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The Case for Legal Sanity

Omkar Goswami

 

Around midnight of 2-3 December 1984, at the Bhopal plant of Union Carbide India Limited (UCIL), large amounts of water entered tank E-610 containing methyl isocyanate. It caused an exothermic reaction that increased the temperature inside the tank to over 200C, raised the pressure alarmingly, forced an emergency venting and so released some 28-40 metric tons of the toxic gas in the atmosphere. Thousands died immediately from the effects of the gas — mostly the poor who lived in shanties around the plant.

The mortality estimates vary. The immediate official death toll was 2,259; later, the government of Madhya Pradesh upped it to 3,787; other estimates hover around 16,000 deaths — some 8,000 who died within the first week or so, and another 8,000 who died thereafter due to gas-related diseases. Bhopal is the world’s worst ever industrial catastrophe. Nothing comes remotely close.

Warren Anderson, the global executive chairman and CEO of Union Carbide, having come to Bhopal after the disaster, was arrested and almost immediately released on bail by the Madhya Pradesh police on 7 December 1984. He was allowed to go back to the US, apparently under express instructions of Arjun Singh and Rajiv Gandhi, and refused to return to India. Now we are being told it wasn’t Rajiv Gandhi’s decision. Instead, it was due to Lord Voldemort of the Congress — the late P.V. Narasimha Rao, who must never be named except to pin some evil. Be that as it may, Anderson got away. And with the US refusing to extradite, Anderson spends his old age in a mansion in Long Island. So, the executive chairman and CEO of the company that wreaked havoc on the people of Bhopal remains scot free.

But not the non-executive chairman of UCIL. After 25 years and six months, the judiciary has arrived at an epic judgement. Seven people have been convicted and sentenced to two years jail plus a trifling fine. These are: Keshub Mahindra, who was in 1984 the non-executive chairman of UCIL; Vijay Gokhale, who was then the managing director; Kishore Kamdar, then the vice-president; J.N. Mukund, then the works manager; S.P. Choudhary, who was the production manager; K.V. Shetty, the plant superintendent; and S.I. Quereshi, the production assistant. Six of them were executives of UCIL, of whom five were directly involved with the Bhopal plant. One out of the seven, Keshub Mahindra, had no executive position whatsoever.

Consider two aspects of this trial and judgement. The first is that it has taken over a quarter of a century, making cruel mockery of the phrase that justice must take its own course. Second, that the learned judge doesn’t seem to understand the distinction between the liability of a manager and that of a non-executive, independent director.

In 1984, there was no SEBI, and no definition of an independent director. Keshub Mahindra was technically the non-executive director and chairman of UCIL. But he wasn’t a totem non-executive director, by which I mean one who belongs to the promoter group and has clear pecuniary interests in the business but by not earning a salary or perquisites qualifies as a non-executive director. He didn’t own shares in the company; didn’t belong to the promoter group; wasn’t an ex-managing director or an ex-manager of either UCIL or Union Carbide; was paid a princely sitting fee of Rs.250 per meeting attended. In today’s terminology, Mahindra was an independent director, and fundamentally no different from four others on the board, namely A. M. M. Arunachalam, N. N. Lahiri, Bhaskar Mitter and J. N. Saxena.

Forget about Keshub Mahindra’s age, or his stature in corporate India. I wouldn’t want him to be treated differently because he is 86, excellently mannered and liked by all around him. But there is a question of sanity in law. How can one treat an independent director who has absolutely no managerial role in the same way as a full time employee? What canon of legal sensibility suggests that for a plant-related failure such as in Bhopal the independent non-executive chairman of the board is as culpable as the works manager or the plant superintendent or, for that matter, any executive of the company? Would it not be akin to jailing the independent directors on the board of the National Aviation Company of India Limited, such as Amit Mitra, Harsh Neotia and Anand Mahindra, for the Mangalore crash?

Since Keshub Mahindra was neither involved in the working of UCIL nor a promoter or significant shareholder, why is he being treated the same way as the works manager and the plant superintendent? Since when has the Indian Penal Code adopted the concept of vicarious liability?

If this decision isn’t quickly modified, it will make a number of outstanding independent directors think twice about remaining on boards. Which would be excellent for law and corporate governance — a la India.
 

 

 

Published: Business World, July 2010
 

 

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