The Public Liability Insurance Act, 1991: No-Fault Relief, Mandatory Insurance and the Environmental Relief Fund

After a chemical accident, victims need money now: for hospital bills, funerals, lost wages and damaged homes. A civil suit for damages takes years, requires proof of negligence, and may end against a company that has shut down or has no assets. The Public Liability Insurance Act, 1991 answers this with three linked ideas: every owner handling hazardous substances must carry compulsory insurance; victims receive immediate interim relief on a no-fault basis through the Collector; and an Environmental Relief Fund backs up the insurance. The Act was substantially amended by the Jan Vishwas (Amendment of Provisions) Act, 2023, with effect from 1 April 2024, and relief amounts were revised by rules in 2024.

1. Object of the Public Liability Insurance Act

The Act (Act No. 6 of 1991) was enacted in the shadow of Bhopal and the Oleum gas leak. Its preamble states its object as providing for public liability insurance for the purpose of providing immediate relief to persons affected by accidents occurring while handling any hazardous substance. It does not replace full compensation; it guarantees a floor of quick relief. In 1992 it was amended to create the Environmental Relief Fund, and in 2023 the Jan Vishwas Act decriminalised most offences, replaced them with penalties imposed by an adjudicating officer, omitted the Schedule of relief amounts (now prescribed by rules), and added relief for restoration of damaged property.

2. Key Definitions

The definition is wide: it covers sudden releases and also continuous or repeated exposure, but it excludes accidents caused only by war or radioactivity (which is governed by nuclear liability law). Handling means the manufacture, processing, treatment, package, storage, transportation by vehicle, use, collection, destruction, conversion, offering for sale, transfer or the like of a hazardous substance. A hazardous substance means any substance or preparation defined as such under the Environment (Protection) Act, 1986, and exceeding the quantity specified by notification of the Central Government. The owner is the person who, at the time of the accident, has control over the handling of the hazardous substance, including a firm, company, association or its partners, members or directors.

3. No-Fault Liability and Immediate Relief

Section 3 is the heart of the Act. It creates no-fault liability: the victim need not prove that the owner was negligent or at fault. It is enough that the accident occurred while handling a hazardous substance and caused death, injury or damage. Two limits follow from the text. First, the relief is only the amount prescribed (now by rules), not full damages. Second, workmen are excluded, because they are covered by the Employees' Compensation Act, 1923 (now the Social Security Code).

3.1 Relief to victims

The relief was originally fixed in the Schedule to the Act at modest amounts (for example, Rs 25,000 for death or permanent total disability, medical expenses up to Rs 12,500, and property damage up to Rs 6,000), which had become meaningless. The Jan Vishwas Act omitted the Schedule, and the Public Liability Insurance (Amendment) Rules, 2024 (in force from 17 December 2024) now prescribe much higher relief, including about Rs 5 lakh for death or permanent total disability, reimbursement of medical expenses, a monthly amount for loss of wages for up to three months in case of temporary disability, and relief for damage to private property up to a prescribed ceiling. Section 6(1A), added in 2023, also allows claims for restoration of damaged public or private property.

4. Owner Handling Hazardous Substance and Mandatory Insurance

Under Section 4, every owner must, before starting to handle any hazardous substance, take out one or more insurance policies providing for a contract of insurance against liability to give relief under Section 3, and must renew them from time to time so that they remain in force throughout the period of handling. The amount of the policy must be not less than the paid-up capital of the undertaking and may not exceed Rs 500 crore, with rules fixing aggregate limits per accident and per policy year. An owner who has no paid-up capital (for example, a partnership) must insure for the value of its assets as prescribed.

Along with the premium, the owner must pay to the insurer an additional amount, not exceeding the premium, for credit to the Environmental Relief Fund. The Central Government may exempt from the duty to insure the Central or a State Government, a corporation owned or controlled by them, a local authority, or other specified owners, if they maintain a fund of the prescribed amount for meeting liability. Under Section 13, the Central Government may apply to a court to restrain an owner who handles hazardous substances without insurance.

5. The Environmental Relief Fund

Section 7A, inserted in 1992, establishes the Environmental Relief Fund. It is credited with the additional amounts paid by owners along with premiums, the penalties collected under the Act, and interest and other income from its investments. It is administered under a scheme made by the Central Government, which specifies the authority that manages it and the manner of disbursement. The Fund is used to pay relief under an award where the insurance is insufficient, and, under the 2023 and 2024 changes, a portion may be used for restoration of the environment damaged by the accident, including through allocation to pollution control boards. The NGT has also, in some cases, directed that environmental compensation be credited to or paid from this Fund.

6. The Collector's Role and Application for Relief

6.1 Application for relief

Under Section 6, an application for relief may be made to the Collector of the district where the accident occurred by: the person who has sustained injury; the owner of the property damaged; the legal representatives of a deceased person; or an agent authorised by any of them. The application must be made within five years of the date of the accident, in the prescribed form. Sub-section (1A) enables claims for restoration of damaged public or private property. The Collector must give publicity to the accident and invite applications.

6.2 Award of relief

Under Section 7, on receipt of an application the Collector gives notice to the owner and insurer, holds an inquiry, and makes an award determining the relief that appears just, specifying the amounts payable by the insurer and the owner and, where necessary, from the Environmental Relief Fund. The award is to be made within three months of the application. The insurer must deposit the amount within thirty days, and the Collector arranges payment to the victims. Where the relief exceeds the insurance, the balance is paid by the owner and, if necessary, from the Fund.

6.3 Powers of the Collector

The Collector is the central authority under the Act. For holding inquiries, the Collector has the powers of a civil court for summoning witnesses, requiring documents and receiving evidence. The Collector may require owners to furnish information about hazardous substances and their insurance, may authorise entry and inspection of premises, and receives notice of accidents. The Central Government may issue directions to owners, including for closure or regulation of handling of hazardous substances.

7. Penalties after the Jan Vishwas Amendments

Originally, failure to insure or to comply with directions was punishable with imprisonment. After the Jan Vishwas (Amendment of Provisions) Act, 2023 (effective 1 April 2024):

• Section 14: failure to take out insurance or pay the contribution attracts a penalty equal to the annual premium, which may extend to twice that amount, and a further penalty for each month of continuing default;
• Section 15: non-compliance with directions attracts a penalty of Rs 10,000 to Rs 15 lakh, with a daily penalty for continuing contravention;
• Section 15A: penalties are imposed by an adjudicating officer (a District Magistrate or officer of prescribed rank), who must complete proceedings within six months, with an appeal as prescribed;
• Section 17B: failure to pay the penalty imposed within ninety days is punishable with imprisonment up to three years, or fine up to Rs 15 lakh, or both; and
• Section 16 (offences by companies) was omitted, and penalties are credited to the Environmental Relief Fund.

8. Comparisons

8.1 Public liability insurance versus tort compensation

In tort, the victim must sue in a civil court and prove negligence, or bring the case within the strict liability rule of Rylands v. Fletcher (1868), which is subject to exceptions such as act of God, act of a stranger and consent. Damages are full (medical costs, loss of earnings, pain and suffering), but the process is slow and costly. Under the PLI Act, relief is immediate, no-fault, and fixed at prescribed amounts, paid through an administrative process before the Collector and guaranteed by insurance. Under Section 8, the right to relief is in addition to any other right to compensation, but any compensation awarded under another law is reduced by the relief already paid.

8.2 Public liability insurance versus absolute liability

The rule of absolute liability laid down in M.C. Mehta v. Union of India (Oleum gas leak), (1987) 1 SCC 395, holds an enterprise engaged in a hazardous or inherently dangerous activity absolutely liable to compensate all those affected by an accident, without any exceptions, and the measure of compensation is correlated to the magnitude and capacity of the enterprise so as to have a deterrent effect. It is a judge-made rule that yields full compensation through courts (and now the NGT under Section 17(3) of the NGT Act). The PLI Act is a statutory, insurance-backed scheme for interim, fixed relief. The two are complementary: the Act gives the first instalment quickly; absolute liability determines the full amount.

9. Hazardous Accident Compensation: The Wider Picture

Compensation for hazardous accidents in India now flows through several channels: interim relief under the PLI Act; full compensation under absolute liability through the courts; no-fault relief and compensation before the National Green Tribunal under Sections 15 and 17 of the NGT Act, including restitution of property and restoration of the environment; workmen's compensation for employees; and, for specific disasters, special legislation such as the Bhopal Act. Nuclear accidents are governed separately by the nuclear liability regime, now under the SHANTI Act, 2025. The LG Polymers case (2020), where the NGT ordered an interim deposit of Rs 50 crore on the principle of strict liability, shows these channels in operation together.

10. Critical Appraisal

The PLI Act embodies sound ideas: no-fault relief, compulsory insurance and a backstop fund. For three decades it failed in practice because relief amounts were frozen at 1991 levels, awareness among Collectors and victims was low, and many owners never insured. The Jan Vishwas amendments and the 2024 Rules raised relief substantially, introduced faster adjudication and allowed the Fund to be used for restoration, but they also decriminalised non-insurance, which critics fear weakens deterrence. Effective use of the Act requires regular inspection of insurance compliance, proactive action by Collectors after accidents, and integration with NGT proceedings.

11. Related Topics and Provisions