1. The issue for consideration is the action to be taken for pollution caused by Respondent No. 4 - Volkswagen India Private Limited, Respondents No. 5 - Skoda Auto India Private Limited, Respondent No. 6 - Volkswagen Group Sales India private Limited and Respondent No. 7 - Volkswagen AG, who are manufacturers of vehicles, (hereinafter called the manufacturers).
2. These applications have been filed before the Tribunal alleging that engines manufactured by the said manufacturers have been found to be in violation of norms in U.S.A. and Europe on account of the employment of ‘deceit devices’, defeating the test of actual state of affairs, as shown by documents relied upon.
3. Present matter is connected to what is known as ‘Volkswagen emission scandal’ globally. In September 2015, it came to light that Volkswagen had installed ‘defeat devices’ in engines of thousands of their vehicles since 2009. The software helped make the cars meet exhaust pollution standards when monitored in tests but in real, the emissions exceeded the limits. It has been widely reported that the company admitted fitting the cars with the software intentionally. As per reports, the scandal has so far cost Volkswagen more than 26 billion Euros in fines, compensation and buyback. //m.dailyhunt.in/news/india/english/the+siasat+daily+english-epaper-siaseten/five+things+to+know+about+vw+s+dieselgate+scandal-newsid-90381514
4. The documents relied upon by the applicant include statement before the Lok Sabha on 11.04.2017, result of testing by Automotive Research Association of India (ARAI), notice issued by the US Environment Protection Agency (USEPA), news item dated 05.11.2015 in Business Standard under the heading “Volkswagen fails emission test in India”, news item dated 28.09.2015 in the Economic Times under the heading “Timeline of events in Volkswagen pollution cheating scandal” and statement on behalf of Ministry of Heavy Industries in the counter affidavit stand of the manufacturers.
5. The matter was considered in the light of the said documents by the Tribunal vide order dated 16.11.2018, details of the documents were summarized as follows:
“i. Details of vehicles recalled by the manufacturers placed before the Lok Sabha in reply to an Unstarred Question on 11.04.2017 showing that about 2.75 lakhs vehicles including Volkswagen, Skoda Auto India Pvt. Ltd. and Audi were recalled inter-alia on the ground of software updation and repair.
ii. Affidavit of the Automotive Research Association of India (ARAI) to the effect that 46 models of Volkswagen Pvt. Ltd. were tested and were authorized for carrying out recalling covering 2.18 lakhs vehicles. (According to Volkswagen number of vehicles to be recalled was 3.4 lakhs out of which 2.53 lakhs have been recalled.)
iii. Letter dated 18.09.2015 from the US Environment Protection Agency addressed to Volkswagen giving notice of violation on the ground that deceit devices had been installed in certain models from 2009 to 2015 of diesel light duty vehicles.
iv. News Item dated 05.11.2015 in Business Standard under the heading “Volkswagen fails emission test in India, gets notice” to the effect that Volkswagen was emitting emission more than expected Nitrogen Oxide (NOx). As found after its testing by ARAI, NOx emitted was nine times the levels tested during approval stage. In US forty times higher emission was found. In India, it was five to nine times according to ARAI. The manufacturers were to recall 11 million cars globally after it was found that they were violating emission norms by a cheating device.
v. News Item dated 28.09.2015 in the Economic Times under the heading “Timeline of events in Volkswagen pollution cheating scandal” to the effect that Volkswagen admitted to CARB and EPA that it had deliberately installed software in the cars and issued a statement that it was sorry for having broken the trust of the customers. In US 4,82,000 cars are equipped with deceit device.
vi. As per the statement in the counter affidavit of the Ministry of Heavy Industries, in India, Euro-III and Euro-IV norms are applicable. The said affidavit further states that ARAI was directed to assess whether deceit devices are used in the engine control units by the Volkswagen. ARAI found that NOx emissions are five to nine times compared to laboratory test limits. In view of these results, the Ministry of Heavy Industries directed the Volkswagen to initiate vehicle recall. Accordingly, the Volkswagen informed that they would recall 3.2 lakhs vehicles and modify software and/or hardware after approval of the authorities. Letter dated 07.12.2015 annexed to the said affidavit addressed by the Ministry of Heavy Industries, Government of India to the Ministry of Road and Transport, Government of India inter-alia as follows:
“Based on the findings of ARAI and after detail discussion, Volkswagen agreed to recall approximately 3.24 lakhs of vehicles of Audi, Volkswagen and Skoda brands.”
vii. Stand of the manufactures is that they had replied to the show cause notice with regard to diesel EA189 Engine to which no response has been received. They had also themselves conducted on-road test in the presence of ARAI and the emissions were found to be 1.1 times to 2.6 times of BS-IV norms. Action taken in other countries was thus not relevant as the standards prescribed were different.”
6. The Tribunal also considered the affidavit dated 04.08.2018 filed by the applicant referring to the annual report of the Volkswagen Group for the year 2017 as follows:
“Affidavit dated 04.08.2018 has also been filed by the applicant giving status of Annual Report of the Volkswagen Group for the year 2017 inter-alia stating that criminal proceedings had been initiated in Germany and contingent liabilities have been disclosed by the Volkswagen Group in cases where it could be assessed and for which the likelihood of sanction was not less than 10%. Proceedings are also pending in South Korea and Switzerland. In USA and Canada also, proceedings were pending and the company has agreed to pay USD 2.7 billion into an environmental trust. It also pleaded guilty to three federal criminal felony counts and paid USD 2.8 billion criminal penalty. There was also a settlement by which cash payment up to USD 1,208 billion was agreed to be paid. Further, a settlement to pay USD 622 million was reached to resolve consumer protection and unfair trade practices claims. Assessment of the actual amount that the company was liable to pay could not be made by the management of the company. Total contingent liability on the diesel issue was €4.3 billion. European Commission had fined €0.88 billion against Scania. Class action suit was also pending against Volkswagen for excess Nitrogen Oxide (NOx) emissions against which the company agreed to pay USD 2.7 billion in the next three years and to invest USD 2.0 billion over ten years in zero emission vehicle infrastructures. It also entered into third partial consent decree with the US Department of Justice (DOJ) and Environmental Protection Agency (EPA) paying USD 1.45 billion to resolve civil penalty Para 6 of Order dated 16.11.2018”
7. In the order dated 16.11.2018, the Tribunal found, prima facie, that the stand of the manufacturers that they had not caused any damage to the environment could not be accepted. The manufacturers had accepted the direction of the Government for recall of the said vehicles and also made an expression of regret publically. ARAI found NOx emission to be five to nine times higher than the lab test limit which was beyond the prescribed norms.
8. Accordingly, this Tribunal constituted a joint team comprising representatives of Central Pollution Control Board (CPCB), Ministry of Heavy Industries Government of India, ARAI and NEERI to give an expert opinion whether prescribed norms have been exceeded and the extent of damage caused. The Tribunal also directed the manufacturers to deposit a sum of Rs. 100 Crores with the CPCB which was to abide by further direction of the Tribunal. The Tribunal noted that the net worth of the company was USD 75 Billion.
9. Appeal were preferred against the above order before the Hon'ble Supreme Court being Civil Appeal Nos. 11928 and 11929 of 2018 which were disposed of vide order dated 21.01.2019, giving liberty to the appellants to file objections to the report which had been submitted during pendency of the matter before the Hon'ble Supreme Court in pursuance of order of the Tribunal. It was further noted that it will be open to the Tribunal to consider whether it is necessary to widen the scope of enquiry and to seek information whether any other manufacturer is similarly situated so as to warrant regulatory enquiry.
10. We have perused the report of the Committee filed before this Tribunal by CPCB on 24.12.2018.
11. The Committee framed three questions as follows:
“1. Examine the report of ARAI and comment whether the manufacturer has exceeded prescribed environmental norms
2. Consider the reply of the manufacturer, and
3. Make fair estimate of the damage caused to the environment”
12. With regard to the ARAI Report, the Committee observed that no testing protocol was notified at the time of inspection. ARAI used validated procedure using PEMS (Portable Emission Measurement System), which is globally used to measure Real Driving Emissions (RDE). The analysis highlights excess NOx on road emission compared to the lab results.
13. With regard to the stand of the manufacturer, it was observed during these tests, that the NOx emissions, as measured on PEMS equipment, were found 1.1 to 4.06 times higher than BS IV emission limit and not 1.1 to 2.6 times higher as submitted by Volkswagen. The observations are:
“During these tests, the NOx emissions as measured on PEMS equipment were found 1.1 to 4.06 times higher than BS IV emission limit and not 1.1 to 2.6 times higher as submitted by VW. The details results are enclosed at Annexure 1.”
14. With regard to the cheat device, the findings are as follows:
“As per ARAI report, during meeting on 29th October 2015 VW informed that in BS IV vehicles two different strategies for EGR control were used:
1. Strategy 1: Active from engine start with higher EGR rate.
2. Strategy 2: Active after leaving the distance-time corridor - lower EGR rate.
For above two control strategies, VW submitted recall plan to GOI. ARAI informed the team that, MoRTH had directed ARAI to re-verify the new control strategy. Accordingly, ARAI had tested total 16 vehicles. ARAI also informed that as per the direction from MoRTH, in addition to normal measurement of emissions in regulatory test protocol (i.e. engine in cold condition) additional tests were also carried out to assess the emissions in hot condition.
ARAI informed that after the software modifications, they made comparison of test results in regulatory test cycle and results in warm cycle. Summary of these results was presented. The same is attached as Annexure II.
It was informed by ARAI that after the software modification, the ration of hot condition emissions to regulatory measurements were considerably reduced. With use of new software, for 2.0 litres engine NOx ratio improve from 0.849 - 2.931 to 0.573 1.046, for 1.2, 1, 5, & 1.6 litres engines NOx ration improve from 0.816 - 2.276 to 0.708-1.152. This indicates that the recalled vehicles will have far better emission performance after the software modification as compared to the original software. In another words, the vehicles with original soft-ware would generate more NOx emissions, when they were driven on road in comparison to the changed software.
The team therefore concluded that VW used two different strategies for EGR rate management through the ECU software. The earlier or original EGR strategy was giving higher emissions under the warm test cycle as well as that in the field, while meeting the emission norms under the standard cold test conditions. These NOx emissions in certain models of VW were also higher than the other Indian vehicles tested using the same protocols. This was later corrected during the recall of vehicles under the supervision of ARAI. The VW vehicles after recall gave much less NOx emissions under the warm test cycle as well.”
(emphasis added)
15. With regard to violation of environmental norms, all the models were in compliance of the standard norms. It was observed:
“ARAI informed that during CoP and Type Approval testing, all concerned vehicle models of VW were tested as per the above mandatory requirements. All the model manufactured, imported and sold by VW group of companies are in compliance to these stated norms.”
16. With regard to the estimate of damage, it was concluded as follows:
“Every vehicle that runs on road does have an impact on environment and creates damage. Permissible limits under BS-IV norms were not violated by VW as stated above and there are no norms prescribed under Indian regulations other than those stated above.
Under this situation, team inferred that the additional damage caused can be estimated based on following:
• Typical Vehicle behavior in hot and cold tests (carried out on Type Approval/CoP vehicles) as available with the test agencies.
• This data was also presented in the meeting of Standing Committee on Emission Regulation under the Chairmanship of MoRTH.
• Relevant extracts of Minutes of said meeting are attached as Annexure III
• The industry trend was taken as a reference. For the purpose of estimating damage, a cut off factor of 2.2 was considered.
• Accordingly, VW models, where this ratio has exceeded 2.2 (prior to software modifications) are taken for estimating excess NOx emissions.
• In such models, vintage of vehicle is estimated on the basis of start and end of production, clubbing of various models on the basis of clusters (for which recall tests were carried out) and average mileage accumulation.
• Model-wise volume of production was available with ARAI. The same was used to estimate for the entire fleet (i.e. 327165 vehicles), which is manufactured by VW.
• Details of these estimates are given in Annexure IV TERI and ARAI had recently concluded a study on Source Apportionment and Ambient Air Quality. The source profiles established for BS-IV diesel passenger cars were taken from Automotive research association of India (ARAI) (URL 01).
• VW had carried out vehicle recall; wherein their original software having two strategies for EGR are now replaced with single strategy. This resulted in improvement of exhaust emissions after modification. The impact on excess NOx emissions can thus be estimated based on the difference observed in lab results under the hot and cold/standard type approval test cycles.
Point 4.1 Estimation of Damage caused due to Additional Release of NOx Emissions
NOx emissions have gained important attention in past few decades due to their adverse health and environment impacts, NO2 among other seven compounds is the most prevalent form of NOx. Automobiles are a major source of NOx emissions.
Breathing air with a higher concentration of NO2 can irritate airways in the human respiratory system. Such exposures over short periods can aggravate respiratory diseases, particularly asthma. Leading to respiratory symptoms (such as coughing, wheezing or difficulty breathing), hospital admissions and visits to emergency rooms. Longer exposures to elevated concentrations of NO2 may contribute to the development of asthma and potentially increase susceptibility to respiratory infections. People with asthma, as well as children and the elderly and generally at greater risk for the health effects of NO2. NO2 along with other NOx react with other chemicals in the air to form secondary pollutants mainly particulates and ozone. Both of these are also harmful when inhaled due to effects on the respiratory system (URL 02).
As automobiles are a major source of NOx emissions, automobile manufacturers are trying to reduce the tailpipe emissions and introduce new generation vehicles with low NOx emissions to meet the stringent emission standards, as laid down by the Government. It is expected from automobile manufacturers to use the best and most reliable technologies to reduce tail pipe emissions, which are not only effective during the mandatory tests, but also during the entire life of automobiles.
Point 4.2 Economic Assessment of Damage Related to Additional NOx emissions from Volkswagen Vehicles
As already explained, air pollutants once released into the atmosphere cause ill effects on human beings and environment. Such air pollution impacts are generally confined in the region where they are released and do not usually become a global phenomenon like GHGs Further, local weather, population density, background concentration of other pollutants effect the severity of the pollutants being released in air.
NOx predominantly affects the human health, and therefore health damage is the main criterion considered in the impact analysis (as per reported studies used as the basis for damage cost estimation in present case and due to lack of studies on assessment on overall impact of NOx on environment), although this can be considered as conservative.
In order to conduct a damage cost assessment study, the following approach has been used.
Therefore, estimated cost of health damage due to additional NOx emissions form the Volkswagen group vehicles is approximately Rs. 171.34 Crore using a metro city i.e. Delhi as a base. The value may be considered as conservative due to lack of methodologies for calculating the overall impact of NOx on environment in India and hence health damages are valued. Further, the valuation is for Delhi city considering that whole of the NOx of 435 tonnes is released in the city. This is assumed because of lack of data on the geographical locations and plying regions of Volkswagen vehicles which have caused the damage and for all the years which have been considered for damage.”
(emphasis added)
17. The manufactures have filed their objections to the report on 11.02.2019.
18. Main objection to acceptance of the report is that the manufactures have been found to be compliant of the regulatory environmental norms. In view of this conclusion, there being no norms prescribed for on road testing, manufacturers cannot be held to be non-compliant in any manner.
19. Shri Pinaki Mishra, learned Senior Counsel for the manufacturers also made a reference to Notification dated 16.09.2016 issued by the Ministry of Roads, Transport and Highways under Section 212 of the Motor Vehicles Act, 1988 laying down that PEMS can be used. It is submitted that this provision has been introduced for the first time on the said date. The same could not be applied in the present case prior to Notification.
20. We are unable to accept the objections to the report raised on behalf of the manufacturers. The report categorically finds the use of cheat device and violation of norms at the time of road testing. It has also been found that NOx emission in certain models of Volkswagen were higher than the other Indian vehicles tested using the same protocol which was corrected during the recall of vehicles under the supervision of ARAI. After recall, Volkswagen vehicles gave much less NOx emission under the warm test cycles as well.
21. Not only the manufacturers used the cheat device which could suppress the laboratory test, the NOx emissions were found to be higher by PEMS measurement, which is a globally accepted norm. Mere fact that the said procedure has been introduced by Notification dated 16.09.2016 does not mean that such procedure was prohibited earlier. The same could be used to test the NOx emissions of the vehicles using cheat devices and so found world over. Mere fact that no specific protocol existed in India to detect cheat devices does not mean that globally accepted protocol could not be used. Truth has to prevail and no procedural technicality can be preferred to defeat the truth. A manufacturer indulging in unethical practice cannot be allowed to defeat the truth by a technicality.
22. Thus, finding of the Committee that the vehicles were compliant (as quoted in para 15 above) cannot be accepted, in view of finding quoted in para 13 clearly holding that the emissions measured on PEMS were higher than BS-IV limit. We accept the finding that emissions were found to be higher than BS-IV limit which renders the manufacturers liable and accountable. PEMS measurement cannot be rejected.
23. We may also observe that ‘Precautionary Principle’ and ‘Sustainable Development’ principle are part of Article 21 of the Constitution and Section 20 of the National Green Tribunal Act, 2010. ‘Polluter Pays’ principle does not mean polluter can pollute and pay for it. It would include environmental cost as well as direct cost to people. Environmental cost is not restricted to those which is immediately tangible but full cost for restoration of environmental degradation. (2005) 13 SCC 186 If cheat devices leading to pollution are ignored only on account of absence of a procedural protocol, it will be against the said accepted principles of environmental jurisprudence. Accepted global procedural norm can be accepted unless prohibited in India expressly or impliedly.
24. The law has to encourage honesty and fair dealing in business transactions and certainly business considerations cannot override environmental protection. It will be paradox to say that what will be unethical in rest of the world will be ethical in India. It may also be noted that tolerance to air pollution in India cannot be higher than other countries. Adverse impact of air pollution is felt in India in more serious way, 22 of the 30 most polluted cities are in India. //www.theguardian.com/cities/2019/mar/05/india-home-to-22-of-worlds-30-most-polluted-cities-greenpeace-says 15,000 people in Delhi died prematurely on account of air pollution. //www.hindustantimes.com/india-news/inhaling-fine-dust-in-delhi-air-killed-15-000-prematurely-in-2016-says-study/story-eDmXT0dCskwNnZFcKrfhxJ.html In such situation, usage of ‘deceit device’ with the intention of personal profit, regardless of consequences to the community, has to be dealt with strictly. As per information available in public domain, the manufacturers have been held liable for the same cheat device in as many as 17 countries, namely, US //www.wsj.com/articles/u-s-justice-department-conducts-criminal-probe-of-volkswagen-sources-say-1442869059, Canada //www.theguardian.com/business/2015/nov/09/vw-repair-germany-540000-cars-hardware-changes, Italy //www.theguardian.com/business/2015/oct/02/vw-scandal-french-authorities-launch-deception-inquiry, Germany //www.bbc.com/news/business-34324772, France //www.theverge.com/2016/1/19/10789162/renault-recall-15000-cars-emissions-probe-vw, Brazil //www.autossegredos.com.br/2015/10/26/dieselgate-volkswagen-pode-ser-multada-em-ate-r-50-milhoes-no-brasil/, Switzerland //www.theguardian.com/business/2015/sep/26/volkswagen-emissions-scandal-switzerland-bans-sale-of-some-models, Sweden //www.transportenvironment.org/sites/te/files/media/T&E%2098-3_0.pdf, Spain //www.wsj.com/articles/spanish-court-opens-criminal-probe-of-volkswagen-1446037125, South Africa //web.archive.org/web/20170113132615/http, //thezimbabwemail.com/business-12118-sa-regulators-to-probe-local-vw-unit-after-emissions-scandal.html, South Korea, Romania //www.bbc.com/news/business-34324772, Norway //www.telegraph.co.uk/finance/newsbysector/industry/11884872/Volkswagen-crisis-how-many-investigations-is-the-carmaker-facing.html, Netherlands //www.dutchnews.nl/news/archives/2016/12/dutch-consumers-authority-investigates-volkswagen-emissions-scandal/, Hong Kong, Belgium //www.nieuwsblad.be/cnt/dmf20151014_01918764 and United Kingdom //www.telegraph.co.uk/finance/newsbysector/industry/11887711/VW-scandal-BMW-shares-plunge-after-SUV-breaches-EU-emissions-standards-live.html. Many of such violations have been acknowledged in the annual reports of the manufacturers which have been quoted above in para 5.
25. With regard to quantum of damages, we find that the estimate is based on the cost of health damage actually caused. The Committee has observed that the value considered is conservative due to lack of methodologies for calculating the overall impacts of NOx on the environment and the health.
26. We find that this approach of being conservative is contrary to the law laid down by the Hon'ble Supreme Court as noted in the order of this Tribunal dated 16.11.2018. The said part of the order is as follows:
“9. In Vellore Citizens Welfare Forum v. Union of India (UOI), the Hon'ble Supreme Court interpreted “Polluter Pays” principle by stating that the absolute liability for harm to the environment extends not only to compensate the victims of pollution but also the cost of restoring the environmental degradation. Remediation of the damaged environment is part of the process of “Sustainable Development” and as such polluter is liable to pay the cost to the individual sufferers as well as the cost of reversing the damaged ecology.
10. The Precautionary Principle and the Polluter Pays Principle have been accepted as part of the law of the land. As serious damage has been caused to the environment by Respondent No. 4 and Respondent No. 5, therefore, the Polluter Pays Principle needs to be invoked to compensate the damage caused, in terms of Section 20 of the NGT Act, 2010.
11. This Tribunal in Court on its own motion v. NCT, Delhi, vide its order dated 24.10.2018, following the principle in Sterlite Industries (India) Ltd. v. Union of India, observed that measure of compensation must be correlated to the magnitude and capacity of the enterprise because such compensation must have a deterrent effect. It was further observed on the basis of principle laid down in M.C. Mehta v. Union of India, that a person undertaking an activity involving hazardous or risky exposure to human life is strictly liable for injury suffered by another person, irrespective of any negligence or carelessness on part of the managers of such undertaking and that where the activity of an enterprise is hazardous, highest degree of care is expected and breach of duty is inactionable. Para 9 to 11 of the order dated 16.11.2018”
27. Pollution cannot be allowed to be profitable activity. The environment is priceless. Intentional violations have to be visited with more stringent damages than accidental or unintended. We have taken into account the principles for determining quantum of damages laid down, inter-alia, in Sterlite Industries (India) Ltd. v. Union of India, (2013) 4 SCC 575: ¶ 47, T.N. Godavarman Thirumulpad v. UOI, (2006) 1 SCC 1: ¶ 1, Indian Council for Enviro-Legal Action v. Union of India, (1996) 3 SCC 212: ¶ 67, Vellore Citizens Welfare Forum v. UOI, (1996) 5 SCC 647: ¶ 11 to 13, M.C. Mehta v. Kamal Nath, (1997) 1 SCC 388: ¶ 10, Public Trust Doctrine, ¶ 24, M.C. Mehta v. UOI, W.P. (C) No. 13029/1985 order dated 24.10.2017, MCD v. Uphaar Tragedy Victims Association, (2011) 14 SCC 481: ¶ 99, 100, Vadodra Municipal Corporation v. Purshottam v. Murjani, (2014) 16 SCC 14: ¶ 17 and M.C. Mehta v. Union of India, (1987) 1 SCC 395: ¶ 32. The present case has attained notoriety and has been termed as “Volkswagen emission scandal” or “dieselgate”.
28. In view of above, the measure of damages has to be fixed taking into account not only the actual damage but also the magnitude and the capacity of the enterprise so that compensation has deterrent effect. Circumstances are also to be considered. This test has not been applied in the above report. As noted in the earlier order, the worth of the company is stated to be USD 75 billion. Thus, apart from actual damage by a conservative estimate, deterrent element has to be considered, specially in view of international unethical practice.
29. Having regard to all the circumstances including violations, financial capacity of manufacturers, extent of penalties levied world over, we find it to be just and fair to enhance the amount to Rs. 500 crores. We may note that this amount is insignificant compared to the amount of compensation which the Company has been required to pay in other jurisdictions. The amount is also insignificant in the light of magnitude of the business of the Company.
30. We leave it open to the CPCB to consider initiation of prosecution in the light of applicable statutory regime.
31. We now come to the submission that there may be other vehicle manufactures in India who may be similarly situated. In absence of any clear material before this Tribunal, we leave this issue to be gone into by the CPCB. It will be open to either party to place material in support of this submission which may be considered by the CPCB on its own merit. The CPCB will be at liberty to suggest any further action, including policy changes in the light of international standards and protocols.
32. The enhanced amount may be deposited within two months. The amount may be spent by the CPCB by preparing an appropriate action plan for improving air quality in NCR region as well as any other region of the country, having regard to the data of critically polluted areas. Such action plans may also include steps for compensatory afforestation.
The applications stand disposed of accordingly.