Vishwas Goud & Sujeeth Madasu
Introduction
India’s Nuclear Energy Framework is undergoing a historic transformation with the introduction of the Sustainable Harnessing and Advancement of Nuclear Energy for Transforming India Act, 2025 (“the Act”). The Act consolidates and amends existing Nuclear Laws, provides statutory authority to the nuclear regulator, and modifies the liability regime to better reflect contemporary nuclear reactor technologies globally. India aims to achieve net-zero carbon emissions by 2070, which requires a major shift towards clean, reliable, sustainable energy. Nuclear energy will continue to be one of the most desired renewable energy alternatives due to its ability to create vast quantities of electricity with zero carbon emissions. The government aims to obtain approximately 100GW of installed nuclear power capacity by 2047. This Act is intended to serve as a pivotal legal framework for this expansion while simultaneously maintaining a balance between energy security, climate objectives, and safety.
The Act intends to stimulate innovation as well as encourage private participation in India’s nuclear industry by improving the existing regulatory framework and facilitating private investment that was previously impeded by many longstanding regulatory and investment constraints. This change reflects the Government’s recognition of the fact that the State cannot meet all energy demands or fund the expansion of infrastructure alone. The Act also narrows the scope of the operator’s right of recourse against the suppliers, confining it to contractual claims and intentional misconduct.
Critics argue that this shift in India’s nuclear liability approach insulates foreign suppliers from civil liability for defects in design and substandard components, thereby weakening the foundational principle of accountability that shaped the Civil Liability for Nuclear Damage Act, 2010 (CLNDA). This paper argues that this shift is best understood as a policy trade-off. This paper first maps CLNDA’s core architecture (channelling of liability, compensation framework, and right of recourse) and then situates the act in the context of statutory and policy constraints that shaped risk allocation in the sector pre-2025.
India’s Nuclear Sector before SHANTI Act
India’s Atomic Energy Act of 1962 (“AEA, 1962”) vests exclusive control of nuclear power generation with the central government or government-owned companies. Section 14 of the AEA, 1962, permitted only government departments or companies in which the government held at least 51 per cent equity to engage in nuclear activities. Private and foreign companies cannot own or operate nuclear plants under this law.
Although a 2016 amendment allowed Nuclear Power Corporation of India (“NPCIL”) to form joint ventures with other public sector companies, it did not open the sector to private or foreign companies. Under this legal framework, foreign companies are confined to the role of equipment or service suppliers and cannot participate as operators or investors in nuclear power projects. India’s foreign direct investment policy mirrors these statutory restrictions. Since private participation in nuclear energy is barred under the AEA, 1962, foreign direct investment in the sector remains prohibited.
Foreign investment is permitted only in the manufacture of equipment and components for nuclear power plants, but not in the generation, ownership or operation of nuclear facilities. Although the framework retains all nuclear activities strictly under the authority of the central government, it effectively limits the opportunities for both foreign and private investment. Consequently, the liability regime under CLNDA was an important factor in determining whether foreign entities could participate in this industry or not.
Liability as a Barrier to Investment
After many years of restrictive policies on nuclear trade, the United States approved the Indo-US Civil Nuclear Agreement (“123 Agreement”) in October 2008. This development marked a major shift in American policy towards civil nuclear cooperation with India. As a result, India selected two locations in which American companies were to construct nuclear reactors. According to the Price-Anderson Act in the United States, nuclear liability is limited to about $12.5 billion (roughly ₹50,000 Crores), while in India, the limit is approximately ₹2610 Crores, as clarified by the Ministry of External Affairs. As a result, U.S suppliers are exposed to a liability burden that is nearly 19 times greater than Operators in India, as there is an absence of a statutory cap on claims made through right of recourse against the supplier. Although Articles 2 to 4 of the 123 agreement permitted India to utilise nuclear materials within its territory outside the scope of the deal, the liability issues had stalled the execution of both projects.
Post the 123 agreement, India entered into an Agreement with the French Development of Peaceful Uses of Nuclear Energy, which was followed by a Roadmap of Cooperation adopted in January 2016. In furtherance of this agreement, the Nuclear Power Corporation of India Ltd. (“NPCIL”) entered into an Industrial Way Forward Agreement (“Jaitapur project”) with Électricité de France S.A. in March 2018. Despite these developments, the Jaitapur project failed to progress as planned due to supplier liability-related issues under the CLNDA.
In both the American and French contexts, supplier liability-related concerns under the CLNDA were a persistent factor behind investor hesitation. This makes it necessary to closely examine the CLNDA’s liability framework to understand how its design, interpretation, and application affected investor confidence and hindered India’s international nuclear collaborations.
The CLNDA and the Question of Liability
CLNDA was adopted with the objective of enabling victims of nuclear accidents to obtain timely and adequate compensation through a simple and accessible legal process. Some provisions of the CLNDA have nevertheless caused concern for both national and international suppliers, most notably Sections 17(b) and 46. Section 17(b) provides that the operator has a right to seek compensation from the supplier where “the nuclear incident has resulted from the supply of equipment or material with patent or latent defects or sub-standard services.”
Section 17(b) of CLNDA has been widely viewed as inconsistent with India’s obligations under the Convention on Supplementary Compensation for Nuclear Damage (“CSC”), a concern repeatedly noted in academic and policy commentary on supplier liability and India’s alignment with the CSC framework. The CSC channels primary liability to the operator and confines supplier exposure to narrowly defined circumstances, a structure intended to promote uniformity and predictability across jurisdictions. To this end, the CSC Annex contains a model law that contracting States are expected to use as the basis for their domestic legislation.
Under Article 10 of the CSC Annex, an operator may seek recourse against a supplier only where such recourse is contractually agreed upon or where the damage is attributable to the supplier’s intentional misconduct. The combined use of the terms “may” and “only” has been interpreted as exhaustively limiting the permissible grounds of recourse under national law. Since Section 17(b) of CLNDA introduces an additional, statutorily mandated basis for recourse, it exceeds what is permitted under Article 10 and, on a literal reading of the CSC, is inconsistent with the treaty’s limits on supplier liability.
The drafting history of the CLNDA underscores that this departure from the international framework was both deliberate and contested. Section 17(b) was among the most debated provisions of the Bill, as it conferred on operators a statutory right of recourse against suppliers, an approach not widely envisaged under the international civil nuclear liability regime. Earlier drafts restricted supplier recourse to instances of wilful acts or gross negligence, a formulation that was more closely aligned with international conventions. However, acting on the recommendation of the Standing Committee, the legislature expanded the provision to cover patent and latent defects, faulty design or manufacture, and sub-standard services, drawing inspiration from product liability principles. This shift was justified on the ground that requiring proof of intent would import a criminal-law standard into a civil liability regime and would inadequately address the problem of undisclosed defects in nuclear equipment and material.
Contractual Limits under the CLND Rules, 2011
Rule 24 of the Civil Liability for Nuclear Damage Rules, 2011, gives practical shape to Section 17(a) by turning the operator’s right of recourse into something that can be fixed through contract and limited in time. It requires the contract to carry a recourse clause capped at the lower of the operator’s liability under Section 6(2) and the value of the contract, and it links the period of recourse to the initial operating licence or the “product liability period.” In effect, a supplier can negotiate both a clear monetary ceiling and a defined time window for any claim brought under Section 17(a).
But that certainty is only partial. Rule 24 is confined to Section 17(a) and says nothing about Section 17(b) or Section 17(c). The result is a split regime: contractual drafting can narrow exposure for claims that fall within 17(a), yet suppliers still face potentially open-ended exposure if a nuclear incident is attributed to conduct covered by 17(b), or to intentional acts under 17(c). This asymmetry kept the overall risk hard to price and difficult to insure, which is also why executive FAQs could not resolve the underlying concern. That lingering uncertainty helps explain why later changes aimed at a broader rebalancing of the liability framework.
TRADE OFF
India’s experience with civil nuclear liability highlights the tension between extending legal responsibility across the supply chain and creating a regulatory environment capable of attracting investment. Critics have described the inclusion of Section 17(b) in the CLNDA as an innovative departure from international practice because it allowed operators to seek recourse against suppliers for defects and sub-standard services. This approach was understood as addressing limits in the traditional channelling model, particularly in situations where losses arise from design or manufacturing failures that are difficult for operators or victims to detect or establish.
At the same time, the statutory nature of this right of recourse, together with the inability to restrict exposure through contract, created uncertainty for suppliers. Unlike liability under Section 17(a), which could be defined and capped through contractual arrangements, exposure under Section 17(b) remained open-ended and difficult to insure. In capital-intensive projects with long operating lives, this uncertainty affected risk assessment, the availability of insurance, and project financing. In practice, it was associated with delays in reactor projects and hesitation among foreign suppliers to participate in the Indian nuclear market.
The later withdrawal of statutory supplier liability reflects a policy shift toward alignment with the Convention on Supplementary Compensation and the legal channelling approach long embedded in international nuclear law. The justifications identified in the Harvard Report, including the need to limit complex litigation, manage insurance costs, and encourage participation in the nuclear sector, assumed greater importance as India sought to expand nuclear capacity and integrate private and foreign capital. This shift also corresponds with a broader reassessment of nuclear power as a stable, low-carbon source capable of supporting long-term sustainability objectives. At the same time, narrowing supplier liability reallocates responsibility toward operators and state-backed compensation mechanisms, reducing direct legal exposure for upstream actors involved in design and manufacture.
The SHANTI Act as a Response to Past Constraints
The SHANTI Act, 2025, represents a decisive legislative response to the shortcomings of the earlier regime. Under Section 3(1) of the Act, licences may now be granted to Indian private companies, joint ventures, and other persons expressly permitted by the Central Government, while companies incorporated outside India remain excluded under Section 2(9). The Act follows a cautious model by permitting controlled private investment in certain reactor-components and services, such as fuel cycle services and nuclear technology collaborations.
While there have been indications suggesting that the government is contemplating allowing foreign direct investment up to 49% in the nuclear sector, no official policy announcement has been made to this effect. Currently, FDI in the nuclear energy sector is in the prohibited list of Foreign Exchange Laws (FEMA). If the sector is to be opened up, corresponding amendments have to be made to FEMA. Given the capital-intensive nature of the nuclear energy sector, foreign investment would be needed, which in turn would necessitate the required amendments.
The scope of licensable activities under Section 3(2) of the Act includes building, owning and operating nuclear power plants, fabrication, transport and storage of nuclear fuel, subject to mandatory safety authorisation from the Atomic Energy Regulatory Board under Sections 3(3), 4 and 17 of the Act. Furthermore, the new act imposes a dual authorization requiring operators to obtain- (1) an Operating License, which allows them to generate electricity and sell it back to the grid, (2) the Operator’s Safety Authorisation, which is an approval of all activities from Construction through Waste Management before Regulators can authorise any activity.
While the Act obligates licensees to maintain financial security for waste management and compensation claims, the specific details of compliance are yet to be determined through rules issued by the Government of India.
In addition, Section 15 of the Act requires the operator of a nuclear power plant to maintain insurance, other forms of financial security, or a combination of both, to cover the liabilities specified in the Second Schedule to the Act. Here again, the detailed requirements are expected to be clarified through subordinate legislation.
Insurance products specifically covering nuclear power plants are essential, as project financing both in India and globally is closely tied to the availability of adequate insurance cover. However, currently, the Indian insurance market does not cater to the risks associated with nuclear power plants. In jurisdictions such as the United States and France, specialised insurance arrangements extend protection not only to plant operators but also to suppliers and service providers. If India is to achieve its planned expansion of nuclear capacity, similar insurance mechanisms will need to develop within the domestic market.
On liability, the Act substantially retains the framework of the Civil Liability for Nuclear Damage Act, 2010, including the principle of strict, no-fault liability of the operator under Section 11, limited exemptions under Section 12, and mandatory insurance under Section 15. However, the new Act restructures supplier liability by withdrawing the statutory right of recourse and confining claims against suppliers to those arising from contractual obligations or intentional conduct.
Additionally, Section 13 of the Act contains a modified tiered system of operator liability ranging from ₹100 crores to ₹3,000 crores. While any liability amount above ₹3000 crores will be borne by the Central Government, as outlined in section 14. The intent behind these changes is to enhance investor confidence and facilitate the expansion of nuclear energy in India.
It also forecloses the possibility of tort claims against nuclear operators, which had been permitted under Section 46 of the CLNDA, by expressly barring the jurisdiction of civil courts in the event of a nuclear accident. As outlined in Section 53, the Act expands the territorial scope of compensation claims. While the earlier legislation limited claims to nuclear damage suffered within India’s territory or jurisdiction, the new act extends coverage to damage occurring in a foreign territory as a result of a nuclear incident in India, subject to specified conditions.
Section 38 of the Act also permits the granting of patents for inventions related to atomic energy for peaceful use. This represents a major departure from the Atomic Energy Act, which prohibited patents on all inventions related to atomic energy. For a long time, it was believed that such a prohibition discouraged investment, innovation and research by private companies, and so granting patent rights in this limited manner will remove an impediment to the development of nuclear technology in India.
The Way Forward
Privatising India’s nuclear energy sector, in a calibrated and regulated manner, offers a workable route to meeting long-term energy demand and climate commitments. Nuclear power can deliver large-scale, reliable, low-carbon electricity, and can complement intermittent renewables as overall demand rises. In this context, the Act updates the legal and investment framework to attract private capital, support technological modernisation, and improve operational efficiency, while retaining a structured compensation regime for nuclear incidents.
A central issue is whether the Act’s restructuring of supplier liability weakens accountability. The Act withdraws the statutory right of recourse against suppliers and confines supplier exposure to contractual obligations and intentional misconduct. Critics argue that this insulates suppliers and weakens responsibility for design defects or sub-standard services. This criticism rests on the assumption that broader supplier exposure is the main route to nuclear safety. In practice, many nuclear liability regimes channel liability to the operator and do not treat supplier-facing tort exposure as the primary safety tool. Safety is secured through strict operator liability, rigorous licensing, continuous regulatory oversight, and enforceable technical standards.
The earlier Indian framework did not meaningfully strengthen accountability by extending liability beyond the operator. Instead, it created an unstable liability perimeter that was difficult to price, insure, and allocate across project lifecycles that run for decades. This uncertainty hampered insurance development, complicated long-term contracting with suppliers, and obstructed predictable risk allocation. In a sector where catastrophic risk must be planned for over long horizons, uncertainty about who ultimately bears exposure affects financing, insurance capacity, and institutional preparedness for accident response.
At the same time, narrowing statutory recourse is not costless. It can reduce the leverage available to push responsibility upstream for defective components, and weak regulation can reinforce the perception that suppliers can externalise safety risks. The answer is not to return to an indeterminate liability net, but to strengthen the governance framework that delivers safety and accountability. This requires a regulator with legal independence, technical capability, and credible enforcement powers, supported by transparent safety audits, disclosure of compliance findings, and meaningful avenues for public oversight. In parallel, victim protection must remain central through timely and adequate compensation backed by mandatory insurance pools and credible government support for losses beyond private coverage. A calibrated tiering of operator liability based on reactor size and technology can preserve predictability while maintaining deterrence and compensation capacity.
Within this broader institutional design, the Act’s approach is preferable because it restores clarity. It directs primary liability on the operator within a defined framework, while confining supplier exposure to contractual duties and intentional misconduct. This model supports predictable risk-sharing and insurability, which are essential for long-term investment in nuclear infrastructure, without abandoning public protection. If implemented alongside strong regulatory safeguards and credible compensation funding, these reforms can support accelerated and economically viable deployment of nuclear capacity while maintaining safety and public trust.
Vishwas Goud and Sujeeth Madasu are 5th year B.A.LL.B (Hons.) students at the National Academy of Legal Studies and Research (NALSAR) University of law, Hyderabad.
NUALS Law Journal 