SC Quashes NGT’s Rs. 50 Crore Fine on Industry, Says Penalty Must Have Nexus to Pollution

The Supreme Court on August 22, 2025, set aside the National Green Tribunal’s (NGT) order imposing Rs. 50 crore compensation and directing a money laundering probe against an industrial unit, holding that the rule of law does not permit the State or its agencies to extract a “pound of flesh” even in environmental matters.

A Division Bench of Chief Justice B.R. Gavai and Justice K. Vinod Chandran held that judicial discretion must be exercised judiciously and courts and tribunals should refrain from indulging in rhetoric without specific reference to facts.

“Judicious consideration is the sum and substance of adjudication,” the Bench observed.

The court quashed the NGT’s order which imposed Rs. 50 crore compensation on the appellant, M/s C L Gupta Exports Ltd, on the basis of its turnover, and also struck down the direction issued to the Enforcement Directorate to take action under the Prevention of Money Laundering Act, 2002 (PMLA), noting that environmental statutes fall under Part A of Schedule I of the Act.

The NGT had earlier found the appellant in violation of environmental laws, including groundwater extraction provisions, and proceeded to invoke the “polluter pays” principle while computing compensation with reference to the company’s turnover.

The Tribunal also directed the ED to examine possible offences under PMLA.

Allowing the appeal, the Supreme Court observed that while statutory action could be taken for non-compliance with environmental norms, including closure notices by the jurisdictional Pollution Control Boards (PCBs), the sweeping directions issued by the NGT could not be sustained.

“Having accepted the report of compliance, there was no warrant for a sweeping direction to close such of the divisions of the appellant which are falling short of compliance,” the court said, while reserving the right of the PCBs to proceed against any violation.

The Bench underscored the absence of a nexus between turnover and pollution in imposing penalties, citing its earlier ruling in Benzo Chem Industrial (P) Ltd. v. Arvind Manohar Mahajan (2024).

“Generation of revenue, or its quantum, would have no nexus with the amount of penalty to be ascertained for environmental damages. We fully agree with the observation and add that rule of law does not permit State or its agencies to extract a ‘pound of flesh,’ even in environmental matters,” the judgment said.

It noted that though the appellant’s turnover was Rs. 550 crore, penalty had to be based on established methodology, which in this case was already framed by the Central Pollution Control Board on the NGT’s directions.

Referring to Waris Chemicals (P) Ltd. v. U.P. Pollution Control Board (2025), the court reiterated that the NGT has no jurisdiction to direct prosecution under the PMLA.

“Neither is there registration of FIR for any scheduled offence nor any complaint is filed alleging such offences under the various environmental protection statutes scheduled under the PMLA. This Court had also raised serious doubts about the jurisdiction of the NGT to direct the prosecution of individuals under the PMLA; which we fully subscribe to,” the Bench said.

Clarifying the scope of the NGT’s authority, the court held that the Tribunal is bound by the contours of its powers under Section 15 of the NGT Act, 2010.

While constitutional courts and PMLA courts may exercise wider powers, the NGT cannot assume jurisdiction beyond what the statute permits.

“We hence set aside the direction issued to the Enforcement Directorate; but say nothing on whether there is an offence made out or not, which at this stage is not within our ken,” the judgment said.

The Bench permitted continuous monitoring and audit of pollution control measures but struck down other directions.

Expressing concern over the approach adopted, the court remarked, “Application of mind is not proportionate to the number of pages.”

It noted that the impugned judgment extensively reproduced environmental law provisions, guidelines, committee reports and objections, which were already part of the record, despite the final report recording compliance.

“Unfortunately this was an exercise in futility,” the court observed.

The case arose from an application before the NGT by Adil Ansari and others alleging that the appellant was causing environmental degradation, extracting groundwater and discharging effluents into a tributary of the Ganga, while authorities remained inactive.

The proceedings continued for three years, during which several reports were called from a Joint Committee before the NGT issued its final directions, including those set aside by the Supreme Court.

Case Title: M/s C L Gupta Exports Ltd v. Adil Ansari & Ors.

Date of Judgment: August 22, 2025

Bench: Chief Justice B.R. Gavai and Justice K. Vinod Chandran