M/S. Rhythm County vs. The Principal Secretary

REPORTABLE
2026 INSC 102
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. … RESPONDENTS


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.

T HE A PPEALS
1. The present civil appeals arise out of disposal of two separate original
1
applications by the National Green Tribunal, Western Zone Bench, Pune ,
Signature Not Verified
involving similar facts and circumstances. The orders of disposal are of
Digitally signed by
JATINDER KAUR
Date: 2026.01.30
17:47:43 IST
Reason:

1
NGT
1


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.
2
Rhythm County , challenging the order dated 22.08.2022 passed by the
NGT in Original Application No. 14 of 2021 (WZ). Vide the impugned
HYTHM
order, the NGT held that R had violated the environmental norms
and carried out construction without obtaining Environmental
3
Clearance , 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
4
Board .
3. The connected appeal is filed by another project proponent, i.e., M/s.
5
Key Stone Properties . 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 K EYSTONE had violated the environmental norms,
including raising construction without obtaining requisite permissions.
Like R HYTHM , K EYSTONE was directed to pay compensation in a sum of Rs.
4,47,42,188/- within two months to the MPCB.
F ACTUAL M ATRIX

4. The facts, which would be germane for the disposal of the present
appeals, are adumbrated as follows:

2
R HYTHM
3
EC
4
MPCB
5
K EYSTONE
2


L EAD A PPEAL

a. Appellant R HYTHM , a partnership firm, undertook a residential and
commercial construction project titled “Rhythm County” at Autade
Handewadi, Pune, within the jurisdiction of the Pune Metropolitan
6
Regional Development Authority . The project was granted EC on
7
27.11.2017 under the Environmental Impact Assessment
8
Notification, 2006 , permitting a total built-up area of 1,45,682.28
square metres. Upon issuance of requisite certificates, the
construction commenced in 2018.
HYTHM
b. R asserts that construction initially proceeded in conformity with
the EC and the sanctioned plans. On 31.01.2020, however,
9
Maharashtra Pollution Control Board 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
10
whereby the MPCB refused Consent-to-Establish under the Water
11
(Prevention and Control of Pollution) Act, 1974 and the Air
12
(Prevention and Control of Pollution) Act, 1981 , 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
3


c. Disputing these allegations, on 18.07.2020, R HYTHM applied for
modification of the EC before the State Level Environment Impact
13
Assessment Authority , 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
HYTHM
of 2021 (WZ), alleging that R 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
HYTHM
record indicates that R was subsequently granted a conditional
CTE by the MPCB and that later site inspections recorded compliance
with prescribed environmental safeguards.
C ONNECTED A PPEAL
e. In the connected appeal, appellant K EYSTONE is a developer
undertaking a residential housing project situated at Survey No.
16/3, Punawale, Pune, comprising multiple residential buildings.

13
SEIAA
4


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,
14
Forest and Climate Change 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
15
Operate was granted on 01.02.2022, after inspection and
verification of pollution control measures.

14
MoEF&CC
15
CTO
5


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 CPCB for computation of
environmental damage.
P ROCEEDINGS B EFORE THE NGT
5. In the matter involving R HYTHM , 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 R HYTHM ’s contention that
such consents were not required, holding that statutory compliance
could not be diluted on the basis of interpretative convenience and that
6


R HYTHM 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
16
Ganga Developers India Pvt. Ltd. v. Union of India 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.
EYSTONE
8. In the matter where K 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 K EYSTONE 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
7


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 K EYSTONE 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 possession 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, K EYSTONE 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.
UBMISSIONS ON BEHALF OF THE PPELLANT HYTHM IN IVIL PPEAL
S A / R C A
N O .7187 OF 2022
12. Mr. Saurabh Mishra, learned senior counsel appearing on behalf of
R HYTHM , submitted that R HYTHM 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
8


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.
HYTHM
12.1. It was urged that in conformity with the said notification, R 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 R HYTHM ’ 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
HYTHM
thereto, suo motu , R applied to the MPCB for CTE. It was
contended that despite R HYTHM 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 24.03.2020, 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, R HYTHM 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.
HYTHM
Pursuant thereto, R furnished a bank guarantee of Rs. 1,00,000,
as directed, and a restart permission was issued by the MPCB on
9


14.08.2021. Mr. Mishra contended that these material developments
were not accorded due consideration by the NGT while passing the
impugned order.
HYTHM
12.4. It was further contended that R was subsequently granted EC
by the SEIAA 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 Central Pollution
17
Control Board 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.

17
CPCB
10


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 R HYTHM ’ 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.

11


A RGUMENTS ON B EHALF OF A PPELLANT / K EYSTONE IN C IVIL A PPEAL N O .7974
OF 2022
13. Mr. Dhruv Mehta, learned senior counsel argued the appeal on behalf of
EYSTONE
K . 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 K EYSTONE , 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.
12


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
18
Gujarat & Ors. , 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 K EYSTONE .
Assuming arguendo that the CPCB methodology could be extended
to the present case, such application could arise only upon the

18
(2023) 13 SCC 525
13


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, demonstrates 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.
14


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.
19
13.13. Reliance was placed on DPCC v. Lodhi Property Co. Ltd. , 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.

19
2025 SCC OnLine SC 1601
15


13.15. It was submitted that the impugned demand of compensation against
K EYSTONE , 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
20
Mantri Techzone Pvt. Ltd. v. Forward Foundation & Ors. , 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 &
21
Ors . , 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
22
placed on Grasim Industries Ltd. v. State of Madhya Pradesh ,
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
16


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
23
Manohar Mahajan & Ors. , 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 routine or
mechanical manner.
13.21. It was argued that in Vellore District Environment Monitoring
24
Committee v. District Collector, Vellore , 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

23
C.A. No.9202-9203/2022
24
2025 SCC OnLine SC 207
17


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 K EYSTONE is
unsustainable.
S UBMISSIONS ON BEHALF OF THE R ESPONDENTS
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
18


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.
Q UESTIONS OF L AW
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
25
and 20 of the National Green Tribunal Act, 2010 , 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?
A NALYSIS
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
19


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.
20


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
21


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
22


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 R HYTHM 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 R HYTHM
was a respondent, the NGT consciously adopted the project cost as the
23


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
24


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
26
(18) v. Union of India 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
25


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 K EYSTONE 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
26


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. Relevant 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 be 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
27


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.
27
Adil Ansari 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
28


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).
28
40. Much emphasis was laid on the methodology formulated by the CPCB
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
29 30 31
sector (Pollution Index) , duration of violation , scale of operation ,
32 33
locational sensitivity and a deterrent monetary factor . 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’
29


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,
34
1986 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
30


fact that the NGT itself applied the said methodology to determine while
determining environmental compensation, K EYSTONE 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 K EYSTONE , 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
R HYTHM , 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
31


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 K EYSTONE , 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
35
of Greater Mumbai v. Ankita Sinha , 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
32


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 K EYSTONE
cannot be said to be legally impermissible. NGT, 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
33


framework, particularly while exercising its suo motu and restorative
jurisdiction under the Act.
45. Arguendo , if the total cost of K EYSTONE ’ 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.
UMMARY
S
46. We may now encapsulate the foregoing discussion thus:
46.1. With respect to R HYTHM , 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
34


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 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.
46.3. Insofar as K EYSTONE 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
35


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, proportionate
and consistent with the polluter pays principle.

36


C ONCLUSION
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 extended by
three months from date.


……....…………………J.
(DIPANKAR DATTA)




…..………………………J.
(VIJAY BISHNOI)
NEW DELHI;
JANUARY 30, 2026.

37