Polluting Company’s Turnover as a Relevant Factor to Determine Environmental Damage Compensation

Introduction

Environmental degradation has emerged as one of the most pressing challenges facing India today, with industrial pollution, unauthorized construction, and violations of environmental norms causing irreparable harm to ecosystems and public health. The question of how much polluters should pay for the damage they cause has been at the forefront of environmental jurisprudence in India. Recently, the Supreme Court of India has reinforced a crucial principle that the turnover and scale of operations of a polluting company can serve as a relevant factor in determining environmental damage compensation [1]. This landmark development marks a significant evolution in how environmental compensation is calculated and enforced, ensuring that larger enterprises with greater environmental footprints bear proportionate responsibility for their violations.

The legal framework governing environmental compensation in India has evolved significantly over the past three decades. The National Green Tribunal Act, 2010 [2], established a specialized judicial body to handle environmental disputes expeditiously, empowering it to award compensation and order restoration measures. However, the absence of a rigid statutory formula for quantifying compensation has led to debates about the appropriate methodology for determining the quantum of damages. The recent Supreme Court judgment in the Rhythm County case [1] has clarified that while project cost and turnover cannot be applied mechanically, they remain permissible and relevant factors when the factual circumstances warrant their consideration.

Evolution of the Polluter Pays Principle in India

The foundation of environmental compensation in India rests on the polluter pays principle, which was first explicitly recognized by the Supreme Court in the landmark case of Indian Council for Enviro-Legal Action v. Union of India in 1996 [3]. In this case, chemical industries operating in Bichhri village, Rajasthan, had caused severe pollution by discharging toxic waste into the soil and groundwater without obtaining the necessary clearances from the Rajasthan State Pollution Control Board. The Supreme Court held that industries engaged in hazardous activities are strictly and absolutely liable to compensate all those affected by their operations, and ordered the polluting industries to pay substantial compensation for environmental restoration.

This principle establishes that the party responsible for pollution should bear the costs of remediation and compensation. The Court emphasized that environmental costs together with costs to people and property must be embraced, including not just costs of damage control for pollution that has occurred but also costs of preventing pollution that can be prevented. The polluter pays principle does not suggest that polluters can simply pollute and compensate afterward; rather, it creates financial incentives for industries to prevent environmental damage in the first place.

The National Green Tribunal and Its Powers

The National Green Tribunal was established on October 18, 2010, pursuant to the National Green Tribunal Act, 2010, to provide effective and expeditious disposal of cases relating to environmental protection and conservation of forests and other natural resources. The establishment of the NGT was a response to the growing need for a specialized judicial body equipped with technical expertise to handle environmental disputes involving multidisciplinary issues.

Section 15 of the National Green Tribunal Act, 2010 [2], empowers the Tribunal to provide relief and compensation to victims of pollution and other environmental damage, order restitution of property damaged, and direct restoration of the environment. The provision states that the Tribunal may provide such relief “as the Tribunal may think fit,” indicating 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. Section 20 of the Act further provides that the Tribunal shall not be bound by the procedure laid down under the Code of Civil Procedure, 1908, but shall be guided by principles of natural justice, including the principles of sustainable development, the precautionary principle, and the polluter pays principle.

The wide, flexible, and principle-oriented powers conferred upon the NGT under these provisions allow it to adopt innovative approaches to quantifying environmental compensation. Rather than being confined to rigid formulas, the Tribunal can consider various factors including the magnitude of environmental harm, the scale of operations of the polluter, the project cost, turnover, and the need for deterrence to prevent future violations.

The Central Pollution Control Board Framework

To provide guidance in assessing environmental compensation, the Central Pollution Control Board developed a general framework for imposing Environmental Damage Compensation [4]. This framework operates on a case-by-case basis and establishes a formula for calculating compensation based on several factors including the Pollution Index of the industrial sector, the number of days the violation took place, a factor for compensation for environmental harm, a scale of operation factor, and a location factor.

The CPCB formula was accepted by the National Green Tribunal in its order dated August 28, 2019, in the case of Paryavaran Suraksha Samiti & Anr. v. Union of India & Ors. The formula provides an indicative framework that serves as a facilitative tool rather than a rigid or exhaustive code. It is particularly useful for industrial pollution cases where technical parameters can be measured and quantified. However, the Supreme Court has clarified that the CPCB framework does not oust the discretion of the NGT to adopt other relevant yardsticks such as project cost or turnover, especially in cases involving real estate developments or projects where the CPCB formula may not be directly applicable.

The Landmark Judgment in Goel Ganga Developers Case

A crucial precedent in the evolution of compensation methodology was established in the case of M/s. Goel Ganga Developers India Pvt. Ltd. v. Union of India, decided by the Supreme Court on August 10, 2018 [5]. In this case, the real estate developer had raised construction in violation of the Environmental Clearance granted for the project and in violation of municipal laws. The developer had constructed a significantly larger built-up area than what was permitted under the environmental clearance.

The Supreme Court imposed damages of Rs. 100 crores or 10% of the project cost, whichever was higher, on the project proponent. The Court approved the approach of linking compensation to the project cost, holding that damages could generally extend up to 5% of the total project cost for environmental violations, with more egregious violations warranting higher percentages. This judgment established an important benchmark that compensation in the range of 5-10% of project cost is appropriate for flagrant violations of environmental laws by real estate developers.

The Recent Supreme Court Decision: Rhythm County Case

The most recent and significant development came in the case of M/s. Rhythm County v. Satish Sanjay Hegde & Ors., decided in January 2025 [1]. The appeals arose from separate orders of the National Green Tribunal imposing compensation of Rs. 5 crore on Rhythm County and approximately Rs. 4.47 crore on Key Stone Properties for violations of environmental laws during the execution of large residential projects in Pune.

The developers challenged the NGT’s decision before the Supreme Court, contending 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.

A Bench comprising Justice Dipankar Datta and Justice Vijay Bishnoi dismissed the appeals and upheld the NGT’s approach. The Court observed that in cases relating to protection of the environment, linking a company’s scale of operations such as turnover, production volume, or revenue generation to the environmental harm can be a powerful factor for determining compensation. The Court explained that bigger operations signify a bigger environmental footprint, as larger scale often means more resource use, more emissions, and more waste, leading to more environmental stress.

The judgment emphasized that if a company profits more from its scale, it is logical that it bears more responsibility for the environmental costs. The Court stated that linking scale to impact sends a message that bigger players need to play by greener rules. However, the Court was careful to note that turnover and project cost cannot be applied mechanically as blunt instruments. Rather, they remain relevant and permissible factors where the factual matrix so warrants, and when applied within a calibrated framework guided by established principles.

Judicial Precedents and Consistency

The Supreme Court in the Rhythm County case harmonized its decision with previous judgments to maintain consistency in environmental jurisprudence. The Court distinguished cases where percentage of turnover had been held inappropriate from cases where such factors were permissible. In Deepak Nitrite v. State of Gujarat [6], the Supreme Court had held that compensation must have some broad correlation not only with the magnitude and capacity of the enterprise but also with the harm caused by it. The Court emphasized that arbitrary imposition of compensation based solely on turnover without assessing actual damage would be improper.

However, the Rhythm County judgment clarified that when the NGT proceeds on the basis of contemporaneous material and expert inputs, affords due opportunity of hearing, applies its independent mind to the issues of liability and quantum, and exercises its powers in a manner that is reasoned, proportionate and consistent with the polluter pays principle, the adoption of turnover or project cost as a relevant yardstick is entirely permissible.

The Court also relied on its decision in Vellore Citizens’ Welfare Forum v. Union of India (1996) [7], which had institutionalized the polluter pays principle into India’s environmental jurisprudence and linked it with sustainable development and the right to life under Article 21 of the Constitution. In that case, tanneries polluting the environment were compelled to compensate for ecological damage, establishing that environmental compensation is not merely about compensating victims but also about ensuring ecological restoration and sending a deterrent message to potential violators.

Principles Governing Environmental Damage Compensation

The Supreme Court has articulated several key principles that govern the determination of environmental compensation. First, environmental compensation must rest on a foundation of rationality, proportionality, and reasoned assessment. Courts and tribunals cannot impose compensation arbitrarily but must demonstrate a logical connection between the quantum imposed and the environmental harm caused or the scale of operations involved.

Second, the determination of compensation should be undertaken within a calibrated framework guided by established parameters and principles. While flexibility is essential given the diverse nature of environmental violations, consistency with legal precedents and adherence to foundational principles like the polluter pays principle is equally important.

Third, compensation should serve multiple objectives including remediation of environmental damage, compensation to affected persons, and deterrence to prevent future violations. The deterrent aspect is particularly important as it ensures that the cost of non-compliance exceeds the economic benefits that polluters might derive from violating environmental norms.

Fourth, the scale of operations and financial capacity of the polluter are relevant considerations. Larger enterprises with greater turnovers and more extensive operations typically have larger environmental footprints and greater capacity to bear the costs of environmental restoration. Linking compensation to scale ensures that penalties are meaningful and effective rather than being mere token amounts that fail to deter violations.

The Regulatory Framework: Environmental Laws

Environmental compensation in India operates within a robust regulatory framework consisting of several key statutes. The Water (Prevention and Control of Pollution) Act, 1974 [8], was one of the earliest environmental legislations, establishing Pollution Control Boards and creating mechanisms to prevent and control water pollution. The Air (Prevention and Control of Pollution) Act, 1981 [9], similarly addresses air pollution through regulatory controls and standards.

The Environment (Protection) Act, 1986, enacted in the wake of the Bhopal gas tragedy, is an umbrella legislation that empowers the Central Government to take measures for environmental protection. Sections 3 and 5 of this Act clothe the Central Government with powers necessary or expedient for protecting and improving the quality of the environment, including the power to impose the cost of remedial measures on polluting industries and to utilize the amounts so recovered for carrying out remediation work.

The Forest (Conservation) Act, 1980, regulates the diversion of forest land for non-forest purposes, while the Biological Diversity Act, 2002, addresses the conservation of biological diversity. All these statutes are specified in Schedule I of the National Green Tribunal Act, 2010, and violations under these acts can be adjudicated by the NGT with appropriate compensation orders.

Practical Application and Challenges

While the legal framework for environmental compensation is robust, practical challenges remain in its implementation. One significant challenge is the assessment of actual environmental damage, which often requires complex scientific studies and expert evaluations. The NGT frequently constitutes expert committees comprising scientists, engineers, and environmental specialists to assess the extent of damage and recommend appropriate compensation.

Another challenge is ensuring that compensation amounts are not so low as to be ineffective as deterrents, nor so high as to be disproportionate to the actual harm caused. The Supreme Court has emphasized that penalties imposed on Rhythm County and Key Stone Properties, which worked out to only 1.49% and a similar small percentage of their respective project costs, fell well within the benchmark of 5-10% of project cost approved in the Goel Ganga Developers case, and could not be termed excessive or disproportionate.

The issue of enforcement also remains critical. Even after compensation is quantified, ensuring timely payment and actual implementation of restoration measures requires vigilant monitoring. The Supreme Court in several cases has directed attachment of assets and cancellation of licenses for non-compliance with compensation orders, demonstrating that environmental compensation orders must be enforced with the same rigor as any other judicial decree.

Conclusion

The recent affirmation by the Supreme Court that a polluting company’s turnover can be a relevant factor in determining environmental damage compensation represents a mature and nuanced approach to environmental justice. By recognizing that scale of operations correlates with environmental impact and responsibility, the Court has provided a framework that balances flexibility with accountability.

This approach ensures that larger enterprises with greater environmental footprints and larger turnovers bear commensurate responsibility for their violations, while still maintaining the requirement for reasoned assessment and proportionality. The judgment reinforces the polluter pays principle as a cornerstone of environmental law in India and sends a clear message that economic might cannot shield polluters from bearing the true costs of environmental degradation.

As India continues to grapple with the dual challenges of economic development and environmental sustainability, the jurisprudence on environmental compensation will play a crucial role in shaping corporate behavior and ensuring that environmental costs are internalized rather than externalized to society. The framework established by the Supreme Court, which allows consideration of turnover and project costs within a principled and calibrated approach, provides the necessary tools for the National Green Tribunal and other judicial bodies to ensure that environmental justice is not merely symbolic but substantive and effective.

References

[1] M/s. Rhythm County v. Satish Sanjay Hegde & Ors., Civil Appeal No. 7187 of 2022, Supreme Court of India (2025) – https://www.livelaw.in/supreme-court/polluting-companys-turnover-can-be-relevant-factor-to-determine-environment-damage-compensation-supreme-court-521360

[2] National Green Tribunal Act, 2010 – https://www.indiacode.nic.in/handle/123456789/2025

[3] Indian Council for Enviro-Legal Action v. Union of India, AIR 1996 SC 1446 – https://indiankanoon.org/doc/1818014/

[4] Central Pollution Control Board, General Framework for Imposing Environmental Damage Compensation (2017) – https://cpcb.nic.in/openpdffile.php?id=TGF0ZXN0RmlsZS8zNjBfMTY3MTc5MjY0NF9tZWRpYXBob3RvMjk1MjYucGRm

[5] M/s. Goel Ganga Developers India Pvt. Ltd. v. Union of India, Civil Appeal No. 10854 of 2016, Supreme Court of India (2018) – https://indiankanoon.org/doc/63473709/

[6] Deepak Nitrite Ltd. v. State of Gujarat (2004) 6 SCC 402 – https://indiankanoon.org/doc/1485003/

[7] Vellore Citizens’ Welfare Forum v. Union of India (1996) 5 SCC 647 – https://indiankanoon.org/doc/1934103/

[8] Water (Prevention and Control of Pollution) Act, 1974 – https://www.indiacode.nic.in/handle/123456789/1644

[9] Air (Prevention and Control of Pollution) Act, 1981 – https://www.indiacode.nic.in/handle/123456789/1711