Supreme Court clarifies basis for computing environmental compensation based on project scale and turnover

1. Background of the civil appeals

Two civil appeals were decided together by the Supreme Court, arising from separate but similar proceedings before the National Green Tribunal, Western Zone Bench, Pune. Both matters concerned large real estate projects in Pune and allegations of substantial violations of environmental norms during construction and operation.

The core issue in both appeals was not whether there were violations—that had already been found by the National Green Tribunal (NGT)—but whether, and on what basis, the NGT could compute and enhance environmental compensation, particularly by referring to project cost or turnover, in the absence of a codified statutory formula.

The Supreme Court was called upon to examine the legality of the NGT’s approach in:

  • Rhythm County Vs Satish Sanjay Hegde & Ors. (M/s. Rhythm County – “RHYTHM”); and
  • The connected matter involving M/s. Key Stone Properties (“KEYSTONE”).

2. Facts relating to M/s. Rhythm County (Lead Appeal)

2.1 Project profile and regulatory history

RHYTHM, a partnership firm, launched a residential‑cum‑commercial development named “Rhythm County” at Autade Handewadi, Pune, within the jurisdiction of the Pune Metropolitan Regional Development Authority (PMRDA).

  • Environmental Clearance (EC) was granted on 27.11.2017 under the Environmental Impact Assessment Notification, 2006 for a total built-up area of 1,45,682.28 sq. m.
  • Construction began in 2018 after obtaining permissions under the EC and local sanctions.

RHYTHM maintained that all work was initially undertaken strictly in line with the sanctioned EC and approved plans.

2.2 Action by Maharashtra Pollution Control Board (MPCB)

On 31.01.2020, MPCB issued a show cause notice alleging that RHYTHM had commenced construction without valid statutory consents:

  • Consent to Establish (CTE) under the Water (Prevention and Control of Pollution) Act, 1974 and the Air (Prevention and Control of Pollution) Act, 1981 had not been obtained;
  • Construction had allegedly exceeded the authorised built-up area.

By order dated 06.07.2020, MPCB:

  • Refused CTE under the Water Act and Air Act, citing excess construction and lack of a revalidated consent; and
  • Issued a stop-work direction for the project.

Despite this, it was alleged that construction continued.

2.3 Proceedings before NGT and Joint Committee findings

A local resident (Respondent No. 1) approached the NGT via Original Application No. 14 of 2021 (WZ), asserting that RHYTHM had carried out substantial construction without appropriate EC and without fulfilling statutory requirements.

On 08.06.2021, NGT constituted a Joint Committee including representatives from competent authorities to:

  • Inspect the site;
  • Scrutinise records; and
  • Report on violations and compliance.

The Committee recorded, inter alia:

  • Deviations from the sanctioned plan, including a clubhouse of 431.91 sq. m. and associated commercial structures not covered under the original EC;
  • Continuation of construction activity even after MPCB’s stop-work order.

At the same time, later inspections and records showed that:

  • A conditional CTE was granted to RHYTHM by MPCB at a subsequent stage;
  • MPCB inspections later acknowledged compliance with certain environmental safeguards.

2.4 NGT’s decision in RHYTHM’s case

By order dated 22.08.2022, NGT held that:

  • RHYTHM had undertaken construction in violation of environmental norms;
  • It had operated without mandatory consents under the Water Act and Air Act; and
  • It had disregarded the stop-work direction issued by MPCB.

The Joint Committee had calculated environmental compensation at ₹2,39,53,125. However, NGT considered this insufficient, having regard to:

  • The total project cost, which was approximately ₹3,35,00,00,000; and
  • The principle that environmental compensation must correlate with the magnitude and impact of the project.

Referring to the principle laid down in M/s. Goel Ganga Developers India Pvt. Ltd. v. Union of India, NGT enhanced the environmental compensation to ₹5,00,00,000, payable to MPCB within two months. Additional directions were issued to SEIAA to strengthen monitoring and enforcement mechanisms.

RHYTHM challenged this order before the Supreme Court.

3. Facts relating to M/s. Key Stone Properties (Connected Appeal)

3.1 Project and violation regularisation

KEYSTONE developed a residential housing project at Survey No. 16/3, Punawale, Pune, consisting of multiple residential buildings.

The project:

  • Commenced construction prior to obtaining prior EC under the EIA Notification, 2006;
  • Later sought regularisation under the “violation” window created by notification dated 14.03.2017 and subsequent Office Memoranda of the Ministry of Environment, Forest and Climate Change (MoEF&CC).

SEIAA, Maharashtra granted post‑facto EC on 24.01.2020 subject to:

  • Preparation and execution of a remediation plan;
  • Implementation of a Natural and Community Resource Augmentation Plan;
  • Furnishing of a bank guarantee of ₹1,76,00,000 in favour of MPCB, which was submitted on 29.10.2021.

The project proponent submitted the remediation and augmentation plans to the District Collector, the Municipal Corporation and MPCB on 08.11.2021.

3.2 Consents under Water and Air Acts

KEYSTONE applied for:

  • CTE under the Water Act and Air Act; and
  • Subsequently, Consent to Operate (CTO).

Key milestones:

  • Initial refusal of consent for non-submission of bank guarantee;
  • CTE granted on 17.08.2020 upon compliance;
  • CTO granted on 01.02.2022 after site inspection and verification of pollution control systems.

3.3 Complaint before NGT and Joint Committee report

A resident filed Original Application No. 13 of 2021 before NGT on 13.01.2021, alleging environmental violations and absence of requisite consents and clearances.

On 08.06.2021, NGT constituted a Joint Committee comprising:

  • MoEF&CC;
  • Central Pollution Control Board (CPCB);
  • IIT Bombay; and
  • MPCB.

The Committee’s report dated 12.01.2022 recorded that:

  • EC had been granted under the violation-regularisation mechanism;
  • KEYSTONE had furnished a bank guarantee of ₹1,76,00,000;
  • Pollution control measures were in place;

but also recommended that additional environmental compensation be imposed, using the CPCB’s methodology for computation of environmental damage.

3.4 NGT’s decision in KEYSTONE’s case

By order dated 01.09.2022, NGT:

  • Upheld the validity of the EC granted under the 14.03.2017 notification and the violation window;
  • Held that the remediation‑linked bank guarantee of ₹1,76,00,000 adequately secured liabilities for violations considered during the EC regularisation process, so no further EC‑related compensation was required.

However, NGT found separate, serious statutory infractions, namely that KEYSTONE:

  1. Conducted construction without CTE between 05.06.2013 and 17.08.2020;
  2. Continued construction between 04.09.2019 and 17.08.2020 despite a closure notice;