Holding

Compensation under the polluter‑to‑pay principle may be imposed only after a factual finding of environmental degradation or damage caused by the specific industrial unit, and the High Court must further investigate before fixing any quantum such as a turnover‑percentage.

Summary

The Supreme Court heard appeals against a Gujarat High Court order that required 252 chemical industries in the Nandesari industrial estate to pay 1% of their maximum annual turnover as compensation for alleged pollution. The High Court had found that the units violated Gujarat Pollution Control Board standards but had not made a specific finding that such violations caused environmental damage. The appellants argued that without a finding of degradation, the court could not impose a penalty or damages under the polluter‑to‑pay principle. The Supreme Court held that compensation can be awarded only when a factual finding of environmental degradation or harm caused by the specific unit is established, and that the High Court must further investigate this issue. It directed the High Court to re‑examine the matter, possibly using a turnover‑percentage formula, but emphasized that mere statutory breach is insufficient for damages. The appeals were dismissed.

Issues considered

The mere violation of GPCB standards, without a finding of actual environmental damage, suffices to award compensation under the polluter‑to‑pay principle.
Whether the High Court can impose a 1% turnover levy as compensation without a specific finding of degradation.
Whether compensation can be awarded as a penalty or fine without explicit statutory authority.
The appropriate method for quantifying compensation under the polluter‑to‑pay principle.
Whether the High Court's inquiry should be treated as a tort action or an action in public law.

Legislation cited

Environment (Protection) Act, 1986s. 3

Subjects

polluter to pay principleenvironmental compensationpublic interest litigationenvironmental lawdamage assessmentturnover percentageenvironmental degradationGujarat Pollution Control Boardenvironmental liability

Judgment

DEEPAK NITRITE LTD. A
V.

ST ATE OF GUJARAT AND ORS.

MAY 5, 2004

[S. RAJENDRA BABU, CJ. AND G.P. MATHUR, J.] B
Environment Protection:

Environment Protection Act, 1986: Section 3.

Pollution Control- "Polluter-to-pay principle-Applicability of- C
Held. Damages/compensation could only be awarded if it was proved that
1he damage to the environment was caused by the industrial unit or the
person concerned-However, to say that mere violation of the law in not
observing the norms ll"OU!d result in degradation of environment would not
be correct-Since there was no such finding, High Court directed to further D
investigate each of the cases-However, such investigation should not be
as if it were in tort but an action in public law-A broad conclusion in
this regard by the High Court would be sufficient.

Pollution Control- "Polluter-to-pay principle-Compensation-
Quantum of-Held: Compensation to be awarded must have some broad E
correlation not only with the magnitude and capacity of the enterprise but
also with the harm caused by it-May be, in a given case the percentage
of the turnover itself may be a proper measure because the method to be
adopted in awarding damages on the basis of 'polluter-to-pay' principle
has got to be practical, simple and easy in application-Doctrine- F
Polluter to pay principle.

A writ petition was filed before the High Court in public interest
alleging large-scale pollution caused by industries located in the
Gujarat Industrial Development Corporation Industrial Estate. It was
alleged that effluents discharged by the said industries into the effluent
G
treatment project had exceeded certain parameters fixed by the
Gujarat Pollution Control Board .
...
The High Court passed an order directing the industries to pay
I 'Yo of the maximum annual turnover of any of the preceding three H
49
50 SUPREME COURT REPORTS (2004] SUPP. 2 S.C.R.

A years towards compensation and betterment of environment within a
stipulated time. Hence the appeals.

Disposing of the appeals, the Court

B HELD: I. The fact that the industrial units in question have not
conformed to the standards prescribed by the Gujarat Pollution
Control Board (GPCB) cannot be seriously disputed in these cases. But
the question is whether that circumstance by itself can lead to the
conclusion that such lapse has caused damage to the environment. No
C finding is given on that aspect which is necessary to be ascertained
because compensation to be awarded must have some broad correlation
not only with the magnitude and capacity of the enterprise but also
with the harm caused by it. Maybe, in a given case the percentage of
the turnover itself maybe a proper measure because the method to be
adopted in awarding damages on the basis of'polluter-to-pay' principle
D has got to be practical, simple and easy in application. The appellants
also do not contest the legal position that if there is a finding that there
has been degradation of environment or any damage caused to any of
the victims by the activities of the industrial units certainly damages
have to be paid. However, to say that mere violation of the law in not
E observing the norms would result in degradation of the environment
would not be correct. [56-C-D]

2. The High Court is directed to further investigate in each of
these cases and find out broadly whether there has been any damage
•
F caused by any of the industrial units by their activities in not observing
the norms prescribed by the GPCB and that exercise need not be
undertaken by the High Court as if the present proceeding were an
action in tort but an action in public law. A broad conclusion in this
regard by the High Court would be sufficient. The High Court is,
therefore, directed to reexamine this aspect of the matter as to whether
G there is degradation of environment and as a result thereof any damage
is caused to any victim, and what norms should be adopted in the
matter of awarding compensation in that regard. In this process it is
open to the High Court to consider whether I% of the turnover itself
would be an appropriate formula or not as applicable to the present
H cases. [56-F-H; 57-AI
DEEPAK NITRITE LTD. v. STATE [RAJENDRA BABU, CJ.] 51
> CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1521 of A
2001.

From the Judgment and Order dated 26.3.97 and 9.5.97 of the Gujarat
High Court in C. Appln. No. 322/97 with C. Appln. Nos. 2108 and 2949/
97 in S.C. Appln. No. 2922 of 1995.
B
WITH

C.A. Nos. 1522, 1523, 1524, 1525-26, 1527, 1528 of 2001.

T.R. Andhyarujina (AC), R.F. Nariman, R.P. Bhatt, Maulin Raval, C
Ashish Chugh, Srikanta Doijode, Jay Savla, Ms. Reena Bagga, Ms.
Hemantika Wahi, Ms. Aruna Gupta, K.R. Sasiprabhu, Mrs. Manik
Karanjawala, H.S. Parihar, P.H. Parekh, E. R. Kumar, Sanand Ramakrishnan,
Vijay Panjwani, Aniruddha P. Mayee, Arvind Minocha, Anip Sachthey,
Shriniwas R. Khalap, F. Venu Kumar, Harshad V. Hameed, E.C. Agrawala, D
)
Sunil Dogra, Ms. Sayali Phatak, Chirag M. Shroff, M.N. Shroff and Ms.
Meenakshi Arora for the appearing parties.

The Judgment of the Court was delivered by

RAJENDRA BABU, CJ. : These appeals arise out of a series of E
orders made by the High Court of Gujarat. A petition was filed before the
High Court in public interest alleging large scale pollution caused by
industries located in the Gujarat Industrial Development Corporation
(GIDC) Industrial Estate at Nandesari. It is alleged that effluents discharged
by the said industries into the effluent treatment project had exceeded F
certain parameters fixed by the Gujarat Pollution Control Board (GPCB)
thereby causing damage to the environment. Some of the industries have
set up their own effluent treatment plants in their factory premises, while
some of them have not. The High Court, by an order made on 17.4.1995,
directed that the chemical industries in Nandesari should be made parties
to the proceedings thereby 252 industrial units located in the Nandesari G
Industrial Estate, Baroda were made parties to the proceedings, apart from
the State of Gujarat, Central Pollution Control Board, Gujarat Industrial
Development Corporation and Nandesari Industries Association. The High
· Court also issued notices to the financial institutions or banks in respect
of these proceedings. H
52 SUPREME COURT REPORTS [2004] SUPP. 2 S.C.R.

A On May 5, 1995 the High Court appointed a Comminee under the
Chairmanship of Dr. V.V. Modi to ascertain the position with regard to the
extent of pollution in Nandesari Industrial Estate. A Common Effluent
Treatment Plant (CETP) was erected by the GIDC in Nandesari Industrial
Estate on the contribution made by the industrial units in the Nandesari
B Industrial Estate to the extent of about Rs. 300 lakhs. Inasmuch as CETP
was not achieving the required parameters laid down by the GPCB, the
High Court, by an order made on 7.8.1996, appointed NEER! as a
consultant to assess the treatment facilities and to provide suitable
rectification measures for upgrading the CETP and effluent treatment plant
C facilities. Dr. Comminee made a report on 7.9.1996. The High Court
restrained several industries from removing their products from their plant
without prior permission of the High Court and thereafter, by an order
made on 13.9.1996, the High Court permined them to dispatch materials
by depositing a certain sum of money which was the value of the materials.
D NEER! submjned its report on 31.10.1996. The High Court, while granting
permission to some of the industries to carry on their activities, called for
turnover figures and profitability data. On 9.5.1997 the High Court passed
an order directing the industries to pay 1% of the maximum annual
turnover of any of the preceding three years towards compensation and
E benerment of environment within a stipulated time. It is against this order
that the appellants are before us.

The High Court in its impugned order followed a decision of th~
High Court of Gujarat in Pravinbhai Jashbhai Patel & Anr. v. State of
Gujarat & Ors., 36 Guj. Law Reports 1210, wherein it was noticed that
F the industrial units though aware of the requirements of law had not
complied with the same nor did they meet the GPCB parameters and they
were irresponsible in not wanting or caring to set up effluent treatment
plants but continued to manufacture and pollute the environment and the
concern shown now in meeting with the pollution control norms is only
G because of the threatened court order; that pollution caused by these
industrial units was adversely affecting large number of citizens residing
in the adjacent cities or villages; that in particular water and air pollution
is not only continued to the immediate area in which the pollution is
generated, but the same affects other areas as well wherever water or air
H went; that this Court in M. C Mehta v. linion of India, AIR (1988) SC I 03 7,
DEEPAKNITRITE LTD. v. STATE [RAJENDRA BABU, CJ.] 53
• Virender Gaur & Ors. v. State of Haryana & Ors., [ 1995] 2 SCC 577 and A
CERC v. Union of India, AIR (1995) SC 922, invoked the provisions of
Article 21 of the Constitution of India to declare that the citizens have a
fundamental right to live decently unaffected by pollution. After noticing
various contentions, the High Court took the view that 1% of the turnover
would be a good measure of assessing damages for the pollution caused B
by the industrial units and that amount should be kept apart by the Ministry
. of Environment and should be utilized for the works of socio-economic
uplift of the population of the aforesaid affected areas and for the
betterment of educational, medical and veterinary facilities and the betterment
of the agriculture and livestock in the said villages with certain additional
directions in this regard.
c
It is now submitted before us by the appellants that a court has no
power to either impose penalty or fine or make any levy for general
betterment unless the statute authorized the same; that, however, in
~ D
awarding damages it is permissible to make the same exemplary or penal;
that award of damages is way of restitution for the damage caused to
victi.ms and for restoration or restitution and for restoration of ecology by
way of punishment; that, unless a finding is given by the High Court that
there had been degradation of environment, question of restitution or
·awarding damages could not arise; that there is no finding of degradation E
of environment and, therefore, it is not open to the High Court to impose
1% of the turnover by way of damages. The appellants relied upon a
; decision of this Court in Ve/lore Citizens' Welfare Forum v. Union ofIndia
& Ors., [1996] 5 SCC 647, in support of this contention. Their argument
is that principle of 'polluter to pay' cannot be applied unless a finding has F
been given that the industrial unit concerned is the polluter. In what manner
pollution has been caused should have been ascertained, particularly when
a separate common effluent treatment plant had been erected and a channel
was provided through which water would flow into river which would
reach the sea thereby not causing any damage anywhere. They seek to bring G
about difference between Pravinbhai Jashbhai Patel's case (supra) and the
present proceedings to contend that in those cases there was direct evidence
of damage having taken place and by way of rule of thumb the High Court
adopted the standard of I% of turnover to be paid by way of damages and
that this principle cannot always uniformally be applied. They commend H
54 SUPREME COURT REPORTS (2004] SUPP. 2 S.C.R.

A us to apply the principle set out by this Court in Ve/lore Citizens' Welfare
Forum's case (supra) wherein principle of 'polluter to pay' has been
applied and wherein it is noticed that any principle evolved in this behalf
should be simple, practical and suited to the conditions obtaining in this
country; once the activity carried on is hazardous or inherently dangerous,
B the person carrying on such activity is liable to make good the loss caused
to any other person by his activity irrespective of the fact whether he took
reasonable care while carrying on his activity; consequently, the polluting ; '
industries are absolutely liable to compensate for the harm caused by them
to villagers in the affected areas, to the soil and to the underground water
C and hence, they are bound to take all necessary measures to remove sludge
and other pollutants lying in the affected areas; that the 'polluter pays
principle' as interpreted by this Court means that the absolute liability for
harm to the environment extends not only to compensate the victims of
pollution but also the cost of restoring the environmental degradation; that
D remediation of the damaged environment is part of the process of
sustainable development and as such the polluter is liable to pay the cost
to the individual sufferers as well as the cost of reversing the damaged
ecology.

Shri T.R. Andhyarujina, learned Senior Advocate, who assisted this
E Court as Amicus Curiae with great ability, explained to us the background
in which the High Court had passed the impugned order. He submitted that
the High Court had followed the earlier decision in Pravinbhai Jashbhai
Patel's case (supra) wherein standard of 1% of turnover was adopted for
closure of polluting units a:id payment of compensation by such units for
F polluting river and land; that the basis of this decision in that case was that
the polluting industrial units were not meeting GPCB norms and the
continued violation of the law by industrial units had become a habit; that
after elaborate discussion, the High Court had concluded that these
industries had caused pollution and, therefore, gave certain directions,
G including for closure of the industrial units until they observe GPCB norms;
that the directions given by the High Court regarding closure and payment
of compensation were complied with by the industrial units and this Court
did not interfere with the order made by the High Court, therefore, the
methodology adopted by the High Court in Pravinbhai Jashbhai Patel's
H case (supra) can be applied to other industrial units which are causing
DEEPAKNITRITELTD. v. STATE[RAJENDRABABU,CJ.] 55
~
pollution; that, after investigation made by the Committee or by an expert A
body there were reports that the industrial units were causing pollution by
not complying with the norms prescribed by GPCB and High Court, in fact,
noticed that a number of units have voluntarily agreed to pay 1% of the
turnover of a year out of the last three years and there was consensus
between all the industries and for betterment of environment, they voluntarily B
stated before the Court that 1% shall be paid; that one may say that even
.. some of the units having no treatment plant or having inadequate facilities
-1 appeared before the High Court stating that they would voluntarily stop
manufacturing till installation of proper treatment plant and were in a
position to discharge trade effluent meeting with GPCB norms. Thus, in
these cases, the High Court restrained firstly several industries from
c
removing their products from their plant without prior permission of the
High Court and thereafter, such units themselves suspended operation of
the polluting activities. The High Court, after having considered further
reports of the Committee; NEER! and GPCB permitted to restart activities D
on a trial basis and at the same time, directed that "with regard to 1%
payment an order will be passed after the details furnished by the learned
counsel. " The High Court thereafter adopted payment of 1% of the
turnover method as indicated in Pravinbhai Jashbhai Patel's case (supra).
He submitted that in these cases the High Court has through its investigation
either by Committee appointed by itself or expert agency like NEER! found
E
that the industrial units in question were polluting units and had not
conformed with the norms prescribed by GPCB and each of the units were
discharging effluents into the effluent channel project constructed by GIDC
which in turn discharged the effluents into the Mahi river which ultimately
reached sea. Thus the High Court had found that there was extensive F
environmental degradation as a result of the pollution because of the
violatioin of the pollution laws and on account of such damage, the High
Cowt ordered the payment of I% compensation as a one time payment for
pollution and damage for a number of years from 1993 to 1996. He further
submitted that in no case the High Court ordered compensation without G
giving a finding that there was environmental degradation and damage as
a result of violation of prescribed norms. He also adverted to various
.. decisions of this Court in MC. Mehta v. Union of lndia, [ 1987] I SCC
395, to suppott the proposition that the measure of compensation must be
co-related to the magnitude and capacity of the enterprise because such H
56 SUPREME COURT REPORTS (2004] SUPP. 2 S.C.R.
A compensation must have a deterrent effect and such damage not only
extends to restitution for the harm to the environment to compensate the
victims of the pollution but also cost of restoring the environment by
degradation. This Court reitera1ed the principle of .. polluter to pay" to the
effect that one of the principles is to levy damages of a certain percentage
B of total turnover and the right to a clean and hazard less environment has
been recognised as a fundamental right under Article 21 of the Constitution.
The Court has innovated new methods and strategies for the purpose of
securing enforcement of fundamental rights.

The fact that the industrial units in question have not conformed
C with the standards prescribed by GPCB cannot be seriously disputed in
these cases. But the question is whether that circumstance by itself can lead
to the conclusion that such lapse has caused damage to environment. No
finding is given on that aspect which is necessary to be ascertained because
compensation to be awarded must have some broad co-relation not only
D with the magnitude and capacity of the enterprise but also with the harm
caused by it. May be, in a given case the percentage of the turnover itself
may be a proper measure because the method to be adopted in awarding
damages on the basis of 'polluter to pay' principle has got to be practical,
simple and easy in application. The appellants also do not contest legal
E position that if there is a finding that there has been degradation of
environment or any damage caused to any of the victims by the activities
of the industrial units certainly damages have to be paid. However, to say
that mere violation of the law in not observing the norms would result in
degradation of environment would not be correct.

F Therefore, we direct the High Court to turther investigate in each of
these cases and find out broadly whether there has been any damage caused
by any of the industrial units by their activities in not observing the norms
prescribed by the GPCB as reported by the Modi Committee appointed by
the High Court or by an expert body like NEER! and that exercise need
G not be undertaken by the High Court as if the present proceeding is an
action in tort but an action in public law. A broad conclusion in this regard
by the High Court would be sufficient. We, therefore, direct the High Court
to re-examine this aspect of the matter as to whether there is degradation
of environment and as a result thereof any damage is cause.cl to any victim,
H and what norms should be adopted in the matter of awarding compensation
DEEPAK NITRITE LTD. v. STATE [RAJENDRA BABU, CJ.] 57

in that regard. In this process it is open to the High Court to consider A
whether I% of the turnover itself would be an appropriate formula or not
as applicable to the present cases.

We record our appreciation and gratitude to Shri T.R. Andhyarujina
in assisting this Court as Amicus Curiae. B
With these observations, these appeals stand disposed of.

v.s.s. Appeals disposed of.

•·