The Supreme Court of India has observed in two recent cases that factors such as scale of operations – including turnover, production volume and revenue generation – are powerful factors when determining the environmental compensation a liable company must pay.
The court heard two cases – M/s Rhythm County v Satish Sanjay Hegde & Ors (2022) and M/s Key Stone Properties v Shashikant Vithalkamble & Ors (2022) – which involved similar facts. The cases were appeals against judgments in the National Green Tribunal in Pune, Maharashtra state.
In both the cases, the appellants were observed to have violated environmental norms and began construction for residential projects without obtaining required permissions and/or clearances. The NGT reached this observation based on the findings of joint committees it established to inquire into the matters.
On 22 August 2022, Rhythm County was ordered to pay INR50 million (USD552,410) as compensation to the Maharashtra Pollution Control Board (MPCB). On 1 September 2022, Key Stone Properties was ordered to pay INR44.7 million to the MPCB.
Relying on M/s Goel Ganga Developers India Pvt Ltd v Union of India through the Secretary Ministry of Environment and Forests & Ors (2018), the NGT had applied the principle that environmental compensation must bear a reasonable nexus with the scale and impact of the project.
Before the Supreme Court, Rhythm argued of continued bona fide intent of complying with applicable environmental guidelines, uncertainties due to the stay of existing notifications and delays in site inspection visits for clearances due to the covid-19 lockdown in 2020. Rhythm also argued that its total built up area of 431.91 square metres fell within the statutory exemption.
It was also argued that the compensation amount was not only unjustified but the formula for devising the amount was applied wrongly.
Key Stone said the NGT order was not based on clear statutory moorings, was without cogent reasoning and did not reflect fairness. Relying on Delhi Pollution Control Committee v Lodhi Property Co Ltd (2025), Key Stone also argued that the formula to determine compensation in the matter was wrongly applied as it did not have the required legal sanctity, for which it must be incorporated statutorily.
Both Rhythm and Key Stone argued that the scale of their operations should not have any bearing on the compensation they were liable to pay.
They also argued that the NGT was not bound by the findings of the joint committee it established to investigate instances of possible environmental violations and to accept its recommendations without independent judicial scrutiny, and may be considered as supplanting or substituting adjudicatory functions of the NGT.
Key Stone relied on Kantha Vibhag Yuva Kohli Samaj Parivartan Trust and Others v State of Gujarat and Others (2022), to insist on the limitations of the joint committee’s role in a matter before the NGT.
However, the authorities argued that the NGT’s orders were based on facts and the applicable statutory framework, and that the violations by Rhythm and Key Stone were neither trivial nor technical, but a substantive departure from mandated safeguards, warranting the full amplitude of the polluter-pays principle.
While considering the submissions in both matters, the court observed that the plain text of the NGT Act empowers the tribunal to apply principles of sustainable development, the precautionary principle and the polluter-pays principle, in the manner it deems most suitable for restitution of the environment.
The court observed that neither the established law nor jurisprudence required a uniform formula for quantification of environmental compensation.
The NGT Act “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”.
The scale of operations of a company was observed to be an important factor to determine compensation as “bigger operations signify a bigger footprint. Larger scale often means more resource use, more emissions, more waste leading to more environmental stress”. The court observed that, “if a company profits more from its scale, it is logical that it bears more responsibility for the environmental costs.”
The court also held that considering turnover for determining environmental compensation was not being turned into an inflexible or universal metric, rather it was being recognised as a permissible indicium that would include the facts and circumstances of a given case.
Observing the application of the compensation formula and principles to be correct, the court dismissed both appeals.