Supreme Court Says Company Turnover And Project Scale Can Be Considered For Environmental Compensation

The Supreme Court of India has upheld the use of a company's turnover and the scale of its operations as relevant factors while assessing environmental compensation, and refused to interfere with penalties imposed by the National Green Tribunal for environmental violations.

A Bench of Justices Dipankar Datta and Vijay Bishnoi, in a judgment delivered on January 30, held that the NGT committed no error of law in linking the economic scale of a project proponent with the magnitude of environmental harm. The Court rejected the argument that turnover can never be a valid consideration while quantifying 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,” the Court observed.

The case arose from two separate real estate projects in Pune undertaken by Rhythm County, a partnership firm, and Key Stone Properties. Both were found to have committed violations of environmental law.

In Rhythm County's case, the project had obtained environmental clearance, but the NGT found that construction went beyond sanctioned permissions. Work also continued despite stop-work directions issued by the pollution control authorities. Taking note of these violations and the overall project cost of about Rs 335 crore, the NGT enhanced the environmental compensation to ₹5 crore.

In the second case, Keystone Properties was found to have carried out construction for several years without obtaining consent to establish and consent to operate under environmental laws. Although post-facto environmental clearance was later granted under a one-time violation window, the NGT held that distinct violations relating to statutory consents still warranted compensation. It imposed Rs 4.47 crore, factoring in the duration and scale of the violations.

Before the Supreme Court, the developers argued that in the absence of a legislatively prescribed formula, the NGT could not rely on turnover or project cost as a benchmark. They contended that such an approach was arbitrary and lacked statutory backing.

The Court rejected these submissions. It held that the NGT Act confers wide remedial powers on the tribunal and does not mandate a rigid formula for determining environmental compensation. While turnover or project cost should not be applied mechanically as a blunt instrument, the Court clarified that such factors cannot be excluded where the facts show a clear nexus between the scale of operations and environmental harm.

Finding no perversity or legal infirmity in the tribunal's reasoning, the Supreme Court dismissed both appeals and affirmed the compensation imposed.