Environmental Compensation Must Not Be Illusory: Supreme Court Upholds NGT’s ₹5 Crore Penalty On Builder For Violating Environmental Laws

“Where Scale Of Operations Bears Upon The Extent Of Environmental Stress, Turnover May Legitimately Inform The Quantum Of Compensation” – Supreme Court of India, in a significant environmental law ruling, upheld the National Green Tribunal’s (NGT) imposition of environmental compensation on two real estate developers—M/s. Rhythm County and M/s. Keystone Properties—for executing large-scale construction projects in Pune without securing mandatory statutory clearances. The apex court dismissed the appeals filed by the developers, holding that compensation determined by the NGT, including an enhancement to ₹5 crores in Rhythm’s case, was neither arbitrary nor disproportionate and fell squarely within the Tribunal’s statutory discretion.

The judgment delivered by a Bench of Justice Dipankar Datta and Justice Vijay Bishnoi affirms the NGT’s wide remedial powers under Sections 15 and 20 of the National Green Tribunal Act, 2010 and reiterates that project cost or turnover may be employed as a relevant yardstick to ensure environmental compensation bears a rational nexus with the magnitude of harm and the economic capacity of the violator.

NGT Is Empowered To Mould Relief Using Project Turnover As Yardstick Where Violations Are Serious And Construction Is On A Large Scale

The Court opened its analysis by underlining the expansive powers conferred upon the NGT under Section 15(1) of the NGT Act to order compensation, restitution of property, and restitution of the environment. The Court observed:

“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.”

Rejecting the contention that environmental compensation must always be quantified through a rigid legislative formula, the Court made it clear that:

“The appellants’ arguments that the NGT is denuded of authority to quantify compensation in the absence of a legislatively prescribed or delegated formula… falters when tested against the plain statutory text.”

The Supreme Court held that where a project proponent is found to have continued construction despite stop-work orders, without Consent-to-Establish (CTE) or Consent-to-Operate (CTO) under the Air and Water Acts, it is legally permissible for the NGT to adopt project turnover as a basis for computing compensation.

Referring to Goel Ganga Developers India Pvt. Ltd. v. Union of India [(2018) 18 SCC 257], the Court reiterated that in appropriate cases, damages of up to 5% of the total project cost may be levied.

“The compensation imposed in the instant case works out to barely 1.49% of the project cost. Such a measure… can neither be characterised as arbitrary nor disproportionate, much less unreasonable.”

Construction Without Clearances and Continued Violations Despite Stop-Work Directions

The appeals arose from orders of the NGT passed in August and September 2022 in Original Applications filed by local residents alleging large-scale environmental violations by real estate developers in Pune.

In M/s. Rhythm County’s case, the project had commenced construction under an Environmental Clearance (EC) granted in 2017, but the Maharashtra Pollution Control Board (MPCB) later issued show-cause and closure notices for exceeding the permitted built-up area and failing to obtain necessary consents under the Air and Water Acts.

Despite the MPCB’s refusal to grant CTE and a stop-work direction dated 06.07.2020, the developer allegedly continued construction. A Joint Committee, appointed by the NGT, found that unauthorized construction including a clubhouse of 431.91 sq. m. had been carried out. Based on this, the NGT held that the violations stood established.

Although the Joint Committee had recommended a compensation of ₹2.39 crores, the NGT, applying the Goel Ganga precedent and considering the project’s total cost of ₹335 crores, enhanced the compensation to ₹5 crores to reflect a proportionate response.

Similarly, M/s. Keystone Properties was found to have constructed residential buildings without prior EC, carried out work between 2013 and 2020 without CTE, and handed over possession to occupants in 2016 without obtaining CTO. While the EC was subsequently regularised under the 2017 violation notification, the NGT distinguished these ongoing statutory violations as separate infractions warranting independent compensation of ₹4.47 crores.

Polluter Pays Principle: Compensation Must Be Deterrent and Proportionate to Capacity and Harm

Invoking the Polluter Pays Principle embedded in Section 20 of the NGT Act, the Supreme Court reasoned:

“Larger projects impose greater environmental stress and possess higher capacity to bear costs… Linking compensation with economic magnitude of project aligns with principles of sustainable development and polluter pays.”

Rejecting the challenge to the use of turnover as an index for compensation, the Court held:

“To contend that turnover can never form a relevant factor in quantifying compensation… is fallacious.”

The judgment distinguished earlier decisions such as Deepak Nitrite Ltd. v. State of Gujarat [(2004) 6 SCC 402] and Benzo Chem Industrial Pvt. Ltd. v. Arvind Manohar Mahajan, noting that those cases dealt with mechanical, conjectural or notice-less imposition of compensation without supporting material, which was not the situation here.

“Read harmoniously, Deepak Nitrite, Goel Ganga and Vellore District Environment Monitoring Committee underscore that compensation must be rational, proportionate and reasoned. Turnover may legitimately inform the quantum, provided the NGT applies its mind to the surrounding circumstances.”

CPCB Guidelines: Not Statutory, But NGT Can Use Them Where Factually Appropriate

Another key issue was the role of the CPCB's 2019 methodology for calculating environmental compensation, which Keystone had contested as inapplicable to residential projects.

The Court clarified:

“The CPCB framework is facilitative and indicative, not prescriptive or exhaustive… It furnishes a structured reference to inform discretion, but does not fetter the NGT’s authority to mould compensation.”

In Keystone’s case, the NGT had used the CPCB formula (EC = PI × N × R × S × LF) to compute compensation at ₹4.47 crores, which constituted 5.88% of the ₹76 crore project cost. The Court found no fault in this approach, noting that the NGT had exercised independent judgment and factored in site-specific violations.

“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.”

"Compensation Is Reasoned, Proportionate and Guided by Law"

Concluding its exhaustive judgment, the Court ruled:

“We find no ground to interfere with the impugned computation of environmental compensation… 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 in a manner consistent with the polluter pays principle.”

The Court granted the appellants an extension of three months to deposit the environmental compensation amounts with the MPCB and directed that parties bear their own costs.

Date of Decision: January 30, 2026