The Supreme Court on Monday upheld the authority of Pollution Control Boards to impose environmental compensation and seek bank guarantees from polluting entities as part of their preventive and remedial powers under environmental law. [DPCC vs. Lodhi Property Co. Ltd. Etc.]

A Bench of Justices PS Narasimha and Manoj Misra held that such actions by State Boards under Section 33A of the Water (Prevention and Control of Pollution) Act, 1974 and Section 31A of the Air (Prevention and Control of Pollution) Act, 1981 are lawful and fall within their statutory powers.

While upholding the Boards’ powers, the Court made it clear that such authority must be exercised fairly and transparently.

“While we hold that the Boards have the power to direct the payment of environmental damages, we make it clear that this power must always be guided by two overarching principles. First, that the power cannot be exercised in an arbitrary manner; and second, the process of exercising this power must be infused with transparency,” the judgment said.

The Court was deciding a batch of appeals filed by the Delhi Pollution Control Committee against the judgment of the Delhi High Court which had restrained it from imposing compensatory environmental damages on real estate developers who had carried out construction without obtaining prior consent under the Water and Air Acts.

The High Court had held that such compensatory directions were in the nature of penalties and could not be issued by the Board without following the procedure prescribed under chapters VII and VI of the two statutes.

That top court on Monday set aside the same.

“We hold that the environmental regulators, the Pollution Control Boards, can impose and collect as restitutionary and compensatory damages fixed sums of monies or require furnishing bank guarantees as an ex-ante measure towards potential environmental damage in exercise of powers under Sections 33A and 31A of the Water and Air Acts,” the Supreme Court said.

It held that Pollution Control Boards can impose and collect as restitutionary and compensatory damages fixed sums of monies or require furnishing bank guarantees as an ex-ante measure towards potential environmental damage in exercise of powers under Sections 33A and 31A of the Water and Air Acts.

However, it has to be done after following the procedure under law and in tune with the principles of natural justice, the apex court clarified.

“It is further directed that the power to impose or collect restitutionary or compensatory damages or the requirement to furnish bank guarantees as an ex-ante measure under Sections 33A and 31A of the Water and Air Acts shall be enforced only after detailing the principle and procedure incorporating basic principles of natural justice in the subordinate legislation," the Court stated.

It distinguished such measures from punitive action and clarified that they are intended to serve a remedial and preventive function.

“There is a distinction between a direction for payment of restitutionary and compensatory damages as a remedial measure for environmental damage or as an ex-ante measure towards potential environmental damage on the one hand; and a punitive action of fine or imprisonment for violations under Chapters VII of the Water Act and VI of the Air Act on the other hand.”

The judgment stated that if such directions are issued to restore or prevent environmental harm, they are not to be considered punitive in nature.

The Bench referred to several earlier rulings and reaffirmed the applicability of the polluter pays principle in Indian environmental jurisprudence. It clarified that actual environmental degradation is not a prerequisite for demanding compensation; the potential of environmental harm is sufficient.

“The actual degradation of the environment is not a necessary condition for the application of polluter pays principle, as long as the offending activities have the potential of degrading the environment," the judgment said.

The Court also emphasised that boards can issue such directions even before damage occurs in order to avoid pollution.

The judgment also examined the scope of Sections 33A and 31A, which were introduced in 1988.

The Court observed that these provisions empower the Boards to issue binding written directions, including those relating to closure of industries or regulation of utilities.

“These regulators in exercise of these powers can impose and collect, as restitutionary or compensatory damages, fixed sum of monies or require furnishing bank guarantees as an ex-ante measure towards potential or actual environmental damage.”

The Court endorsed the view taken by the National Green Tribunal in Swastik Ispat Pvt Ltd, where the tribunal had upheld the use of bank guarantees as a lawful method of securing environmental compliance.

“We have no hesitation to hold that the Green Tribunal is correct in its approach,” the Court said.

On the 2024 amendments to the environmental statutes, which introduced adjudicating officers and decriminalised several offences, the Court clarified that these changes do not override the existing powers of the Boards to issue restitutionary directions.

“There is no conflict between the powers of the State Boards to direct payment of environmental damages under Sections 33A and 31A... and the powers of the Adjudicating Officer to impose penalties....The former is compensatory in nature... The latter is a penalty for an offence under the law and is imposed with the objective of punishing the offender," the Bench said.

The Court also called for codification of existing guidelines.

“Necessary subordinate legislation in the form of rules and regulations must be notified. This shall include methods by which environmental damage is determined, and the consequent quantum of damages are assessed.”

On the facts of the case, the Court declined to revive the 2006 show cause notices that had been quashed by the High Court, citing the passage of time and the concurrent findings of both the single-judge and Division Bench of the High Court.

The court stated that if certain amounts have been collected on the basis of the said show cause notices, they shall be returned by DPCC within a period of six weeks.

[Read Judgment]