NGT Environmental Compensation Methodology: Supreme Court on Project Cost and CPCB Formula

Case Summary

• Case name: M/s. Rhythm County v. Satish Sanjay Hegde & Ors.; M/s. Key Stone Properties v. Shashikant Vithalkamble & Ors.

• Citation: 2026 INSC 102

• Date of judgment: 30 January 2026

• Bench: Honourable Justice Dipankar Datta; Honourable Justice Vijay Bishnoi

• Advocates: Mr Saurabh Mishra (for Rhythm County); Mr Dhruv Mehta (for Key Stone/Keystone); Ms Aishwarya Bhati, Additional Solicitor General (for Union of India)

• Statutes/instruments considered: Environmental Impact Assessment Notification, 2006; Environment (Protection) Act, 1986; Water (Prevention and Control of Pollution) Act, 1974; Air (Prevention and Control of Pollution) Act, 1981; National Green Tribunal Act, 2010 (Sections 15, 17 and 20); MoEF&CC office memoranda (one-time violation window); CPCB methodology/guidelines

• Key issues: Legality of construction without environmental statutory consents; applicability and legality of CPCB methodology for computing environmental compensation; scope of NGT’s powers to adopt turnover/project cost as a yardstick for environmental compensation

• Important cited precedents: Goel Ganga Developers India Pvt. Ltd. v. Union of India (2018) 18 SCC 257; Deepak Nitrite Ltd. v. State of Gujarat (2004) 6 SCC 402; Benzo Chem Industrial Pvt. Ltd. v. Arvind Manohar Mahajan (C.A. Nos. 9202–9203/2022); DPCC v. Lodhi Property Co. Ltd. (2025 SCC OnLine SC 1601); Municipal Corporation of Greater Mumbai v. Ankita Sinha (2022) 13 SCC 401; Research Foundation for Science v. Union of India (2005) 13 SCC 186; Vellore District Environment Monitoring Committee v. District Collector, Vellore (2025)

Introduction

This judgment addresses a pressing practical problem for environmental litigation in India: the manner in which the National Green Tribunal (NGT) may quantify environmental compensation when statutory instruments do not prescribe a rigid formula. For practising environmental counsel, planning authorities and project proponents, the decision clarifies the permissible compass of the NGT’s remedial discretion, the evidentiary status of expert and joint committee reports, and the continued relevance of established principles such as the polluter-pays, precautionary and sustainable development principles.

Factual and procedural backdrop

Two connected appeals — one by M/s Rhythm County and another by M/s Key Stone Properties — arose from Original Applications before the NGT alleging unauthorised or irregular construction, the absence of requisite consents under the Water and Air Acts and deviations from sanctioned plans. The NGT, acting on Joint Committee reports and its fact-finding mandate, imposed substantial environmental compensation: Rs. 5,00,00,000 for Rhythm and Rs. 4,47,42,188 for Keystone (the latter computed using the CPCB formula). Both appellants challenged the quantum and the legal basis for the formulaic approach to compensation.

Core legal questions and the Court’s approach

Two narrow but significant questions were identified: (i) whether the NGT could enhance compensation on the basis of project cost in the absence of a legislatively prescribed framework; and (ii) whether the NGT could adopt turnover or project cost as a relevant yardstick under Sections 15, 17 and 20 of the NGT Act. The Supreme Court answered both in the affirmative, subject to important caveats.

Statutory architecture and judicial reasoning

The Court grounded its reasoning firmly in the NGT Act. It relied on Section 15(1), emphasising the broad remedial palette available to the Tribunal: the statute authorises relief and compensation “as the Tribunal may think fit”. Equally important is Section 20, which requires the NGT to apply the principles of sustainable development, the precautionary principle and the “polluter pays” principle. The judgment reasoned that these statutory provisions contemplate a flexible, principle-driven exercise of discretion — not a rigid, one-size-fits-all formula.

On project cost and turnover as metrics

The Court accepted that turnover or project cost cannot be imposed mechanically as a universal yardstick, but it rejected absolutist arguments that these metrics are legally impermissible. Quoting and applying Goel Ganga Developers, the Bench recognised that the outer limit in some flagrant cases has been taken up to 5% of project cost as a yardstick for damages; the present enhancement for Rhythm (to Rs. 5 crores) worked out to roughly 1.49% of the project cost and therefore was neither arbitrary nor disproportionate. The Court reiterated the need for a rational nexus between scale of operation and quantum of compensation: “linking scale to impact sends a message that bigger players need to play by greener rules.”

On the CPCB methodology and role of expert committees

The Bench adopted a nuanced stance on the CPCB formula. It observed that the CPCB framework is facilitative and sector-specific: clauses in the CPCB report limit direct application of the PI × N × R × S × LF formula to specific industrial categories and situations where CPCB directions under the Environment (Protection) Act exist. Nevertheless, the Court held that the NGT need not be precluded from relying on structured, scientifically informed mechanisms when exercising its remedial jurisdiction, provided it applies its mind. The judgment underlined that expert or joint committee reports are admissible evidence and technical assistance; but they do not oust the Tribunal’s duty to independently evaluate the materials and reason the decision — the NGT must not accept committee findings mechanically.

What the judgment means in practice

For practitioners challenging NGT awards, the decision narrows certain lines of attack: (i) absence of subordinate legislation does not, by itself, render compensation invalid; (ii) project cost/turnover may legitimately inform quantum where a rational nexus is shown; (iii) reliance on expert methodology is permissible if the Tribunal demonstrates independent application of mind. Conversely, the judgment retains room for successful challenge where the NGT relies on conjectural figures, fails to afford notice on computation methodology, or neglects to connect the quantum to demonstrable harm or the defendant’s capacity.

Key takeaways and tactical implications for counsel

• When representing project proponents, focus on demonstrating absence of environmental harm, infirmities in the expert report, lack of procedural notice about computation methodology, and the failure to ensure a reasoned order relating project scale to quantum.

• When representing claimants, emphasise scale of operations, continuance of activity despite closure directions, deviations from sanctioned plans and the need for deterrence — situating those facts within a reasoned methodology will assist the NGT in withstanding appellate scrutiny.

• Administrative respondents (MPCB, SEIAA) should be prepared to justify remediation plans, the scope of bank guarantees, and the link between remedial costs and the compensation imposed.

Highlighted quotes

• “The Tribunal may, by an order, provide… relief and compensation to the victims of pollution and other environmental damage… as the Tribunal may think fit.”

• “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.”

• “Linking scale to impact sends a message that bigger players need to play by greener rules.”

Substantive extract from the judgment: "Statutory basis for compensation and the NGT’s discretion"

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.

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.

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.

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.

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.

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.

Concluding observations

The judgment reaffirms the NGT’s broad remedial remit while insisting on reasoned decision-making. It will be cited repeatedly in future challenges to environmental compensation orders. For practitioners, the ruling underscores two constants: the NGT’s discretion is wide but must be exercised with rationality and proportionality; and expert reports are valuable but not determinative. The Tribunal must articulate the reasoning which links the chosen metric to the harms and capacities at issue.