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Romanticizing Private Industries with Article 12 in reference to Industrial Disasters - and its Solution

  • The recent gas tragedy that broke wild was the Visakhapatnam gas leak, also known as the Vizag gas leak by many. The brief facts of the incident goes thus, an industrial accident occurred at the LG Polymers chemical plant in the R. R. Venkatapuram village of the Gopalapatnam neighborhood, located at the outskirts of Visakhapatnam, Andhra Pradesh, India, during the early morning of 7 May 2020. The resulting vapour cloud spread over a radius of around 3km (1.86 mi), affecting the nearby areas and villages. As per the National Disaster Response Force (NDRF), the death toll was 11, and more than 1,000 people became sick after being exposed to the gas.
  • Preliminary investigations concluded that the accident was likely the result of insufficient maintenance of units storing the styrene monomer, improper storage, and operation errors.
  • From a moral ground it is a very sorry incident which left many people dead and larger of them injured. But from a legal point of view it is an opportunity for the law to evolve, post- MC Mehta judgment, where the SC refrained to answer the pivotal question which becomes important in the present context, that whether private entities can be covered under the definition of �state' under Art 12 of Indian Constitution. Further, can the case be directly brought to the threshold of the Apex court of the land and whether the Court grant compensation to the victims of such horrific incident causing brazen violation of the fundamental right to life enshrined under Art. 21[1].
  • The author has analyzed some of the land mark cases on the subject where the apex court dealt with entities being a state under Art. 12 and gave illustrative guidelines for institutions to come under the garb of Art 12. The author also argues about such private entities not being a state, as it would bring a flood of litigation in the Supreme Court thus, both the views are described. And thereby leaving it to your understanding, that is it the high time to bring private entities under the garb of state and amount them to similar restraints that are faced by the State under our Constitution or let them function independently and don't subject them to the Constitutional restraints like the state. Also in the end, given a plausible solution for the claims in such industrial accidents.

Hazardous industries should come under the garb of �state' as per Article 12.
  • The said company and many others which are engaged in such hazardous chemical making are under the garb of a state instrumentality/agency, hence Art 21 can be in all measures enforced against them in case of the violation of the same.
  • Readers are requested to take note of a stellar judgment of Ajay Hasia v. Khalid Mujib[2] by the Hon'ble SC, where the court gave certain guidelines, though not exhaustive but very meaningful, about the conditions where by the fulfillment of any criteria the entity can be brought under the ambit of Art 12 of the constitution. They are:
    1. One thing is clear that if the entire share capital of the corporation is held by Government it would go a long way towards indicating that the Corporation is an instrumentality or agency of Government.
    2. Where the financial assistance of the State is so much as to meet almost entire expenditure of the corporation, it would afford some indication of the corporation being impregnated with governmental character
    3. It may also be a relevant factor.... whether the corporation enjoys monopoly status which is State conferred or State protected
    4. Existence of 'deep and pervasive State control may afford an indication that the Corporation is a state agency or instrumentality
    5. If the functions of the corporation of public importance and closely related to governmental functions, it would be a relevant factor in classifying the corporation an instrumentality or agency of Government.
    6. Specifically, if a department of Government is transferred to a corporation, it would be a Strong factor supportive of this inference" of the corporation being an instrumentality or agency of Government.
  • According to the Khalid pronouncement i.e firstly, these industries are extensively controlled by the state and secondly they are imparting a public function. The progressive state control speaks volumes about the fact that the company is an instrumentality of the state, first of all the company has to obtain a license from the Govt. to establish its business under the EIA rules 2006[3], framed under sec 6, 8 and 25 of the Environment Protection Act 1986, further the company even has to obtain a clearance for any expansion, mordernization or any change of product, such industries are listed under category A in the schedule under the EIA rules 2006 i.e making it mandatory for the company to have a prior approval of the Central Govt.[4] to run its business and the central Govt. controls the functioning as the company is dealing with substance which is of hazardous nature and can harm a large no. of people.

    Also important to note, that as per the Manufacture, Storage and Import of Hazardous Chemical Rules, 1989 framed under sections 6, 8 and 25 of the E.P Act lists the chemical styrene as a hazardous chemical as per rule 2e r/w entry no. 583 of the schedule under the said rules. Further the rules have also defined a major accident under rule 2 j as
    an incident involving loss of life inside or outside the installation, or ten or more injuries inside and/or one or more injuries outside or release of toxic chemicals or
    explosion or fire or spillage of hazardous chemicals resulting in on-site or off-site emergencies or damage to equipment leading to stoppage of process or adverse affects to the environment
  • Further it puts a legal obligation on the company to inform about the major accident within 48 hours � rule 4[5].
  • Rule 8 states that any changes in the threshold quantity is to be notified to the authority. Where an activity has been reported in accordance with rule 7(1) and the occupier makes a change in it (including an increase or decrease in the maximum threshold quantity of a hazardous chemical to which this rule applies which is or is liable to be at the site or in the pipeline or at the cessation of the activity) which affects the particulars specified in that report or any subsequent report made under this rule, the occupier shall forthwith furnish a further report to the concerned authority.
  • This extensive measure of control on the company is indicative of the fact that there is a decent amount of state controlling in the said company. Further these companies are also under the extensive framework of the Air Act, Water Act and the Environment Protection Act. Further under section 2 of the Industrial Development & Regulation Act 1951 it states that declaration as to expediency of control by union- it is hereby declared that in the public interest that the union should undertake its control the industries in the first schedule. And the chemical fall under entry no. 19 of the first schedule of Industrial Policy Resolution 1948. Further as per section 18G of the IDRA the central govt. can assume price and control the supply and distribution, making it palpable that it is controlled by the state hence an instrumentality of state, further sec 18A states that the Govt. can assume management and control off industrial undertaking. This clearly states there is a deep state control over the industry and hence fulfilling the criteria mentioned in the Ajay Hasia judgment.
  • Secondly, the company is imparting a state function, which can be established by having a look at the Industrial policy resolution 1948 and the Industrial Development and Regulation Act 1951 whereby schedule A lists chemicals in the list and by conjoint reading of section 2 of the IDRA it states that declaration as to expediency of control by union- it is hereby declared that in the public interest that the union should undertake its control the industries in the first schedule. Which clearly states that it is a vital public function which was ultimately intended to be carried out by the union but it allowed privatization for the same and it brings to a logical conclusion that that the activity of producing chemicals is deemed by the State to be an industry of vital public interest, whose public import necessitates that the activity should be ultimately carried out by the State itself, in the interim period with State support and under State control, private corporations may also be permitted to supplement the State effort. These activities are of so fundamental nature to the society that ultimately they are covered under the Govt. functions.
  • Hence the company, under the functional control of the state is engaged in an activity which is of vital public importance and hazardous to health and safety of the community and thus is imbued with public interest which the state ultimately proposes to run under its industrial policy resolution, so it should be subjected to the same constitutional restraints as the state because it is falling under the ambit of Art 12 as an instrumentality of the state. Court have in the passage of time evolved Art 12 and brought under its sweep every agency that imparts a public function and is progressively controlled by the state, this expansion of Art 12 is to inject the respect for human rights and social conscience in our corporate structure, the purpose of expansion is not to destroy the creation of private entities but to advance the human rights jurisprudence.
Compensation can be claimed before the Supreme court in such cases.
  • Without much elaboration the answer is yes, as there is a brazen violation of the fundamental rights, and that too by an instrumentality of a state which has pervasive state control over it hence a petition for compensation under Art 32. Is maintainable and the same has been reiterated by the Court. the cases of Charan Lal Sahu v. UOI [6] and Subhas Kumar[7] their lordships held that Art 21 includes a right to pollution free water and air and further stated anything that impairs the quality of the same, the citizens have right to have recourse to Art 32, such a petition under Art 32 is maintainable.

    There is a large sect of people get affected by such gas leaks, hence they are then deprived of this fundamental right to life, the author is well aware that the lives lost cannot be compensated in monetary figures, but for sure it may provide some relief.

    All doubts regarding the same were cleared in the landmark case of MC Mehta v. UOI[8] in which the Hon'ble court held that the ambit of Art 32 is large enough to protect the rights of the citizens and also large enough to compensate them for the infringement of their fundamental rights also the court gave a note of caution that compensation may be granted by the apex court under 32 only if the violation of fundamental rights is grave, palpable and of a grave magnitude. Readers may further note that in Rudul Shah's[9] case the Apex court had granted compensation under Art 32 where there was brazen violation of the fundamental rights.

    Further the Supreme court can directly be moved by the virtue of Art 32 as it itself is a fundamental right and as a matter of prudence, fighting for a claim in the civil courts would work at snail's pace and it would devoid the purpose of the immediate relief plus the gas leak accidents are to be judged on the pretext of absolute liability rule evolved by the Apex court in MC Mehta (supra) so there is no question of a trial in a lower court as the enterprise is per say liable and absolutely liable to compensate with no defense left. Hence a claim directly in the Supreme Court is maintainable as there is a gross violation of fundamental rights, that too the most important right of Right of life.
  • The other side of the story is that what would be the scenario when each and every private company is brought under the ambit of state under art. 12, is it suitable? Looking at the current backlog that has effectively clogged the justice dispensing system it would not be suitable to further expand the interpretation of Art. 12.

    Private companies do not come under the ambit of Art. 12 and are not subject to such constitutional restraints as the state and a writ petition under Art. 32 of the constitution is not maintainable for any enforcement.
  • A writ petition under Art 32[10] is not maintainable against a private entity. It is trite law that a petition under art 32 of the Constitution is for the enforcement of fundamental rights against the state as defined in Art 12, and not against every private individual. These companies are private entities and hence the petition under Art 32 is not maintainable against them. According to Art 12[11] of the constitution the State includes the Government and Parliament of India and the Government and the Legislature of each of the States and all local or other authorities within the territory of India or under the control of the Government of India.

    These companies are not a state or an instrumentality of the state as it does not fit in the definition given under art 12. If one reads Art 12 ejusdem generis, then it would be very clear that the word other authorities is of the same kind of the words, Parliament or state legislature, meaning thereby the other authority has to have the features of the parliament or a state legislature or a local authority, it should have the power to make laws, byelaws, etc. without which it could not possibly termed as other authority.

    There is a catena of pronouncements by the Hon'ble Supreme court upholding the trite law that a petition under Art 32 is not maintainable if the alleged respondent is not a state as per art 12, one of the landmark cases is Pradeep Kumar Biswas[12] where the court dismissed the petition as it was not maintainable because it was against a non-state entity similarly further the ones which are private limited companies have no state interference, hence cannot be even by any stretch of imagination brought under the ambit of Art 12.

    Also in Rajasthan Electricity Board case[13] the petition was dismissed by the Hon'ble SC on the grounds that it was not against the state and the alleged respondents were not under the definition of state as per Art 12.
  • In the stellar judgment of Ajay Hasia[14] the court laid down 6 point test which needs to be fulfilled if the body is to be deemed a state agency, those are:
    1. One thing is clear that if the entire share capital of the corporation is held by Government it would go a long way towards indicating that the corporation is an instrumentality or agency of Government.
    2. Where the financial assistance of the State is so much as to meet almost entire expenditure of the corporation, it would afford some indication of the corporation being impregnated with governmental character.
    3. It may also be a relevant factor.......whether the corporation enjoys monopoly status which is the State conferred or State protected
    4. Existence of deep and pervasive State control may afford an indication that the Corporation is a State agency or instrumentality.
    5. If the functions of the corporation of public importance and closely related to governmental functions, it would be a relevant factor in classifying the corporation as an instrumentality or agency of Government.
    6. Specifically, if a department of Government is transferred to a corporation, it would be a strong factor supportive of this inference of the corporation being an instrumentality or agency of Government.
  • The said company like LG Chem or any other private chemical company is not falling under these principles laid down:
    1. firstly, a private company's share capital is not held by the Govt. not even a bit.
    2. Secondly, there is no financial assistance provided to these private companies by the state.
    3. Thirdly, these companies have no monopoly neither state conferred nor state protected, and there is no such law to the effect that other companies cannot produce chemicals.
    4. Fourthly, there is no deep pervasive state control in the functioning of such companies as there is no person from the state in its board of members, there is no interference or control of the government in the affairs of the company, the company is fully autonomous and takes its policy decisions on its own without any state interference.
    5. Fifthly, the functions of the companies are not closely related to governmental functions as it carries business solely for its profit and no governmental function is imparted, it does pure business
    6. Sixthly, it is not a governmental department which was transferred to a corporation, the fact is that such companies are generally established under the Companies Act, 2013 and are incorporated autonomously.
    In the light of Ajay Hasia's case it is very clear that these private companies are not by any stretch of imagination a state functionary. Again in a recent pronouncement by a seven judge bench of the Hon'ble apex court in Pradeep Kumar Biswas(supra) reaffirmed the view taken in Ajay Hasia's case and held that if an entity doesn't falls under those principles then it cannot be termed as a state under art 12 and similarly dismissed the petition under 32. It was further held in Pradeep Kumar that mere regulatory control whether under a statute or otherwise would not serve to make a body a state.
  • How can the famous case of Zee Telefilms vs. UOI[15]be forgotten in this context where the court reaffirmed the view of Ajay Hasia and Biswas and held it to be good law and further stated some points of criteria, firstly the body should be created by a statute, i.e it should be a statutory body created by an Act of Parliament, for example, Reserve Bank of India established under the Reserve Bank of India Act, 1934.- or the Bar Council of India or a State Bar Council created by the Advocates Act, 1961.

    The present company here (LG Chem) is not a creation of any statute, it is incorporated under the Companies Act, as a private limited company. Further no share capital is held by govt. in such private companies and they do not take a penny from the Govt. so the question of financial aid is laid to rest then and there, In addition to this there is no monopoly of the company is making chemicals the state has not given any monopoly or the state doesn't protects any monopoly which does not exist, there is no law barring any other company in running the same business of chemicals hence there is no issue of monopoly.

    The other main point of the BCCI judgment (supra) is that there should be deep and pervasive state control, which also is absent in the present company, what is meant by deep and pervasive control is that state's control in finance or management of the company as well as control in decision making process in running the affairs of the company.

    If certain restrictions or protection are provided in the management of a corporation in the form of a statute by exercising certain control to certain extent while leaving the entire decision making process, outside the scope of control, the it would be difficult to assume that the state control is deep and pervasive. It is the question of depth and pervasiveness of the state control that would make a corporation/company an instrumentality of the state within the meaning of the principles laid down in Ajay Hasia and Biswas.
  • Even if a company has to follow certain environmental laws but these all laws are the functioning of the general power and policing power of the state, they cannot be stated as a deep and pervasive control measure. These are certain parameters through which the company has to proceed or the law laid down, accordingly which the company has to run. Unless there is violation, these authorities cannot exercise any power.

    Thus there would be no scope of control over the company. The author, further states that the control here is like the control within which the company runs on its rails and does not derail. In case it does then company is put back to rails by the government. Once the company is on rail and if it does not derails or jump the rails then there is no state control over it. In order to be deep and pervasive control the state must have its control over the affairs of the company even when it is on rails, otherwise it would be and it is a superfluous control only to the extent to keep the company on track and not a deep and pervasive control.

    Further such private entities are not created by any statute, they are incorporated as an autonomous body and administration of which is not controlled by any authority including the union of India. Neither any financial assistance is rendered by the Govt. nor the accounts are subject to Govt scrutiny. It does not falls in the purview of Art 12 as it is not other authority as their lordships in the Rajasthan Electricity Board (supra) had held that other authorities in art 12 include all constitutional or statutory authorities and on whom powers are conferred by law and that, such authority can issue directions the disobedience of which would be punishable as a criminal offence, that would only be the indication that the authority is state.

    The fact here is neither the company has any law making power to be termed as other authority under Art 12, nor the regulations made by the company if flouted amounts to any penal offence. Also, employees of the company do not enjoy the protection available to the govt. servants in Art 311 and hence the said company is in independent existence and not a department of the Govt. Also in the case of Rd Shetty[16] it was held by the apex court that other authorities were of such nature that it had vested in them statutory powers to issue binding directions to third parties, the disobedience of which would entail penal consequences or it has the sovereign power to make rules and regulations having the force of law.
  • Lastly Articles 17, 23 and 24 are rights which are intended specifically available against private parties are already provided. So to expand Art 12 to bring within its ambit even private corporations would be against the scheme of the chapter of fundamental rights. Lastly the author would like to draw the attention of the readers to the latest judgment of the Zee telefilms(supra) where these criteria of a corporation falling under statehood was reaffirmed as sound law which were originally laid in R.D shetty (supra) and affirmed in Ajay Hasia. Lastly there are no functions entrusted on the company by the government only cautions are obligated. And also it does not have any quasi-governmental powers, hence not coming under the blanket of Art 12 by any wild stretch of imagination.

The unanswered question in the MC Mehta pronouncement calls for a detailed answer now, as time has come to clear the picture as to whether private entities should be subjected to similar Constitutional Restraints like the State. The Author is of the view that, firstly certain functions are state functions, the fact is the state is unable to reach out to each and every function and thus also invites private players to give a helping hand to the state, the functions imparted by the private institutions are somewhat the functions which the State should have done in the first instance.

Only because the State is not able to cope up with the demanding economy, it allows the entry of private institutions to off load itself and then also by restricting them to the same constitutional restraint it faces would be neither morally nor legally sound.

As per the dictum of our Constitution the State and State alone is subject to such restraints, nowhere there is any mentioning of a private entity being subject to such constitutional restraints. Hence it is not for the Courts, but for the Parliament to decide upon this issue, the ball is definitely in the court of the Parliament whereby the Constitution can be amended and a route can be paved out. But keeping in mind the pendency of the cases at the Apex court, this move could be detrimental and open floodgates of litigation.

Nor can this be fought at the district courts because of the pace at which they work, the purpose would be destroyed where immediate relief is the prayer. The effective method which the Author suggests is establishment of a HAZARDOUS INDUSTRIAL ACCIDENTS CLAIMS TRIBUNAL dedicated solely for this purpose of hearing claims arising out of the hazardous industrial accidents, there can also be an Appellate tribunal whose verdict should be final avoiding it going to the threshold of the Apex Court.

We hope for some development in this field, coming to terms with the fact that industrial accidents are bound to happen as it happened in the past, it is the compensatory justice system that should be worked upon and developed. Now is the time to challenge the famous quote which goes thus, Laws are spider webs through which the big flies pass and the little ones get caught and serve justice not stale but fresh, to the common poor Indian.

  1. Constitution India Art 21.
  2. Ajay Hasia & Ors v Khalid Mujib Sehravardi & Ors [1981] AIR 487 SC.
  3. Environment Impact Assessment Rules 2006.
  4. Ministry of Environment, Forest & Climate Change Government of India
  5. Manufacture Storage and Import of Hazardous Chemical Rules, 1989 R 4
  6. Charan Lal Sahu v Union of India [1990] AIR 1480 SC
  7. Subhash Kumar v State of Bihar & Ors [1991] AIR 420 SC
  8. MC Mehta & Ors v Union of India & Ors [1987] AIR 1086 SC
  9. Rudul Shah v State of Bihar & Ors [1983] AIR 1086 SC
  10. Article 32. Remedies for enforcement of rights conferred by this Part
    1. The right to move the Supreme Court by appropriate proceedings for the enforcement of the rights conferred by this Part is guaranteed
    2. The Supreme Court shall have power to issue directions or orders or writs, including writs in the nature of habeas corpus, mandamus, prohibition, quo warranto and certiorari, whichever may be appropriate, for the enforcement of any of the rights conferred by this Part
    3. Without prejudice to the powers conferred on the Supreme Court by clause ( 1 ) and ( 2 ), Parliament may by law empower any other court to exercise within the local limits of its jurisdiction all or any of the powers exercisable by the Supreme Court under clause ( 2 )
    4. The right guaranteed by this article shall not be suspended except as otherwise provided for by this Constitution.
  11. Article 12: Definition in this part, unless the context otherwise requires, the State includes the Government and Parliament of India and the Government and the Legislature of each of the States and all local or other authorities within the territory of India or under the control of the Government of India.
  12. Pradeep Kumar Biswas & Ors v Indian Institute of Chemical Biology & Ors [2002] SCC 111 SC.
  13. Rajasthan State Electricity Board , Jaipur v Mohanlal & Ors [1967] AIR 1857 SC
  14. Ajay Hasia & Ors v Khalid Mujib Sehravardi & Ors [1981] AIR 487 SC
  15. Zee Telefilms Ltd & Anr v Union of India & Ors [2005] AIR 2677 SC
  16. Ramana Dayaram Shetty v The International Airport Authority of India [1979] AIR 1628 SC

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