The Supreme Court has affirmed that the National Green Tribunal may lawfully determine environmental compensation by reference to a project’s total cost or the violator’s turnover, provided such determination is rational, proportionate, and grounded in the polluter pays principle. This landmark ruling clarifies the legal boundaries of NGT’s remedial powers in the absence of a codified formula, reinforcing judicial discretion in environmental adjudication.
Background & Facts
The Dispute
The appeals arise from two separate environmental violations by real estate developers in Pune. M/s Rhythm County and M/s Key Stone Properties undertook large-scale residential construction without obtaining mandatory statutory clearances under the Environmental Impact Assessment Notification, 2006, and without valid Consent-to-Establish and Consent-to-Operate under the Water and Air Acts. Both projects proceeded despite regulatory stop-work orders and deviations from sanctioned plans.
Procedural History
- Rhythm County: Construction began in 2018 after obtaining Environmental Clearance (EC) from PMRDA. In 2020, MPCB issued a show-cause notice and stop-work order for excess construction and lack of CTE. NGT, in 2022, found violations and imposed Rs. 5 crore compensation.
- Key Stone Properties: Construction commenced in 2013 without EC. Post-facto EC was granted in 2020 under a regularisation scheme, subject to a Rs. 1.76 crore bank guarantee. NGT, in 2022, held that prolonged construction without CTE/CTO and occupation without permissions constituted independent violations, and imposed Rs. 44.7 crore compensation.
Relief Sought
Both appellants challenged the quantum of compensation, arguing that the NGT erred in relying on the Central Pollution Control Board’s (CPCB) formula, which they contended was inapplicable to residential projects and lacked statutory sanction. They sought quashing of the compensation orders.
The Legal Issue
The central question was whether the National Green Tribunal, in the absence of a legislatively prescribed formula, may lawfully determine environmental compensation by reference to the project cost or turnover of the violator, and whether reliance on the CPCB methodology constitutes an abdication of judicial responsibility.
Arguments Presented
For the Appellant / Rhythm County
Mr. Saurabh Mishra argued that Rhythm County acted in good faith under a 2016 Ministry notification exempting projects under 1.5 lakh sq. m. from CTE requirements. He contended that the NGT erred in applying the CPCB formula, designed for industrial units, to a residential project. He further submitted that the compensation of Rs. 5 crore (1.49% of project cost) was excessive and that the NGT failed to independently assess the Joint Committee’s report, thereby outsourcing adjudication.
For the Appellant / Key Stone Properties
Mr. Dhruv Mehta contended that the CPCB formula lacks statutory basis under the Water Act, Air Act, or Environment (Protection) Act. He relied on Benzo Chem Industrial Pvt. Ltd. v. Arvind Manohar Mahajan to argue that compensation based on conjectural revenue figures or turnover without nexus to actual harm is arbitrary. He emphasized that the NGT must independently apply its mind and cannot mechanically adopt expert reports, especially when the CPCB itself acknowledged the formula’s inapplicability to the case.
The Court's Analysis
The Supreme Court examined the statutory framework under the National Green Tribunal Act, 2010, particularly Sections 15 and 20, which empower the NGT to grant relief, restitution, and compensation while applying the principles of sustainable development, precautionary principle, and polluter pays principle.
"The expression ‘as the Tribunal may think fit’ is indicative of a conscious legislative choice to repose discretion in the NGT to mould relief in a manner commensurate with the nature and gravity of environmental harm."
The Court rejected the appellants’ contention that environmental compensation must be tied to a rigid, statutory formula. It held that turnover and project cost are permissible, though not mandatory, yardsticks for quantifying compensation, provided they are applied with reasoned discretion. The Court distinguished Benzo Chem Industrial and C.L. Gupta Export, where compensation was based on vague public domain data, from the present case, where the NGT relied on contemporaneous site inspections, expert reports, and admitted violations.
The Court clarified that the CPCB methodology is not a binding formula but a facilitative tool. Clause 1.5.1 limits its application to cases where CPCB issues directions under the Environment (Protection) Act, 1986. Clause 1.5.2 explicitly requires expert-driven, site-specific assessments for other cases. The NGT’s use of the formula in Key Stone’s case was not mechanical; it was one input among many, and the Tribunal independently evaluated the duration, scale, and nature of violations.
"The NGT was alive to the limited role of expert bodies and consciously undertook an independent assessment of liability and quantum."
The Court affirmed that the polluter pays principle permits compensation to reflect the violator’s economic capacity. Larger projects imply greater environmental impact. Linking compensation to project cost (Rs. 335 crore for Rhythm County) or turnover ensures deterrence and restitution are proportionate. The NGT’s enhancement of compensation to Rs. 5 crore (1.49% of project cost) was well below the 5% benchmark set in Goel Ganga Developers.
The Court also emphasized that the NGT’s role extends beyond adversarial dispute resolution to include inquisitorial, preventive, and restorative functions under Article 21. Therefore, reliance on scientifically grounded methodologies like the CPCB framework does not constitute abdication of judicial duty.
The Verdict
The appeals were dismissed. The Supreme Court held that the National Green Tribunal acted within its statutory authority in determining environmental compensation by reference to project cost and the CPCB methodology. The compensation amounts of Rs. 5 crore against Rhythm County and Rs. 44.7 crore against Key Stone Properties were upheld as rational, proportionate, and consistent with the polluter pays principle.
What This Means For Similar Cases
Project Cost and Turnover Are Valid Metrics
- Practitioners must now argue compensation quantum in terms of project scale, not just technical violations
- A developer’s turnover or project cost can be introduced as evidence to justify higher compensation under the polluter pays principle
- Opposing counsel cannot dismiss such metrics as arbitrary without demonstrating lack of nexus to environmental harm
CPCB Formula Is Advisory, Not Mandatory
- The CPCB formula cannot be applied mechanically to residential or non-industrial projects
- NGT must independently assess whether the formula is appropriate, and if not, rely on expert-driven, site-specific assessments
- Parties must challenge the applicability of the formula at the earliest opportunity, with expert affidavits
Judicial Scrutiny of Expert Reports Is Non-Negotiable
- NGT must record reasons for accepting or rejecting expert committee findings
- Mechanical adoption of reports without independent reasoning invites appellate interference
- Practitioners should demand detailed judicial analysis in NGT orders, not just boilerplate acceptance of committee recommendations
