In 2008, India and the US entered into the Agreement for Cooperation Concerning Peaceful Uses of Nuclear Energy. This permitted nuclear equipment manufacturers, suppliers and service providers to participate in India’s nuclear energy market despite India not being a signatory to the Treaty on the Non-Proliferation of Nuclear Weapons. However, US-based suppliers have been hesitant to go ahead because of their concerns regarding India’s Civil Liability for Nuclear Damage Act, 2010 (Nuclear Liability Act).
During US president Barack Obama’s state visit to India in January, he and Indian prime minister Narendra Modi announced that breakthroughs had been achieved on these concerns.
Nuclear power currently accounts for less than 5% of the total electricity produced in India. To fulfil its power generation needs, India aims to greatly enhance nuclear energy production.
Private players are not permitted to operate nuclear power plants. Section 22 of India’s Atomic Energy Act, 1962, states that only the government (GoI) has the authority to generate nuclear power and to operate atomic power stations. The Nuclear Liability Act also defines an “operator” to mean the GoI or any authority or corporation established by it or a government company which has been granted a licence under the Atomic Energy Act. Private players are allowed to supply equipment, materials and services to establish and operate a nuclear power plant.
Nuclear suppliers had been sceptical about their prospects in the Indian nuclear energy market even after the US-India nuclear agreement was signed because of the absence of a legal regime governing civil liability following a nuclear incident. The Nuclear Liability Act was promulgated to bring certainty in this regard. Its aim is to provide for civil liability pursuant to nuclear incidents causing nuclear damage and compensation to the victims of nuclear damage. The act stipulates a strict, no-fault liability regime which primarily holds the operator liable.
Assignment of liability under the Nuclear Liability Act has been a hotly debated issue in relation to the US-India agreement and the promotion of nuclear commerce in India. Section 17(b) and section 46 of the Nuclear Liability Act have been the primary bones of contention.
Operator’s right of recourse to suppliers: Section 6 of the act limits the liability of an operator of a nuclear power plant and section 17 of the act provides the operator a right of recourse to suppliers after paying compensation under section 6. Sections 17(a) and 17(c) are comparable to article X of the Vienna Convention and article 10 of Annex to the Convention on Supplementary Compensation for Nuclear Damage. Section 17(b), which is unique to the Nuclear Liability Act, makes available a right of recourse if the nuclear incident was a result of an act of a supplier (or its employee) or supply of defective equipment or sub-standard services if the contract does not provide so.
Liability under other laws: Another cause for concern arises from section 46, which states that the provisions of the Nuclear Liability Act are in addition to, and not in derogation of, any other applicable law. Therefore, the Nuclear Liability Act does not exempt the operator from any proceeding under a law such as the law of tort. This means that an operator could be made liable under tort law for claims in excess of the limits specified in the act.
The primary concern relating to section 17(b) is that it deviates from general international practice by making suppliers liable when the cause of a nuclear incident (for which the operator has paid compensation) can be traced to defective equipment or sub-standard services provided by a supplier. The operator can be made liable for a maximum of ₹15 billion (US$240 million) under the Nuclear Liability Act, which, as mentioned above, it can claim from the supplier.
Since amending the act was not considered feasible, the proposed solution to supplier’s liability under section 17(b) appears to be to create an “India Nuclear Insurance Pool”. Although the details are still being finalized, it has been reported that government-owned insurance companies will contribute about half of the required ₹7.5 billion and the rest will be provided by the GoI.
Suppliers’ concerns about being exposed to potentially unlimited tortious liability have been sought to be resolved by a “memorandum of law”. It is believed that this will amount to a legal opinion from the Attorney General stating the GoI’s understanding that the section is applicable only to operators and not suppliers. However, this might remain a concern as the opinion will not bind Indian courts to interpret section 46 in a similar manner.
It is hoped that when details of both these solutions are disclosed, these issues will be addressed.
Akshay Jaitly is a partner at Trilegal and Kartikeya Panwar is an associate. Trilegal is a full-service law firm with offices in Delhi, Mumbai, Bangalore and Hyderabad.
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