In August 2022, the National Crime Records Bureau produced its yearly Crime in India Report, 2021, which showed an increase in registered environment-related offenses as compared to 2020. In the landmark case of Salomon v. Salomon1, a corporation was fundamentally considered as a separate legal entity from its shareholders, directors, agents and employees. The historical analysis of company law jurisprudence and the offenses committed in the name of a corporation indicate that the protection conferred by the notion of a separate legal entity is often used to protect the natural persons behind the commission of the offense. Due to this, companies can own property, can sue and can also be sued. ‘The piercing of the corporate veil’ is a scenario where courts disregard the concept of limited liability and hold the directors or shareholders of a company individually accountable for the company’s debts. This situation is sacrosanct, not only to decipher the person(s) responsible for such offenses but also to tackle the crimes committed in the guise of incorporation. Accordingly, companies are advised to undertake initiatives to protect the environment under Section 135 of the Companies Act, 2013, which specifies the notion of Corporate Social Responsibility. This article will focus on how proper legislation to reduce environmental crimes can ensure that corporations will be held accountable for their wrongdoings.
THE NEED FOR STRINGENT LEGISLATION TO REDUCE ENVIRONMENTAL CRIMES
In recognition of the criticality of the environmental agenda, regulators have mandated standards for environmental reporting by pushing towards a carbon-neutral economy. The S&P 500 ESG Index periodically ranks companies within industries on ESG criteria and excludes those underperforming. India has also committed to the Mission 2070 Net Zero goal and is plunging into the five-decade, pan-economy, green revolution under this global commitment.
Poor environmental performance by major companies has also resulted in the loss of support from investors and customers. According to Forbes India, Quantum Advisors and Quantum Mutual Fund divested their entire shareholding from an important engineering and construction company in 2019 for governance issues and for failing to undertake an independent environmental risk assessment for the Mumbai Coastal Road project. There is a significant need for undertaking these risk assessments since these could reduce the chances of accidents in the workplace, improve the occupational health and safety plan, and effectively identify the individuals at risk. Better sustainability practices are becoming increasingly significant to investors as well as businesses; consequently, ESG funds, which are widespread globally, have gained traction in India.
One of the earliest indications to attempt to connect finance, environmental and social issues occurred in 2008 through a notification issued by the Reserve Bank of India (RBI) titled “Corporate Social Responsibility, Sustainable Development and Non-Financial Reporting – Role of Banks.” A perusal of the Reports of the Department of Environment and Forest, the Pollution Boards, and the Supreme Court and High Court judgments in the areas of industries and environment found that industrial corporations are primarily responsible for the present state of the environment. Moreover, industries prone to causing pollution due to the inherent nature of the production have been classified in Section 3 of the Environment Protection Act, 1986. Despite these developments, prosecuting a company remains challenging due to its organizational structure, particularly in determining the mens rea. As a result, corporate environmental criminal liability fails to hold much gravity as of today. Civil remedy has not mended the behavior of these corporations who firmly believe in profit-maximization and the pay-and-pollute principle. Consequently, the extent of criminal proceedings to secure justice must be pondered. Environmental damage should be assessed at a higher cost than it is right now, and mens rea should be construed liberally to bring the perpetrators of environmental crimes to justice.
SUGGESTIONS FOR BETTER IMPLEMENTATION OF LAWS:
India must adopt appropriate legislation and hold businesses accountable for failing to disclose climate-related risks. With the initiation of various mandatory climate disclosures in countries across the globe, India must hasten and introduce comprehensive modifications to the Companies Act, 2013 to facilitate the same. Some suggestions to ensure better compliance with environmental laws by corporations are listed below.
- Amend All Existing Environmental Provisions. It is imperative to amend all existing environmental provisions to be aligned with the National Green Tribunal Act, 2010. Environmental cases involve multi-disciplinary issues that need to be addressed by the National Green Tribunal (NGT), as Section 26(1) of the NGT Act contains penalty provisions that are considerably higher than previously adopted environmental laws. Further, the directions provided by the NGT in Paryavaran Suraksha Samiti & Anr. v. Union of India & Ors. (2017) for fixing the environmental compensation regime, as per the Central Pollution Control Board (CPCB) Report of 30th May 20192, must be complied with. Additionally, the Draft Chemicals (Management and Safety) Rules3 needs to be implemented to both ensure that companies assist the new National Chemical Authority (NCA) in filling information gaps about the quantity of chemicals already placed or proposed to be placed in the Indian market and that they share information about the hazards these chemicals may pose.
- Create A Regulatory Body. A regulatory body must be created to keep tabs on corporate environmental activities and work in consonance with the National Green Tribunal. CPCB has instructed all the industries included in the 17 categories of highly polluting industries to install a continuous online emission/effluent monitoring system and ensure that the data is connected to the servers of the State Pollution Control Boards (SPCB)/Pollution Control Committees (PCC) under Section 5 of the EPA. Likewise, it must be mandatory for all the SPCBs to share their Continuous Emission Monitoring Systems (CEMS) data in the public domain to analyze compliance in their jurisdiction using such information.
- Increase Consequences for Environmental Damage. The Supreme Court and High Courts must impose exemplary damages for environmental damage. For example, in Sterlite Industries(I) Ltd v. Union of India & Ors. (2013), when the company was operating without renewing its CTO (Consent to Operate), the Court reviewed the company’s annual report while determining 10% of the PBDIT (Profit Before Depreciation, Interest and Taxes) to be paid as compensation. Companies must also adhere to the recommendations of the TCFD (Task Force on Climate-related Financial Disclosures), which are elaborate, discursive, and provide high discretion while disclosing climate-related risks. A new regime of compelling, adaptable and vigilant climate risk disclosure should be added to the TCFD Recommendations.
- Hold Parent Firms Accountable. Due to the fact that parent companies control the majority of a subsidiary’s commercial activities, they need to be held accountable for the offenses committed by the subsidiary under the doctrine of “piercing or lifting of the corporate veil.” Parent firms, which have limited liability in terms of the stock invested in the subsidiary, ultimately own the profits generated by the subsidiary. It is a grave injustice to society to negate a parent company’s responsibility for the crimes committed by its subsidiary. The Supreme Court, in the case of Iridium India Telecom Ltd. v. Motorola Inc. (2010), held that if a statutory or common law exception is lacking, then the liability would be deemed based on attribution rather than vicarious liability. Therefore, it is crucial to examine how the concepts of ‘limited liability’ and ‘separate legal entities’ are utilized by conglomerates to evade legal responsibility.
CONCLUSION:
Organized criminal groups worldwide engage in unlawful operations, including waste trafficking, illegal mining, and fisheries crimes, and therefore, pose a severe threat to our environment. Environmental crimes, including the Bhopal Gas Tragedy, the Oleum Gas Leak, and the Dehradun Quarrying, left India with devastating aftereffects. It is quintessential to shift the environmental jurisprudence from tortious liability to criminal sanctions for crimes that affect the health and lives of people en masse and irreparably degrade the environment. States must simultaneously seek to impose individual liability for directors and officers for actions or omissions of the corporation, including those of their subsidiaries.
Footnotes
1 Salomon v. A. Salomon & Co. Ltd. [1896] UKHL 1.
2 Ministry of Environment, Forest and Climate Change, Central Pollution Control Board of India,
National Green Tribunal Act, Annual Report 2017-18, 121.
3 Chemicals (Management and Safety) Rules, 20xx, Rule 27.
About the author
Niyati Prabhu is a second-year law student at the National University of Advanced Legal Studies, India, with a keen interest in Technology, Corporate and Securities laws.
LinkedIn account – https://www.linkedin.com/in/niyati-prabhu-4b872519a/
Twitter account – @niyati_prab
Niyati Prabhu is a second-year law student at the National University of Advanced Legal Studies, India, with a keen interest in Technology, Corporate and Securities laws.
LinkedIn account - https://www.linkedin.com/in/niyati-prabhu-4b872519a/
Twitter account - @niyati_prabhu
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