Tag Archives: #tortious liability

ABSTRACT

Industrial disasters such as gas leaks are nothing new to us, as we have seen several events ranging from the Bhopal tragedy and oleum gas leakage in the past to the Vizag gas leakage in the present. The major cause of these sorts of accidents is the industry’s management’s desire to decrease costs and increase profits. They believe that by missing the obligatory processes, they would save money, but they are not aware of the cost of their greed, which will result in massive losses to the lives of people living near the factories and environmental harm. We may presume that the executives in these industries have no sense of social duty. Instead of taking precautions to avoid industrial disasters, they aim to avoid penalties. This can be prevented if the government imposes stringent limits on penalizing them as well as government employees who are neglectful in their duties to ensure that these industries obey safety norms and laws. To ensure that victims receive their compensation as soon as feasible, the Supreme Court established the idea of ‘absolute obligation, without exceptions to pay victims. In all such situations, strict liability is not considered, since industry executives attempt to avoid legal scrutiny by invoking exceptions as defences. As a result, the company is obligated to pay the victims as well as the environmental harm caused, with no exceptions. This paper discusses the jurisprudential aspect of the tortious liability of a company by discussing the cases of Bhopal and Vizag.  

INTRODUCTION

A tort is the basic principle of the common law. The idea behind it is that “When there is an injury there is a remedy. When put simply, a tort is a civil wrong. The definition of tortious liability is: “Tortious liability is when it emerges from the breach of a duty that is principally established by law.” This responsibility is owed to all individuals, and its breach should be remediable by an action for general damages. There are numerous facets to tortious liability but here the focus is on absolute liability and strict liability.

When we speak of a company, we are referring to an artificial, legal entity. Consequently, it also has certain rights and responsibilities. A company’s obligation is of two types which are civil and criminal. Criminal Liability of a company is defined as a crime committed by an individual or an association of individuals who, in the course of their occupation, commit acts or omissions that are prohibited by law and with a guilty mind for the benefit of the corporation or any individual out of the association of individuals.

Tortious liability is a form of a company’s civil liability. Separate entities and common seals are two of the most significant characteristics of a business. A company has personally distinct from that of its directors. Under the company’s common seal, every transaction is conducted in its name. Therefore, the organization is accountable for the activities of its members. However, if this person exceeds the scope of his or her authority, he or she would be held accountable.

PROBLEM STATEMENT

How the Court judgment changed for civil liability of  the company with time from Bhopal Gas Tragedy to Vizag Gas Leak Case.

TORTIOUS LIABILITY OF COMPANIES

According to legal scholar Sir John Salmond “A tort is a civil wrong for which the remedy is an action for unliquidated damages and which is not primarily a violation of contract, a breach of trust, or a breach of another simply equitable obligation.” Taking into account the uncodified Law of Tort, civil culpability is obligated to fall on the tortfeasor in the event of a wrongful conduct or a violation of rights. Strict Liability was established in the landmark case of Rylands v Fletcher in 1868 and approved by the House of Lords. Strict responsibility is one of the numerous types of Tort that arose to secure the imposition of duty on an individual or entity in the event of conduct resulting in damages or losses, even if these acts were unintentional outcomes. As a result, strict responsibility is often known as ‘No-Fault Liability.’ The narrow line that establishes severe responsibility for negligence is the immateriality of purpose and appropriate care. The defendant is permitted to participate in such risky actions as long as he is willing to recompense those injured. If this regulation were to be repealed, it would result in an unfair balance of rights between the perpetrator and the victim.

According to the concept of Strict Liability, when a harmful object escapes from the Tortfeasor’s premises and harms someone or something, the liability is said to be strict liability. However, one is only held culpable when there is non-natural usage of land; the idea also reduces liability when the escape is due to an act of strangers, God, or the person injured, when it occurs with the approval of the person injured, or when it occurs with legislative authorization.

Absolute liability is a form of non-liability that differs from strict liability in that it does not include any of the statutory exemptions that are permitted under the latter. There were allegations that there was a gas leak in December in a unit of the well-known food and fertilizer company Shriram, which was owned by Delhi Cloth Mills. These allegations were brought to the attention of the Supreme Court of India in 1985 when it was hearing the case of MC Mehta vs. Union of India.[1] The problem was that part of the oleum gas used in the industry had made its way to a certain neighbourhood in Delhi. Because of the leak, a significant number of people were affected. The supreme court then developed the absolute liability rule based on the strict liability rule and declared that the respondent is to be answerable for the damages caused without taking into account the limits of the strict liability rule. This meant that the respondent was held responsible for the damage regardless of whether or not the strict liability rule was taken into account. The court observed that the old principle of strict liability, which dates back to the 19^th century could not be applied in this situation. As a result, the court announced that it would develop a new principle that would be suitable for the socio-economic as well as the environmental condition that exists in India. In accordance with the theory of strict liability, which was established in Rylands v. Fletcher, the Supreme Court of India later established the principle of liability without fault as a fundamental component of the Indian Tort Law. In addition to this, it was made abundantly clear that the new no-fault liability rule did not adhere to any of the aforementioned conditions that were stipulated under the Rylands rule.

LIABILITY OF DIRECTORS AND SHAREHOLDERS

A director could be held accountable for tortious liability if they intentionally participated in the act, authorized or instructed others to participate in the act, or knew engaged in the act themselves. On the other hand, it’s possible that the precise level of accountability won’t be immediately obvious. Because the corporation breached its general obligation, it is generally accepted that the business will be held liable for any damage or loss that was inflicted on a third party who exercised the typical level of knowledge and care.

The protection afforded to a corporation by the presence of a corporate veil can be breached if individual directors and shareholders are made personally responsible for the activities of the organization. However, if directors and shareholders argue that the actions were carried out on behalf of the company, they will not be protected from tort liability.

The obligation that shareholders have is significantly less than that which is placed on directors and officials. This is the unavoidable consequence of the partnership between shareholders and management, in which shareholders have appointed executives as their representatives to maximize e or at least protect their investment. Shareholders have chosen to establish this partnership.

When natural individuals run a business, it complicates the process of determining whether or not the business has breached a duty of care that it owed to another person. The law has enacted attribution laws so that it can determine whether or not the actions of an individual, such as a representative or an employee, are to be considered the actions can typically be linked back to a company to establish legal responsibility.

LIFTING OF CORPORATE VEIL

Following the companies act of 2013, “lifting the corporate veil” refers to the practice of ignoring the fact that a company is a separate legal entity, as required by the companies act of 2013, attention is turned away from the distinct identity of the company and toward the actual shareholders who are in charge of running the company.

The distinct personality confers a regulatory advantage, but it can serve no other function than to ensure compliance with the law. Individuals who commit fraud by misusing the legal system cannot expect to be able to hide their identity behind the screen of a corporate persona whenever or wherever such activity takes place.

The relevant authority will crack this company’s veneer and file civil charges against the persons who are responsible for such a transgression. According to the companies act of 2013, this action is referred to as the “lifting of the corporate veil.”

BHOPAL GAS TRAGEDY

Facts- The Indian government initiated legal action against the Union Carbide Corporation in the United States in the District Court in February of 1985, claiming damages in the amount of $ 3.3 billion. But by 1986, every one of these lawsuits had been filed in the U.S.  District Court had been moved to India on the basis that it was a more convenient forum. It indicates that the case ought to be moved to a forum that is better suitable for it so that the trial can proceed without any problems. During this time, in march of 1985, the Bhopal Gas leak Disaster (Processing of Claims) act was passed into law. This act gave the central government the authority to become the sole representative of all the victims in any and all types of litigation. This was done to ensure that the interests of those who were affected by the disaster were fully protected and that the claims for compensation were pursued as quickly as possible. in 1987, complaints were brought before the Bhopal District Court, which ultimately issued an order compelling the Union Carbide Corporation to pay an interim compensation amount of 350 crores. However, the temporary injunction could not be decreed, and as a result, the UCC refused to pay the amount that was requested. This interim compensation figure ultimately ended up being reduced to 250 crores when it was brought before the High Court. Against the judgment handed down by the High Court, both the Union of India and the UCC opted to appeal suing the special leave.

Issue- whether the company should be held liable or not?

Judgment- Union carbide and the Indian government made an out-of-court settlement to pay $470 million in compensation for all of the damage caused by the release of MIC gas from an industrial premise. The court also ordered the company to pay compensation to the victim by 15th November.

• In the case of the Bhopal gas tragedy, the court convicted eight accused which also includes Keshub Mahindra (chairman of Union Carbide), which shows how the corporate veil was lifted in the case, and the company directors who were running the company were held liable.
• As seen in the case of M.C Mehta the concept of absolute liability was used to determine the liability of the company. Similarly, in the case of the Bhopal gas tragedy, the same principle was used to determine the liability of the company. In situations where absolute liability is taken into account, it is possible for a company to be held liable for an incident even in the event that the company in question did not act negligently.

VIZAG CASE

Facts: On May 7, 2020, an unexpected Styrene vapour release occurred from one of the Styrene storage tanks at a company, RR Venkatapuram, Visakhapatnam (M6 Tank). For the first time, an uncontrolled release of Styrene vapour from a storage tank into the atmosphere happened in India. After the Bhopal gas tragedy, it was the first time when the country faced something like this. The name of the company was Hindustan Polymers. However, it was owned by a South Korean company named LG Chem. LG Polymers was the company’s new name at the time. It is involved in the production of polystyrene from styrene. Styrene is used to make numerous parts of electronic equipment, food packaging, and other products. The event occurred on May 7, 2020, when the styrene exceeded its optimum temperature (the ideal temperature for styrene storage is 15-18 degrees Celsius). The rise in temperature approached the boiling point of styrene, resulting in chemical self-polymerization. This converted the chemical into a gas which resulted in leakage of styrene in the atmosphere. The tragedy claimed the lives of 12 individuals and at least 500 people were hospitalized. In addition to causing cattle and vegetation damage.

This incident is widely known as the “Vizag Gas Leak tragedy”.  It was decided that a team from the NDRF’s CBRN (Chemical, Biological, Radiological, and Nuclear) unit in Pune, along with an expert team from the National Environmental Engineering Research Institute (NEERI) in Nagpur, would be rushed to Vishakhapatnam immediately to assist the State Government in crisis management. The National Disaster Management Authority prepared for a special aircraft to transport a joint team of four reaction specialists from the 5th Battalion of the NDRF Pune, as well as PPE, other equipment, and five environmental experts from Nagpur. The aircraft arrived in Visakhapatnam on May 7th, and the team promptly assisted the local authority in resolving the crisis. Further, the National Green Tribunal took Suo-motu cognizance over it.

Issue: Is the company liable for the leak and damage caused by the accident?

Judgment: The National Green Tribunal (hereafter ‘NGT’) levied an interim penalty of Rs. 50 crores on LG Polymers India Pvt Ltd the day after the gas leak event, and requested responses from the Centre and others for the “harm to life, public health, and the environment.” It also formed a five-member investigation committee to investigate the case and report back to the court. Former Andhra Pradesh High Court judge B. Seshasayana Reddy will oversee this group. The NGT chair’s assessment, released on May 28, 2020, discovered that storage turns were antiquated and lacked temperature sensors, enabling styrene vaporisation to go unnoticed. The study blamed the event on “severe human failure and a lack of fundamental safety requirements” with plant workers and the entire crown enabling the styrene vaporization to go unnoticed with factory workers and the overall business inexperienced in storing Tanks of such dangerous chemicals. The NGT asked the government of Andhra Pradesh to identify the government personnel accountable for their carelessness and take strict action against them for enabling the LG Polymers facility to operate without statutory approvals, and to produce a report. It also asked the Central Government to form an expert committee to produce a report on how to avoid similar situations in the future.

The National Human Rights Commission (NHRC) has notified both the Centre and the state of Andhra Pradesh about the occurrence, taking note of the violation of human rights, particularly the right to life under article 21 of the constitution.

According to the court, the principle of strict liability was applied, a person who introduces something likely to cause harm into the territory is obligated to pay compensation if the object escapes and causes injury but the substance should be of unnatural use. Here all the condition of strict liability was fulfilled and the NGT opinionated “Leakage of hazardous gas at such a scale adversely affecting a public health and environment attracts the principle of Strict Liability against the enterprise engaged in a hazardous or inherently dangerous industry.” Furthermore, two out of twelve directors were held liable and have been arrested in this case. The doctrine of the lifting of the corporate veil was applied as there was misconduct by the company and this could be done when there was a fault by the natural person which cannot be a company so the people and officials involved were arrested.

FINDINGS

As time passed India faced various cases of civil liability of company came into existence where various companies were imposed by tortious liability. The first case was where the principle of absolute liability came and imposed absolute liability on the company. From here the cycle of tortious liability came into being and then in the case of Union of India v. Indian Council for Enviro-Legal Action (1996)[2] the Supreme Court supported the polluter pays principle and unlimited culpability once more in this instance. The court ordered the companies that produce Sulphuric Acid and other poisons to pay the victims for failing to follow safety rules during toxic waste disposal and causing pollution. Similarly, in the case of Srinagar Bandh Aapda Sangharsh Samiti & Anr. v. Alaknanda Hydro Power Co. Ltd. & Ors (2014)[3] In this judgement, Section 17(3) of the NGT Act was granted a broader meaning to make it relevant to circumstances that did not involve hazardous industries.  

In the case of the Vizag gas tragedy, by using the principle of strict liability,’ the NGT not only provided an opportunity for the company to build its defence by demonstrating that there was no negligence on its part, but it also acted ultra vires under Section 17 of the National Green Tribunal Act, 2010, which directs the NGT to apply the no-fault principle even in cases of accident. This got a lot of backlash as it gave the company LG polymers the authority to defend themselves by using exceptions and for negligence.

In these cases, the company could not use the doctrine of the corporate veil. In these cases, the lifting of the corporate veil doctrine is applied to make the individuals and people of the company who are liable for the loss that occurred. In both the cases of Vizag and Bhopal the individuals involved were held liable along with the company.

A company is a legal entity. It does not have a natural personality, but it is managed by natural entities such as directors. They serve as the company’s brain. Through its activity and interactions, the firm is given the characteristics of a natural person. As a result, the assets owned by the company are not the directors’, but rather the companies. Similarly, the firm is held accountable for its actions since it can sue and be sued.

CONCLUSION

In the case of the Bhopal gas tragedy, though the directors and company were held liable, however, even after 37 years since the accident, the government has been unable to provide the victims of the gas disaster with proper compensation, thorough medical treatment, or economic rehabilitation. Even the compensation that was paid out was a complete farce, as each victim of the gas leak received an amount that was less than one-fifth of the total money that was supposed to be granted even according to the provisions of the settlement. Even now, 37 years later, the Bhopal gas victims have not received justice, and their children and grandchildren are also suffering from the aftermath of the disaster.

[1] M.C. Mehta vs Union of India  AIR 1987 965

[2] Indian Council for Enviro-Legal vs Union Of India And Ors 1996 AIR 1446, 1996 SCC (3) 212

[3] Alaknanda Hydro Power Co. Ltd vs. Anuj Joshi & Ors 1 SCC 769