Proportionality in Compensation Principle under Environment Law

Source: Supreme Court  

Why in News? 

Recently, the bench of Justices PS Narasimha and Manoj Misra upheld that Pollution Control Boards are empowered to impose environmental compensation under Sections 33A of the Water Act and 31A of the Air Act for actual or imminent environmental harm.  

• The Supreme Court held this in the matter of Delhi Pollution Control Committee v. Lodhi Property Co. Ltd. Etc. (2025). 

What was the Background of Delhi Pollution Control Committee v. Lodhi Property Co. Ltd. Etc, Case ? 

• Following directions from the Ministry of Environment, Forest and Climate Change, DPCC issued show cause notices to multiple commercial complexes, shopping malls, and residential properties for operating without mandatory "consent to establish" and "consent to operate" under Water Act Section 25 and Air Act Sections 21-22. As enforcement measures, DPCC demanded fixed monetary compensation and bank guarantees as preconditions for granting environmental consent certificates.  
• The affected entities filed 38 writ petitions before Delhi High Court challenging DPCC's statutory authority to impose such monetary requirements. 
• The Single Judge in Splendor Landbase Ltd. v. DPCC (2010) ruled that DPCC lacked statutory power to levy compensatory damages, holding that penalty imposition constituted penal action exclusively within court jurisdiction under prescribed procedures in penalty chapters.  
• Similar decisions in Bharti Realty Ltd. v. DPCC and Anush Finlease cases (2011) consistently held that Boards possessed no authority to collect compensatory damages. 
• The Division Bench (2012) upheld these findings, confirming that Sections 33A and 31A conferred no penalty-levying powers, declaring DPCC's monetary demands ultra vires and ordering refund of collected amounts while prohibiting further enforcement of the challenged notices. 

What were the Court’s Observations? 

• Supreme Court observed that Pollution Control Boards possess extensive statutory mandates under Water and Air Acts, with Section 17 conferring broad responsibilities including pollution control planning, advisory functions, inspection powers, and preventive measures implementation. 
• The 1988 amendments introducing Sections 33A and 31A specifically empowered Boards with significant directive authority, including explicit powers to order industry closure, prohibition, regulation, and essential service stoppage, thereby strengthening enforcement capabilities against environmental violations. 
• The Court established a fundamental legal distinction between punitive actions involving fines or imprisonment for statutory offences requiring strict judicial procedures, and compensatory or restitutionary actions focusing on environmental restoration, remedial measures, and future harm prevention without mandatory court intervention. Court emphasized that constitutional provisions under Article 48A (environmental protection) and Article 51A (fundamental duties) create binding imperatives for environmental regulators, noting that State's constitutional obligation to protect environment remains incomplete without corresponding institutional duty to secure environmental restitution. 
• The Court ruled that Sections 33A and 31A require expansive judicial interpretation to enable effective environmental protection, stating that restrictive interpretation would significantly encumber Boards' ability to discharge statutory duties and constitutional environmental protection obligations. Court noted that recent 2024 amendments including decriminalization and Adjudicating Officer introduction don't conflict with Boards' compensatory powers, maintaining clear distinction between restoration measures and penalty procedures.  
• While affirming compensatory powers, Court mandated procedural safeguards including non-arbitrary decision-making, natural justice incorporation, transparent damage assessment criteria, and proper subordinate legislation framework for power exercise. 

Which landmark cases did the Supreme Court uphold to affirm the authority of Pollution Control Boards to impose environmental compensation? 

• Supreme Court upheld Indian Council for Enviro-Legal Action v. Union of India (1996), which established Polluter Pays principle as fundamental component of Indian environmental jurisprudence, recognizing that responsibility for environmental damage repair rests with offending industry and that Central Government possesses power to impose remedial costs on polluting entities under Environment Protection Act provisions. 
• Court relied upon Vellore Citizens Welfare Forum v. Union of India (1996), which expanded environmental liability to encompass both compensatory aspects for pollution victims and restorative aspects for environmental degradation reversal, establishing remediation as integral component of sustainable development and confirming polluter liability for both individual compensation and ecological restoration costs. 
• Court endorsed National Green Tribunal's decision in State Pollution Control Board, Odisha v. M/s Swastik Ispat Pvt Ltd (2014), which correctly distinguished between punitive penal actions and compensatory environmental measures, specifically recognizing bank guarantee requirements for environmental compliance as compensatory rather than punitive regulatory tools, thereby validating Board authority for such enforcement mechanisms. 
• Court referenced Research Foundation for Science v. Union of India (2005), which comprehensively expanded Polluter Pays principle beyond damage remediation to include pollution prevention costs, environmental risk avoidance expenses, and full environmental cost internalization, establishing that principle encompasses both reactive damage response and proactive harm prevention measures. 
• Court upheld T.N. Godavarman Thirumulpad v. Union of India (2025), which clearly separated legal proceedings against environmental law violators from distinct measures required for environmental damage restoration, emphasizing that violation prosecution and ecosystem restoration constitute independent legal processes requiring different approaches and remedies, ultimately supporting the appeals while establishing Board authority for environmental compensation under statutory mandate. 

How does the Polluter Pays Principle Apply under Indian environmental law? 

• Principle I - Two Different Types of Legal Actions  
  • Environmental law separates two kinds of actions:  
    (1) making polluters pay to fix damage or prevent future harm (compensatory), and  
    (2) punishing violators with fines or jail time (punitive). These are handled differently - compensation doesn't require the same strict court procedures as criminal punishment, but both protect the environment effectively. 
• Principle II - Compensation is Not Punishment  
  • When environmental authorities order companies to pay for environmental restoration or compensation, this is considered fixing a problem, not punishing a crime.  
  • Real punishment can only happen through formal court processes with proper legal procedures, while compensation orders work separately from the criminal justice system. 
• Principle III - "Polluter Pays" Rule  
  • Indian environmental law follows the international rule that polluters must pay for environmental harm in three situations:  
    (1) when they exceed pollution limits and cause measurable damage, 
    (2) when damage occurs even if they stayed within limits, and  
    (3) when there's a reasonable risk of future environmental harm, allowing authorities to act before damage happens. 
• Principle IV - Duty to Prevent Harm  
  • Environmental regulators must take action to prevent environmental damage - they don't have to wait for actual harm to occur.  
  • They can and should act proactively under the law to address potential threats before they become real problems, protecting public health and the environment. 
• Principle V - Equal Powers at All Levels  
  • State Pollution Control Boards have the same legal authority as the Central Government when it comes to environmental protection.  
  • Both can issue binding orders requiring polluting industries to pay money for environmental remedial measures, ensuring consistent environmental protection regardless of which level of government is involved.