2026 INSC 102 1

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No. 7187 OF 2022

M/S. RHYTHM COUNTY … APPELLANT

VERSUS

SATISH SANJAY HEGDE & ORS . … RESPONDENT S

WITH

CIVIL APPEAL No. 7974 OF 2022

M/S KEY STONE PROPERTIES …APPELLANT

VERSUS

SHASHIKANT VITHALKAMBLE & ORS . …RESPONDENTS

J U D G M E N T

DIPANKAR DATTA, J.

THE APPEALS

1. The present civil appeals arise out of disposal of two separate original

applications by the National Green Tribunal, Western Zone Bench, Pune

1

,

involving similar facts and circumstances. The orders of disposal are of

1

NGT

2

varying dates. We propose to decide these appeals by this common

judgment and order.

2. The lead appeal has been filed by the project proponent, i.e., M/s.

Rhythm County

2

, challenging the order dated 22.08.2022 passed by the

NGT in Original Application No. 14 of 2021 (WZ). Vide the impugned

order, the NGT held that RHYTHM had violated the environmental norms

and carried out construction without obtaining Environmental

Clearance

3

, for which it was liable in a sum of Rs. 5,00,00,000/- as

compensation. Appellant was, accordingly, directed to pay such

compensation within two months to the Maharashtra Pollution Control

Board

4

.

3. The connected appeal is filed by another project proponent, i.e., M/s.

Key Stone Properties

5

. It challenges the order dated 01.09.2022 passed

by the NGT on Original Application No. 13/2021. Vide the impugned

order, the NGT held that KEYSTONE had violated the environmental norms,

including raising construction without obtaining requisite permissions.

Like RHYTHM, KEYSTONE was directed to pay compensation in a sum of Rs.

4,47,42,188/- within two months to the MPCB.

FACTUAL MATRIX

4. The facts, which would be germane for the disposal of the present

appeals, are adumbrated as follows:

2

RHYTHM

3

EC

4

MPCB

5

KEYSTONE

3

LEAD APPEAL

a. Appellant RHYTHM, a partnership firm, undertook a residential and

commercial construction project titled “Rhythm County” at Autade

Handewadi, Pune, within the jurisdiction of the Pune Metropolitan

Regional Development Authority

6

. The project was granted EC on

27.11.2017 under the Environmental Impact Assessment

7

Notification, 2006

8

, permitting a total built-up area of 1,45,682.28

square metres. Upon issuance of requisite certificates, the

construction commenced in 2018.

b. RHYTHM asserts that construction initially proceeded in conformity with

the EC and the sanctioned plans. On 31 .01.2020, however,

Maharashtra Pollution Control Board

9

issued a show-cause notice

alleging that construction had commenced without securing valid

statutory consents. This was followed by an order dated 06.07.2020

whereby the MPCB refused Consent -to-Establish

10

under the Water

(Prevention and Control of Pollution) Act, 1974

11

and the Air

(Prevention and Control of Pollution) Act, 1981

12

, citing excess

construction beyond the sanctioned area and the absence of

revalidated consent. A stop-work direction was also issued on the

same date.

6

PMRDA

7

EIA

8

Notification

9

MPCB

10

CTE

11

Water Act

12

Air Act

4

c. Disputing these allegations, on 18.07.2020, RHYTHM applied for

modification of the EC before the State Level Environment Impact

Assessment Authority

13

, Maharashtra. While that application

remained pending for consideration, the first respondent, a local

resident of the area, approached the NGT by instituting O.A. No. 14

of 2021 (WZ), alleging that RHYTHM had undertaken substantial

construction activity without valid EC and in disregard of statutory

safeguards under the environmental laws.

d. In the proceedings before the NGT on 08.06.2021, a Joint Committee

was constituted to ascertain the factual position. The Committee,

after inspection of the site and examination of records, reported

certain deviations from the sanctioned plan. These included the

construction of a clubhouse of 431.91 sq. m., not expressly covered

by the original EC and continuation of construction activity despite

the stop-work direction issued by the MPCB. At the same time, the

record indicates that RHYTHM was subsequently granted a conditional

CTE by the MPCB and that later site inspections recorded compliance

with prescribed environmental safeguards.

CONNECTED APPEAL

e. In the connected appeal, appellant KEYSTONE is a developer

undertaking a residential housing project situated at Survey No.

16/3, Punawale, Pune, comprising multiple residential buildings.

13

SEIAA

5

Construction activities were undertaken over a period commencing

prior to obtaining prior EC under the EIA Notification, 2006.

f. Thereafter, in terms of the notification dated 14.03.2017 and

subsequent office memoranda issued by the Ministry of Environment,

Forest and Climate Change

14

providing for regularisation of violation

cases, the appellant applied for post-facto EC, which was granted by

the SEIAA, Maharashtra, on 24.01.2020, subject to conditions

including preparation and implementation of a remediation plan and

a natural and community resource augmentation plan.

g. Based on appraisal by the State Expert Appraisal Committee, the cost

of remediation and community augmentation was assessed at Rs.

1,76,00,000/- and the appellant was directed to furnish a bank

guarantee of Rs. 1,76,00,000/- in favour of MPCB towards

implementation of the said plans , which was furnished on

29.10.2021, and the plans were submitted to the District Collector,

the Municipal Corporation and MPCB on 08.11.2021.

h. The appellant also applied for statutory consents under the Water and

Air Acts. After initial refusal owing to non-submission of bank

guarantee, CTE was granted on 17.08.2020, and Consent to

Operate

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was granted on 01.02.2022, after inspection and

verification of pollution control measures.

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MoEF&CC

15

CTO

6

i. In the meantime, Original Application No. 13 of 2021 was filed on

13.01.2021 before the NGT by a local resident (Respondent 1),

alleging that the project was being executed in violation of

environmental norms and without requisite statutory clearances.

Upon admission of the application on 08.06.2021, the NGT

constituted a Joint Committee comprising representatives of

MoEF&CC, CPCB, IIT Bombay and MPCB to inspect the site and verify

compliance.

j. The Joint Committee conducted site inspections and submitted its

report on 12.01.2022, noting, inter alia, that EC had since been

obtained under the violation regularisation mechanism; that the bank

guarantee of Rs.1,76,00,000/- had been furnished; and that pollution

control facilities had been provided. However, the Committee also

recommended imposition of additional environmental compensation

by applying guidelines issued by the C PCB for computation of

environmental damage.

PROCEEDINGS BEFORE THE NGT

5. In the matter involving RHYTHM, by its order dated 22.08.2022, the NGT

held that it had carried out construction activity in violation of

environmental norms and without obtaining the mandatory consents

under the Air and Water Acts. NGT rejected RHYTHM’s contention that

such consents were not required, holding that statutory compliance

could not be diluted on the basis of interpretative convenience and that

7

RHYTHM had continued construction activities even after the MPCB had

issued a stop-work direction.

6. Accepting the findings of the Joint Committee, the NGT concluded that

the violations stood established. While the Committee had assessed

environmental compensation at Rs. 2,39,53,125/ -, the NGT found the

amount to be inadequate. Following the principle laid down in M/s. Goel

Ganga Developers India Pvt. Ltd. v. Union of India

16

and taking

note of the overall project cost, stated to be approximately Rs.

3,35,00,00,000/-, as well as applying the principle that environmental

compensation must bear a reasonable nexus with the scale and

impact of the project, the NGT enhanced the compensation to

Rs. 5,00,00,000/-.

7. In addition to directing deposit of the enhanced compensation, the NGT

issued directions to the SEIAA to undertake institutional corrective

measures so as to strengthen monitoring and enforcement mechanisms.

8. In the matter where KEYSTONE was involved, the NGT after hearing the

parties, passed an order dated 01.09.2022 accepting that the EC

granted to it under the notification dated 14.03.2017 was valid.

Furthermore, on the issue of grant of enhanced environmental

compensation, it was noticed that the environmental clearance in favour

of KEYSTONE had been accorded under the one-time violation window. The

NGT, however, took note of the fact that such clearance was conditional

upon the furnishing of a bank guarantee to the tune of Rs. 1,76,00,000/-

16

(2018) 18 SCC 257

8

towards the implementation of the Remediation Plan and the Natural and

Community Resource Augmentation Plan. Finding the said deposit

sufficient to cover past violations, NGT noted that no further

environmental compensation was warranted.

9. Be that as it may, the NGT found that KEYSTONE had carried out

construction without CTE from 05.06.2013 to 17.08.2020; had

continued construction between 04.09.2019 and 17.08.2020 despite a

closure notice; had proceeded without CTO, and had handed over

possession to occupants, issuing the first posses sion letter on

18.03.2016. These acts were held to constitute distinct and serious

violations of environmental norms.

10. As a corollary, the NGT observed that the Joint Committee had correctly

quantified the environmental compensation at Rs. 4,47,42,188/ -.

Consequently, KEYSTONE was directed to deposit the said amount with

the MPCB within two months.

11. On these findings and directions, the Original Applications were disposed

of.

SUBMISSIONS ON BEHALF OF THE APPELLANT / RHYTHM IN CIVIL APPEAL

NO.7187 OF 2022

12. Mr. Saurabh Mishra, learned senior counsel appearing on behalf of

RHYTHM, submitted that RHYTHM had acted in accordance with the

notification issued by the Ministry of Environments, Forest and Climate

Change dated 09.12.2016 which, at the relevant time, exempted

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residential construction projects having a built-up area below 1.5 lakh

square metres from the requirement of obtaining CTE under the Air and

Water Acts.

12.1. It was urged that in conformity with the said notification, RHYTHM had

obtained an EC from the PMRDA, the designated local authority, and

that the construction was commenced only thereafter. According to

Mr. Mishra, these steps clearly evinced RHYTHM’S bona fide intent to

comply with the prevailing regulatory framework.

12.2. It was further submitted that uncertainty arose only after the NGT

stayed the notification dated 09.12.2016 on 08.12.2017. In response

thereto, suo motu, RHYTHM applied to the MPCB for CTE. It was

contended that despite RHYTHM having already obtained EC from the

PMRDA and having furnished all relevant project particulars to the

MPCB, a show cause notice came to be issued alleging absence of EC.

It was argued that owing to the intervening nationwide lockdown

commencing on 2 4.03.2020, the MPCB did not conduct a site

inspection, and without verification of the documents placed on

record, declined the application for CTE by order dated 06.07.2020.

12.3. It was brought to our notice that thereafter, RHYTHM submitted a fresh

application for CTE on 10.02.2021, which was granted by the MPCB

on 12.05.2021 after due site inspection and verification of records,

including the EC obtained under the notification dated 09.12.2016.

Pursuant thereto, RHYTHM furnished a bank guarantee of Rs. 1,00,000,

as directed, and a restart permission was issued by the MPCB on

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14.08.2021. Mr. Mishra contended that these material developments

were not accorded due consideration by the NGT while passing the

impugned order.

12.4. It was further contended that RHYTHM was subsequently granted EC

by the S EIAA on 12.04.2023 bearing Identification No.

EC23B039MH182373 for a built-up area of 1,45,682 square metres,

pursuant to the Terms of Reference issued on 08.02.2021, a fact

which has been noticed in the impugned order itself. It was also

pointed out that a further EC was granted on 03.12.2024 vide

Identification No. SIA/MH/INFRA2/469190/2024 for a built -up area

of 1,95,771.01 square metres.

12.5. Mr. Mishra vehemently submitted that the NGT itself recorded that

the alleged violations pertained only to Commercial Building ‘A’,

Commercial Building ‘B’ and a clubhouse, together having a built-up

area of 431.91 square metres, which did not cross the threshold of

1.5 lakh square metres stipulated under the 2016 notification. On this

premise, it was urged that the NGT erred in accepting the Joint

Committee’s report which proceeded to apply the C entral Pollution

Control Board

17

compensation formula meant for highly polluting

industrial units. Mr. Mishra submitted that such acceptance effectively

amounted to outsourcing the NGT’s adjudicatory function, particularly

when the Committee itself acknowledged that the CPCB formula was

inapplicable to residential projects.

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CPCB

11

12.6. Sequentially, our attention was invited to the CPCB report on

determination of environmental compensation, which delineates

different categories of cases in which compensation may be

computed. It was pointed out that paragraph 1.5.1 of the report

recommends application of the formula only to categories (a), (b) and

(c), (wherein, (a), (b) and (c) are schemes for utilization of

environmental compensation funds), whereas paragraph 1.5.2

contemplates that in respect of other categories, compensation, if

any, should be determined on the basis of a detailed investigation by

expert institutions. Notwithstanding this, the Joint Committee,

without assigning any reasons, applied the formula to the present

case. It was urged that the NGT, in turn, accepted the report without

independent scrutiny and enhanced the compensation to Rs.

5,00,00,000.

12.7. Mr. Mishra contended, without prejudice to RHYTHM’S challenge to the

applicability of the CPCB formula, that even on a notional application

thereof, the compensation would not exceed Rs. 2,93,00,000/-, of

which Rs. 1,00,00,000/- already stands deposited pursuant to the

order dated 21.10.2022 passed by this Court. It was , therefore,

submitted that the determination of compensation at Rs.

5,00,00,000/-, and its affirmation by the NGT in the absence of

cogent reasoning, is legally unsustainable warranting interference by

this Court.

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ARGUMENTS ON BEHALF OF APPELLANT / KEYSTONE IN CIVIL APPEAL NO.7974

OF 2022

13. Mr. Dhruv Mehta, learned senior counsel argued the appeal on behalf of

KEYSTONE. He assailed the levy of environmental compensation quantified

at Rs. 4,47,42,188/– by the NGT by order dated 01.09.2022.

13.1. It was prefatorily contended that the imposition of liability must have

clear statutory moorings, coupled with cogent reasoning, and ought

to reflect fairness. According to Mr. Mehta, none of these foundational

requirements stood satisfied which could have persuaded the NGT to

pass the impugned order.

13.2. Mr. Mehta urged that while the NGT is undoubtedly empowered to

constitute an Expert or Joint Committee to aid it in matters involving

technical complexity or fact-finding, such a committee can neither

supplant nor substitute the adjudicatory function statutorily vested in

the NGT. Reliance was placed on consistent judicial pronouncements

emphasising that the report of an expert body is not binding on the

NGT and cannot be accepted mechanically or at face value without

independent judicial scrutiny.

13.3. It was further contended that KEYSTONE, being the project proponent,

retains an indefeasible right to question the findings of an expert

committee, including alleged violations of environmental law and the

conclusions drawn with regard to environmental damage, whether

actual or apprehended.

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13.4. The right to object to expert evidence, it was submitted, is an integral

facet of the principles of natural justice. Where objections are duly

raised, the NGT is obliged to apply its judicial mind, examine each

objection with care, and render a reasoned and speaking order

indicating conscious acceptance or rejection of the committee’s

findings.

13.5. Mr. Mehta pressed into service a line of reasoning, relying on Kantha

Vibhag Yuva Kohli Samaj Parivartan Trust & Ors. v. State of

Gujarat & Ors.

18

, that an expert committee’s role is confined to fact-

finding and technical assistance. Its report constitutes only a piece of

evidence, and the ultimate adjudicatory decision must necessarily

reflect independent application of mind by the NGT to the material on

record, including the objections raised.

13.6. It was pointed out that the NGT has relied upon the methodology

formulated by the CPCB in its report dated 31.05.2019, prepared

pursuant to the order dated 03.08.2018 passed in Paryavaran

Suraksha Samiti & Anr. v. Union of India & Ors. in O.A. No. 593 of

2017.

13.7. It was argued that, by its own terms, the CPCB formula is intended

to apply exclusively to industrial units and has neither been designed

nor prescribed for residential projects such as that of KEYSTONE.

Assuming arguendo that the CPCB methodology could be extended

to the present case, such application could arise only upon the

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(2023) 13 SCC 525

14

issuance of directions or notices by the CPCB under the Environment

(Protection) Act, 1986, which admittedly has not occurred in the

present case. On this premise, it was contended that the NGT erred

in sustaining the Joint Committee’s computation of compensation

founded on an inapplicable formula.

13.8. Attention was drawn to the CPCB report itself, which enumerates

specific contingencies where environmental compensation may be

levied. It was submitted that none of the identified contingencies are

attracted on the facts of the present case, rendering the computation

of compensation wholly mechanical and legally untenable.

13.9. Mr. Mehta submitted before us that the Joint Committee itself

recorded that “such listed instances may not be directly applicable in

the current matter for arriving at the damage amount .”

Notwithstanding this express caveat, it was argued that the

Committee proceeded to compute compensation using the same

methodology.

13.10. It was also argued that this approach is inherently self-contradictory

and perverse. Having acknowledged the inapplicability of the formula,

the Joint Committee could not have invoked it to arrive at the said

compensation figure. This, it was argued, demon strates non-

application of mind. Despite this categorical admission by the Joint

Committee, the NGT, while upholding the Committee Report, failed to

notice this crucial aspect.

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13.11. According to Mr. Mehta, a determination of damages founded on a

methodology declared inapplicable by the expert body itself could not

have been sustained. It was also submitted that the CPCB formula

lacks statutory sanction under either the Water Act or the Air Act,

both of which constitute self-contained codes providing for their own

penal consequences.

13.12. It was emphasised that a committee report can, at best, contain

recommendations and cannot be adopted mechanically. The NGT is

required to independently assess its applicability. By way of

illustration, it was submitted that the MPCB circular dated 12.07.2022

prescribes a penalty of three times the consent fee for belated

applications for CTE/Consent to Operate, a statutory mechanism

directly applicable to the present facts, yet, wholly overlooked.

13.13. Reliance was placed on DPCC v. Lodhi Property Co. Ltd.

19

, wherein

this Court expressly criticised the CPCB formula, holding that it lacks

legal sanctity, requires serious re-examination, and must be

incorporated into statutory rules or regulations before being applied.

It was urged that the ratio of the said decision squarely governs the

present case.

13.14. It was contended that unless and until a legally binding procedure is

incorporated in subordinate legislation, one that duly incorporates the

basic principles of natural justice, no compensation can be recovered

on the basis of such ad hoc formulations.

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2025 SCC OnLine SC 1601

16

13.15. It was submitted that the impugned demand of compensation against

KEYSTONE, being premised solely on the CPCB formula, is

unsustainable in law. No compensation can be collected until a proper

statutory framework is put in place, which ensures both transparency

and compliance with the principles of natural justice. The reasons

assigned by the NGT are distinct from the reasons recorded in the

Joint Committee in its report.

13.16. It was further contended that the levy of compensation in excess of

Rs. 4,47,00,000/- is ex facie arbitrary and contrary to settled

principles of environmental jurisprudence. Reliance was placed on

Mantri Techzone Pvt. Ltd. v. Forward Foundation & Ors.

20

, to

submit that any determination of environmental compensation must

be informed by the principles of sustainable development, the

precautionary principle, and the polluter pays principle.

13.17. Drawing support from Deepak Nitrite Ltd. v. State of Gujarat &

Ors.

21

, it was urged that environmental compensation can be justified

only upon a specific finding of actual environmental damage. Mere

violation of statutory provisions, in the absence of demonstrable

harm, does not ipso facto warrant compensation. Reliance was also

placed on Grasim Industries Ltd. v. State of Madhya Pradesh

22

,

to emphasise the necessity of affording a meaningful opportunity of

hearing prior to the imposition of any penalty.

20

(2019) 18 SCC 494

21

(2004) 6 SCC 402

22

C.A. No. 7004-7005/2021

17

13.18. It was further argued that the jurisprudence of this Court does not

recognise any uniform or straitjacket formula for the levy of

environmental compensation. While in certain cases reference has

been made to turnover-based computation, such methodology has

been expressly disapproved in others.

13.19. On the strength of Benzo Chem Industrial Pvt. Ltd. v. Arvind

Manohar Mahajan & Ors.

23

, it was contended that turnover or

income of a project proponent bears no rational nexus to the quantum

of environmental compensation, and any mechanical linkage between

the two cannot be sustained.

13.20. Relying again on Deepak Nitrite Ltd. (supra), it was argued that

while it may be open for the Court to consider whether 1% of the

turnover could constitute a fair basis for computation, such an

approach must be necessarily linked to the demonstrable

environmental damage and not to be applied in a rout ine or

mechanical manner.

13.21. It was argued that in Vellore District Environment Monitoring

Committee v. District Collector, Vellore

24

, this Court while

passing a detailed order concerning implementation of the award

passed by the Loss of Ecology (Prevention & Compensation)

Authority, recorded the submission that the CPCB has devised a

formula for determining environmental compensation and further

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C.A. No.9202-9203/2022

24

2025 SCC OnLine SC 207

18

noted that the NGT, in practice, has primarily adopted only two

methodologies, namely: imposing compensation as 5 -10% of the

project cost or as a certain percentage of the turnover. It was ,

however, argued that the Court has consciously refrained from laying

down any binding principle on this aspect.

13.22. On an overall conspectus, it was contended by Mr. Mehta that there

exists no uniform principle for the levy of environmental

compensation, and furthermore that these inconsistent approaches

towards the computation of compensation necessitates the

formulation of clear statutory rules and regulations.

13.23. Premised on the submissions so advanced, Mr. Mehta prayed that the

imposition of compensation of Rs. 4,47,42,188/- against KEYSTONE is

unsustainable.

SUBMISSIONS ON BEHALF OF THE RESPONDENTS

14. Notices were issued to the original applicant/R1 in both the appeals. In

the lead appeal, the notice was returned unserved with the endorsement

“address cannot be located”. However, in the connected appeal, service

upon the original applicant/R1 was duly effected. None appeared on his

behalf. Thus, we have heard Ms. Aishwarya Bhati, learned Additional

Solicitor General, appearing for the Union of India in both the appeals.

15. Ms. Bhati submitted that the findings returned by the NGT are founded

on a careful appraisal of the factual matrix and the statutory framework

governing environmental protection. According to her, the violations

recorded against the appellants are neither trivial nor technical in

19

nature, but constitute substantive departures from mandatory

environmental safeguards, thereby justifying the invocation of the

‘polluter pays’ principle in its full amplitude.

16. While asserting that the orders impugned in these appeals are

unexceptionable, Ms. Bhati contended that the appeals are without merit

and the same may be dismissed.

QUESTIONS OF LAW

17. Having heard learned senior counsel for the parties and upon perusal of

the record, the substantial questions of law arising for our consideration

in these appeals, are:

i. Whether, in the absence of a legislatively prescribed framework for

quantification of environmental compensation, the NGT could

enhance compensation on the basis of project cost?

ii. Whether the NGT, in exercise of its powers under Sections 15, 17

and 20 of the National Green Tribunal Act, 2010

25

, is competent in

law to adopt the turnover or project cost of a project proponent

inter alia as a relevant yardstick for the computation of

environmental compensation?

ANALYSIS

18. We have carefully considered the submissions advanced on behalf of the

appellants and examined the materials placed on record. Though the

appeals emanate from facts-laden proceedings, the controversy before

25

NGT Act

20

us lies in a narrow compass. The determinative issue is whether the NGT,

while exercising its jurisdiction under the NGT Act, acted within the

bounds of law in sustaining and enhancing the levy of environmental

compensation in the facts established against the appellants.

19. The contours of the controversy relating to the computation of

environmental compensation are no longer res integra. The answer to

the aforesaid question is to be found within the four corners of the

statute itself. The NGT Act is a special enactment intended to provide

effective and expeditious adjudication of environmental disputes and to

ensure restitution of the environment. The powers conferred upon the

NGT are, by legislative design, wide, flexible, and principle-oriented.

20. Section 15 of the NGT Act delineates the relief and remedy which the

NGT is empowered to grant. Sub-section (1) thereof provides that:

The Tribunal may, by an order, provide—

(a) relief and compensation to the victims of pollution and other

environmental damage arising under the enactments specified in Schedule

I;

(b) restitution of property damaged; and

(c) restitution of the environment for such area or areas, as the Tribunal

may think fit.

21. The language employed by the Parliament is of considerable amplitude.

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.

21

22. Furthermore, the guiding normative framework within which these

powers are to be exercised, is set out in Section 20 of the NGT Act, which

provides that:

The Tribunal shall, while passing any order or decision or award, apply the

principles of sustainable development, the precautionary principle and the

polluter pays principle.

23. In light of the above, the appellants’ arguments that the NGT is denuded

of authority to quantify compensation in the absence of a legislatively

prescribed or delegated formula, although attractively canvassed, falters

when tested against the plain statutory text.

24. The law on this score being well-crystallised, the core of the dispute, as

projected before us, centres around the appellants’ contention that

turnover or project cost cannot be taken as a metric for the

determination of environmental compensation.

25. We are unable to accede to such a submission. Neither the NGT Act nor

the jurisprudence of this Court calls for the adoption of a uniform formula

for the quantification of environmental compensation; on the contrary,

the statutory scheme as discussed in the previous paragraphs, vests the

NGT with the discretion to mould the relief guided by the ‘polluter pays’

principle, having due regard to the scale of the offending activity and

the capacity of the violator.

26. In cases relating to protection of environment, linking a company’s scale

of operations (like turnover, production volume, or revenue generation)

to the environmental harm can be a powerful factor for determining

compensation. Bigger operations signify a bigger footprint. Larger scale

22

often means more resource use, more emissions, more waste leading to

more environmental stress. If a company profits more from its scale, it

is logical that it bears more responsibility for the environmental costs.

Linking scale to impact sends a message that bigger players need to play

by greener rules.

27. If a company has a high turnover, it reflects the sheer scale of its

operations. Such a company, if found to contribute generously to

environmental damage, its turnover can have a direct co-relation with

the extent of damage that is caused. Thus, in our considered opinion, to

contend that turnover can never form a relevant factor in quantifying

compensation to match the magnitude of harm is fallacious.

28. It would be apposite, at this juncture, to advert to the decision of this

Court in Goel Ganga Developers (supra). There, this Court, while

dealing with cases of flagrant environmental violations, has laid down

that the outer limit of damages could extend up to 5% of the total project

cost, in general. Since the aforesaid principle has a direct bearing on the

controversy at hand, the relevant paragraph is extracted hereunder:

64. Having held so we are definitely of the view that the project proponent

who has violated law with impunity cannot be allowed to go scot-free. This

Court has in a number of cases awarded 5% of the project cost as

damages. This is the general law. However, in the present case we feel

that damages should be higher keeping in view the totally intransigent and

unapologetic behaviour of the project proponent. He has manoeuvred and

manipulated officials and authorities. Instead of 12 buildings, he has

constructed 18; from 552 flats the number of flats has gone up to 807 and

now two more buildings having 454 flats are proposed. The project

proponent contends that he has made smaller flats and, therefore, the

number of flats has increased. He could not have done this without getting

fresh EC. With the increase in the number of flats the number of persons

residing therein is bound to increase. This will impact the amount of water

23

requirement, the amount of parking space, the amount of open area, etc.

Therefore, in the present case, we are clearly of the view that the project

proponent should be and is directed to pay damages of Rs 100 crores or

10% of the project cost, whichever is more. We also make it clear that

while calculating the project cost the entire cost of the land based on the

circle rate of the area in the year 2014 shall be added. The cost of

construction shall be calculated on the basis of the schedule of rates

approved by the Public Works Department (PWD) of the State of

Maharashtra for the year 2014. In case the PWD of Maharashtra has not

approved any such rates then the Central Public Works Department rates

for similar construction shall be applicable. We have fixed the base year as

2014 since the original EC expired in 2014 and most of the illegal

construction took place after 2014. In addition thereto, if the project

proponent has taken advantage of transfer of development rights (for

short “TDR”) with reference to this project or is entitled to any TDR, the

benefit of the same shall be forfeited and if he has already taken the

benefit then the same shall either be recovered from him or be adjusted

against its future projects. The project proponent shall also pay a sum of

Rs 5 crores as damages, in addition to the above for contravening

mandatory provisions of environmental laws.

(emphasis ours)

29. Tested on the anvil of the aforesaid principle, the contention advanced

on behalf of RHYTHM that the compensation imposed in the present case

is excessive is wholly misconceived. Even if the benchmark of 5% is

applied to the total project cost of Rs. 3,35,00,00,000/-, the resultant

figure would far exceed the amount presently directed to be paid. In

fact, the compensation imposed in the instant case works out to barely

1.49% of the project cost. Such a measure, viewed in the backdrop of

the environmental transgressions found to have been committed, can

neither be characterised as arbitrary nor disproportionate, much less

unreasonable.

30. It is cardinal to note that while adjudicating the matter where RHYTHM

was a respondent, the NGT consciously adopted the project cost as the

24

relevant yardstick for quantification of environmental compensation.

Relying upon the principle enunciated by this Court in Goel Ganga

Developers India (supra), the NGT proceeded on the premise that

environmental compensation, in cases involving large-scale real estate

development undertaken in breach of statutory safeguards, ought not to

be illusory and, as a rule of prudence, should not fall below 1.5% of the

total project cost. In the present case, the admitted project valuation

being approximately Rs. 3,35,00,00,000/-, the NGT found the amount

of Rs. 2,39,53,125/-, as recommended by the Joint Committee to be

grossly inadequate to reflect the scale and impact of the violations. It

was in this backdrop, and in exercise of its remedial jurisdiction under

Sections 15 and 20 of the NGT Act, that the NGT enhanced the

compensation to Rs. 5,00,00,000/- in line with the dictum in Goel

Ganga Developers (supra), ensuring a rational nexus between the

economic magnitude of the project and the deterrent as well as

restorative objectives underlying the ‘polluter pays’ principle.

31. Furthermore, in our opinion, the jurisprudence of this Court, in fact,

lends credence to this statutory understanding. Apart from Goel Ganga

Developers (supra), this Court in Deepak Nitrite Ltd. (supra) while

reiterating the ‘polluter pays’ principle cautioned that compensation

must bear a broad and rational correlation with both the magnitude and

capacity of the enterprise as well as the harm caused. What the decision

holds is evident from the following paragraph:

6. The fact that the industrial units in question have not conformed with

the standards prescribed by CPCB, cannot be seriously disputed in these

25

cases. But the question is whether that circumstance by itself can lead to

the conclusion that such lapse has caused damage to environment. No

finding is given on that aspect which is necessary to be ascertained

because compensation to be awarded must have some broad correlation

not only with the magnitude and capacity of the enterprise but also with

the harm caused by it. Maybe, in a given case the percentage of the

turnover itself may be a proper measure because the method to be

adopted in awarding damages on the basis of “polluter-to-pay” principle

has got to be practical, simple and easy in application. The appellants also

do not contest the legal position that if there is a finding that there has

been degradation of environment or any damage caused to any of the

victims by the activities of the industrial units certainly damages have to

be paid. However, to say that mere violation of the law in not observing

the norms would result in degradation of environment would not be

correct.

(emphasis ours)

32. At this juncture, we also find it apposite to note that the aforesaid

exposition does not elevate turnover into an inflexible or universal metric

for the calculation of environmental compensation by giving a ruling in

emphatic terms. Rather, it recognises turnover as a permissible indicium

conditioned by the facts of a given case and the necessity of ensuring

that the compensation imposed is neither illusory nor disproportionate.

Where the scale of operations itself bears upon the extent of

environmental stress and the violator’s economic capacity, turnover may

legitimately inform the quantum, provided the NGT applies its mind to

the surrounding circumstances.

33. We are conscious that this Court in Research Foundation for Science

(18) v. Union of India

26

had the occasion to consider Deepak Nitrite

(supra). What was observed reads thus:

30. The observations in Deepak Nitrite Ltd. v. State of Gujarat that “mere

violation of the law in not observing the norms would result in degradation

of environment would not be correct” (SCC p. 408, para 6) is evidently

26

(2005) 13 SCC 186

26

confined to the facts of that case. In the said case the fact that the

industrial units had not conformed with the standards prescribed by the

Pollution Control Board was not in dispute but there was no finding that

the said circumstance had caused damage to the environment. The

decision also cannot be said to have laid down a proposition that in the

absence of actual degradation of environment by the offending activities,

the payment for repair on application of the polluter-pays principle cannot

be ordered. The said case is not relevant for considering cases like the

present one where offending activities have the potential of degrading the

environment. In any case, in the present case, the point simply is about

the payments to be made for the expenditure to be incurred for the

destruction of imported hazardous waste and amount spent for conducting

tests for determining whether it is such a waste or not. The law prescribes

that on the detection of PCBs in the furnace or lubricating oil, the same

would come within the definition of hazardous waste. Apart from polluter-

pays principle, support can also be had from Principle 16 of the Rio

Declaration, which provides that national authorities should endeavour to

promote the internalisation of environmental costs and the use of

economic instruments, taking into account the approach that the polluter

should, in principle, bear the cost of pollution, with due regard to the public

interests and without distorting international trade and investment.

34. Deepak Nitrite (supra) and Research Foundation for Science (18)

(supra) are decisions of coordinate Benches. Technically, both decisions

would bind us. However, the latter decision cannot be read as if it

overrules the former decision. Reading paragraph 30 of Research

Foundation for Science (18) (supra) on its own terms referring to

Deepak Nitrite (supra), it appears that “facts of that case” and “said

case is not relevant for considering cases like the present one” are

sufficient to draw the conclusion that Research Foundation for

Science (18) (supra) merely distinguished Deepak Nitrite (supra) and

did not overrule it.

35. Reliance placed by KEYSTONE on Benzo Chem Industrial (P) Ltd.

(supra) is misplaced. That decision turned on the NGT’s adoption of

conjectural revenue figures, absence of notice, and lack of nexus

between the amount imposed and environmental harm. It does not lay

27

down any proposition that the NGT lacks jurisdiction to award

compensation in the absence of subordinate legislation or a codified

formula, or even interdicted the employment of turnover or project cost

as a yardstick for environmental compensation. Releva nt paragraphs

from the said decision read as hereinunder:

10. We could have allowed the appeal on this short ground, however, the

further part of the order i.e. paragraph 15 makes an interesting reading.

The learned NGT held that the appellant is liable to pay environmental

damages. However, while computing the said damages, the only

methodology that has been adopted by the learned NGT is that as per the

information which is available in the public domain the revenue range of

the appellant is between 100 Crore to 500 Crore. It is therefore found that

the penalty of Rs. 25 Crore would be commensurated (sic, commensurate)

with the revenue. Firstly, there is a vast difference between 100 Crore and

500 Crore. Secondly, if the learned NGT had relied on the information

available in the public domain, then it would not be difficult for it to come

out with the exact figure. In any case, the generation of revenue would

have no nexus with the amount of penalty to b e ascertained for

environmental damages. It is further to be noted that the learned NGT

found the appellant to be guilty of violations, the least that was expected

from the NGT is to give a notice to the appellant before imposing such a

heavy penalty.

11. With deep anguish we have to say that the methodology adopted by

the learned NGT for imposing penalty is totally unknown to the principles

of law.

12. We are, therefore, inclined to quash and set aside the impugned

judgments and orders and allow these appeals. Ordered accordingly.

36. The observations made by this Court speak for themselves. Gauged on

the aforesaid anvil, the present case stands on a materially different

footing. The impugned determination does not rest on conjectural

figures sourced vaguely from the public domain, nor does it proceed

without notice or opportunity to the project proponent. Here, the NGT

has returned concurrent findings, based on Joint Committee reports and

contemporaneous material, that the appellants carried out construction

activities without requisite permissions, continued construction despite

28

a stop-work direction, and deviated from the sanctioned plan. These

findings have not been demonstrated to be perverse or unsupported by

evidence.

37. We are also not oblivious of the decision in C.L. Gupta Export Ltd. v.

Adil Ansari

27

where Benzo Chem Industrial (P) Ltd. (supra) was

followed and the compensation amount was set aside on the anvil of lack

of rational nexus with the pollution alleged. Apart from Benzo Chem

Industrial (P) Ltd. (supra), this decision too did not have the occasion

to either consider the earlier decisions or to delve deep into the issue as

to whether turnover of a polluting unit can at all be taken as a factor for

determining environmental compensation.

38. In any event, neither Benzo Chem Industrial (P) Ltd. (supra) nor C.L.

Gupta Export Ltd. (supra) is to be read as having laid down any law

that environment compensation can never be worked out based on the

project cost or the turnover of the defaulting unit.

39. Read harmoniously, Deepak Nitrite Ltd. (supra), Benzo Chem

Industrial (P) Ltd. (supra) and C.L. Gupta Export Ltd. (supra)

underscore a common principle that environmental compensation must

be rational, proportionate and reasoned. While turnover cannot be a

blunt instrument, at the same time, it cannot be excluded as a relevant

factor where the facts so warrant. The present determination falls within

the permissible zone delineated by this Court in Deepak Nitrite Ltd.

(supra), Goel Ganga Developers (supra) and Vellore District

27

2025 SCC OnLine SC 1812

29

Environment Monitoring Committee (supra) and it does not suffer

from the infirmities which weighed with the Court in Benzo Chem

Industrial (P) Ltd. (supra) and C.L. Gupta Export Ltd. (supra).

40. Much emphasis was laid on the methodology formulated by the CPCB

28

for computation of environmental compensation. A close reading of the

CPCB guidelines, however, reveals that they are neither of universal

application nor intended to operate as a rigid formula across all

categories of violations. The guidelines postulate an illustrative

computation, expressed as EC = PI × N × R × S × LF, where the

variables are designed to capture the pollution potential of an industrial

sector (Pollution Index)

29

, duration of violation

30

, scale of operation

31

,

locational sensitivity

32

and a deterrent monetary factor

33

. Significantly,

the very architecture of the formula is premised on categorisation of

industrial units into red, orange and green sectors, with assumed

pollution indices and minimum daily compensation thresholds, thereby

underscoring its sector-specific orientation. The relevant clauses of the

CPCB Guidelines read as follows:

1.5.1. To begin with, Environmental Compensation may be levied by CPCB

only when CPCB has issued the directions under the Environment

(Protection) Act, 1986. In case of a, b and c, Environmental Compensation

may be calculated based on the formula “EC = PI x N x R x S x LF”,

wherein, PI may be taken as 80, 50 and 30 for red, orange and green

category of industries, respectively, and R may be taken as 250. S and LF

may be taken as prescribed in the preceding paragraphs.

28

Report of the CPCB In-house Committee on Methodology for Assessing Environmental

Compensation

29

Variable ‘PI’

30

Variable ‘N’

31

Variable ‘S’

32

Variable ‘LF’

33

Variable ‘R’

30

1.5.2. In case of d, e and f, the Environmental Compensation may be levied

based on the detailed investigations by Expert Institutions/Organizations.

1.5.3. The Hon’ble Supreme Court in its order dated 22.02.2017 in the

matter of Paryavaran Suraksha Samiti and another v/s Union of India and

others (Writ Petition (Civil) No. 375 of 2012), directed that all running

industrial units which require “consent to operate” from concerned State

Pollution Control Board, have a primary effluent treatment plant in place.

Therefore, no industry requiring ETP, shall be allowed to operate without

ETP.

1.5.4. EC is not a substitute for taking actions under EP Act, Water Act or

Air Act. In fact, units found polluting should be closed/prosecuted as per

the Acts and Rules.

41. Clearly, Clause 1.5.1 limits the application of the formula to cases where

directions are issued by the CPCB under the Environment Protection Act,

1986

34

and only in respect of specified categories of violations. In

contradistinction, clause 1.5.2 expressly contemplates that in other

classes of cases, environmental compensation is to be determined only

after detailed investigation by expert institutions, with a focus on

remediation, restitution and site-specific measures. The guidelines

further clarify, in clause 1.5.4, that environmental compensation is not

a substitute for statutory action under the Air Act, Water Act or the

Environment Act. The cumulative reading of these provisions leaves no

manner of doubt that the CPCB framework is facilitative and indicative,

not prescriptive or exhaustive. It furnishes a structured reference to

inform regulatory and adjudicatory discretion, but does not fetter the

NGT’s authority to mould compensation in a manner commensurate with

the nature of the project, the gravity and duration of non-compliance,

and the overarching objective of environmental restitution under the

polluter pays principle. This conclusion stands further fortified by the

34

Environment Act

31

fact that the NGT itself applied the said methodology to determine while

determining environmental compensation, KEYSTONE had to bear.

42. The criticism, as levelled, that the NGT abdicated its adjudicatory

functions by mechanically adopting the report of the Joint Committee

does not withstand close scrutiny. The record unmistakably reveals that

the NGT was alive to the limited role of the expert bodies and consciously

undertook an independent assessment of liability and quantum. In the

case of KEYSTONE, the NGT expressly distinguished between violations

already subsumed under the one-time violation window, towards which

remediation and augmentation costs had been secured by way of a bank

guarantee of Rs. 1,76,00,000/- and distinct statutory infractions relating

to prolonged construction without CTE, continuation of work despite a

closure direction, and occupation without CTO. Likewise, in the case of

RHYTHM, the NGT did not accept the compensation recommended by the

Joint Committee at face value but examined the scale of the project, the

admitted deviations, the continuation of construction despite regulatory

restraint, and the overall project cost before consciously enhancing the

amount. These determinations were preceded by consideration of the

objections raised by the project proponents, including the challenge to

the applicability of the CPCB methodology. That the NGT ultimately

concurred with the Committee’s conclusions in part, or departed from

them so far as quantum is concerned, does not imply surrender of

judicial function; rather, it evidences an exercise of informed discretion,

wherein expert findings were gauged, filtered, and integrated into a

32

reasoned adjudicatory outcome. To characterise such an exercise as

abdication would be to conflate reliance on technical assistance with

absence of independent application of mind-a proposition that finds no

support either in law or on the facts of the present case.

43. Furthermore, it is true that in the matter involving KEYSTONE, the NGT

had adopted the Joint Committee’s quantification of Environmental

Compensation, which, in turn, had relied upon the CPCB’s methodology,

i.e. (EC = PI × N × R × S × LF=50 × 1909 × 250 × 1.5 × 1.25=Rs.

4,47,42,188/-). However, this has to be viewed through the prism of the

interpretive guidance furnished by this Court in Municipal Corporation

of Greater Mumbai v. Ankita Sinha

35

, in the following passages:

36. The laudatory objectives for creation of NGT would implore us to adopt

such an interpretive process which will achieve the legislative purpose and

will eschew procedural impediment or so to say incapacity. The precedents

of this Court, suggest a construction which fulfils the object of the Act.

[Sarah Mathew v. Institute of Cardio Vascular Diseases, (2014) 2 SCC

62, New India Assurance Co. Ltd. v. Nusli Neville Wadia, (2008) 3 SCC

279]. The choice for this Court would be to lean towards the interpretation

that would allow fructification of the legislative intention and is forward

looking. The provisions must be read with the intention to accentuate

them, especially as they concern protections of rights under Article 21 and

also deal with vital environmental policy and its regulatory aspects.

****

47. We have earlier discussed that NGT is empowered to carry out

restitutive exercise for compensating persons adversely affected by

environmental events. The larger discourse which informs such functions

is related to distributive and corrective justice, as will be elaborated in

later paragraphs. Even in the absence of harm inflicted by human agency,

in a situation of a natural calamity, the Tribunal will be required to devise

a plan for alleviating damage. An inquisitorial function is also available for

the Tribunal, within and without adversarial significance. Importantly,

35

(2022) 13 SCC 401

33

many of these functions do not require an active “ dispute”, but the

formulation of decisions.

****

72. As earlier seen, Section 20 of the NGT Act which includes the term

“decision”, in addition to “order” and “award”, also require the Tribunal to

apply the “precautionary principle” and the statutory mandate being

relevant is extracted:

****

73. The principle set out above must apply in the widest amplitude to

ensure that it is not only resorted to for adjudicatory purposes but also for

other “decisions” or “orders” to governmental authorities or polluters,

when they fail to “to anticipate, prevent and attack the causes of

environmental degradation” [Vellore Citizens' Welfare Forum v. Union of

India, (1996) 5 SCC 647, S. Jagannath v. Union of India, (1997) 2 SCC

87, Karnataka Industrial Areas Development Board v. C. Kenchappa,

(2006) 6 SCC 371]. Two aspects must therefore be emphasised i.e. that

the Tribunal is itself required to carry out preventive and protective

measures, as well as hold governmental and private authorities

accountable for failing to uphold environmental interests. Thus, a narrow

interpretation for NGT's powers should be eschewed to adopt one which

allows for full flow of the forum's power within the environmental domain.

44. Seen in this perspective, the NGT’s recourse to the CPCB methodology

for determination of environmental compensation imposed on KEYSTONE

cannot be said to be legally impermissible. N GT, though exercising

adjudicatory functions, is not confined to the narrow contours of

adversarial dispute resolution. Its statutory mandate extends to

restitution, corrective intervention and fact-finding, even in situations

where a conventional lis may not strictly arise. In such a framework, it

would be neither appropriate nor desirable to impose inflexible

limitations on the methodological tools available to the NGT. We are,

therefore, disinclined to circumscribe discretion of the NGT in adopting

structured and scientifically informed mechanisms, including the CPCB

34

framework, particularly while exercising its suo motu and restorative

jurisdiction under the Act.

45. Arguendo, if the total cost of KEYSTONE’S project in question which

admittedly is quantified at Rs. 76,00,00,000/- were taken as the

appropriate metric for determining proportionality, the environmental

compensation of Rs. 4,47,42,188/- would work out to approximately

5.88% of the project cost. Such quantification cannot be characterised

as excessive, particularly when viewed inter alia in the light of the dictum

in Goel Ganga Developers (supra), which treated 5% of the project

cost as a general guiding principle and not as an inflexible ceiling.

Equally, the adoption of the CPCB framework by the NGT, in the facts of

the present case, does not stand ousted merely because project cost

could also have been taken into account. On the whole, the statutory

discretion vested in the NGT to determine environmental compensation

on the basis of appropriate methodologies, including expert-driven and

guideline-based frameworks, remains intact and has been exercised in

a manner that is neither arbitrary nor disproportionate.

SUMMARY

46. We may now encapsulate the foregoing discussion thus:

46.1. With respect to RHYTHM, the NGT recorded clear findings of

construction without requisite statutory permissions, continuation of

work despite a stop -work direction and deviations from the

sanctioned plan, and, finding the compensation recommended by the

Joint Committee to be grossly inadequate, consciously adopted the

35

project cost as the relevant yardstick in line with Goel Ganga

Developers (supra) to enhance the environmental compensation to

Rs. 5,00,00,000/-, thereby ensuring a rational nexus between the

scale of the project and the objectives of deterrence and

environmental restitution. The NGT cannot be held to be divested of

its statutory authority to employ project turnover as a relevant

yardstick for the determination of environmental compensation.

46.2. This Court has consistently underscored that environmental

compensation must rest on a foundation of rationality, proportionality

and reasoned assessment. While project turnover or cost cannot be

applied mechanically as a blunt instrument, it nevertheless remains

a relevant and permissible factor where the factual matrix so

warrants. The determination of compensation, when undertaken

within this calibrated framework and guided by the parameters

delineated in Deepak Nitrite Ltd. (supra), Goel Ganga Developer s

(supra) and Vellore District Environment Monitoring Committee

(supra) does not attract the infirmities noticed in Benzo Chem

Industrial (P) Ltd. (supra) and C.L. Gupta Export Ltd. (supra),

and must, therefore, be sustained as falling within the permissible

zone of judicially recognised discretion.

46.3. Insofar as KEYSTONE is concerned, the NGT drew a clear distinction

between violations already subsumed under the one-time violation

window and separate statutory infractions relating to prolonged

construction without CTE, continuation of activities despite closure

36

directions and occupation without CTO, and, upon independent

consideration of the nature, duration and gravity of such violations,

accepted the Joint Committee’s computation based on the CPCB

methodology as an appropriate measure of environmental

compensation.

46.4. The CPCB framework, on a conjoint reading of Clauses 1.5.1, 1.5.2

and 1.5.4, makes it abundantly clear that the formula -based

methodology is confined to limited categories of violations arising

from directions issued under the Environment (Protection) Act, 1986,

and that in other classes of cases, the determination of environmental

compensation must be preceded by a detailed, site -specific and

expert-driven assessment with emphasis on remediation and

restitution. The guidelines, at the same time, expressly recognise that

such compensation is not a substitute for independent statutory

action under the Air Act, Water Act or the Environment Act. The CPCB

framework, therefore, operates as a facilitative and indicative tool,

and not as a rigid or exhaustive code.

46.5. In respect of both the appellants, the NGT proceeded on the basis of

contemporaneous material and expert inputs, afforded due

opportunity of hearing, applied its independent mind to the issues of

liability and quantum, and exercised its powers under Sections 15

and 20 of the NGT Act in a manner that is reasoned, proportiona te

and consistent with the polluter pays principle.

37

CONCLUSION

47. We, thus, find no ground to interfere with the impugned computation of

environmental compensation in both the appeals under consideration.

The appeals are without merit and, accordingly, stand dismissed.

48. Parties shall, however, bear their own costs.

49. Time to pay the amounts on account of compensation is exten ded by

three months from date.

……....…………………J.

(DIPANKAR DATTA)

…..………………………J.

(VIJAY BISHNOI )

NEW DELHI ;

JANUARY 30, 2026.