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Appeal Against NBA’s Order: Use Of Biological Resources For Research Purposes Amounting To Commercial Utilisation?

Republished By Plato
Republished By Plato

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In 2018, an Office of Memorandum (Memo) was passed by the Ministry of Environment, Forest and Climate Change directing the National Biodiversity Authority (NBA) to consider, on merit, the cases of entities/ persons, who were unaware of the provisions of the Biological Diversity Act and were using biological resources without approval. Thus, as explained by Adarsh here, this Memo enabled such entities to get an ex-post facto approval for past conduct. Emitting from this arrangement is the appeal in DCM Shriram v. National Biological Authority. Here, an appeal was filed before the National Green Tribunal against the NBA’s order which accepted the application and levied an upfront fee for past access of biological resources. The post will focus on the relevant issues that arise from the Order apart from the complexities from the Memorandum and the ABS Guidelines discussed in earlier posts by Prashant, Alphonsa and Adarsh.  

Background

DCM Shriram Ltd, (Appellant), a publicly listed company, was using biological resources mainly bitter gourd, watermelon and cotton for 14 years from 2004 to 2018 without seeking prior approval from the authorities. To comply with the provisions of the Act, the Appellant filed three separate applications to regularise its access to the biological resources for research purposes and received 2 Access and Benefit Sharing Agreements (one for research and another for commercial utilisation) for each application. Upon hearing the case, the NBA directed the Appellant to pay- (1) actual Access and Benefit Sharing (ABS) amount as fixed under the Act; (2) pay an upfront ABS amount as per the existing rates fixed by NBA for accessing biological resources irrespective of the outcome of the research; (3) directed to inform the areas from where biological resources were accessed and the activities for which they would use the ABS amount as per Section 27(2) of the Act. Furthermore, the benefit sharing rate which was fixed was the higher rate of 0.5% of the annual gross ex-factory sale of the product as provided under Regulation 4 of the Guidelines on Access to Biological Resources and Associated Knowledge and Benefit Sharing Regulations, 2014 (ABS Guidelines). Aggrieved by the Order, Appellant appealed to the National Green Tribunal (Tribunal). 

Order

In the appeal, the Appellant claimed to be exempted from seeking prior approval because it was only accessing the biological resources for conventional breeding and thus should be exempted from the approval under Section 3 as per Regulation 17 of the ABS Guidelines. Rejecting the Appellant’s claim the Tribunal hinted towards non-maintainability of the appeal by stating that the appellant had filed for an approval and after obtaining an unfavourable order it moved the Tribunal without any “without prejudice” endorsements. Secondly on the  claim of Appellant using  bio-resources for conventional breeding, the Tribunal held that  a seed company like the Appellant was using the resources with a commercial motive and since it conducted in-house trials and other R&D, the overall purpose would fall under research as per Section 2(m) of the Act. Reading Section 2(f) and Regulation 17 (d) of the ABS Guidelines, the Tribunal asserted that the exemption from obtaining authorization is only for conventional breeding and traditional practices to the extent that the accessed biological resources are used in agriculture, horticulture, poultry, dairy farming, animal husbandry or beekeeping in India. And since appellant is a company who produces seeds through conventional breeding methods with commercial intent, it cannot claim exemption. 

The Appellant also argued that conventional breeding contributes to increase in biodiversity and thus imposing prior approval on conventional breeding, done even for commercial gain, would go against the objective of the Act. The Tribunal disagreed with the above interpretation and after a long discussion on the purpose and objective of the Act, it held that the appellant cannot challenge the vires of the Act at this stage in an appeal after accepting the Act, filing the application and obtaining an adverse ruling by the NBA. Owing to the above reasons and finding merit behind how the rates for benefit sharing were determined, the Tribunal upheld the validity of the NBA order. 

Analysis

Key issues in the Order:

  1. Appeal maintainable or not? 

In the initial pages of the Order (para 19), the Tribunal hinted that the appeal is non-maintainable since the Appellant had accessed the biological resources for an extensive period (14 years) without seeking prior approval. But later it went on to consider the claims made by the parties and passed an Order to the appeal. Ideally, the Tribunal should have considered doing more than passing a hint of non-maintainability of the appeal, perhaps making a decision on it!

  1. Commercial utilisation or Research or both?

To comply with the law i.e. the Act and the ABS Guidelines, an entity/person has to enter into a benefit sharing agreement which acts as a grant of approval for access to the biological resources. The Appellant had entered into two such agreements, one for research purposes and the other for commercial utilisation. It is relevant to note that the Act defines ‘research’ and ‘commercial utilisation’ separately and treats them as distinct purposes. For the convenience of the readers, following are the definitions mentioned under Section 2 of the Act:

….(m) “research” means study or systematic investigation of any biological resource or technological application, that uses biological systems, living organisms or derivatives thereof to make or modify products or processes for any use;…

…(f) “commercial utilisation” means end uses of biological resources for commercial utilisation such as drugs, industrial enzymes, food flavours, fragrance, cosmetics, emulsifiers, oleoresins, colours, extracts and genes used for improving crops and livestock through genetic intervention, but does not include conventional breeding or traditional practices in use in any agriculture, horticulture, poultry, dairy farming, animal husbandry or bee keeping;…

The ABS Guidelines also have separate procedures to grant access and levy benefit sharing fee for research and commercial utilisation purposes. 

The Appellant claimed that it was accessing the biological resources purely for conventional breeding which is exempted from the meaning of commercial utilisation and therefore does not require prior approval. However, the Tribunal found that the Appellant mentioned research, plant breeding and in-house trials as purposes in its applications submitted under the Memo and therefore, held such purposes to fall under the umbrella of research, which limited to my understanding of the BDA issues, seems correct. 

But what is interesting is that the Tribunal, in paras 13 and 14 of the Order, held the purpose of access as “research leading to commercial utilisation” and “research activities with commercial motive”. As per my understanding, research has not been classified further into ‘research with commercial motive’ and ‘research with non-commercial motive’. Commercial utilisation as said before is a totally different purpose. Furthermore, as per Section 4 of the Act, the restriction on research vis a vis monetary consideration is with respect to transfer of research results to a non-citizen or a non-resident. The Tribunal’s use of such terminology to interpret the Provisions and determine the purpose of the Appellant is extremely confusing, more so, when it later on held that Appellant’s use of “conventional breeding would be slotted as research” in para 14 of the Order. Tribunal’s reasoning seems to be that Appellant’s research activity amounts to conventional breeding for commercial benefit but is not exempted from seeking prior approval as mentioned under Regulation 17(d) of ABS Guidelines and therefore, liable to pay an upfront fee. However, nowhere in the Act nor the ABS Guidelines have such a classification been given. The law presently distinguishes between research and conventional breeding and it begs the question if the Tribunal can take up such an interpretation. What is clear is that the law lacks clarity and the Tribunal lacks clarity of rationale!   

  1. Prior Approval or Prior Intimation?

Normally, the Act requires only prior intimation from the Indian companies but in case an Indian company has “non-Indian participation in share capital or management” shall be required to seek prior approval. In the present case, the Tribunal had no deliberation on whether the Appellant has foreign management or not but found it liable to seek prior approval since it has a ‘global market’. ‘Global market’ is a broad term and could have several meanings. It is pertinent to note that the Tribunal did not specify the percentage of foreign shareholding or presence of any foreign management. Classifying the Appellant as an Indian company having foreign management/share capital on the basis of a presence of a global market is totally vague and unjustified. The duty of the Tribunal was to provide reasons for its conclusions and findings which it failed to do. Citing the disturbing ruling of Divya Pharmacy vs Union of India which found an Indian company to be liable to seek prior approval irrespective of the law as stated under Section 7, only increases the precedential value of an erroneous judgement!

As per the recent Biological Diversity (Amendment) Act 2023 (2023 Amendment), an Indian company having foreign shareholdings means that the Indian company is controlled by a foreigner which is not the case here. Hence, the conclusion remains unreasonable. Finding support from the amendment and the clarificatory nature of Section 3, the Appellants moved to the Supreme Court which has put a stay on the Tribunal’s order. In the forthcoming development to the case one can hope for better clarity and understanding of application of Section 3 to Indian companies especially when NGT’s order is full of rhetoric, and meanders through seemingly unnecessary discussion.

Thanks to Swaraj and Praharsh for their inputs.

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