The Supreme Court has upheld the authority of Pollution Control Boards to impose environmental compensation and demand bank guarantees under the Water and Air Acts. The decision strengthens preventive action against polluters based on the “polluter pays” principle.
New Delhi: On August 4, the Supreme Court of India confirmed that State Pollution Control Boards (PCBs) and similar environmental regulators have the legal authority to demand environmental compensation and bank guarantees from companies or individuals that violate pollution laws.
The Court held that these powers are valid under Indian environmental laws, especially 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.
A two-judge Bench of Justices PS Narasimha and Manoj Misra gave this ruling in the case titled Delhi Pollution Control Committee vs. Lodhi Property Co. Ltd. & Ors., where the Court overturned a Delhi High Court judgment that had earlier restrained the Delhi Pollution Control Committee (DPCC) from imposing environmental compensation on real estate developers.
The Supreme Court made it clear that although Pollution Control Boards do have this power, it must be used responsibly and transparently.
The judgment clearly stated:
“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.”
Earlier, the Delhi High Court had said that such actions by the DPCC were like penalties and therefore required a detailed process under Chapters VI and VII of the Air and Water Acts. But the Supreme Court disagreed and set aside that decision.
The top court ruled that Pollution Control Boards can indeed act in advance to prevent environmental damage by demanding money as compensation or security through bank guarantees.
The Supreme Court observed:
“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.”
However, the Court added that the process must follow legal procedures and respect basic legal fairness.
“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 also highlighted the difference between these measures and penalties like fines or imprisonment. While fines are meant to punish, the Court said compensation or bank guarantees are to repair or prevent environmental damage.
The Court stated:
“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 made it clear that Pollution Control Boards can demand compensation even before actual damage happens, as long as there is a risk of environmental harm.
“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.”
In other words, even if the damage has not happened yet, boards can take action to stop it and secure compliance with environmental rules.
The Court examined the powers granted to Boards under Sections 33A and 31A of the respective Acts, which were added in 1988. These sections allow boards to issue strong directions, such as stopping operations or regulating services.
The Bench added:
“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 also referred to a previous case decided by the National Green Tribunal (NGT), Swastik Ispat Pvt. Ltd., where the Tribunal had supported the use of bank guarantees. The Supreme Court agreed with the NGT’s approach and observed:
“We have no hesitation to hold that the Green Tribunal is correct in its approach.”
On the recent 2024 amendments made to the environmental laws—where the government created the role of Adjudicating Officers and decriminalised many offences—the Supreme Court clarified that these changes do not take away the Boards’ powers to demand compensation.
The Court said:
“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.”
Further, the Court directed the government to create clear rules and procedures that will help Pollution Control Boards decide how to calculate environmental damage and how much compensation should be imposed.
“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.”
However, in the specific facts of this case, the Court refused to bring back the show cause notices issued by DPCC in 2006, which had been cancelled earlier by the High Court.
The Bench noted that too much time had passed and both the Single Judge and the Division Bench of the High Court had ruled against the notices.
Finally, the Court ordered that if DPCC had collected any money based on those cancelled show cause notices, it must return the amount within six weeks.
Case Title:
DPCC vs. Lodhi Property Co. Ltd. Etc.
Read Judgement:
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