COMPANY TURNOVER MAY BE CONSIDERED WHILE FIXING ENVIRONMENTAL DAMAGE COMPENSATION: SUPREME COURT:

The Supreme Court on Friday, January 30, held that the scale of a company’s operations including its turnover, production volume, or revenue generation can be a relevant and decisive factor in assessing environmental damage compensation. The ruling was delivered by a bench comprising Justice Dipankar Datta and Justice Vijay Bishnoi while upholding orders of the National Green Tribunal (NGT) imposing substantial penalties on real estate developers for environmental violations arising from illegal and unauthorised construction activities.

The appeals before the Court arose from separate NGT orders directing Rhythm County to pay ₹5 crore and Key Stone Properties to pay approximately ₹4.47 crore as environmental compensation for breaches of environmental laws during the execution of large residential projects in Pune. In determining the quantum of compensation, the NGT had taken into account the developers’ scale of operations and project costs.

Before the Supreme Court, the developers challenged the NGT’s approach, arguing that there was no statutory formula empowering the tribunal to quantify environmental compensation based on turnover or project cost. They contended that reliance on such factors was arbitrary and that the compensation framework evolved by the Central Pollution Control Board (CPCB), which is primarily tailored for industrial polluters, could not be extended to residential real estate projects. It was further alleged that the NGT had merely adopted Joint Committee reports without independent application of mind, thereby abdicating its judicial responsibility.

Rejecting these submissions, the Supreme Court affirmed that in environmental protection cases, linking the scale of a company’s operations to the extent of environmental harm is both logical and necessary. The Court reasoned that larger operations typically entail greater resource consumption, higher emissions, and increased waste generation, which collectively place greater stress on the environment. Where a company derives greater profit from its scale, it must correspondingly shoulder a higher responsibility for the environmental costs it imposes. Such an approach also serves as a deterrent by signalling that larger entities are expected to adhere to stricter environmental standards.

The judgment, authored by Justice Datta, noted that the NGT had consciously adopted project cost as a relevant benchmark for quantifying compensation and that this approach was consistent with established legal principles. The Court clarified that the CPCB framework does not exclude consideration of project cost or turnover, and its adoption does not become invalid merely because alternative metrics could also have been employed.

The Supreme Court placed reliance on its earlier decision in Goel Ganga Developers India Pvt. Ltd. v. Union of India (2018), where environmental compensation in the range of 5 to 10 percent of the project cost was approved for serious violations. Applying this precedent, the Court found that the penalties imposed on both Rhythm County and Key Stone Properties were well within the accepted benchmark and could not be characterised as excessive or disproportionate.

In the case of Rhythm County, the NGT had recorded clear findings of construction without mandatory statutory permissions, continuation of work despite stop-work orders, and deviations from sanctioned plans. Considering these factors, the tribunal enhanced the compensation by using project cost as the relevant yardstick to ensure a rational connection between the scale of the project and the objectives of environmental restitution and deterrence. The Supreme Court held that the NGT had acted well within its statutory authority.

With respect to Key Stone Properties, the Court noted that the NGT had distinguished between violations already covered under a one-time violation window and separate infractions involving prolonged construction without consent to establish, continuation despite closure directions, and occupation without consent to operate. Based on the nature, duration, and gravity of these violations, the NGT’s reliance on the CPCB methodology was found to be appropriate.

The Court reiterated that environmental compensation must be grounded in rationality, proportionality, and a reasoned assessment. While turnover or project cost cannot be applied mechanically, they remain permissible and relevant factors depending on the factual context. Finding no infirmity in the NGT’s approach and affirming adherence to the polluter pays principle, the Supreme Court dismissed the appeals and upheld the penalties imposed.