In a landmark 7-1 decision, the US Supreme Court has ruled that World Bank group organisation, like International Finance Corporation (IFC) can be sued in US courts. This is a big victory for fishing community and farmers from Mundra in Gujarat, who were one of the petitioners in the case. The IFC had loaned $450 million for the construction of Tata Power’s Mundra power plant in 2008. These communities had sued IFC claiming that it was the failure of the World Bank group organisation to supervise this plan had caused environmental damage — pollution from the plant harmed the surrounding air, land, and water.
The Court’s decision marks a defining moment for the IFC – the arm of the World Bank Group that lends to the private sector. For years, the IFC has operated as if it were 'above the law', at times pursuing reckless lending projects that inflicted serious human rights abuses on local communities, and then leaving the communities to fend for themselves.
The case involves an IFC-financed Tata Mundra coal powered power plant at Mundra in Gujarat. The petitioners in the Jam vs IFC case are members of local fishing and farming communities whose livelihoods, air quality, and drinking water have been devastated by the project. They alleged that the IFC and the project developers knew about these risks in advance but nevertheless chose to recklessly push forward with the project without proper protections in place.
Despite knowing the risks, the IFC provided a critical $450 million loan in 2008, enabling the project’s construction and giving the IFC immense influence over project design and operation.
The IFC’s own internal compliance mechanism, the Compliance Advisor Ombudsman (CAO), issued a scathing report in 2013 confirming that the IFC had failed to ensure the Tata Mundra project complied with the environmental and social conditions of the IFC’s loan at virtually every stage of the project and calling for the IFC to take remedial action.
IFC’s management responded to the CAO by rejecting most of its findings and ignoring others. In a follow-up report in early 2017, the CAO observed that the IFC remained out of compliance and had failed to take any meaningful steps to remedy the situation.
Welcoming the judgement, Dr Bharat Patel, general secretary, Machhimar Adhikar Sangharsh Sangathan, one of the petitioners in the case, said, “This is a huge victory for the people of Mundra in particular and other places in general, where World Bank’s faulty investments are wrecking communities and the environment.
This is a major step towards holding World Bank accountable for the negative impacts their investments are causing.”
International organizations like the IFC have long claimed they are entitled to 'absolute' immunity, even as they engage in commercial activities, like the coal-fired power plant at the heart of this case. Because the relevant statute only gives the IFC the same immunity as foreign governments, and foreign governments do not have absolute immunity in US courts when they engage in commercial activities, the Supreme Court rejected this position “The International Finance Corp is therefore not absolutely immune from suit,” the Supreme Court ruled.
According to Joe Athialy, executive director of Centre for Financial Accountability (CFA), this is a victory of all who have fought for a more accountable World Bank since the past many decades world over and has fought valiant struggles against bank-funded projects on the ground, exposing the monumental human and environmental costs of their lending.
"This judgment will strengthen communities’ efforts to hold the Bank accountable and is a step in the direction of bringing accountability in financial institutions," he added.
The complainants originally tried to raise their concerns through the CAO, the IFC’s internal grievance mechanism, but when the IFC’s leadership ignored the grievance body’s conclusions, they reluctantly filed suit in the US as a last resort.
The EarthRights International represented the villagers, along with the Stanford Law School Supreme Court Litigation Clinic.
The Tata Mundra coal-fired power plant has caused significant harm to the communities living in its shadow. Construction of the plant destroyed vital sources of water used for drinking and irrigation. Coal ash has contaminated crops and fish laid out to dry, air pollutants are at levels dangerous to human health, and there has already been a rise in respiratory problems. The enormous quantity of thermal pollution – hot water released from the plant – has destroyed the local marine environment and the fish populations that fishermen like Budha Ismail Jam rely on to support their families. Although a 2015 law required all plants to install cooling towers to minimize thermal pollution by the end of 2017, the Tata plant has failed to do so.
A nine-mile-long coal conveyor belt, which transports coal from the port to the Plant, runs next to local villages and near fishing grounds. Coal dust from the conveyor and fly ash from the plant frequently contaminate drying fish, reducing their value, damage agricultural production, and cover homes and property. Some air pollutants, including particulate matter, are already present at levels dangerous to human health, in violation of Indian air quality standards and the conditions of IFC funding, and respiratory problems, especially among children and the elderly, are on the rise.