Bangalore Medical Trust v. B. S. Muddappa

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60. Besides as pointed out by this court in Narasimha Raju's case (1963) (3) SCR 687 : AIR 1963 SC 107) (supra) the consequence of doctrine of stifling of prosecution is attracted, and its consequences follow where a "person sets the machinery of criminal law into action on the allegation that the opponent has committed a non-compoundable offence and by the use of this coercive criminal process he compels the opponent to enter into an agreement, that agreement would be treated as invalid for the reason that its consideration is opposed to public policy". (See page 692) (of SCR): (at p. 109 of AIR) of the report). In that case this court further held that the doctrine applies "when as a consideration for not proceeding with a criminal complaint, an agreement is made, in substance it really means that the complainant has taken upon himself to deal with his complaint and on the bargaining counter he has used his non-prosecution of the complaint as a consideration for the agreement which his opponent has been induced or coerced to enter into". (Emphasis added). These are not the features of the present case.

61. More importantly, the distinction between the "motive" for entering into agreement and the "consideration" for the agreement must be kept clearly distinguished. Where dropping of the criminal proceedings is a motive for entering into the agreement - and not its consideration - the doctrine of stifling of prosecution is not attracted. Where there is also a pre-existing civil liability, the dropping of criminal proceedings need not necessarily be a consideration for the agreement to satisfy that liability. In Adkhikanda Sahu v. Jogi Sahu, AIR 1922 Patna 502, this distinction is pointed out:

"The distinction between the motive for coming to an agreement and the actual consideration for the agreement must be kept carefully in view and this care must be particularly exercised in a case where there is a civil liability already existing, which is discharged or remitted by the Agreement".

(p. 503)

In Deb Kumar Ray Choudhury v. Anath Bandhu Sen, AIR 1931 Cal 421 it was mentioned:

"A contract for payment of money in respect of which a criminal prosecution was permissible under the law, was not by itself opposed to public policy.

......the withdrawal of the prosecution in the case before us might have been the motive but not certainly the object or the consideration of the contract as evidenced by the bond in suit so as to render the agreement illegal.

These decisions are based upon the facts of the cases showing clearly that the agreements of the contracts sought to be enforced were the foundation for the withdrawal of non-compoundable criminal cases and were declared to be unlawful on the ground of public policy wholly void in law and, therefore, unenforceable. This class of cases has no application where, as in the present case, there was a pre-existing civil liability based upon adjustment of accounts between the parties concerned".

(Emphasis added)

Again in Babu Harnarain Kapur v. Babu Ram Swarup Nigam, AIR 1941 Oudh 593 this distinction had been pointed out:

"Though the motive of the executions of the document may be the withdrawal of a non-compoundable criminal case, the consideration is quite legal, provided there is an enforceable pre-existing liability. In the Patna case it was observed that the distinction between the motive for coming to an agreement and the actual consideration for the agreement must be kept carefully in view and this care must be particularly exercised in a case where there is a civil liability already existing which is discharged or remitted by the agreement".

(p. 597)

Finally, this Court in Ouseph Poulo (1964) (7) SCR 745) at page 479: (AIR 1965 SC 166 at p. 186) (supra) held that:

"In dealing with such agreements, it is, however, necessary to bear in mind the distinction between the motive which may operate in the mind of the complainant and the accused and which may indirectly be responsible for the agreement and the consideration for such an agreement. It is only where the agreement is supported by the prohibited consideration that it falls within the mischief of the principle, that agreements which intend to stifle criminal prosecutions are invalid".

(Emphasis added)


62. On a consideration of the matter, we hold that the doctrine of stifling of prosecution is not attracted in the present case. In reaching this conclusion we do not put out of consideration that it is inconceivable that Union of India would, under the threat of a prosecution, coerce UCC to pay 470 million US dollars or any part thereof as consideration for stifling of the prosecution. In the context of the Union of India the plea lacks as much in reality as in a sense of proportion.

63. Accordingly on Contention (F) we hold that the settlement is not hit by S. 23 or 24 of the India Contract Act and that no part of the consideration for payment of 470 million US Dollars was unlawful.

Re: Contention (G)


64. This concerns the ground that a "Fairness-Hearing", as understood in the American procedure is mandatory before a mass-tort action is settled and the settlement in the present case is bad as no such procedure had preceded it. It is also urged that the quantum settled for is hopelessly inadequate as the settlement has not envisaged and provided for many heads of compensation such as the future medical surveillance costs of a large section of the exposed population which is put at risk; and that the toxic tort actions where the latency-period for the manifestation for the effects of the exposure is unpredictable it is necessary to have a "reopener" clause as in the very nature of toxic injuries the latency period for the manifestation of effects is unpredictable and any structured settlement should contemplate and provide for the possible baneful contingencies of the future. It is pointed out for the petitioners that the order recording the settlement and the order dated 4th May, 1989 indicate that no provision was made for such imminent contingencies for the future which even include the effect of the toxic gas on pregnant mothers resulting in congenital abnormalities of the children. These aspects, it is urged, would have been appropriately discussed before the Court, had the victims and victim-groups had a "Fairness-Hearing". It is urged that there has been no application of the Court's mind to matters particularly relevant to toxic injuries. The contention is twofold. First is that the settlement did not envisage the possibilities of delayed manifestation or aggravation of toxic morbidity, in the exposed population. This aspect, it is urged, is required to be taken care of in two ways: one by making adequate financial provision for medical surveillance costs for the exposed but still latent victims and secondly, by providing in the case of symptomatic victims a "re-opener clause" for meeting contingencies of aggravation of damages in the case of the presently symptomatic victims. The second contention is as to the infirmity of the settlement by an omission to follow the 'Fairness-Hearing' procedures.

65. On the first aspect, Sri Nariman, however, contends that the possibility that the exposed population might develop hitherto unsuspected complications in the future was known to and was in the mind of the Union of India and it must be presumed to have taken all the possibilities into account in arriving at the settlement. Sri Nariman said we now have the benefit of hindsight of six years which is a sufficiently long period over which the worst possibilities would have blown-over. Indeed, in the plaint in the Bhopal Court, Shri Nariman points out, Union of India has specifically averred that there were possibilities of such future damage. Sri Nariman referred to the preface to the Report of April, 1986 of the Indian Council of Medical Research (ICMR) on "Health Effects of the Bhopal Gas Tragedy" where these contingencies are posited to point out that these aspects were in the mind of Union of India and that there was nothing unforeseen which could be said to have missed its attention. In the said preface ICMR said:

"........ How long will they (i.e. the respiratory, ocular and other morbidities) last "What permanent disabilities can be caused? What is the outlook for these victims "What of their off-spring?"

Shri Nariman referred to the following passage in the introduction to the Working Manual I on "Health Problems of Bhopal Gas Victims", April, 1986, ICMR:

"Based on clinical experience gained so far, it is believed that many of them (i.e. victims) would require specialised medicare for several years since MIC is an extremely reactive substance, the possibility of the exposed population developing hitherto unsuspected complications in the future cannot be overlooked".

What is, however, implicit in this stand of the UCC is the admission that exposure to MIC has such grim implications for the future; but UCC urges that the Union of India must be deemed to have put all these into the scales at the time it settled the claim for 470 million US Dollars. UCC also suggest that with the passage of time all such problems of the future must have already unfolded themselves and that going by the statistics of medical evaluation of the affected persons done by the Directorate of Claims, even the amount of 470 million US dollars is very likely to be an over-payment. UCC ventures to suggest that on the estimates of compensation based on the medical categorisation of the affected population, a sum of Rs. 440 crores could be estimated to be an overpayment and that for all the latent-problems not manifested yet, this surplus of Rs. 440 crores should be a protective and adequate financial cushion.


66. We may at this stage have a brief look at the work of the medical evaluation and categorisation of the Health Status of the affected persons carried out by the Directorate of Claims. It would appear that as on 31st October, 1990, 6, 39, 793 claims had been filed. It was stated that a considerably large number of the claimants who were asked to appear for medical evaluation did not turn up and only 3, 61, 166 of them responded to the notices. Their medical folders were prepared. The total number of deaths had risen to 3,828. The results of medical evaluation and categorisation of the affected persons on the basis of the data entered in their Medical Folders as on 31st October, 1990 are as follows:

No. of medical folders prepared 3,61,966

No of folders evaluated 3,58,712

No. of folders categorised 3,58,712

No injury 1,55,203

Temporary injuries 1,73,382

Permanent injuries 18,922

Temporary disablement caused by a temporary injury 7,172

Temporary disablement caused by a permanent injury 1,313

Permanent partial disablement 2,680

Permanent total disablement 50

Deaths 3,828


67. On the medical research literature placed before us it can reasonably be posited that the exposure to such concentrations of MIC might involve delayed manifestations of toxic morbidity. The exposed population may not have manifested any immediate symptomatic medical status.

But the long latency-period of toxic injuries renders the medical surveillance costs a permissible claim even though ultimately the exposed persons may not actually develop the apprehended complications. In Ayers v. Jackson T.P., (525 A 2d 287 (N.J. 1987), referring to the admissibility of claims of medical surveillance expenses, it was stated:

"The claim for medical surveillance expenses stands on a different footing from the claim based on enhanced risk. It seeks to recover the cost of periodic medical examinations intended to monitor plaintiffs health and facilitate early diagnosis and treatment of disease caused by plaintiffs' exposure to toxic chemicals........".

"........The future expense of medical monitoring, could be a recoverable consequential damage provided that plaintiffs can establish with a reasonable degree of medical certainty that such expenditures are "reasonably anticipated" to be incurred by reason of their exposure. There is no doubt that such a remedy would permit the early detection and treatment of maladies and that as a matter of public policy the tort-feasor should bear its cost.

Compensation for reasonable and necessary medical expenses is consistent with well accepted legal principles. It is also consistent with the important public health interest in fostering access to medical testing for individuals whose exposure to toxic chemicals creates an enhanced risk of disease. The value of early diagnosis and treatment for cancer patients is well-documented".

"Although some individuals exposed to hazardous chemicals may seek regular medical surveillance whether or not the cost is reimbursed, the lack of reimbursement will undoubtedly deter others from doing so. An application of tort law that allows post injury, pre-symptom recovery in toxic tort litigation for reasonable medical surveillance costs is manifestly consistent with the public interest in early detection and treatment of disease.

Recognition of pre-symptom claims for medical surveillance serves other important public interest. The difficulty of proving causation, where the disease is manifested years after exposure, has caused many commentators to suggest that tort law has no capacity to deter polluters because the costs of proper disposal are often viewed by polluters as exceeding the risk of tort liability ...."

"Other considerations compel recognition of a pre-symptom medical surveillance claim. It is inequitable for an individual, wrongfully exposed to dangerous toxic chemicals but unable to prove that disease is likely to have to pay his own expenses when medical intervention is clearly reasonable and necessary ....."

"Accordingly, we hold that the cost of medical surveillance is a compensable item of damages where the proves demonstrate, through reliable expert testimony predicated upon the significance and extent of exposure to chemicals the toxicity of the chemicals, the seriousness of the diseases for which individuals are at risk, the relative increase in the chance of onset of disease in those exposed, and the value of early diagnosis, that such surveillance to monitor the effect of exposure to toxic chemicals is reasonable and necessary ....."

In the "Law of Toxic Torts" by Michael Dore, the same idea is expressed:

"In Myers v. Johns-Manville Corporation, the court permitted plaintiff prove emotional harm where they were suffering from "serious fear or emotional distress or a clinically diagnosed phobia of cancer". The court distinguished, however, between a claim for fear of cancer and a claim for cancer phobia. The former could be based on plaintiff’s fear, preoccupation and distress resulting from the enhanced risk of cancer but the latter would require expert opinion testimony ...."

"The reasonable value of future medical services required by a defendant's conduct is recoverable element of damage in tradition and toxic tort litigation. Such damages have been awarded even in circumstances where no present injury exists but medical testimony establishes that such future medical surveillance is reasonably required on the basis of the conduct of a particular defendant ...."

It is not the reasonable probability that the persons put at risk will actually suffer toxic injury in future that determines whether the medical surveillance is necessary. But what determines it is whether, on the basis of medical opinion, a person who has been exposed to a toxic substance known to cause long time serious injury should undergo periodical medical test in order to look for timely warning signs of the on-set of the feared consequences. These costs constitute a relevant and admissible head of compensation and may have to be borne in mind in forming an opinion whether a proposed settlement - even as a settlement - is just, fair and adequate.

68. Sri Nariman, however, urged that the only form of compensation known to the common law is a lump sum award - a once and for all determination of compensation for all plaintiffs' losses, past, present and future - and that split-trials for quantification of compensation taking into account future aggravation of injuries, except statutorily enabled, are unknown to common law.

Indeed, that this is the position in common law cannot be disputed. In an action for negligence, damages must be and are assessed once and for all at the trial of such an issue. Even if it is found later that the damage suffered was much greater than was originally supposed, no further action could be brought. It is well settled rule of law that damages resulting from one and the same cause of action must be assessed and recovered once and for all. Two actions, therefore, will not lie against the same defendant for personal injury sustained in the same accident. (See Charlsworth and Percy on Negligence (1990) 8th Edn. para 443).

Indeed, even under the Common Law, as administered in U.K. prior to the introduction of S. 32A of the Supreme Court Act 1981, Lord Denning thought that such special awards were not impermissible. But as pointed out earlier the House of Lords in Lim Poh Choo v. Camden Islington, (1979) (1) All ER 332) did not approve that view.

Later S. 32A of the Supreme Court Act, 1981 expressly enabled award of provisional damages and Order 37 Rules 7 to 10 (Part II) Rules of Supreme Court provided for the assessment of such further damages. The contention of the UCC is that the common law rule of once and for all damages is unaltered in India unlike in England where split awards are now statutorily enabled and that, therefore, references to future medical surveillance costs and "re-opener" clauses are inapposite to a once for all payment. The concept of re-opener clause in settlement, it is contended, is the result of special legal requirements in certain American jurisdictions and a settlement is not vitiated for not providing for future medical surveillance costs inasmuch as all these must be presumed to have engaged the minds of the settling parities at the time of a once for all settlement. Shri Nariman pointed out that the American case of Acushnet River v. New Bedford Harbour (712F 2d Supp. 1019) referred to by the learned Attorney-General was a case where the "re-opener" clause was a statutory incident under the Comprehensive Environmental Response, Compensation and Liability Act, 1980.


But petitioners say that in the process of evolving what is a fair, reasonable and adequate settlement some of the elements essential and relevant to fairness and adequacy such as provision for future medical surveillance and the likely future, but yet unforeseen, manifestation of toxic injury, having regard to the nature of the hazard, have not been kept in mind and, therefore, the approval accorded to the settlement is on an incomplete criteria. But UCC would say that Union of India was aware of the possibility of such future manifestations of the effects of the exposure and must be deemed to have kept all those in mind at the time of settlement.

69. But the point to emphasise is that those who were not parties to the process of settlement are assailing the settlement on these grounds. In personal injury actions the possibility of the future aggravation of the condition and of consequent aggravation of damages are taken into account in the assessment of damages. The estimate of damages in that sense is a very delicate exercise requiring evaluation of many criteria some of which may border on the imponderable. Generally speaking actions for damages are limited by the general doctrine of remoteness and mitigation of damages. But the hazards of assessment of once and for all damages in personal injury actions lie in many yet inchoate factors requiring to be assessed. It is in this context we must look at the ‘very proper refusal of the courts to sacrifice physically injured plaintiffs on the altar of the certainty principle’. The likelihood of future complications though they may mean mere assessment or evaluation of mere chances - are also put into the scales in quantifying damages. This principle may, as rightly pointed out by Sri Nariman, take care of the victims who have manifest symptoms. But what about those who are presently wholly a symptomatic and have no material to support a present claim? Who will provide them medical surveillance costs and if at some day in the future they develop any of the dreaded symptoms, who will provide them with compensation? Even if the award is a "once and for all" determination, these aspects must be taken into account.

70. The second aspect is the imperative of the exercise of a "Fairness-Hearing" as a condition for the validity of the settlement. Smt. Indira Jaising strongly urged that in the absence of a "Fairness-Hearing" no settlement could at all be meaningful. But the question is whether such a procedure is relevant to and apposite in the context of the scheme under the Act. The "fairness-Hearing" in a certified class of action is a concept in the United States for which a provision is available under Rule 23 of US Federal Rules of Procedure. Smt. Indira Jaising referred to certain passages in the report of Chief Judge Weinstein in what is known as the Agent Orange Litigation (597 Federal Supplement 740 (1984), to indicate what according to her, are the criteria a Court has to keep in mind in approving a settlement. The learned judge observed (at page 760 para 9):

"In deciding whether to approve the settlement the Court must have a sufficient grasp of the facts and the law involved in the case in order to make a sensible evaluation of the litigation's prospects. (See Malchman v. Davis, 706 F. 2d 426, 433 (2d Cir. 1983). An appreciation of the probabilities of plaintiff’s recovery after a trial and the possible range of damages essential. The cases caution, however, that the Court "should not ....turn the settlement hearing 'into a trial or rehearsal of the trial'". Flin v. FMC Corpn. 528 F. 2d 1169, 1172 (4th Cir. 1975), Crt. denied, 424 U.S. 967, 96 S. Ct. 1462, 47 L. Ed. 2D 734 (734 (1976), quoting Teachers Ins. & Annuity Ass'n of America v. Beame, 67 FRD 30, 33, (S.D.N.Y. 1975). See also Malchman v. Davis, 706 F. 2d 426, 433 (2D Cir. 1983).

"A democratic vote by informed members of the class would be virtually impossible in any large class suit. The costs of ensuring that each member of the class in this case fully understood the issue bearing on settlement and then voted on it would be prohibitive and the enterprise quixotic. Even though hundreds of members of the class were heard from, there was an overwhelmingly large silent majority. In the final analysis there was and can be no "consent" in any meaningful sense".

(Emphasis added)

Learned Judge also referred to the nine relevant factors: (1) The complexity expense and likely duration of the litigation, (2) The reaction of the class of the settlement, (3) The stage of the proceedings and the amount of discovery completed, (4) the risks of establishing liability, (5) The risks of establishing damages (6) The risks of maintaining the class action through the trial, (7) The ability of the defendants to withstand a greater judgement, (8) the range of reasonableness of the settlement fund in the light of the best possible recovery and, (9) The range of reasonableness of the settlement fund to a possible recovery in the light of all the attendant risks of litigation. But the limits were also indicated by learned Judge:

"Thus the trial court has a limited scope of review for determining fairness. The very purpose of settlement is to avoid trial of sharply disputed issue and the costs of protracted litigation".

"The Court may limit its fairness proceeding to whatever is necessary to aid it in reaching a just and informed decision. Flinn v. FMC Corp. 528 2d at 1173. An evidentiary hearing is not required".

The settlement must, of course, be an informed one. But it will be an error to require its quantum to be co-extensive with the suit claim or what, if the plaintiffs fully succeeded, they would be entitled to except.

The Bhopal Gas Disaster (Processing of Claims) Act, 1985, has its own distinctive features. It is a legislation to meet a one time situation. It provides for exclusivity of the right of representation of all claimants by Union of India and for divesting the individual claimants of any right to pursue any remedy for any cause of action against UCC and UCIL. The constitutionality of this scheme has been upheld in the Sahu's case (AIR 1990 SC 1480). Sri Nariman contended that the analogy of "Fairness-Hearing" envisaged in certified class actions in the United States is inapposite in the context of the present statutory right of the Union of India. Shri Nariman referred to the following statement of the court in Sahu case (Para 115 of AIR).


"....Our attention was drawn to the provision of Order 1 Rule 8 (4) of the Code. Strictly speaking Order 1, Rule 8 will not apply to a suit or a proceeding under the Act. It is a case of one having common interest with others. Here the plaintiff, the Central Government has replaced and divested the Victims".

(Emphasis added)

Consistent with the limitations of the scope of the review, says Shri Nariman, the Court cannot go behind the settlement so as to take it back to a stage of proposal and order a "Fairness-Hearing". He urged that a settlement was after all a settlement and an approval of a settlement did not depend on the legal certainty as to the claim or counter claim being worthless or valuable. Learned counsel commended the following passage from the judgment in the Court of Appeal for the Fifth Circuit stated in Florida Trailer and Equipment Co. v. Deal 284 F. 2d 567 (1960):

"...The probable outcome in the event of litigation, the relative advantages and disadvantages are, of course, relevant factors for evaluation. But the very uncertainties of outcome in litigation, as well as the avoidance of wasteful litigation and expense, lay behind the Congressional infusion of a power to compromise. This is a recognition of the policy of the law generally to encourage settlements. This could hardly be achieved if the test on hearing for approval meant establishing success or failure to a certainty. Parties would be hesitant to explore the likelihood of settlement apprehensive as they would mean by that the application for approval would necessarily result in a judicial determination that there was no escape from liability or no hope of recovery and (thus) no basis for a compromise".

Sri Nariman also pointed out that IN Agent Orange settlement only a small fraction of one percent of the class came forward at the fairness hearings; that there was no medical evidence nor a mini-trial about the factual aspects of the case and that in the end: "the silent majority remains inscrutable". It is pointed out that in United Kingdom a different variant or substitute of fairness hearing obtains. O. 15 R. 13, Rules of Supreme Court makes provision for orders made in representative actions binding on persons, class or members of a class who cannot be ascertained or cannot be readily ascertained.





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