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9/1/1999 THE LAW OF TORTS
The law of torts in India continues to be based on the English common law, and has not been codified. The horrendous disaster at Bhopal in 1984 prompted the central government to enact special legislation called the Bhopal Gas Disaster (Processing of Claims) Act, 1985, to protect the interests of the victims and their families. The Supreme Court in Charan Lal v Union of India, AIR 1990 S.C. 1480, held that this act was constitutionally valid. In M.C. Mehta v Union of India, AIR 1987 S.C. 1086, ("Mehta"), Chief Justice Bhagwati of the Supreme Court of India laid down an unprecedented and highly controversial principle to the effect that an Indian enterprise, engaged in hazardous activities, which result in death, injury or damage to property can, under certain circumstances, be held, without exception, strictly and absolutely liable in tort to a third party. In Mehta, Bhagwati C.J. also laid down two very radical and startling rules - the deep pocket theory and the enterprise theory. The ramifications of Mehta caused a lot of alarm among foreign investors who feared that they might be held liable for damages in tort if the Indian company in which they might have invested were involved in a disaster resulting in death or injury to third parties. Fortunately, in two subsequent cases, the Supreme Court itself has considered these observations of Bhagwati C.J. in Mehta to be obiter. In Charan Lal v. Union of India, AIR 1990 S.C. 1480, 1545, Sabyasachi Mukherji C.J. said:
"On behalf of the victims, it was suggested that the basis of damages in view of the observations made by this Court in M.C. Mehta's (AIR 1987 S.C. 1086) (supra) against the victims of UCC or UCIL would be much more than normal damages suffered in similar case against any other company or party which is financially not so solvent or capable. It was urged that it is time in order to make damages deterrent the damages must be computed on the basis of the capacity of a delinquent made liable to pay such damages and on the monetary capacity of the delinquent the quantum of the damages awarded would vary and not on the basis of actual consequences suffered by the victims. This is an uncertain promise of law. On the basis of evidence available and on the basis of the principles so far established, it is difficult to foresee any reasonable possibility of acceptance of this yardstick. And even if it is accepted, there are numerous difficulties of getting that view accepted internationally as a just basis in accordance with law. These, however, are within the realm of possibility."
In Union Carbide Corporation v. union of India, AIR 1992 S.C. 248, 261 the Supreme Court of India said:
"In M.C. Mehta's case no compensation was awarded as this Court could not reach the conclusion that Shriram (the delinquent company) came within the meaning of "State" in Article 12 so as to be liable to the discipline of Article 21 and to be subjected to a proceeding under Article 32 of the Constitution. Thus what was stated was essentially obiter."
It is therefore submitted that foreign investors (actual or potential) in industries which produce hazardous products or where the manufacturing process may give rise to hazardous accidents need no longer have any apprehension of unlimited civil liability to pay damages on the basis of the observations in Mehta.
However, by the National Environment Tribunal Act, 1995, Parliament has imposed an absolute liability on the person concerned (defined in that Act as the "owner") to pay compensation in respect of death or injury caused by an accident involving a fortuitous or sudden or unintended occurrence while handling any hazardous substance resulting in continuous or intermittent or repeated exposure. An accident caused by war or radio-activity is excepted. The definition of "owner" includes a director of a company who is directly in charge of, and is responsible to, the company for the conduct of its business.
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