Photographer: Dhiraj Singh/Bloomberg

Gujarat’s Farmers Have Taken On World Bank’s Lending Arm. Are They Likely To Succeed?

It’s the farmers of Gujarat versus the World Bank’s financial lending arm and the battleground is the U.S. Supreme Court. At the centre of this battle is the Tata Group’s Mundra Power Plant in Gujarat. It’s for the first time that the U.S. Supreme Court has to decide whether World Bank’s private lending arm—International Finance Corporation—or organisations like it, can be sued.

The case dates back to 2015 when fishing communities and farmers from Mundra dragged IFC to court. IFC had loaned $450 million for the construction of the power plant in 2008. The loan agreement gave IFC supervisory authority over the project which included implementation of an Environmental and Social Action plan. The farmers alleged that IFC’s failure to supervise this plan had caused environmental damage—neighboring communities couldn’t get access to fresh water because the construction of the plant caused salt water intrusion into ground water; and the plant’s cooling system discharged thermal pollution into the seas killing marine life and the source of farmers income.

IFC sought dismissal of these complaints on grounds that it has absolute immunity from being sued as per the International Organizations Immunities Act. The District Court of Columbia, which first heard the case, upheld IFC’s argument following a precedent laid down in Atkinson judgment. This ruling had held that the Immunities Act gives international organisations the same immunity as is enjoyed by foreign governments. Interestingly, the fact that IFC’s Article of Agreement contains an express waiver of immunity did not sway the court.

After several failed appeals, the farming communities reached the Supreme Court that has now agreed to hear the matter. In short, the communities are arguing that organisations like IFC are not above the law given that they engage in commercial activity of lending money and must be held accountable when their projects harm communities.

Will this argument find favour with the U.S. Supreme Court? Joe Athialy, executive director at Centre for Financial Accountability; and John Echeverria, professor of law, Vermont Law School, shared their views on BloombergQuint’s weekly law and policy show The Fineprint. Here are edited excerpts.

The Centre for Financial Accountability has been assisting the farming and fishing communities in this litigation. Usually, when it comes to environmental harm, it’s the companies that are dragged to court. What prompted these communities to sue the lender in this case?

Joe Athialy: IFC started lending to the project in 2008. Until some of us told the communities about the IFC involvement, they were completely clueless about it. In 2001, they went to the Compliance Advisor Ombudsman—the accountability mechanism of IFC—pointing out a range of issues, both environmental and social. In 2013, when the report by the Ombudsman came out, it confirmed almost all the concerns raised by fish workers and farmers in that area. The case was filed in 2015. But till now, IFC has not acted upon the findings of the ombudsman’s report. The CAO doesn’t have any implementation powers. It has only recommendatory powers. The report concluded that IFC had failed to supervise the project. IFC ignored it and people were left with no option other than to seek judicial remedy.

The Tata’s project is not the only one in Mundra. It is just adjacent to Adani Power project. The communities sought judicial intervention in the Adani case on social and environmental grounds. They didn’t get any relief. They were advised then that the Tata’s project is just adjacent to it and similar fate will be meted out in this case too. They have tried all other avenues including the pollution control board, collector, administration, state government. They didn’t get any relief. World over, lenders who have lent money for such kind of bad projects which cause huge damage to environment and people go scot-free. Nobody holds them accountable. Hence the communities decided to hold the lenders accountable for lending to a project which has caused immense damage to environment and people.

How have courts in the U.S. dealt with such cases in the past? Have international organisations like IFC always enjoyed immunity from judicial processes?

John Echeverria: The basic traditional rule is that the sovereign, whether it is the U.S., a state in the U.S. or a foreign sovereign, is immune from suits in federal courts. But that has evolved over time. The current U.S. view is reflected in the Foreign Sovereign Immunities Act which was adopted in 1976. It draws a distinction between government’s sovereign acts like the enactment of legislation versus commercial acts. So, when the government steps out of this sovereign role and acts as a private business, like in this case, as a private lender, the government can be held liable in U.S. courts despite the immunity doctrine.  The very specific issue in this case is whether this doctrine, which makes this distinction between the government actions and commercial actions, applies in this case. The D.C. Circuit Court said that under the International Organizations Immunities Act, adopted in 1945, the immunity doctrine governing international organizations was essentially frozen in 1945 and that there was absolute immunity. The petitioners are arguing that no, the immunity that is available under the International Organizations Immunities Act does evolve with time. Under the modern U.S. view of sovereign immunity, there is a commercial exception to the immunities doctrine and IFC should be subject to suit. So, it is a narrow, technical legal issue regarding the scope of sovereign immunity. People who practice law in the U.S. Supreme Court say that the Supreme Courts grants hearing to reverse and not to affirm. I expect that the Supreme Court will reverse the D.C. Circuit opinion.

Judge Cornelia Pillard of the Circuit court had written a concurring but separate judgement. She had noted that the precedents on whether international organizations like IFC can be sued are incorrect. She’s gone to the extent of saying- ‘were I not bound by the precedent, I would reject it’. Will this at all influence the way the Supreme Court views this case?

John Echeverria: It’s always significant to the Supreme Court when a lower federal court, especially as prestigious as the D.C.Circuit court, is divided on a particular question of law. Judge Pillard is a very distinguished judge. So, the Supreme Court is going to take a serious note of the fact that this issue has generated a dispute in a court below. I think what should give the petitioners hope is that the majority view in the court below relied on the long-standing precedent but Judge Pillard, on the other hand, really went back to the first principles and evaluated the merits of the argument. I think, on balance, her argument is more persuasive, and I expect the Supreme Court to adopt her opinion.