely is. Hence the provision would be CSC-compliant.

When this sleight of hand was spotted, the government ultimately relented. Being a keen follower of the passage of the Bill, I hoped there would be a final twist in the tale when the government would come up with a new, innovative provision to ensure CSC compliance, incentivize suppliers as well as ensure national interest. Unfortunately, no such square pegs were sought to be fit into round holes and instead the government settled for dropping “intent” altogether from clause 17(b) thereby seemingly putting its CSC ratification plans on hold. Of course, the possibility of the government signing the CSC and entering a reservation (not consenting to a particular provision in a treaty despite ratifying the treaty) to the provision for recourse or simpler still, not notifying Clause 17 of the Bill into domestic law both exist (Clause 1(4) of the Bill). These however are steps which will make Machiavelli extremely proud and I’ll be eager to see whether the government has the gumption to pull it off.

So what happens as a consequence of this final clause? Its effect on three distinct interests must be considered. First, the suppliers. The reason why a seemingly inequitable provision of recourse exists internationally is not just happenstance or pure lobbying by suppliers (though it is to a certain extent). It is to a great extent to ensure that suppliers do not have to take additional insurance over and above insurance already taken by the operators. Avoiding pyramiding of insurance, a genuine concern, would thus keep nuclear energy cheap and affordable. Dilution of the provision in the Indian law will mean a certain degree of dissatisfaction in the supplier group (which is primarily French, Russian, Japanese, with half of one company having American ownership). This dissatisfaction has the possibility of translating into more expensive supplies. The government will have to use its entire negotiating prowess to ensure this eventuality is avoided to the greatest extent possible.

Second, Indian public policy and nuclear operators. Public policy in India would require that those at fault be held liable. By reverting to this position, the current Clause 17 secures this interest optimally as in the event of supply of defective equipment, material or services, the operator can get recourse from the supplier. In addition, under the tort law of product liability too, the operator can seek damages for losses caused. Both operators and the interest of public policy are thus adequately secured.

Third, the United States. Having gone entirely out of its way to sign a nuclear deal with India, the United States would have been hopeful of a favourable legislation, which would comply with the CSC to which it is a signatory. To be sure, the legislation is not entirely unfavourable. However to what extent recourse and non-compliance with the CSC will remain a thorn, continues to remain a live question. And thus I’m going to stick my neck out and say – we haven’t heard the end of this story yet— Or in keeping with the Bollywood script of the passage of the Bill, yeh picture abhi baaki hai.

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