No liability of supplier unless it is in contract

Two weeks after U.S. President Obama announced that India and the U.S. have reached a “ > breakthrough understanding” on the civil nuclear deal, the Ministry of External Affairs (MEA) put out a press release to explain the agreement that India and the U.S. have reached, in order to enable commercial negotiations to begin.

In a press release, > the Ministry has answered 19 frequently asked questions (FAQs) that make it clear that the government is not making changes to the Civil Liability for Nuclear Damages Act (CLND) 2010, but will read the Act to mean that supplier’s liability is not a mandatory part of the contracts to be signed.

The need for supplier’s liability has been raised in the recent past after the Fukushima nuclear plant disaster in Japan raised questions about the manufacture of the reactor and parts, and the possible damages of as much as $200 billion. However U.S. manufacturers and even Indian suppliers have raised concerns over India’s CLND law saying that it would be unviable for them to conduct nuclear business in India with the risk of that kind of liability being “channelled” to the suppliers.

The Ministry of External Affairs makes it clear that immediate liability for any incident would be channelled only to the operator, in this case PSU Nuclear Power Corporation of India Ltd. (NPCIL).

Key takeaways

1. Supplier’s liability is not necessary

In Answer 8, the MEA writes about section 17(b) which gives the operator a “right to recourse” i.e. suing the supplier. The MEA says this will be possible only if under section 6a, if it is written in the contract between NPCIL and the supplier. The explanation goes on to say that while the “right to recourse” is permitted, it is not required or necessary.

Section 17 states that the operator shall have a right of recourse. While it provides a substantive right to the operator, it is not a mandatory but an enabling provision. In other words it permits but does not require an operator to include in the contract or exercise a right of recourse.

Interestingly, in an article written in September 2013 entitled “Diluting Nuclear Supplier’s liability”, Finance Minister (then leader of opposition) Arun Jaitley had written against just such an understanding. “If a Public sector company wilfully enters into an agreement with a foreign vendor and abdicates its’ right to recourse which section 17(b) otherwise provides for its’ benefit, it would not only be violating the provisions of the Civil Liability for Nuclear Damages Act but also section 13(1)(d) of the Prevention of Corruption Act wherein a wrongful loss would be caused to the revenue of a Public Sector company,” he had written in an > article available on the BJP website.

2. The tort law or civil damages suit clause for victims does not apply to suppliers

In Answer 12, the MEA writes about section 46, which refers to the right of victims to sue in case of a nuclear accident according to ‘tort’ law. The MEA says parliament debates over the CLND had rejected amendments to include the supplier, and therefore the supplier cannot be liable under this kind of “class-action suit”.

The CLND Act channels all legal liability for nuclear damage exclusively to the operator and Section 46 does not provide a basis for bringing claims for compensation for nuclear damage under other Acts. That this section applies exclusively to the operator and does not extend to the supplier is confirmed by the Parliamentary debates at the time of the adoption of this Act.

However, Left-party members, who had tried to push for those amendments counter this. “The NDA government is clearly trying to do everything that it accused the UPA government of. Victim’s rights are simply not being upheld in all of this,” CPI leader D. Raja told The Hindu shortly after the MEA release was put out.

3. Amount of liability will be capped, and paid for from Insurance pool

The MEA’s FAQs also speak of the liability in case there is a nuclear incident, which will be capped at $300 million SDRs or Rs. 2610 crores. In addition, the operator NPCIL is only liable up to Rs.1500 crores, and the Union government would pay the balance RS 1110 crores. Any damages above this would come from an international fund, once India ratifies the international Convention on supplementary compensation for Nuclear liability or CSC. This effectively means that the supplier will not be liable , and even the operator will be liable only for a small fraction of what victims will need, given the recent example of $200 billion for the Fukushima disaster.

The insurance pool in this regard will in any case be paid for half and half by the government and government-owned insurers, i.e., from public taxes.

According to the MEA, the text for administrative arrangements between India and the U.S. has been “finalised”, and will now head straight for negotiations.

“It will be now up to the companies to follow up with their own negotiations and come up with viable techno-commercial offers and contracts consistent with our law and our practice so that reactors built with international collaboration can start contributing to strengthening India’s energy security and India’s clean energy options,” says the release.

However, on Friday, U.S. Assistant secretary of State Nisha Biswal in an answer to a question from The Hindu said the two sides were still > “trading papers” on the issue. The MEA has also not clarified on the “tracking” requirements of the U.S. on nuclear material in India in its press release.

When asked specifically about the reports on data sharing with the U.S., the MEA spokesperson Syed Akbaruddin would only say, “There will be no bilateral safeguards.” In a reply to The Hindu he said, “Our approach is consistent with our practice and international legal obligations. Nuclear material obligated to the U.S. will remain under IAEA safeguards.” The MEA did not respond to > the possibility of a “new offer” of data sharing under annual meetings between India and the U.S. officials, as The Hindu had reported last week. The MEA’s press release on Sunday seeks to dispel some of the worries over the negotiations with the U.S. Its answers may raise more questions, particularly in Parliament when it meets later this month.