By Anup P. Shah | Chartered Accountant
Laws and Business
1. Introduction :
1.1 The environment in which businesses operate is extremely
important and valuable. If it is not preserved it would be lost forever since it
is rapidly depleting. Pollution of the environment is one of the main culprits.
Pollution could be of air, water, noise and could be caused by sewage,
effluents, waste, bio-medical waste, release of chemicals or smoke, etc. in the
air, noxious chemicals, etc.
1.2 Businesses need to follow the principle of sustainable
development and have legal and moral responsibility towards preserving the
environment. To protect and preserve the environment, the Government has enacted
various laws. Let us briefly examine some of the important Central enactments on
this subject.
1.3 The Courts are also taking a very strict view when it
comes to violation of environmental laws and have not hesitated in prosecuting
directors responsible along with offending companies. A recent judgment of the
Supreme Court in the case of UP Pollution Control Board v. Dr. B. K. Modi,
(2009) 2 SCC 147, has examined this issue in the context of discharge of
pollutants by a company in the river. The company, Modi Carpets was prosecuted
by the Board for discharging noxious effluents in the Sai River. The Pollution
Control Board also filed a criminal complaint against the Directors and MD. The
Allahabad High Court quashed the operation of the complaint against the MD by
holding that there was no material to prove that he was responsible for the
daily conduct of the business or that the offence was committed by his consent
or connivance. The SC referred to its earlier decision in the case of UP
Pollution Control Board v. Mohan Meakins Ltd., (2000) 3 SCC 745. In that case
also, the Directors were sought to be prosecuted for discharge of effluents by
the company in a river. In that case, the SC observed that in view of the
specific averments in the complaint against the Directors, the prosecution of
the Directors was permitted. The SC further observed in the impugned case, that
in matters of public health, the Courts cannot afford to take matters lightly.
All persons big or small should share the parliamentary concern over the
escalating pollution levels. Those who discharge effluents in the environment
should be dealt with sternly, irrespective of technicalities. Hence, the Court
ruled that the Magistrate should proceed with the complaint against the MD and
declined to quash the proceedings against him. Thus, compliance with
environmental laws has become extremely important.
2. Environment
(Protection) Act, 1986 :
2.1 This is a general Act which deals with
the protection and improvement of the environment. Although there were specific
Acts which dealt with air, water, and other pollution, the need was felt for a
general Act which would cover other environmental hazards which were left out.
The Act fixes responsibilities on persons carrying out industrial operations or
those who handle hazardous substances to comply with prescribed safety standards
and also to control and prevent pollution arising from the same. The Government
lays down various standards for the same under the Act and also requires the
filing of information, inspections, etc.
2.2 Definitions :
The Act defines the term environment to include water, air
and land and the inter-relationship which exists among and between water, air
and land and human beings, other living creatures, plants, micro-organisms and
property.
An environmental pollutant is any solid, liquid or
gaseous substance present in such concentration as may be or tend to be
injurious to the environment.
The all important term ‘environmental pollution’ means
the presence of any environmental pollutant in the environment.
A hazardous substance means any substance or
preparation which by reason of its chemical or physico-chemical properties or
handling is liable to cause harm to human beings, other living creatures,
micro-organisms, property or the environment.
2.3 Obligations :
2.3.1 The Act lays down various obligations on industries,
factories, etc. It prohibits the carrying on of any industry, operation or
process which discharges or emits any environmental pollutant in excess of the
prescribed standards. The standards are prescribed under the Environmental
Protection Rules, 1986. Further, no person can handle any hazardous substance
otherwise than in accordance with the prescribed safety standards.
2.3.2 If the discharge of any pollutant is or is likely to be
in excess of the prescribed standards, then the person responsible should take
steps for prevention or mitigation of the pollution and should also furnish
certain prescribed information to the authorities of the same. The authorities
would then take such remedial measures as are necessary, at the cost of the
polluter.
2.3.3 The Act prescribes for powers of entry, inspection,
examination, testing, searching, etc. of any place in connection with the
prevention of environmental pollution. The person so authorised can take samples
of air, water, soil or other substances for this purpose. However, he needs to
comply with the procedure prescribed in this respect.
2.3.4 The Act also empowers the Government to establish
environmental laboratories for carrying out certain inspection, testing,
analysis, functions under the Act.
2.4 Penalties :
Whoever contravenes any provisions of the Act or Rules, is
punishable with imprisonment up to five years or with a fine up to Rs.1 lakh or
both. Continuing defaults attract a fine of Rs.5,000 per day. Where the
contravention continues beyond a period of one year from conviction, the
punishment is an imprisonment of up to seven years.
2.5 Environmental
clearance :
The Government is empowered to prohibit or restrict the
location of industries, operations, in certain areas keeping in mind maximum
allowable limits of concentration of environmental pollutants, the climatic
features, the net adverse environmental impact, the proximity of the proposed
project to protected areas, etc.
2.6 Environmental
audit :
Every person carrying on an industry, operation or process
requiring consent under the Water Pollution Act, Air Pollution Act, and the
Hazardous Wastes Rules must submit an environmental statement for every
financial year to the State Pollution Control Board.
2.7 Rules :
The following Rules have been framed under the Act :
a) Environmental (Protection) Rules, 1986
b) Hazardous Wastes (Management and Handling) Rules, 1989
c) Manufacture, Storage and Import of Hazardous Chemicals Rules, 1989
d) Manufacture, Use, Import, Export and Storage of Hazardous Micro-Organisms/Genetically Engineered Organisms or Cells Rules, 1989
e) Chemical Accidents (Emergency Planning, Preparedness and Response) Rules, 1996
f) Bio-Medical Waste (Management and Handling) Rules, 1998
g) Plastics Manufacture Sale and Usage Rules, 1999
h) Noise Pollution (Regulation and Control) Rules, 2000
i) Ozone Depleting Substances (Regulation and Control) Rules, 2000
j) Municipal Solid Wastes (Management and Handling) Rules, 2000
k) Batteries (Management and Handling) Rules, 2001
l) Hazardous Wastes (Management, Handling and Transboundary Movement) Rules, 2008
3. Air (Prevention and Control of Pollution) Act, 1981 :
3.1 This is a specific Act dealing with prevention, control and abatement of air pollution.
3.2 Definitions :
Air pollutant means any solid, liquid or gaseous substance including noise which is present in the atmosphere in such concentration as may be or tend to be injurious to human beings or living creatures or plants or property or environment.
Air Pollution means the presence of any air pollutant in the atmosphere.
Emission means any solid, liquid or gaseous substance coming out of any chimney duct or other outlet.
3.3 The Act provides for establishing Central and State Pollution Control Boards for prevention of air pollution. The same Boards also serve as Boards for water pollution. The Central Boards can establish or recognise laboratories to assist the Board in carrying out its functions. The State Boards lay down standards for emission of air pollutants into the atmosphere from industrial plants and automobiles or for the discharge of any air pollutant into the atmosphere from any other source.
3.4 Prevention and control of air pollution :
3.4.1 The State Government may, after consultation with the State Board, declare any area or areas within the State as air pollution control areas for the purposes of the Act. If the State Government is of opinion that the use of any fuel, other than an approved fuel, in any air pollution control area may cause air pollution, then it may prohibit the use of such fuel in such area. It can also direct that no appliance, other than approved appliances, shall be used in the premises situated in an air pollution control area.
3.4.2 With a view to ensuring that the standards for emission of air pollutants from automobiles laid down by the State Board are complied with, the State Government shall give such instructions as are necessary to the concerned authority in charge of registration of motor vehicles under the Motor Vehicles Act, 1939.
3.4.3 No person shall, without the previous consent of the State Board, establish or operate any industrial plant in an air pollution control area.
3.4.4 No person operating any industrial plant, in any air pollution control area shall discharge or cause or permit to be discharged the emission of any air pollutant in excess of the standards laid down by the State Board.
3.4.5 If the emission of any air pollutant, is or is likely to be in excess of the standards laid down by the State Board by reason of any person operating an industrial plant or otherwise in any air pollution control area, then the Board may make an application to Court for restraining such person from emitting such air pollutant.
3.4.6 The Act gives powers to the State Board to authorise any person for entry, inspection, examination, testing, searching, etc. of any place in connection with the prevention of air pollution. The person so authorised can also take samples. However, he needs to comply with the procedure prescribed in this respect.
3.5 Penalties :
Failure to comply with the key provisions of the Act attracts a penalty in respect of each such failure, or imprisonment for a term which shall not be less than one year and six months but which may extend to six years and with fine, and in case the failure continues, with an additional fine which may extend to Rs. 5,000 for every day during which such failure continues after the conviction for the first such failure. If the failure continues beyond a period of one year after the date of conviction, the offender shall be punishable with imprisonment for a term which shall not be less than two years but which may extend to seven years and with fine.
4. Water (Prevention and Control of Pollution) Act, 1974 :
4.1 This Act seeks to prevent and control water pollution and for maintaining or restoring the wholesomeness of water.
4.2 Definitions :
‘Pollution’ means such contamination of water or such alteration of the physical, chemical or biological properties of water or such discharge of any sewage or trade effluent or of any other liquid, gaseous or solid substance into water (whether directly or indirectly) as may, or is likely to, create a nuisance or render such water harmful or injurious to public health or safety, or to domestic, commercial, industrial, agricultural or other legitimate uses, or to the life and health of animals or plants or of acquatic organisms.
‘Sewage Effluent’ means effluent from any sewerage system or sewage disposal works and includes sullage from open drains.
‘Sewer’ means any conduit pipe or channel, open or closed, carrying sewage or trade effluent.
‘Trade Effluent’ includes any liquid, gaseous or solid substance which is discharged from any premises used for carrying on any industry, operation or process or treatment and disposal system, other than domestic sewage.
4.3 The Act provides for establishing Central and State Pollution Control Boards for prevention of water pollution. The Central Boards can establish or recognise laboratories to assist the Board in carrying out its functions. The State Boards lay down standards for sewage and trade effluents and for the quality of receiving waters, works for the purification thereof and the system for the disposal of sewage or trade effluents.
4.4 Prevention of water pollution :
The State Government can restrict the application of the Act to certain areas, known as Water Pollution Prevention and Control area. No person shall cause any poisonous, noxious or polluting matter to enter into any stream or well or sewer or on land.
The State Board may make surveys of any area and gauge and keep records of the flow or volume and other characteristics of any stream or well in such area. A State Board may give directions requiring any person who in its opinion is abstracting water from any such stream or well in the area in quantities which are substantial in relation to the flow or volume of that stream or well or is discharging sewage or trade effluent into any such stream or well, to give such information as to the abstraction or the discharge at such times and in such form as may be specified in the directions.
The State Board is empowered to samples of effluents or sewage or trade effluents. The Act gives powers to the State Board to authorise any person for entry, inspection, examination, testing, searching, etc. of any place in connection with the prevention of water pollution.
4.5 No person shall, without the previous consent of the State Board :
a) Establish or take any steps to establish any industry, operation or process, or any treatment and disposal system or any extension or addition thereto, which is likely to discharge sewage or trade effluent into a stream or well or sewer or on land.
b) Bring into use any new or altered outlet for the discharge of sewage.
c) Begin to make any new discharge of sewage.
The Act lays down the procedure for the same.
4.6 Penalties :
Whoever fails to comply with any directions on information about abstraction of water or discharge of effluence or information regarding construction, installation or operation of any establishment of or any disposal system shall, on conviction, be punishable with imprisonment for a term which may extend to 3 months or with fine which may extend to Rs.10,000 or with both and in case the failure continues, with an additional fine which may extend to Rs.5,000 for every day during which such failure continues after the conviction for the first such failure.
Certain other offences are punishable with imprisonment for a period ranging from 18 months to 6 years and with fine. Continuing offences attract a fine of Rs.5,000 per day. Where such a failure continues beyond one year, the offender can be punished with imprisonment for a term of 2 to 7 years.
5. Director’s responsibilities :
5.1 The Board of Directors should enquire of the company’s compliance with the environmental laws. This especially true in the case of industries where environmental law compliance is critical to the survival of the entity. The recent example of the oil spill by British Petroleum in the Gulf of Mexico is an example in this direction. The issue has escalated into a high-profile political issue and could end up causing substantial losses to BP.
5.2 The company must designate a Compliance Officer to ensure compliance with various environmental laws. He must be a person who is well versed with the legal and commercial field. At every Board Meeting, the Compliance Officer should be asked to table a Compliance Certificate certifying compliance with all environmental laws. This should also be preferably signed by the Managing Director and/or the Whole-Time Directors and must be backed up with supporting certificates from various departmental heads who are responsible for compliance at an operational level.
6. Auditor’s duty :
6.1 In case the Auditor comes across a serious violation of environmental laws, then he should consider obtaining an opinion on its validity and/ or appropriate disclosure in the accounts and his report. In case of a hazardous chemical company, a serious lapse of an environmental law can make or mar the future of the company. In some cases, it could affect the ‘going concern concept’ of the company.
6.2 It needs to be repeated and noted that the audit is basically under the relevant law applicable to an entity and an auditor is not an expert on all laws relevant to business operations of an entity. All that is required of him is exercise of ‘due care’. By broadening his peripheral knowledge, the Auditor can make intelligent enquiries and thereby add value to his services.
