Union Carbide Corporation vs Union Of India Etc.

Case Citation: 1990 AIR 273; 1989 SCC (2) 540; 1989 SCALE (1)932

Date of Judgment: 4 May, 1989

Court: Supreme Court of India

CASE NO.: Civil Appeal No. 3187 and 3188 of 1988

Parties to Suit

• Petitioner: Union Carbide Corporation
• Respondent: Union Of India Etc.

Bench: Pathak, R.S. (CJ), Pathak, R.S. (CJ), Venkataramiah, E.S. (J), Misra Rangnath, Venkatachalliah, M.N. (J), Ojha, N.D. (J).

Act: Bhopal Gas Leak Disaster (Registration and Proceedings of claims) Act, 1985: Court for general reasons for the settlement order dated February 14, 1989; making an obligation to obtain immediate judicial and humanitarian assistance from the victims of tragedy.

Introduction

Bhopal gas leak case, Union Carbide Corporation v. UOI, marks a pivotal moment in corporate social responsibility (CSR) within India, emphasizing the principles of strict liability and total liability. The disaster caused by the escape of highly toxic Methyl Isocyanate Gas from the premises of Union Carbide Ltd. (UCIL) caused severe loss of population, flora and fauna in response to which the Environment Protection Act 1986[1] and Public Insurance Liability Act 1991[2] were enacted to prevent disasters of such nature in future and expanded the definition to give everyone the right to life and personal liberty. Presently it includes the fundamental right to live in a pollution-free environment[3] which is necessary for full enjoyment of life, as recognized in Subhash Kumar v. India. State of Bihar[4]. These principles emphasize the broad scope of responsibilities of companies under the Indian Companies Act, 1961[5]. As a result of the Bhopal disaster, companies need to prioritize environmental protection and community health as a top priority in their business strategy. This includes strict adherence to safety standards, proactive risk management, and transparent environmental reporting.

Lifting the corporate veil under the Indian Companies Act 1961 ensures that companies and their leaders are accountable to implement sustainable practices that reduce pollution and contribute to environmental balance. This principle of CSR will include key initiatives, build stakeholder confidence and prevent disasters like Bhopal gas tragedy in legal and ethical Companies and implement the responsibility in health, education, should be funded also promote infrastructure development, especially in the affected areas, to enhance the well-being of communities. By adhering to these policies, companies contribute to fundamental rights such as pollution-free products and sustainable development, while ensuring compliance with regulatory standards for long-term success.

Key Facts

The Bhopal gas leak tragedy of 1984 stands as a terrible reminder of the possible consequences of industrial negligence. It came as deadly methyl isocyanate gas leaked from a Union Carbide Corporation (UCC) pesticide plant in Bhopal, India, on the night of 2^nd December. The toxic gas spread to the surrounding communities, indiscriminately affecting thousands of unsuspecting residents. The immediacy of the disaster was tragic, with an estimated 2,500 lives lost within hours of the spill. But the actual murders of this tragedy went far beyond the initial death toll. Thousands of individuals suffered serious injuries ranging from respiratory problems to muscle spasms. Exposure to the radiation had a lasting effect on the health and well-being of the people affected, many of whom still deal with the aftermath to this day

Following the disaster, legal proceedings were initiated on several fronts to seek justice and compensation for the injured. The UCC was initially sued in the United States where the company was headquartered. However, the need for local legitimacy as well as accountability led to legal battles in Indian courts, especially in the District Court of Bhopal, an Order dated April 4, 1988, was issued by the High Court of Madhya Pradesh turned out to be great in the lawsuit. This order modified the interim order before December 17, 1987 and imposed an interim compensation of Rs. 250 crore to the victims. Notably, Union of India and Union Carbide Corporation challenged the order, triggering a protracted legal battle that would eventually culminate in a landmark judgment delivered on February 14, 1989 by the Supreme Court of India in the criminal proceedings effectively ended. The court’s decision was driven by the need to press for immediate relief for victims, recognizing that legal challenges and procedural delays could prolong their suffering.

In making its decision, the court carefully examined the proposed settlement and considered the best interests of all parties involved. It recognized the extraordinary magnitude of the tragedy and the humanitarian demands to alleviate the suffering of the injured without undue delay Despite the inherent legal and procedural challenges, the Court took advantage of the profit took precedence over the quest for justice. The court’s decision reflected a delicate balance of legal principles and humanitarian considerations. While upholding the rule of law and due process, the Court also showed great sensitivity to the human cost of tragedy. By choosing to negotiate a settlement, the court sought to expedite much-needed compensation for victims and their families, thereby providing some comfort and some degree of closure in terms of loss and of unimaginable suffering The Bhopal gas leak tragedy represents a watershed moment in legal history, underscoring the importance of swift action and fairness in the aftermath of industrial disasters. It is a poignant reminder of the enduring responsibility of companies to prioritize safety and environmental stewardship, lest the consequences of negligence result in harm to innocent people and communities they cannot be repaired.

Key Legal Issues:

The case centered on several critical legal issues:

1. Validity of settlement ordered by Madhya Pradesh High Court.
2. Is the settlement amount reasonable or not?
3. Is it appropriate to dismiss the criminal proceedings against Union Carbide?

Contentions by Parties

The arguments advanced by each party in the case are:-

Petitioner

The appellant raised several important issues relating to the jurisdictional and legal principles applied by the Indian courts in the Bhopal gas tragedy. It was questioned whether the Indian courts had jurisdiction to award interim damages or compensatory damages in such cases and whether it was justifiable to opt for English statutory rules of aspects of temporary damages will be included while the protections in those statutes are ignored. One of the most important debates is whether M.C. Mehta v. Union of India[6], which consideration is per incuriam[7] to the appellant and therefore not binding under Article 141[8] of the Constitution of India. It is believed that M.C. Mehta case limited the doctrine of strict liability established in Rylands v Fletcher[9] and the newly introduced doctrine of absolute liability should not be applied retrospectively. This highlights a fundamental legal debate about the provisional application of new liability principles. The appellants contended that holding shareholders of a company liable for wrongs, irrespective of their percentage of shareholding, was contrary to the Companies Act, 1956, in particular Sections 34[10] and 426[11]. They contended that this action is contrary to the statutory provisions on corporate governance and liability with respect to Union Carbide Company (UCC). The imposition of a corporate umbrella was permissible under the law. The doctrine of unveiling the corporate veil is used to hold individuals accountable for corporate actions for fraud or improper conduct, but the appellants argued that its application in this case improper and contrary to legal provisions.

Additionally, the appellants challenged the Superior Court judge’s decision to award interim damages under the special law of the offense because the District Judge found that a the children of such damages under Section 151[12] of the Code of Civil Procedure. They highlighted the lack of legal process required under the scheme, which has not been reviewed even two years after its promulgation. They pointed to the lack of reliable information on the nature, extent and veracity of the claims, as well as the current status of the claimants at the moment, which prevented the transfer of power immediately worth it. The appellants also contended that the jurisdiction of the High Court to dismiss or transfer the appeal is abrogated by Article 139A[13] of the Constitution, thereby permitting the implied transfer will be transferred in the final disposition of the case. They argued that the settlement was entered without proper authority and that the court lacked jurisdiction to withdraw and dismiss the relevant criminal proceedings, as these were not part of the original legal action. The appellants insisted that the application of the doctrine of shareholder liability and lifting of the corporate veil should be strictly determined by the Companies Act, 1956. They argued that it was legal to hold UCC liable attacked them by these tools.

Respondent

The defendants argued that Union Carbide Corporation (UCC) was obliged to pay interim compensation to the victims of the gas leak under the ‘special rule of fault’ of the Constitution in the appropriate civil courts , like the District Court at Bhopal, exercising jurisdiction under Section 9[14] of the Code of Civil Procedure. Consequently, it became clear that in the Bhopal case, a company engaged in high-risk services, be it UCC or Union Carbide India Limited (UCIL), was liable to pay damages on the principle of that it is entirely liable under. Mehta case, which established the doctrine of absolute liability, was decided after the Bhopal disaster, and there was no reason why this doctrine could not be applied in the Bhopal case It was asserted that UCIL did not have sufficient assets to manage the broader issues arising from the risk. Because UCC owned most of UCIL, the court was justified in piercing the corporate veil to determine UCC’s liability.

On interim compensation, respondents questioned the value of waiting for the Indian Council of Medical Research to complete the epidemiological study. They underlined the urgency of the situation, awaiting definitive information on the final amount of compensation and whether the victims could live pending a landmark forensic investigation the. Responding to concerns about the quality, status and authenticity of coverage, interviewees acknowledged that the volume of coverage would inevitably slow down the review and classification process. They argue The Government of India has a responsibility to provide immediate relief and rehabilitation to the affected . Respondents emphasized that prompt interim compensation is critical to the survival and well-being of victims even as the extensive extortion program continues.

Judgment in Kesavananda Bharati vs. State of Kerala

In a landmark case related to the Bhopal Gas tragedy, the Supreme Court of India on February 14, 1989 ordered the Union Carbide Corporation to pay a substantial compensation of US $100,000. $470 million before March 31, 1989. The decision is for emergency relief for injuries sustained in… the damaging gas methyl isocyanate (MIC) from the Union Carbide plant. The Court’s intention was to expedite the compensation process without the delay that a comprehensive decision might cause. A few months later, however, on May 4, 1989, the court issued a reasoned order explaining the basis for the decision.

Justice Pathak gave a reasoned order and stressed the duty of the court to seek early relief for the victims. Using the “polluter pays” principle, he determined the remuneration set at $470 million.This amount was calculated as the average of counter offers, from the US. $426 million to the US. $500 million.Despite this, many legal experts and victim advocates suggested that each victim received less than Rs 50,000, which was considered inadequate given the magnitude of the disaster. The legal significance of this clause was challenged in Union Carbide Corporation v . Union of India case. The plaintiffs argued that the termination of the criminal proceedings against Union Carbide was illegal and that the damages awarded were grossly inadequate. The majority opinion was delivered by Justice Venkatachaliyah and was joined by Justices K.N. Singh and ND Ojha concurred and ruled that it was unreasonable to dismiss the criminal charges against Union Carbide and that such proceedings should be continued. However, the majority considered the compensation levels to be fair and reasonable. They also said that if there is a shortage of funds for rehabilitation, the federal government should pay for it. On the contrary, Justice Ahmadi, in his dissenting opinion, held that the Union of India, which is not directly responsible for the MIC leak, should not be liable for additional damages payable the cost of any consequential damages.

This judgement highlights the compatibility of Corporate Social Responsibility and Lifting Of Corporate Veil of Corporations with legal accountability.

[1] https://cpcb.nic.in/env-protection-act/

[2] https://moef.gov.in/moef/rules-and-regulations/public-liability-insurance/index.html

[3] https://pib.gov.in/newsite/printrelease.aspx?relid=105411

[4][1991 AIR 420]

[5] https://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf

[6] [1987 SCR (1) 819]

[7] https://www.scconline.com/blog/post/2020/06/02/per-incuriam-an-analysis/

[8] https://indiankanoon.org/doc/1975922/

[9] [[1868] L.R. 3 H.L. 330 (1868)]

[10] https://indiankanoon.org/doc/675604/

[11]https://indiankanoon.org/doc/352884/#:~:text=(1)In%20the%20event%20of,the%20rights%20of%20the%20contributories

[12] https://jaa.assam.gov.in/storage/article_pdf/si1623067502Article-29.pdf

[13] https://indiankanoon.org/doc/333273/

[14] https://indiankanoon.org/doc/981126/