Union Carbide Corporation v Union of India (1992) — the Bhopal review

Bhopal is the disaster that produced the Environment (Protection) Act 1986, and this is the judgment in which the Supreme Court reviewed its own settlement of 470 million US dollars. For the syllabus it does three things:

1. It is the case where the Supreme Court discussed the status of the absolute liability rule laid down in the Oleum Gas Leak case, and cast doubt on it — the controversy chapter 3 flags.
2. It shows the practical limits of a domestic environmental remedy against a foreign multinational whose assets lie abroad.
3. It restored the criminal prosecutions that the settlement had quashed, and so is the leading illustration that a civil settlement cannot buy immunity from the criminal law.

Suits for damages were filed in the United States by local representatives of the deceased and by affected persons. The Union of India, under the Bhopal Gas Leak Disaster (Processing of Claims) Act 1985, took upon itself the right to sue for compensation on behalf of the affected parties. The suits were consolidated, and Judge Keenan, by order dated 12 May 1988, dismissed them on the ground of forum non conveniens, subject to conditions including that:

1. "Union Carbide shall consent to submit to the jurisdiction of the Courts of India and shall continue to waive defences based on the statute of limitations"; and
2. "Union Carbide shall agree to satisfy any judgment rendered against it in an Indian Court", if appealable, upheld on appeal, "whether such judgment and affirmance comport with the minimal requirements of due process".

The United States Court of Appeals for the Second Circuit, by its decision of 14 January 1987, upheld the first condition but modified the second. Under New York law a foreign-country judgment that is final, conclusive and enforceable where rendered must be recognised and enforced "conclusive between the parties to the extent that it grants or denies recovery of a sum of money", except where "The judgment was rendered under a system which does not provide impartial tribunals or procedures, compatible with the requirements of due process of law" or where "The foreign court did not have personal jurisdiction over the defendant".

That exception is the hinge of the whole case. It meant that an Indian decree would have to survive an American due-process attack before it could be executed against American assets.

The Union of India filed suit in the District Court at Bhopal in September of that year. The plaint stated that the death toll to that point was 2,660, that serious injuries had been suffered by several thousand persons, and that "in all more than 5 lakh persons had sought damages upto then", the extent and after-effects not yet being fully ascertained. It asked for damages sufficient "to fully, fairly and finally compensate all persons and authorities who had suffered as a result of the disaster", and for effective damages "in an amount sufficient to deter the defendant and other multi-national corporations involved in business activities from committing wilful and malicious and wanton disregard of the rights and safety of the citizens of India".

While the American litigation was pending an offer of 350 million dollars had been made. The Bhopal District Court ordered interim compensation of Rs. 350 crores; the High Court reduced it to Rs. 250 crores; both sides filed special leave petitions. It was in those appeals that the matter was settled by orders dated 14 and 15 February 1989.

The operative terms recorded on 14 February 1989 were:

• "The Union Carbide Corporation shall pay a sum of U.S. Dollars 470 millions (Four hundred and seventy Millions) to the Union of India in full settlement of all claims, rights and liabilities related to and arising out of the Bhopal Gas disaster."
• Payment "on or before 31st March, 1989".
• All civil proceedings stood transferred to the Supreme Court and concluded in terms of the settlement, "and all criminal proceedings related to and arising out of the disaster shall stand quashed wherever these may be pending".

The UCC deposited 420 million US dollars and UCIL the rupee equivalent of 45 million US dollars; 5 million dollars directed by Judge Keenan to be paid to the International Red Cross was given credit.

On 4 May 1989 the Constitution Bench which had recorded the settlement gave brief reasons on three questions: how the Court arrived at the figure, why it considered the sum just, equitable and reasonable, and why it did not pronounce on the principles of liability of "monolithics, economically entrenched multi-national companies operating with inherently dangerous technologies in the developing countries of the third world".

The settlement was assailed in review petitions and writ petitions. Ranganath Misra CJ reduced the challenge to two grounds: that "The criminal cases could not have been compounded or quashed and immunity against criminal action could not be granted", and that "the quantum of compensation settled was grossly low".

The contentions were formally lettered (A) to (J) in the judgment of Venkatachaliah J — jurisdiction to withdraw the civil suits and the criminal proceedings (A and B), non-compliance with Order XXIII Rule 3B CPC for a representative suit (C), the validity of quashing the prosecutions under ss. 320(9), 321 or 482 CrPC (D), the conferment of a future criminal immunity (E), public policy and stifling of prosecution (F), the absence of a fairness hearing and of a re-opener clause (G), restitution if the settlement were set aside (H), the victims' right to be heard (I), and the machinery for disbursement (J).

Three background events framed the argument: the CBI charges under ss. 304, 324, 326, 429 read with s. 35 IPC against Mr. Warren Anderson, then Chairman of the UCC, and others, Mr. Anderson having come to India on 7 December 1984, been arrested and released on bail; the District Court's interlocutory injunction restraining UCC from dealing with its assets, vacated on UCC's undertaking "to maintain unencumbered assets of three billion U.S. Dollars"; and the Constitution Bench decision in Charanlal Sahu's case upholding the constitutionality of the 1985 Act while making observations on the victims' right to be heard, held implicit in s. 4 of that Act.

1. Jurisdiction (Contentions A and B): rejected. "under Article 142(1) of the Constitution, the Court had the necessary jurisdiction and power" to withdraw both the civil suits and the criminal proceedings to itself.
2. Order XXIII Rule 3B (Contention C): rejected. The settlement is not void for non-compliance.
3. Quashing of the prosecutions (Contention D): allowed in part. The Court had jurisdiction under Art. 142(1) to quash, "But, in the particular facts and circumstances, it is held that the quashing of the criminal proceedings was not justified. The criminal proceedings are, accordingly, directed to be proceeded with." In terms: "we hold that the quashing and termination of the criminal proceedings brought about by the orders dated 14th and 15th February, 1989 require to be, and are, hereby reviewed and set aside."
4. Future immunity (Contention E). The prohibitory clauses were held "not to amount to a conferment of criminal immunity" but merely consequential on the quashing; with the quashing reviewed, that part of the order was set aside too. The Court directed "that all portions in the orders of this Court which relate to the incompetence of any future prosecutions be deleted." The dropping of contempt proceedings was left undisturbed.
5. Public policy (Contention F): rejected.
6. Fairness hearing and re-opener (Contention G): rejected. The American "Fairness Hearing" procedure is not strictly attracted, and the absence of a Re-opener clause "does not, ipso facto, vitiate the settlement".
7. Restitution (Contention H). Held per invitium that if the settlement were set aside UCC would be entitled to restitution of the 420 million dollars, subject to compliance with the District Court's order of 30 November 1986.
8. Right to be heard (Contention I). The settlement is not vitiated for not affording the victims a hearing; but if the settlement fund is found insufficient, the deficiency is to be made good by the Union of India. This is the single most important protective holding for the victims.
9. Directions (Point J). Time-bound determination of claims; the guidelines in the Gujarat High Court's judgment in Muljibhai v United India Insurance Co for administration and disbursement; medical surveillance for eight years with a hospital of at least 500 beds, free to victims, on land to be provided free by the State Government; medical group insurance from the LIC or GIC for about one lakh presently asymptomatic persons and later-born children with congenital or prenatal MIC-related afflictions, "There shall be no upper individual monetary limit for the insurance liability", premia payable out of the settlement fund; and UCC and UCIL to bear the cost of the hospital and its operation for eight years.

On the decree itself: "the decree obtained on consent terms for compensation does not call for review."

This is the part of the judgment that belongs to Module 1 rather than to the law of settlements. The petitioners argued that compensation should have been assessed on the principle in the Oleum Gas Leak case. Ranganath Misra CJ answered:

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" the expression State in Article 12 so as to be liable to the discipline of Art. 21 and to be subjected to a proceeding under Art. 32. "Thus what was said essentially obiter." (The sentence is reported in that elliptical form; the sense is that the statement of the rule was obiter.)

He added that the extracted passage from M.C. Mehta "perhaps is a good guideline for working out compensation in the cases to which the ratio is intended to apply", that "The statement of the law ex-fade makes a departure from the accepted legal position in Rylands v. Fletcher" (the report reads ex-fade; the words are ex facie), and that "We have not been shown any binding precedent from the American Supreme Court where the ratio of M.C. Mehta's decision has in terms been applied."

Why the Court declined to apply it. The reasoning is intensely practical and is the best short lesson in the enforcement problem of transnational environmental harm:

• The Indian assets of UCC through UCIL were "around Rs. 100 crores or so". Anything beyond that had to be executed in the United States.
• Execution there would face the due-process objection preserved by the US Court of Appeals. "If the compensation is determined on the basis of strict liability-a foundation different from the accepted basis in the United States-the decree would be open to attack and may not be executable."
• On timing: trial in Bhopal would have taken "at least 8 to 10 years", appeals "another spell of 10 years" — "litigation in India would have taken around 20 years to reach finality" — and then some 8 to 10 years more in the United States, so that "relief would have been available to the victims at the earliest around 2010".
• Hence: "To have a decree after struggling for a quarter of a century with the apprehension that the decree may be ultimately found not to be executable would certainly not have been a situation which this Court could countenance."
• And on the invitation to develop the law in this case: "This, however, is not an occasion when such an experiment could have been undertaken to formulate the Mehta principle of strict liability at the eventual risk of ultimately losing the legal battle."

The Chief Justice defended the settlement in the language of the working judge: "When dealing with this case this Court has always taken a pragmatic approach", remembering the saying "life is not logic but experience"; and "Judges of this Court are men and their hearts also bleed when calamities like the Bhopal gas leak incident occur."

On the impossibility of exactness he observed that "there has been no final adjudication in a mass tort action anywhere", that assessment in such cases "has generally been by a rough and ready process", and, citing the order of 4 May 1989, that "the estimate in the very nature of things cannot share the accuracy of an adjudication" — adding, candidly, "even an adjudication would only be an attempt at approximation."

State the position carefully, because it is a favourite examiner's trap.

• M.C. Mehta laid down absolute liability in the widest terms.
• In the Bhopal review Ranganath Misra CJ described the statement as obiter, because no compensation had in fact been awarded in M.C. Mehta.
• That view is itself an observation in a review judgment about quantum, made while expressly saying "We are not concerned in the present case as to whether the ratio of M.C. Mehta should be applied to cases of the type referred to in it in India."
• Chapter 3 sets out that disagreement and the reason for preferring the later view.

So the safe answer is: absolute liability stands, but a full answer notes the doubt expressed in the Bhopal review and explains why it did not survive.