A landmark legal victory secured by Indian fishermen belonging to the Kutch district of Gujarat in the United States Supreme Court in the last week February went completely unnoticed by the Indian media.

The US Supreme Court, in a 7:1 decision, with one judge abstaining, ruled on February 27 that the International Finance Corporation (IFC), an arm of the World Bank, financing the construction of a power plant at Mundra, Gujarat, is entitled only to limited or “restrictive” immunity that foreign governments currently enjoy. Therefore, its claim for absolute immunity from suit, filed by local farmers and fishermen alleging air, land and water pollution in the surrounding area of the plant, is not valid, the court said. The plaintiffs were led by Waghers, a group of Muslim fishermen who have been fishing in the Mundra waters for generations.

Chief Justice John Roberts delivered the opinion of the court, in which Justices Thomas, Ginsburg, Alito, Sotomayor, Kagan and Gorsuch joined. Justice Breyer filed a dissenting opinion. Justice Kavanaugh, the latest appointee to the court, took no part in the consideration or decision of the case.

The International Organisations Immunities Act of 1945 (IOIA) grants international organisations such as the World Bank and the World Health Organisation the “same immunity from suit …as is enjoyed by foreign governments”. At the time the IOIA was enacted, foreign governments enjoyed virtually absolute immunity from suit. Today, that immunity is more limited. Foreign governments are not immune from actions based upon certain kinds of commercial activity in which they engage.

The IFC finances private-sector development projects in poor and developing countries around the world. About ten years ago, the IFC financed the construction of the coal-fired Tata Mundra Power Plant in Gujarat, by providing $450 million in loans in 2008 to Coastal Gujarat Power Limited. Under the terms of the loan agreement, Coastal Gujarat was required to comply with an environmental and social action plan designed to protect areas around the plant from damage. The agreement allowed the IFC to revoke financial support for the project if Coastal Gujarat failed to abide by the terms of the agreement.

Internal audit said plant did not comply with action plan

According to IFC’s internal audit, Coastal Gujarat did not comply with the environmental and social action plan in constructing and operating the plant. The audit report criticised the IFC for inadequately supervising the project.

In 2015, a group of farmers and fishermen who live near the plant, as well as a local village, sued the IFC in the United States district court for the District of Columbia. They were led by the lead plaintiff, Budha Ismail Jam. They claimed that pollution from the plant, such as coal dust, ash and water from the plant’s cooling system, had destroyed or contaminated much of the surrounding air, land and water. Relying on the audit report, they asserted several causes of action against the IFC, including negligence, nuisance, trespass and breach of contract.

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The district court concluded that the IFC was immune from suit because the IOIA grants international organisations the virtually absolute immunity that foreign governments enjoyed when the IOIA was enacted.

The IFC argued before the US Supreme Court that affording international organisations only restrictive immunity would defeat the purpose of granting them immunity in the first place. It would expose international organisations to money damages, which would in turn make it more difficult and expensive for them to fulfil their missions, it argued. “Allowing such suits would bring a flood of foreign-plaintiff litigation into the U.S. courts, raising many of the same foreign-relations concerns that we identified when considering similar litigation under the Alien Tort Statute”, the IFC contended.

IFC did not deny allegations

Significantly, the IFC did not deny the allegations of environmental pollution that the Mundra plant caused to its surroundings.

Justice Roberts opined:

The IFC’s concerns are inflated. To begin, the privileges and immunities accorded by the IOIA are only default rules….Notably, the IFC’s own charter does not state that the IFC is absolutely immune from suit.

Restrictive immunity hardly means unlimited exposure to suit for international organisations, the majority Judges held.

Holding that the IFC is not absolutely immune from suit, they reversed the judgment of the US Court of Appeals for the DC Circuit, and remanded the case for further proceedings consistent with their opinion.

Petitioners, who included farmers and fishermen from Kutch, Gujarat, sued the IFC for damages and injunctive relief in federal district court, but the IFC claimed absolute immunity from suit.

The IFC is designated as an international organisation under the IOIA. One hundred eight-four countries, including the US, are members of the IFC. The IFC is charged with furthering economic development “by encouraging the growth of productive private enterprise in member countries, particularly in the less developed areas, thus supplementing the activities” of the World Bank.

Whereas the World Bank primarily provides loans and grants to developing countries for public-sector projects, the IFC finances private-sector development projects that cannot otherwise attract capital on reasonable terms.

The IFC expects its loan recipients to adhere to a set of performance standards designed to avoid, mitigate and manage risks and impacts associated with development projects. Those standards are usually more stringent than any established by local law. The IFC includes the standards in its loan agreements and enforces them through an internal review process.

Interestingly, the plaintiffs in the case first approached the IFC’s internal grievance mechanism for relief, but in vain.

Writing in World Politics Review, Elliot Waldman observes on March 11:

Whether courts agree that a loan to the Tata Mundra Ultra Mega Power Plant project has “sufficient nexus to the United States” is unclear, but lawyers for Earthrights International, the advocacy group that represented the Indian plaintiffs, believe they have a good chance of success. At least one other case, involving farmers in Honduras who say that an IFC-supported company used death squads to terrorize them and dispossess them of their land, is likely to move forward as a result of last month’s ruling.

Meanwhile, international lawyers have hinted that the judgment could lead to calls for strengthening internal accountability mechanisms of organisations like the IFC.

Indian governments turned a blind eye

But the worrying thing from the judgment is how the Centre and the state governments, through their Pollution Control Boards, turned a blind eye to the environmental pollution, which the local fishermen alleged, as a result of the functioning of the Mundra plant.

Should not the Indian government have at least belatedly come forward to bear the litigation expenses of the Mundra farmers and offer help in further litigation in the lower courts in the US following this landmark judgment? May be that would be too much to expect from the current governments at the Centre and in Gujarat, hardly known for their concerns for environmental pollution caused by mega projects.