TORT 057 Absolute Liability M C Mehta Enterprise Liability and the Bhopal Litigation — Law of Torts Notes for Judiciary

Absolute Liability: The Rule in M.C. Mehta, Enterprise Liability, and the Bhopal Litigation from the 1989 Settlement to the 2023 Curative Petition

Absolute liability is the Indian contribution to this part of the law of torts. It was laid down in M.C. Mehta v. Union of India, (1987) 1 SCC 395, a year after the Bhopal disaster, when the Supreme Court declined to apply a rule evolved in nineteenth century England to twentieth century Indian industry. An enterprise engaged in a hazardous activity owes an absolute and non delegable duty, is liable without any of the exceptions that qualify Rylands v. Fletcher, and pays compensation scaled to its own size. The Bhopal litigation itself, curiously, was never decided on that rule: it was compromised, and the compromise has now been held final.

The four pillars of the rule, the measure of compensation, and the Bhopal litigation

1. The Rule

📖 M.C. Mehta v. Union of India, (1987) 1 SCC 395

Facts Oleum gas escaped from one of the units of Shriram Foods and Fertiliser Industries, situated in a densely populated part of Delhi, in December 1985, a year after the Bhopal disaster. A number of persons were affected and an advocate practising in the Tis Hazari courts was said to have died. A second leak followed within days. The question that arose in proceedings under Article 32 was the principle on which such an enterprise should be held liable.

Held Bhagwati CJ, for the Court, declined to follow the rule in Rylands v. Fletcher and laid down a new and stricter rule.

Ratio An enterprise engaged in a hazardous or inherently dangerous activity owes an absolute and non delegable duty to the community to ensure that no harm results to anyone from that activity. If harm does result, the enterprise is absolutely liable to compensate those affected, and the liability is not subject to any of the exceptions which operate under the rule in Rylands v. Fletcher. The enterprise alone has the resources to discover and guard against the hazards, and the permission to carry on the activity is conditional on its absorbing the cost of any accident as an appropriate item of its overheads. The measure of compensation must be correlated to the magnitude and capacity of the enterprise, so that it has a deterrent effect: the larger and more prosperous the enterprise, the greater the amount of compensation payable by it.

2. The Four Pillars

The element	What it means
A hazardous or inherently dangerous activity	The trigger is the nature of the activity, not the use of land. An activity is hazardous if it poses a potential threat to the health and safety of those working in it and those residing nearby. No question of natural or non natural user arises
Enterprise liability	The enterprise answers, not merely the individual operator. It alone has the resources to discover and guard against the hazards, and the permission to carry on the activity is conditional on its absorbing the cost of any accident
A non delegable duty	The duty is owed to the community and not merely to a neighbour. It cannot be discharged by engaging a competent contractor, nor by pointing to licences, clearances and regulatory approvals
No exceptions	Not act of God, not act of a stranger, not statutory authority, not consent, not common benefit. Sabotage by a third party is therefore no answer, which is the defence Union Carbide had advanced at Bhopal

3. The Measure of Compensation

It must be correlated to the magnitude and capacity of the enterprise, so that it has a deterrent effect. The larger and more prosperous the enterprise, the greater the amount of compensation payable by it.
This is the point at which the rule departs most sharply from ordinary compensatory principle. Damages in tort are ordinarily measured by the plaintiff's loss and not by the defendant's means.
The reason given is deterrence. A sum that a large undertaking can absorb as a cost of doing business deters nothing, and an enterprise that can price an occasional disaster into its accounts has no incentive to prevent one.
And the rule was framed for a jurisdiction in which the victims are typically poor. It was designed so that the amount would not be settled by the relative bargaining strength of the parties.

4. Absolute Liability, Strict Liability and No Fault Liability

	Strict liability	Absolute liability	No fault liability
The source	Rylands v. Fletcher, 1868	M.C. Mehta, 1986	Statute: the Motor Vehicles Act, the Public Liability Insurance Act, the Employees' Compensation Act
What triggers it	Accumulation of a dangerous thing and a non natural use of land	Carrying on a hazardous or inherently dangerous activity	The occurrence of the event the statute describes
Is escape required	Yes	No	No
The exceptions	Six recognised exceptions apply	None	As the statute provides, usually very narrow
The measure	Full compensation on ordinary principles	Scaled to the magnitude and capacity of the enterprise	A fixed or capped sum laid down by the statute
Is it exhaustive	It is a common law rule and leaves other remedies intact	The same	The statutory relief is usually expressed to be without prejudice to other rights

The practical difference between absolute liability and statutory no fault liability is the amount. Statutory relief is quick, summary and capped; absolute liability is uncapped and scaled upward by reference to the defendant.
They are not alternatives. Section 3 of the Public Liability Insurance Act, 1991 gives immediate relief on a no fault basis, and the claimant may still pursue his full claim at common law.

5. The Bhopal Disaster and the Statute

Methyl isocyanate escaped from the Union Carbide India Limited plant at Bhopal on the night of 2 and 3 December 1984, killing thousands and injuring lakhs of people. It remains the worst industrial disaster on record.
The Bhopal Gas Leak Disaster (Processing of Claims) Act, 1985 conferred on the Union Government the exclusive right to represent all the claimants, in India and abroad, on the footing of the parens patriae doctrine: that the State stands as parent to those unable to protect their own interests.
Its constitutionality was upheld in Charan Lal Sahu v. Union of India, (1990) 1 SCC 613, subject to the requirement that the victims be given a fair opportunity to be heard and that any settlement be examined by the court.
The suit was first filed in the United States and dismissed on the ground of forum non conveniens, on conditions including submission to the jurisdiction of the Indian courts. Proceedings then began before the District Court at Bhopal.

6. The Settlement, and the Review

📖 Union Carbide Corporation v. Union of India, (1991) 4 SCC 584

Facts On 14 and 15 February 1989 the Supreme Court recorded a settlement under which Union Carbide Corporation was to pay US $470 million in full and final satisfaction of all claims arising out of the disaster. The orders also quashed and terminated all the criminal proceedings pending against the company and its officers. The settlement was challenged by review and writ petitions filed by victims' organisations, on the grounds that the amount was grossly inadequate, that the victims had not been heard, and that the criminal proceedings could not lawfully be extinguished.

Held The Court upheld the civil settlement but quashed that part of the orders which had terminated the criminal proceedings.

Ratio A settlement of civil claims arrived at and recorded by the Court may be sustained where it is not shown to be unjust on the material before the Court, and the adequacy of the figure is not to be reopened merely because a different figure might have been negotiated. But a criminal prosecution cannot be compounded or stifled by a civil settlement between the parties. The power to quash criminal proceedings could not be exercised as part of a bargain for money, and the prosecutions were accordingly restored.

7. The Curative Petition of 2023

📖 Union of India v. Union Carbide Corporation, decided 14 March 2023

Facts The Union of India filed a curative petition seeking to reopen the 1989 settlement and to obtain a further sum from Union Carbide, on the ground that the numbers of the dead and the injured, and the extent of the environmental damage, had been substantially underestimated when the figure was arrived at. It was heard by a Constitution Bench of five judges.

Held The curative petition was dismissed.

Ratio A settlement recorded by the Court is either valid, in which case it binds, or it is liable to be set aside for fraud, in which case it falls altogether. There is no intermediate course by which a settlement is kept alive and supplemented by a "top up", and such a claim has no foundation in any known legal principle. The Union had not pleaded fraud; it disputed only the numbers and the costs. The power under Article 142 could not be used to fasten on a party a greater liability than that to which it had agreed. The Court directed that the sum of about Rs 50 crore lying with the Reserve Bank of India be used by the Union to satisfy any claims still pending under the Act of 1985 and the schemes framed under it.

8. Absolute Liability in Environmental and Industrial Cases

Indian Council for Enviro Legal Action v. Union of India, (1996) 3 SCC 212, the Bichhri case, applied M.C. Mehta where chemical units had discharged highly toxic effluents that destroyed the soil and groundwater of an entire village. The polluter was held absolutely liable for the whole cost of remediation.
The polluter pays principle follows from it and is now settled as part of Indian environmental law: the cost of reversing the damage is part of the cost of the activity that caused it.
The National Green Tribunal Act, 2010 requires the Tribunal to apply the principles of sustainable development, the precautionary principle and the polluter pays principle in deciding claims for compensation for environmental damage.
And the Public Liability Insurance Act, 1991 makes the owner of a hazardous substance liable to give immediate relief on a no fault basis, and compels him to insure against that liability before he begins to handle the substance.

⚠ What the Bhopal litigation did and did not settle

M.C. Mehta was decided in December 1986, between the disaster and the settlement, and was framed with Bhopal plainly in view: the Court said in terms that it was laying down the law for the future of Indian industry. But the Bhopal claims themselves were never decided on that rule. They were compromised, and the compromise was upheld. The result is a curious one. The leading Indian authority on absolute liability is a case about a gas leak that killed one person, while the disaster that produced the doctrine ended in a negotiated figure that has been criticised for forty years and has now been held final. What the Bhopal litigation did settle is a different body of law altogether: the constitutionality of the parens patriae legislation, the principle that a criminal prosecution cannot be bought off in a civil settlement, and, in 2023, the limits of the curative jurisdiction as a means of reopening a concluded compromise.

9. The Position Stated Shortly

1. M.C. Mehta v. Union of India laid down that an enterprise carrying on a hazardous or inherently dangerous activity owes an absolute and non delegable duty to the community.

2. If harm results the enterprise is absolutely liable, and the liability is subject to none of the exceptions that qualify Rylands v. Fletcher.

3. The trigger is the nature of the activity and not the use of land, so no question of natural or non natural user arises.

4. No escape is required, so a worker injured inside the plant is covered, which Read v. J. Lyons would have excluded.

5. Compensation must be correlated to the magnitude and capacity of the enterprise, so that it has a deterrent effect.

6. The Bhopal Gas Leak Disaster (Processing of Claims) Act, 1985 made the Union the exclusive representative of the claimants, and was upheld in Charan Lal Sahu.

7. The 1989 settlement of US $470 million was upheld in Union Carbide Corporation v. Union of India, (1991) 4 SCC 584, save as to the criminal proceedings.

8. That decision holds that a criminal prosecution cannot be compounded or stifled by a civil settlement.

9. On 14 March 2023 a Constitution Bench dismissed the Union's curative petition seeking a top up, holding that a settlement is either valid or is set aside for fraud, and that no fraud had been pleaded.

10. The rule was applied in the Bichhri case, underlies the polluter pays principle, and has a statutory counterpart in section 3 of the Public Liability Insurance Act, 1991.