Polluting Company's Turnover Can Be Relevant Factor To Determine Environment Damage Compensation : Supreme Court

The Supreme Court on Friday (January 30) observed that the company's scale of operation (like turnover, production volume, or revenue generation) can be a decisive factor in determining the environmental damage compensation.“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.”, observed a bench of Justices Dipankar Datta and Vijay Bishnoi, while upholding the National Green Tribunal's (NGT) decision to impose heavy penalties on the real estate developers for the environment damage caused due to their illegal and unauthorized construction.The appeals arose from separate orders of the NGT imposing compensation of ₹5 crore on Rhythm County and approximately ₹4.47 crore on Key Stone Properties for violations of environmental laws during the execution of large residential projects in Pune. The NGT took into consideration the developer's scale of operation to determine the compensation.Before the Supreme Court, the developers contended that the NGT lacked a statutory formula to quantify environmental compensation and could not arbitrarily rely on project cost or turnover. They argued that the Central Pollution Control Board's compensation formula, designed primarily for industrial polluters, was inapplicable to residential real estate projects. It was further alleged that the NGT had mechanically adopted Joint Committee reports, amounting to an abdication of its judicial function.Agreeing with the NGT's decision to determine compensation based on the developer's project cost, the judgment authored by Justice Datta observed:“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 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.”“the NGT consciously adopted the project cost as the relevant yardstick for quantification of environmental compensation.”, the court said, adding that “…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.”The Court relied on its earlier decision in Goel Ganga Developers India Pvt. Ltd. v. Union of India (2018), where compensation in the range of 5–10% of project cost was approved for flagrant violations. The penalties imposed on Rhythm County and Key Stone Properties were found to fall well within this benchmark and were held to be neither excessive nor disproportionate, the court said.“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 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.”, the court observed.Other conclusions drawn by the Court are:"1. 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 Developers (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.2. Insofar as KEYSTONE is concerned, the NGT drew a clear distinction between violations already subsumed under the one-time violation window and...

Polluting Company's Turnover Can Be Relevant Factor To Determine Environment Damage Compensation : Supreme Court

Yash Mittal

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