Analysis of the Effectiveness of the Polluter Pays Principle in India

-Harsh Mahaseth

Abstract

An environmental policy has been created which requires the polluter to bear the costs and
responsibility of the pollution and the externalities that are proximate in cause of the pollution.
This is the Polluter Pays Principle. In a purely free market one only faces their private costs;
however due to the externalities created there is an additional cost which is the environmental
costs. Thus, the polluter pays principle is the idea of paying the total social cost of the act rather
than only paying the private cost. It is a method of internalizing the externality.

This principle was implicitly articulated in 1972 by the Organisation for Economic Cooperation
and Development when there was a demand to introduce policies or mechanisms that deter
pollution and protect the environment and the public from threats posed by the pollution of the
environment by the process of industrialization. The OECD in the Recommendation of the
Council on Guiding Principles concerning Economic Aspects of Environmental Policies created
the idea of the Polluter Pays Principle and states that:

This principle means that the polluter should bear the expenses of carrying out the above-
mentioned measures decided by public authorities to ensure that the environment is in an
acceptable state.1

This principle now plays an important role in both national as well as international
environmental policy.2This paper focuses on the literature surrounding this economic principle as
well as precedents and analyses the effectiveness and implementation of it in the Indian context.

1
Recommendation of the Council on Guiding Principles concerning International Economic Aspects of
Environmental Policies,
http://acts.oecd.org/Instruments/ShowInstrumentView.aspx?InstrumentID=4&InstrumentPID=255&Lang=en&Book
=False.
2
Margaret Rosso Grossman, Agriculture and the Polluter Pays Principle, Nederlandse Venrenigin Voor
Rechtsvergelijking, 1.

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Development of the Principle in India

Following the Stockholm Declaration of 1972, India has developed a wide range of laws for the
protection of the environment such as the Water (Prevention and Control of Pollution) Act, 1974,
the Air (Prevention and Control of Pollution) Act, 1981, the Environment (Protection) Act, 1986
and the Forest (Conservation) Act, 1980. This goes to show that people around the world,
including India, started showing the response to the need for protection of the environment.

In India, this principle evolved from the rule of „absolute liability‟ which was laid down in the
case of M.C. Mehta v. Union of India,3 where the Court had directed the polluters to pay a
pollution fine which would be used to restore the living conditions and local environment of the
affected place. This further evolved in the case of Indian Council for Environment-Legal Action
v. Union of India (UOI) and Ors,4 where the court included the liability, compensation to the
victims, arising out of the environmental degradation within the absolute liability for harm
caused to the environment. The Polluter Pays Principle was impliedly incorporated in this case as
the Court held that under Section 3 and Section 5 of the Environment (Protection) Act, 1986 the
Court had the power to take measures for giving effect to such a principle. This was incorporated
under the 1992 Rio Summit under Principle 16 which stated that “the polluter should, in
principle, bear the cost of pollution.”5

Even though the Polluter Pays Principle has been judicially recognized in India, one does not
seem to find its mention in the existing or upcoming legislations. The Court in the case of
Vellore Citizens Welfare Forum v. Union of India and Ors.6 held that the principled is governed
under Article 48-A and 51-A(g) of the Constitution of India and that this concept can be implied
into the existing statutes.

3
M.C. Mehta v. Union of India, 1987 SCR (1) 819.
4
Indian Council for Environment-Legal Action v. Union of India (UOI) and Ors, (1996) 5 SCC 281.
5
Rio Declaration on Environment and Development, UNEP,
http://www.unep.org/documents.multilingual/default.asp?documentid=78&articleid=1163.
6
Vellore Citizens Welfare Forum v. Union of India and Ors., AIR 1996 SC 2715.

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Review of Related Literature

To understand the economic principle better, the researcher has looked at a number of journals
and reports.

The Polluter Pays Principle by Shyel Trehan and Shuva Mandal7

In this research article the authors have made a study which focuses on the five landmark
judgments which have been made with respect to the Polluter Pays Principle. The authors have
given the history of this economic principle, generally, as well as in context to India. They have
then talked about the economic viability and the role of market based instruments while also
critiquing the principle.

Reforming the Liability Regime for Air Pollution in India by Shibani Ghosh 8

The author has given the development of regulatory mechanism which have been in place to deal
with air pollution and has posed the question of reviewing and considering changes in the
provisions as they are in dire need of change. The paper first discusses the liabilities pertaining to
air pollution, then goes on to substantiate on how criminal liability is not an effective solution
and finally criticizes the National Green Tribunal Act and proposes a way forward.

The Scope and Limits of Environmental Laws and International Treaties in India by Divya
Soni9

The author has addressed environmental issues that several countries, including India, face and
how it is insufficient to only have international agreements and policies without proper
implementation and enforcement of these agreements and policies. The author then criticizes the
lack of implementation and enforcement and concludes.

7
Shyel Trehan and Shuva Mandal, The Polluter Pays Principle, 10, The Student Advocate, 1998.
8
Shibani Ghosh, Reforming the Liability Regime for Air Pollution in India, Centre for Policy Research, December
2015.
9
Divya Soni, The Scope and Limits of Environmental Laws and International Treaties in India.

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The Polluter Pays Principle: A Proper Guide for Environmental Policy by Roy E.
Cordato10

This article has more in-depth research in comparison to all the other articles. The author has
weighed the pros and cons of the principle with respect to market based instruments. The author
has related property rights with the principle and has also related justice with the economic
efficiency of the principle. The article has a detailed analysis with detailed case analyses.

The Polluter-Pays Principle: OECD Analyses and Recommendations by the Organisation

for Economic Co-Operation and Development11

This is a fully detailed and in-depth report made by the Organisation for Economic Co-Operation
and Development relating to the economic principle and its implementation, economic viability,
application, recommendation, etc.

10
Roy E. Cordato, The Polluter Pays Principle: A Proper Guide for Environmental Policy, Institute for Research on
the Economics of Taxation Studies in Social Cost, Regulation, and the Environment: No. 6.
11
Organisation for Economic Co-Operation and Development, The Polluter-Pays Principle: OECD Analyses and
Recommendations, OCDE/GD (92) 81, 1992.

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Analysis of the Polluters Pay Principle in India

The Courts have applied the Polluter Pays Principle to make the polluter pay the damage caused
on account of the pollution that they have emitted. The Courts have even made polluters pay
accordingly even when the pollution caused has been within the limits of what was imposed on
them. An example would by the Oleum Gas leak case,12 where even though Shriram Industries
has complied with the existing legislations such as the Air Act, 1981 the Supreme Court held
them liable for the leakage of oleum gas and the degradation to the environment.

The main objective of the courts while dealing with environmental issues has been not only to
punish the polluter by making them legally liable but also to seek proper enforcement of these
laws. In the case of Indian Council for Enviro Legal Action v. Union of India13the court held that

“Even though, it is not the function of the court to see the day-to-day enforcement of the laws,
that being the function of the executive, but because of the non-functioning by the enforcement
agency, the courts as of necessity have had to pass orders or direction to the enforcement
agencies to implement the law for the protection of the fundamental rights of the people.”

This brings up the debate on whether civil action against the polluter is sufficient or is there a
need to make the polluters criminally liable as well. Even before the ratification of the
Stockholm Declaration of 1972 the provisions of the Indian Penal Code, Section 268 and 290,
were used to make the accused criminally liable for public nuisance relating to the environment.
Post the Stockholm Declaration, the Water (Prevention and Control of Pollution) Act, 1974 and
the Air (Prevention and Control of Pollution) Act, 1981 have provisions which can initiate
criminal proceedings against the polluters.

Lack of executive action in India has led some to comment that in essence, the “polluter pays”
principle has degenerated into “pay and pollute”.14It has been seen that criminal prosecution
against the polluters has been minimal as the Pollution Board has not given much consideration
to this issue. The case goes to the Pollution Control Board and the Board has imposed fines on
offenders however they have been reluctant in taking penal action. 15 In several cases the courts

12
Supra 3.
13
Supra 4.
14
M.C Mehta v. Union of India, 2001 (2) SCR 698.
15
Supra 8.

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have reiterated the importance of criminal prosecution in such pollution cases. 16 It is imperative
to initiate criminal proceedings against offenders to ensure deterrence amongst them. By only
making them pay there isn‟t much impact on the offenders and hence a recurrence of the
pollution has been seen in cases.

Another problem seen while dealing with this is the criminal liability and it‟s implication upon
corporations. Previously corporations were not held liable for any act as it was seen as usurping
the legislative function.17Courts have definedcorporate criminal liability as the liability imposed
upon a corporation for the criminal acts done by any natural person of the company.18This phrase
has become hard to define in the present day as various ranges of offences are covered under it.
Another thing is determining the liability of the individual. Since a corporation consists of
numerous individuals who shall be held for the crime? This is generally someone in the higher
rankings with a lot of resources.

In the case of Standard Chartered Bank and Ors. v. Directorate of Enforcement and Ors.,19the
Court held that no company can get a blanket immunity from offences of this level of severity.
As their acts affect the life, liberty and property of citizens they should be liable accordingly.

Despite the importance of the theory, criminal liability against corporations has not been seen in
the Indian context. This issue has been in more discussions lately especially since the industrial
revolution has intertwined with the legal world. The punishment given to corporations should be
such that would compensate the victims as well as restore the environment while also deter the
offenders from repeating such an act. The Courts have imposed fines on corporations but cases
have not been seen where criminal liability is being imposed. A relation between the powerful
individual who is being held criminally liable and his resources can be made here. However
many small and medium sized firms cannot internalize the environmental costs and so they try to
reduce the pollution by different methods.

16
Jaipur Golden Gas Victims Associationv.Union of India (UOI) and Ors, 164 (2009) DLT 346.
17
State of Maharasthra v. Syndicate Transport Co. (P) Ltd, AIR 1964 Bom 195.
18
Harvey L. Pitt, and Karl A Groskaufmanis., “Minimizing Corporate Civil and Criminal Liability: A second Look
at Corporate Codes of Conduct (1990) 78 The Georgetown Law Journal.
19
Standard Chartered Bank and Ors. v. Directorate of Enforcement and Ors., (2005) 4 SCC 50.

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The Way Ahead

The articles reviewed have partially dealt with the Polluter Pays Principle. The entire aspect of
criminal liability has not been dealt with in any of these articles. Apart from the working paper
by Shibani Ghosh there has been no valuable contribution or research by any scholar relating to
the Polluter Pays Principle in the second decade of the 21st Century. Apart from Shibhani
Ghosh‟s paper every other paper was written either during the middle of the first decade of the
21st century or the last decade of the 20th century.

Furthermore, Shibani Ghosh is the only author to point out the flaws prevalent in the current
functioning of the Indian system as she addresses the issue pertaining to the Pollution Control
Board. Apart from her article there has been no relevant research in the past few years. Now
there have been articles relating to the topic in these years however there hasn‟t been any new
developments or solutions brought up.20 The other articles in the present years have been
reiterating the points made by other researches in the past.

There have not been many cases which have applied the Polluter Pays Principle. It is also
understood that this principle in itself is not sufficient to bring about the change that it was
enacted to do. Criminal liability is an essential supplement required to the Polluter Pays Principle
if the main aim is deterrence.

Also, the procedure for filing and the dealing of these issues should be simplified.The Pollution
Control Board has an enormous workload, numerous cases to decide upon and very few
members to do all of this. The Board does not have the time and resources to take their time and
decide upon each and every case. The Pollution Control Board has to increase the number of
members so as to customize their responses to each and every case. Along with their consent
granting functions they should be given the power to impose administrative fines. The victims
should have a right to challenge the report made by the Board and file a criminal complaint
against the offender in accordance with Section 200 of The Code of Criminal Procedure, 1973.21

20
Atisha Sisodiya, The Role of Indian Judiciary in Protection of Environment in India, Academike, February 14,
2015; Deepak Bade, Fundamental Principles of Environmental Protection, Academia; Anshu Bansal, Polluter Pays
Principle, Lex Warrier, June 23, 2013; Divij Joshi, Vellore Citizens Welfare Forum v. Union of India and Others,
Legalsutra.
21
Nirmal Chopra, Environment Problems – Penal Action Required, (2004) PL WebJour 3.

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Another question to deal with would be the implementation of the Polluter Pays Principle and the
question of transparency. Companies try to hide the level of pollution that their company is
actually producing. This misappropriation leads to imperfect damages being decided and the
entire social cost is not covered.

There are some improvements that are required in the principle however they have not been seen
till now. Future literature in this area should bring out a detailed analysis in these areas as the
Polluter Pays Principle is an essential principle required in society.

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