Nuclear Liability Law: Right of Recourse

The right of recourse itself is not against India’s long-term interests

The crucial waiver from the Nuclear Suppliers Group (necessary to remove a crucial roadblock blocking supply of nuclear fuel) was secured on September 6, 2008. By February 2, 2009, India had signed an India-specific IAEA safeguards agreement as well. Why then, was there no rush of new nuclear power projects, as many predicted? If one had to cull out one reason why the Nuclear Liability Act has received flak internationally, it would be for the controversial right of recourse provision. S. 17 of the Civil Liability for Nuclear Damage Act, 2010 provides that the “operator” of a nuclear installation shall have such a right, where:

(a) such right is expressly provided for in a contract in writing;
(b) the nuclear incident has resulted as a consequence of an act of supplier or his
employee, which includes supply of equipment or material with patent or latent defects
or sub-standard services;
(c) the nuclear incident has resulted from the act of commission or omission of
an individual done with the intent to cause nuclear damage.

The fact that the presence of patent or latent defects can form the basis for extending liability to suppliers has several international stakeholders worried. Suppliers’ objections to this provision can be broken down into two aspects. The first is based on convention. Suppliers argue that as per settled international practice, liability must be borne by the operator alone. Indeed, this is backed by the international legal instruments like the Convention on Supplementary Compensation for Nuclear Damage. The second aspect is about problems which are more practical in nature, which may come along with such a provision. Consider a situation where a foreign firm supplies insignificant small engineering equipment (or even a pump) for a reactor. After handing it over to the operator (NPCIL, presumably) for commencing generation, what happens if there is an accident? Will the machinery manufacturer be forced to be a party to the dreaded Indian legal proceedings relating to claims of compensation? What kind or class of suppliers is covered by this provision?

Unfortunately, the Liability Act does not help us answer this question. While the term “operator” is defined under S. 2 of the Act, there is no such definition of a “supplier”. It is important for us to consider if it is wrong to include supplier liability within a domestic law, just because it may not be in line with international practice. At the time when such practices were introduced, there may have been several considerations before policy-makers. One among those was the understanding that support that had to be provided to an industry in its nascent stage, which highlighted the need to find a way to shield suppliers.

It is important (and indeed, possible) for India to re-consider if previous practices have to be followed in this regard. With a huge projected market size, there is no dearth of parties willing to be become a part of the Indian nuclear power success story. While that has translated into interest and pressure from firms, lobby groups and other countries, it can also give India an opportunity to define its nuclear policy on its terms (to some extent). While such a policy should not be vague or impose unnecessary burdens on the industry, what is equally true is that India should not shy away from using this opportunity to incorporate terms which are more in line with the times – focusing on today’s requirements and capabilities. It is also important to note, that while it can be argued that the current version of the Liability Act is not “in line” with international practice, it cannot be said to be “illegal” under international law.

Supplier liability in itself may not be problematic, if we can find a way to implement the idea in a proper manner. In fact, it is possible that the provisions may receive a better response from the industry with greater clarity in terms of policy.

However, the manner in which such a change has to be introduced is also important. The Vodafone experience is still fresh in the minds of investors, who will also be vary of any changes introduced via an executive action, as opposed to a legislative one. This is especially true because the introduction of the Civil Liability for Nuclear Damage Rules (2011) has not helped bring in any more clarity.

As the new government focuses on energy security, it would do well to use all bargaining chips at its disposal in order to ensure that India’s long-term interests are not sacrificed in order to secure short-term gains.

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