The term ‘compensation’ has been legally defined by the Hon’ble Supreme Court to be a return for loss or damage sustained. The Court expressly states that compensation must always be just, and not based on a whim or arbitrary.
Environmental compensation refers to payment of monetary reparation by industries, imposed by authorities and judicial bodies for violating environmental rules and regulations. The imposition of environmental compensation on industry finds its basis in the key environmental law principle of ‘Polluter Pays.’ The Polluter Pays Principle, simply put, makes the offending industry responsible for the damage caused to the environment and to human health. In the 1990s, the Hon’ble Supreme Court of India began relying heavily on this principle to order industries to pay environmental compensation for breach of environmental regulations. 
The present article traces the concept of environmental compensation, its evolution and treatment by the Indian courts.
The Hon’ble Supreme Court’s Jurisprudence on Environmental Compensation in the 1990s and early 2000s
In the landmark 1996 judgment of Vellore Citizens’ Welfare Forum v. Union of India, the Hon’ble Supreme Court while looking at international jurisprudence on the principles of Sustainable Development, Polluter Pays Principle, and the Precautionary Principle, held that the right of industries to develop go hand in hand with protection of the environment. The Hon’ble Supreme Court also noted that the principle of Sustainable Development would be violated if there were a substantial adverse ecological effect caused by that industry. Polluting industries were therefore held liable to pay compensation to those affected. Thus, Environmental harm became the basis for affixing liability for payment of compensation, and could be seen in a number of cases at the time.
In Deepak Nitrite v. State of Gujarat, the Hon’ble Supreme Court categorically held that there needs to be a finding of damage and “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”. This judgment laid down the foundation of Polluter Pays Principle by clarifying that the Hon’ble Supreme Court was not inclined to hold an industry accountable for compensation unless there was a clear finding of environmental harm.
The Role of the National Green Tribunal in Determining Environmental Compensation
The establishment of the National Green Tribunal (“NGT”) in 2010 pursuant to the National Green Tribunal Act, 2010 marked the starting of a new era for environmental law in India. The NGT as a specialised forum was dedicated solely to such matters. The Hon’ble Supreme Court recently discussed the jurisdiction of the NGT in the judgment of Municipal Corporation of Greater Bombay v. Ankita Sinha, and discussed the categorisation of statutory tribunals into four subheads, namely, i) Administrative Tribunals under Article 323A; ii) Tribunals under Article 323B; iii) Specialised sector Tribunals and; iv) Tribunals to safeguard rights under Article 21. It was held that NGT falls under the fourth category by safeguarding the right to life, “creating a compelling proposition for wielding much broader powers as delineated by the statute”. Therefore, the powers of the NGT are very wide.
There is no range / formula specified in the NGT Act regarding determination / calculation of environmental compensation. As per Section 20 of the NGT Act, the NGT is merely to be bound by principles of Sustainable Development, Precautionary Principle and Polluter Pays Principle while determining environmental compensation.
In Paryavaran Suraksha Samiti and Another v. Union of India and Others, the Hon’ble Supreme Court passed an order dated 22.02.2017 directing state governments to set-up Sewage Treatment Plants within specified timelines. In turn, the NGT issued an order on 06.12.2018 in the matter of Court of its own motion v. State of Karnataka noting the failure of states in effectively implementing waste treatment mechanisms. Thereafter, it directed the CPCB to “lay down specific guidelines to deal with the same, throughout India, including the scale of compensation to be recovered from different individuals/authorities, in addition to or as alternative to prosecution. The scale may have slabs, depending on extent of pollution caused, economic viability, etc. Deterrent effect for repeated wrongs may also be provided.” Furthermore, the Principal Bench of the NGT vide order dated August 31, 2018, in the matter of Paryavaran Suraksha Samiti & Anr. Vs. Union of India & Ors. observed that “CPCB may also assess and recover compensation for damage to the environment and said fund may be kept in a separate account and utilized in terms of an action plan for protection of the environment. Such action plan may be prepared by the CPCB within three months”. Accordingly, the CPCB in its report published on July 15, 2019 laid down the formula for computation of environmental compensation. The formula for computing environment compensation was accepted by the NGT vide its order dated August 28, 2019 in Paryavaran Suraksha Samiti & Anr. v. Union of India & Ors. The formula is:
EC = PI x N x R x S x LF
In the above stated formula, EC stands for Environmental Compensation in INR, PI stands for Pollution Index of industrial sector, N stands for Number of days the violation took place, R stands for a factor in INR (₹) for compensation for the environmental harm caused by the industry, S stands for factor for scale of operation and LF stands for location factor.
While the CPCB and State Pollution Control Boards (SPCB) largely appeared to be following this formula, the NGT itself took various extraordinary approaches towards determining environmental compensation. It appears that NGT has primarily adopted two methods for imposition of environmental compensation: a) levying 5-10% of the project cost as environmental compensation if it finds the industry to be defaulting; or b) using a percentage of the annual turnover of the industry as the method for determining environmental compensation.
The NGT in its orders has often referred to Goel Ganga Developers India Pvt. Ltd. v. Union of India; M. C. Mehta v. Union of India, and Sterlite Industries (India) Ltd. v. Union of India, while awarding environmental compensation running into several crore, citing these judgments as precedent. These cases, however, arise of egregious harm caused to both people and environment, including death, as a direct consequence of violations of the concerned industry. Recently, however, appeals from several matters where environment compensation was imposed by NGT are pending before the Hon’ble Supreme Court.
Punitive and Detrimental Environmental Compensation
A question that often arises for consideration is whether or not environmental compensation ought to be punitive in nature, and if so, under what circumstances.
Environmental compensation that is penal in nature has been allowed by the Hon’ble Supreme Court in cases where the same is in public interest and in the interest of justice.The NGT itself has stated that only when the polluter’s conduct is outrageous or displays malice that exemplary damages are awarded.Further, exemplary damages can be imposed as a deterrent for others or for the same enterprise to ensure that no pollution is caused in any manner.
Recent Trends in Award of Environmental Compensation and Future Concerns
In the case of M/s Pahwa Plastics Pvt. Ltd. v. Dastak NGO, the Hon’ble Supreme Court has given a landmark verdict applying principles of Sustainable Development in the fullest sense, where environmental protection is finely balanced with the right to sustainable development of industry. The judgment comes as a relief to enterprises that are complying with requisite environmental checks but are facing negative impact on their businesses due to the long drawn process of obtaining environmental clearances. While granting ex-post facto environmental clearance, the Hon’ble Supreme Court looked favourably at the fact that the industry was totally non-polluting, having “Zero Trade discharge” and had been in operation for several years. The Court held that the manufacturing units of the appellants employed about 8,000 employees and have a huge annual turnover. While the judgment did not particularly deal with environmental compensation, it emphasised certain broader principles to govern liability in environmental law matters where industries were found to be contributing to the economy and not actually causing any harm to the environment.
The pendency of appeals before the Hon’ble Supreme Court from orders passed by the NGT will likely throw light on the imposition of environmental compensation in terms of the settled law on the same.
 Divisional Controller, KSRTC v. Mahadeva Shetty, (2003) 7 SCC 197.
 Indian Council For Enviro-Legal Action v. Union of India, (1996) 3 SCC 212.
 Indian Council for Enviro-Legal Action v. Union of India, (1996) 3 SCC 212, Vellore Citizens’ Welfare Forum v. Union of India, (1996) 5 SCC 647, M.C. Mehta v. Union of India, (1997) 2 SCC 353, M.C. Mehta v. Union of India, (1997) 2 SCC 411 and M.C. Mehta v. Kamal Nath, (1997) 1 SCC 388.
 (1996) 5 SCC 647.
 Indian Council For Enviro-Legal Action v. Union of India, (1996) 3 SCC 212.
 M. C. Mehta v. Union of India, (2002) 4 SCC 356; Karnataka Industrial Areas Development Board v. C. Kenchappa, (2006) 6 SCC 371; Indian Council For Enviro-Legal Action v. Union of India, (1996) 3 SCC 212.
 (2004) 6 SCC 402.
 2021 SCC OnLine SC 897
 Writ Petition (Civil) No. 375 of 2012)
 Original Application No. 125/2017 and M.A. No. 1337/2018
 Original Application No. 593/2017 (In the Hon’ble Supreme Court, WP (CIVIL) No. 375/2012).
 “Determination of Environmental Compensation : The Art of Living Case” by Raghuveer Nath and Armin Rosencranz, (2019) 12 NUJS L Rev 1; Goa Foundation v. Union of India, (2014) 6 SCC 590.
 Relying on the Supreme Court’s judgments in Goel Ganga Developers India Pvt. Ltd. v. Union of India, (2018) 18 SCC 257; M. C. Mehta v. Union of India, (1987) 1 SCC 395 and Sterlite Industries (India) Ltd. v. Union of India, (2013) 4 SCC 575.
 (2018) 18 SCC 257.
 (1987) 1 SCC 395.
 (2013) 4 SCC 575.
 M. C. Mehta v. Kamal Nath, (2002) 3 SCC 653.
 T. N. Godavarman Thirumulpad v. Union of India, 2016 SCC OnLine NGT 1196.
 M.C. Mehta v. Kamal Nath and Ors. (2000) 6 SCC 21.
 2022 SCC OnLine SC 362.