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by Pooja Gautam*

Cite as : (2006) PL March 13

"I weigh my words when I say that in my judgment, the limited liability corporation is the greatest single discovery of modern times...."

-Nicolas Murray

In fact, the simile would appear well founded if we say that the MNC stands in splendid array beside God. As creator—of products and technology and symbolising enterprise ubiquitous, assuming a variety of forms, omnipotent, with decisive control over people and States. As an entity that can skip lightly through borders and boundaries, the MNC has the power, too, to traipse away when its misdeeds catch up with it. The elusive MNC is, then, often not amenable to national courts and jurisdictions—not when it wishes to escape.

The Disaster: Hiroshima of chemical industry

Late on Sunday evening, 2-12-1984 during maintenance a small leak at 11.00 p.m. occurred from methyl-iso-cyanide (MIC) storage tank 610. Workers noticed it but thought it to be a normal and small leak, source of which could not be located. The sting of MIC was getting stronger and the temperature and pressure were rapidly rising in the tank. At around 12.30 a gigantic hiss came out—a runaway chemical chain reaction, triggered by the entrance of water, which entered one of the storage tanks containing 60 tons of MIC, triggering off a runaway reaction and creating tremendous heat and pressure in the MIC plant.

Forty tons of deadly gases burst past the ruptured disc, overwhelmed the plant's safety systems, and shot into the atmosphere. A deadly cocktail of MIC and other chemicals such as hydrogen cyanide and phosgene was carried by the northerly wind to the neighbouring communities. People woke up with invisible clouds of poisonous gas, stinging eyes and burning throats. The suffocating gas invaded lungs and created enormous fluids inundating the lives with their own body fluids. The precise number of deaths still remains a mystery. It is said that 2,00,000 were injured and 30,000 to 50,000 were too ill to ever return to their jobs.1

Bhopal gas tragedy is described as another "Hiroshima of the Chemical Industry", one of the worst commercial industrial disasters in history, while Krishna Iyer preferred to call it Bhoposhima2—a major disaster killing thousands of people as a consequence of corporate delinquency.

The fact sheet of the Union Carbide Corporation3

While saving money the Union Carbide Corporation (UCC) and UCIL were negligent in maintenance of the MIC plant and in fact it later came to light that there was a substantial reduction even in the number of trained personnel.

Considering the negligence aspect it is important to note that according to sound and established legal principles, even a manifest fault by a local subsidiary would be put at the doorstep of a multinational. This is based on the premise that power and knowledge create a legal duty. And this duty, which has an absolute and non-delegable character emanates from the unity of power and knowledge. This duty is twofold.

1. It is the duty of the multinational to itself to keep informed and know. Such a duty cannot be, by definition be delegable.

2. Second, it is a duty of the same nature to employ normal care and prudence to know the possibility of an emergence of likely hazards and danger. This duty too is non-delegable.

After thousands succumbed to Carbide's poisonous gases, the Company went into denial mode. First, it held out MIC to be a mild gas (in the nature of tear gas), which would do no more than raise a few tears. Subsequently, it maintained that the gas's effects would be localised and not systemic—a claim that has since been debunked based on evidence of widespread systemic disorders among affected populations. There has been no prosecution, or civil sanction, for the misinformation given out by the Corporation4

Carbide, and its new owner Dow Chemical5, have refused to share knowledge on the toxicology and effects of the poisonous gases acquired in the course of product research. Such information is vital for the proper treatment of the victims. There have been no sanctions visited on UCC for this criminal withholding of information. Rather than clean up contamination caused by its activities, ameliorate human suffering among its victims and assume responsibility for the destruction, the Company retreated into a well of silence or engaged in aggressive denial and blatant lying.

Summary of the case as of now

Union Carbide's operations in India being conducted through a subsidiary, Union Carbide India Ltd. (UCIL) where the parent US Company (UCC) held 50.9 % of UCIL stock, the balance of 49.1% being owned by various Indian investors, it is the abovementioned twofold duty of UCC which makes it liable to a number of innocent victims who fell prey to UCC's gross negligence6

The Union of India filed a case against UCC in the US District Court. The US courts returned the case to India arguing that India has a robust legal infrastructure (forum non conveniens), and instructing Carbide to cooperate with the Indian authorities.

The Indian District Court in Bhopal and the High Court allowed concerns of the survival of the victims to dominate the early stages of the proceedings, and ordered interim compensation to be paid by UCC. UCC appealed these orders. The Supreme Court, in a settlement order which has cast its own shadow of doubt, endorsed a settlement arrived at between the Indian State and UCC, by which UCC/UCIL would pay US $475 million. In return, all cases, civil and criminal, would stand closed against UCC. Because the compensation amount would be held by the Union of India, all further claims against UCC would have to be made to the Union of India.7 However, the court's revocation, it clarified, was not because it did not have the power to "settle" criminal cases, but because it seemed that reinstating the criminal charges was in the "public interest".

The criminal trials recommenced. The pursuit of impunity led some of the accused all the way to the Supreme Court to have the charges dropped. The Supreme Court acquiesced in part and, in 1996, diluted the charges against the Indian accused. And the shares that had been under attachment because UCC which was an absconder was allowed by the court to be sold on the specious plea that it would better serve being spent on constructing a hospital for the treatment of the victims—the dishonesty of which enterprise is yet another tale8

UCC and its Chairman, both of whom had treated the court to contemptuous neglect, continue to have grave charges hanging over them. Union Carbide has failed to honour summons issued by the Indian courts and has been proclaimed an absconder since 1992.

If the Indian Supreme Court had let the case come to judgment, the US courts would have had to enforce it against UCC within the US. The Supreme Court's uncertainty that its judgment may not be able to pass the test of "due process" reappears throughout its judgment when it reviewed the settlement order. This fear that a US court may find the Indian process wanting, despite the praise heaped on the Indian judicial system in the forum non conveniens9 proceedings is revealing of the complexes under which a post-colonial country that has adopted the "developing" tag reels.

The shameful Bhopal Settlement

However, the Supreme Court has recently ordered the Federal Government to distribute money in the bank to more than half a million victims of the 1984 chemical tragedy that left more than 3500 people dead and thousands crippled for life. The court ordered $325 million to be paid to more than 566,000 survivors and dependents, who still had not received compensation even 20 years after methyl iso-cyanide gas began leaking from the Union Carbide Corporation.10

Legal delays, including identifying some of the victims, held up payment of the full amount. After the initial relief was paid out, the Supreme Court directed the Government to hold the balance of the money in India's Central Bank. That fund has earned interest and increased the value of the original deposit. Despite the Indian rupee value of the compensation having risen significantly, the compensation ordered now amounts to a little more than $600 a person.

The campaigners are demanding higher compensation for the victims. According to the $470 million settlement between the Government of India and Union Carbide, there were only 105,000 victims to be compensated. However, the latest court order has recognised over 570,000 claimants who have to be paid compensation. Since the court has accepted that the scale of the tragedy was five times more than what the 1989 estimates held, therefore, the amount of compensation should also be increased five times.

And the wounds never heal....

The polluted site of the abandoned Union Carbide factory is still said to be poisoning the groundwater of the area. The Indian Government continues to pursue criminal charges against the former Union Carbide Chairman, Warren Anderson. Newspapers have reported that the United States has rejected India's request to extradite Anderson, who has retired and lives in New York.

Three survivors' organisations and two support groups filed the class action suit seeking damages for violations of international human rights law and environmental contamination. The groups—Bhopal Gas Peedit Mahila Udyog Sangathan, Gas Peedit Nirashrit Pension Bhogi Sangharsh Morcha, Bhopal Gas Peedit Mahila Stationery Karmachari Sangh, Bhopal Gas Peedit Sangharsh Sahayog Samiti and Bhopal Group for Information and Action filed the case on behalf of the victims of the gas leakage. But Judge Keenan dismissed the case in August 2000, holding that Union Carbide had no more liabilities in the case since the Indian Supreme Court had worked out a settlement in 1989.11

The Bhopal bodies filed an appeal at the US Second Circuit Court of Appeals. The survivors' organisations contended that the 1989 settlement, under which Union Carbide paid US $470 million as compensation, did not deal with health hazards caused by soil and water contamination. The court partly upheld Judge Keenan's ruling but directed claims under seven counts regarding groundwater and soil contamination and health hazards to him for reconsideration. Yet the Bhopal bodies believed that the court has not addressed the concerns expressed by the plaintiffs about soil and groundwater contamination in and around the plant in Bhopal and that the judgment does injustice to the victims of the Bhopal gas leakage.

Interestingly, the court also held that the statute of limitations had expired for the plaintiffs—a point that was challenged by the New York-based attorney for the plaintiffs' organisations, Himanshu Rajan Sharma. "In fact, under the New York law, the plaintiffs' claims for damages as a result of environmental contamination cannot be time-barred because the injuries are continuous or ongoing in nature." The plaintiffs maintained that Union Carbide and Anderson were fugitives from the legal jurisdiction of the Bhopal District Court where criminal charges were still pending against them.

The Solution

Corporate criminal liability

Indian law recognises what is termed as an "absolute offence". According to the Supreme Court in J.K. Industries Ltd. v. Chief Inspector of Factories and Boilers12 absolute offences "are not criminal offences in any real sense but acts which are prohibited in the interest of welfare of the public and the prohibition is backed by sanction of penalty". Absolute offences face the "strict liability" regime, where the fact that a situation existed or an event occurred is sufficient to constitute the offence. Labour and industry legislation, food adulteration and pollution are illustrative.

But unfortunately, criminal law has steered clear of corporate crime. More basic still, it is yet to learn to contend with the corporation as an offender. While it may be an axiom in traditional criminal law that it is a person who commits crime and that principle has survived all the way to the Rome Statute for an ICC (1998), corporate criminality has demonstrated, time and again, that the crime may be committed by the leaders of a corporation as much as by the corporation itself. It is the corporation as an entity, as also the individuals who share its power that may commit the crime. Yet, in all these years, the corporation has been above the law by the simple device of not being squarely in it, even if Section 305 of the Criminal Procedure Code does speak of a "procedure when corporation or registered society is an accused".

A corporation may commit a crime, but it will remain beyond the bounds of IPC for serious crimes because IPC prescribes 3 kinds of punishments: imprisonment, fine and death penalty. Where lesser crimes may be punishable with fine alone, IPC does not allow that for offences of gravity. In such cases, imprisonment is mandatory. Imprisonment of a corporation is not literally possible. This would have us believe, there is a lacuna in the law, which can be remedied by Parliament alone13

But if imprisonment means drawing a convicted offender into a preset confined space as a prison, it is arguable that an offending corporation cannot be imprisoned. But, the constituents of imprisonment include detention, restriction of certain liberties and, more recently, it has been held to be about productive work while in prison the wages for which would go to repair the victims' lives. These are certainly capable of being imposed on a corporation. The notion of imprisonment clearly needs to be revisited. So too do other possibilities of sentencing of a convicted corporation.

Ethical consumerism ... or is it?

Ideally Governments should hold corporations accountable through "strong internal regulations backed by strong international law and enforcement institutions". However, transnationalisation of investment has not been matched by transnational regulation. Globalisation has also weakened regulation at the national level. Many countries have set up special investment zones that are not only tax free but also free of virtually all regulations. A coalition of several influential NGOs are calling for international codes requiring that transnational corporations disclose information about the environmental and human impact of their work. The proposal is based on the US Toxic Release Inventory which requires companies to disclose annual emissions of toxic chemicals. Corporations should be held responsible for legal wrongs. But as long as consumers continue to demand ever-cheaper goods and services, businessmen will find ways to deliver. Much of the success or failure of a corporate social responsibility movement depends on ethical consumerism.

Voluntary corporate codes of conduct

Many critics of corporate globalisation favour a return to stronger national regulation, a perspective that mirrors the protectionist backlash. Pro-business voices, on the other hand, insist that the globe must be the playing field, but that formal global rules would ruin the "new economy," which needs at most loose voluntary codes. Though voluntary codes are obviously weak and unevenly adopted, advocates of more robust global regulation must find an institutional basis for binding regimes. In the absence of a sovereign authority, what institutions can adopt and enforce binding rules at the global level? Unfortunately, voluntary corporate codes of conduct have many weaknesses—so many that it is difficult to point to a single case that is an unqualified success.

These codes are often vague statements of principle that cannot provide reliable guidelines for behaviour in concrete situations. They do not generally include complaint procedures, nor any basis for legal claims or redress, and thus provide little scope for individuals to be compensated for corporate violations that cause harm. Corporations do not adopt codes unless faced with public pressure and negative publicity. This means that codes are adopted by only a few sectors that are especially vulnerable to consumer pressure and boycotts. Corporations adopting codes are likely to consider themselves to be at a competitive disadvantage if they actually put the code into practice.

Enforceability and transparency are often addressed through the use of third parties that monitor a corporation's adherence to the standards. Sometimes, this is done by large public accounting firms. A corporation whose code of conduct is subject to audit is often given a report that it does not have to make public. The large majority of codes remain weak, untransparent and unenforceable, simply because these are the types of codes with which the corporations are most happy and which meet their public relations goals. Binding legal regulations demand adherence, and have behind them the obligation deriving from a public authority.

Of course, no sovereign State-like power exists at the global level that can adopt and enforce global regulations. But we are in a period of transition. In recent years, Governments have negotiated an increasing number of binding agreements at the international level and have devised more or less effective means to enforce them.

Growing need of transborder cooperation

Court cases and related legal efforts usually spring from particularly outrageous acts of corporate malfeasance such as the Bhopal disaster, Shell's actions in Nigeria and Unocal's Burma oil pipeline14 Plaintiffs seek redress, and their legal teams usually seek to expand and strengthen the capacity of law at the international level to impose liability on corporations for actions that do harm the environment, human health and basic rights. Such initiatives typically rely on an inventive combination of national and international law, but they frequently contribute to emerging international legal norms and standards. Establishing legal standing across national borders is one of the biggest barriers to such actions.

Intergovernmental action could help promote this expansion of law in a variety of ways—for instance, by developing an International treaty of legal cooperation which would allow prosecutors or judges in one national jurisdiction to call on the judiciary in another national jurisdiction for help with evidence, including the questioning of suspects and witnesses, which is a growing need in all transborder cases.

Global policy instruments

Global taxes, fees and fines are policy instruments that could shape corporate action to promote more sound development. Taxes or other levies use market pricing, rather than regulatory rules, to press companies to adopt more socially responsible policies, for example, they can create a disincentive for financial speculation (Tobin tax) or they can create a disincentive for the use of carbon-based fuels or the production of products dependent on carbon-based fuels (Carbon tax).15 The revenues raised by these instruments could be used to fund global agencies such as the UN, and they could be used to correct existing problems—to clean up environmental disasters. Levies might be based on national legislation and harmonised internationally through a treaty or other accord.

This, however, implies erosion of the States' sovereign taxing powers, still a sensitive area. Unfortunately, the United States has been staunchly opposed to international taxes and has blocked progress in this field during the past decade. Progress remains possible, however, and a vigorous international campaign led by the France-based international non-governmental organisation, ATTAC has given the idea growing momentum.

Hence, if we ask ourselves, if moral capitalism is possible in the context of a corporate socially responsible business? The answer, one can definitely say, can never be an absolute YES or an absolute NO. Yet I believe that it is possible. Seeking market profit through business is honourable and worthy. Moral capitalism is the most appropriate means by which our modern, global civilisation can empower people and enrich their lives both materially and spiritually.

The successful road for any business that wants to become a corporate socially responsible company is definitely not a romantic, flower-strewn path with an expansive vista, nor is it easily navigable. Any successful corporate socially responsible company must navigate down the narrow and winding lane of business ethics with its many procedures and laws, avoiding the potholes of sloppy and ineffective business practices, and the soft shoulders of greed and unethical behaviour. And unless the corporate giants themselves realise their responsibility, many more Bhopals will continue to happen.


* IVth year student, National Law Institute University, Bhopal. Return to Text

  1. Ingrid Eckermam, The Bhopal Saga: Causes and Consequences of the World's Largest Industrial Disaster, 1st Edn., Universities Press (India) Private Limited, Hyderabad 2005, at p. 54. Return to Text
  2. Krishna Iyer, A Constitutional Miscellany, 2nd Edn., Eastern Book Company, Lucknow (2003), at p. 228. Return to Text
  3. www.hoovers.com/union-carbide/-ID-11540-/free-co-factsheet.xhtml Return to Text
  4. http://www.bhopal.com/ Return to Text
  5. UCC has been taken over by Dow Chemicals and under Indian law Dow not only bought the assets, but also the liabilities of Union Carbide and can therefore be held to account. Return to Text
  6. See supra Note 1 at p. 132 Return to Text
  7. Charan Lal Sahu v. Union of India, (1990) 1 SCC 613 Return to Text
  8. See supra Note 3 Return to Text
  9. Jugdment of the US District Court dismissing Union of India's case on the grounds of forum non conveniens as on 12-5-1986. Return to Text
  10. Union Carbide Corpn. v. Union of India, I.As. Nos. 46-47 in C.As. Nos. 3187-88 of 1988 decided on 19-7-2004 Return to Text
  11. See supra Note 1 at p. 207 Return to Text
  12. (1996) 6 SCC 665 at p. 692, para 42. Return to Text
  13. See for example the opinion of the majority in Standard Chartered Bank v. Directorate of Enforcement, (2005) 4 SCC 530 : 2005 SCC (Cri) 961 wherein the Supreme Court has expounded principles for corporate criminal liability. Return to Text
  14. http://www.corporateknights.ca/stories/Shell_Wiwa.asp Return to Text
  15. en.wikipedia.org/wiki/Carbon_tax Return to Text
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