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Part II

four

The Polluter Pays Principle

Scope and Limits of Judicial Decisions

Lovleen Bhullar *

The polluter pays principle forms an integral component of environmental law jurisprudence at the international, regional, and domestic levels. The widely accepted formulation of the principle requires that the polluter, rather than the government or members of the public, should bear the cost of pollution.1 While the principle is widely recognised, its content and scope form the subject matter of considerable debate and discussion. As a result, different meanings have been attributed to the principle in different contexts.2 The intended function of the principle in a given context, whether redistributive, preventive or curative, also influences its meaning.3 Further, the application of the polluter pays principle depends upon the identification of the polluter, the circumstances in which the polluter’s responsibility to pay is triggered and the recipients of the payment—individuals and/or the government—and the determination of what is to be paid.

The polluter pays principle has been a part of the domestic environmental jurisprudence in India for several years. Judicial decisions have explicitly or implicitly referred to the principle while discussing the responsibility of an existing or potential polluter, and the judiciary has adjudicated cases on this basis. Yet neither its conceptual basis nor its interpretation by the judiciary has been examined in sufficient detail. This chapter attempts to fill this gap.

The next section briefly describes the development of the ‘polluter pays principle’, as a principle of environmental economics and as a legal principle. We then examine and analyse the legal basis for the incorporation of the polluter pays principle into domestic environmental law by the Supreme Court of India and its relationship with the absolute liability principle. Next, we focus on the different issues that arise in the context of operationalising the principle while implementing the decisions of the Supreme Court, High Courts, and the National Green Tribunal (NGT). This is followed by brief concluding remarks.

Polluter Pays Principle: From Economics to Law

The origin of the polluter pays principle can be traced to the economic theory of externalities.4 The theory is based on the idea that the production and/or consumption of goods or services may result in pollution or environmental harm or damage (‘externalities’) but often these costs are not reflected in the market price of the goods or services in question. This distorts price signals and results in inefficient economic choices. Further, instead of the polluter, public authorities or members of the public have to bear the (social and environmental) costs of pollution. The polluter pays principle is based on the idea of cost allocation and cost internalisation, that is, the external costs of production and/or consumption of goods or services should be allocated to the polluter who is responsible for the pollution rather than to the government or to members of the public.5 This is expected to increase the cost, and reduce consumption, of pollution-intensive products.6

The shift of the polluter pays principle from economic theory to practice initially took place in the context of the introduction of strict environmental measures on chronic pollution, in member countries of the Organization for Economic Cooperation and Development (OECD).7 The OECD first identified the features of the ‘so-called Polluter-Pays Principle’ in 1972.8 Two years later, the OECD Council reaffirmed this principle as a ‘fundamental principle’.9 However, the principle ‘was not intended to eliminate all forms of pollution’ or ‘to oblige polluters to assume the full consequences of their acts’.10 The reduction of pollution beyond a certain level was considered neither practical nor necessary in view of the costs involved.11 Further, the polluter was not required to ‘pay’ anything to anyone.12 This formulation is described as partial internalisation of environmental costs by the polluter.13 In this form, neither prevention or control of pollution, nor the imposition of liability for pollution was envisaged.

Subsequently, the scope of the principle was extended so that the operator (potential polluter) bears the cost of ‘reasonable measures’, which are introduced by the public authority to prevent and control accidental pollution from hazardous installations.14 OECD also recommended the internalisation of the cost of damage arising from pollution, thus marking a shift towards full-cost internalisation.15 This trend is also reflected in the initial development of the polluter pays principle in the European Community (later European Union or EU).16

At the international level, one of the earliest references to the polluter pays principle, albeit implicit, is in the Brundtland Report of 1987, which suggested that the ‘environmental costs of economic activity’ can be ‘“internalized”—paid by the enterprise’.17 This reflects the formulation of the polluter pays principle in the OECD recommendations. However, the polluter pays principle ‘secured international support as an environmental policy’18 for the first time during the United Nations Conference on Environment and Development (UNCED) held in 1992.19 Principle 16 of the Rio Declaration, which has been described as the most important and far-reaching international statement of the fundamental principles of environmental law,20 reads as follows: ‘National authorities should endeavor to promote the internalization of environmental costs and the use of economic instruments, taking into account the approach that the polluter should, in principle, bear the cost of pollution, with due regard to the public interest and without distorting international trade and investment’.21

This formulation of the polluter pays principle is neither absolute, nor does it impose legally binding obligations on national authorities.22 The principle is expressed in qualified and aspirational terms (‘should endeavour’, ‘in principle’); it lacks the normative character of a rule of law.23 However, it does state that the polluter should bear the ‘cost of pollution’, which has been interpreted to reflect a shift towards full internationalisation of environmental costs.24

Thus, the polluter pays principle has been interpreted to include an obligation to pay for the prevention and control of pollution, and liability in respect of damages.25 It incorporates measures for the prevention of further pollution and the reduction and control of past and existing pollution, as well as imposition of liability for damages resulting from past pollution.

Development of the Polluter Pays Principle in India

The Supreme Court of India has expressly invoked the polluter pays principle by relying on the understanding of the principle in other jurisdictions and/or in international environmental law, which has been discussed in the previous section. However, the first point of entry of the principle into domestic environmental jurisprudence has not received much attention. This section first examines two decisions of the Supreme Court that serve as the starting point to understand the source of the polluter pays principle. While applying the polluter pays principle, in addition to issuing directions to the polluter to undertake measures for prevention and control of pollution, the judiciary has grappled with the issue of liability for pollution and payment of damages or compensation—to injured persons and/or for restoration of the damaged environment. Therefore, the second part of this section reviews the invocation of the absolute liability principle by the judiciary.

Locating the Source of the Polluter Pays Principle

The polluter pays principle was explicitly relied on for the first time in domestic environmental law by the Supreme Court in Indian Council for Enviro-legal Action v. Union of India and Ors.26 The case concerned the adverse environmental and health impacts of water and soil pollution in Bichhri village and surrounding villages in the Udaipur district in the state of Rajasthan, as a result of the dumping of untreated wastewater and highly toxic sludge, particularly iron-based and gypsum-based, resulting from the past production of H acid by chemical industries.

Relying on an Article published in an academic journal, which discussed the development of the polluter pays principle in the OECD and the European Community,27 the Court observed that the principle ‘has now come to be accepted universally as a sound principle’,28 and it has gained almost universal recognition.29 In other words, the Court appears to have incorporated the polluter pays principle into domestic law as a general principle of law prevalent in other systems,30 rather than as a principle of international environmental law. It has also been observed that the polluter pays principle, as stated in Bichhri, ‘is much closer to the ordinary, common-sense meaning of the term “polluter pays”’.31

The Supreme Court explicitly invoked the polluter pays principle for the second time in Vellore Citizens’ Welfare Forum v. Union of India and Ors.32 The case concerned pollution caused by the discharge of untreated effluent by tanneries and other industries in the state of Tamil Nadu into river Palar and on land, which contaminated surface water and groundwater, the main sources of water supply to the residents of the area. Two observations can be made in respect of the Court’s reliance on two different sources of the polluter pays principle: domestic law (the Constitution of India and environmental statutes) and international law (custom).

First, unlike in Bichhri,33 the Court relied on the constitutional mandate to protect and improve the environment to hold that the polluter pays principle is part of domestic environmental law.34 This is in line with the Court’s history of broad interpretation of constitutional provisions. Insofar as environmental statutes are concerned, there is no direct reference to the polluter pays principle in the Water (Prevention and Control of Pollution) Act 1974 (Water Act) and the Environment (Protection) Act 1986 (EP Act), which were enacted by Parliament in order to implement the decisions of the United Nations Conference on the Human Environment of 1972 (where the polluter pays principle was not mentioned) and in response to the Bhopal gas tragedy of 1984, respectively. However, in Vellore, ‘in view of’ the statutory provisions, that is the Water Act, EP Act and the Air (Prevention and Control of Pollution) Act 1981 (Air Act), the Court had ‘no hesitation in holding’ that the polluter pays principle is ‘part of the environmental law of the country’.35

On the one hand, this approach of the Court raises some concerns.36 For example, the penalty provisions of domestic environmental statutes do not support the implementation of the polluter pays principle in its broad sense because they prescribe payment of fines and imprisonment rather than compensation for restitution of the damaged environment.37 Further, the statutory limitation on the amount of fine may not reflect the nature and extent of pollution and damage to the environment. On the other hand, the Court’s reading of the polluter pays principle into the provisions of these statutes may be justified on the ground that the statutes prescribe standards for prevention and control of pollution, and the polluter is required to bear the cost of compliance with the statutes. In this respect, domestic environmental laws partly mirror the polluter pays principle in its narrow sense, as envisaged in the early OECD recommendations.38

Second, the Court considered the international law dimension of the polluter pays principle. It held that sustainable development ‘has been accepted as a part of the customary international law though its salient features have yet to be finalized by the international law jurists’.39 The Court then identified the polluter pays principle as one of the ‘salient principles’ and ‘essential features’ of sustainable development. Some commentators have taken these observations of the Court to mean that it considered the polluter pays principle to be part of customary international law.40 But the next observation of the Court is significant. It observed:

Even otherwise once these principles are accepted as part of the Customary International Law there would be no difficulty in accepting them as part of the domestic law. It is almost an accepted proposition of law that the rules of Customary International Law which are not contrary to the municipal law shall be deemed to have been incorporated in the domestic law and shall be followed by the courts of law ...41

The use of the phrases ‘once these principles are accepted’ and ‘there would be no difficulty’ suggest that the Court did not hold that the polluter pays principle was by then a part of customary international law and, therefore, it could incorporate it in domestic law. Instead, it envisaged its incorporation in domestic law in the future—once the principle is accepted as customary international law. It is pertinent to mention that the polluter pays principle has still not achieved the status of a generally applicable rule of customary international law.42

In Vellore, the Court also observed that the polluter pays principle has been held to be a ‘sound principle’ in Bichhri.43 However, in Bichhri, the Court had actually stated that the polluter pays principle has ‘now come to be accepted universally as a sound principle’ based on a journal article, which refers to the adoption of the principle by the OECD and its incorporation by the European Community (two regional systems).44 Further, in Vellore, although the Court referred to the conventions and non-binding documents signed during UNCED in 1992, it did not refer to any of its outputs, including Principle 16 of the Rio Declaration (which explicitly relates to the polluter pays principle) or the relevant provisions of Agenda 21.

Nevertheless, both of these decisions have been relied upon in a number of subsequent decisions.45 In Research Foundation II, the Court specifically relied on Principle 16 of the Rio Declaration for support but ‘[a]part from polluter pays principle’,46 which is discussed separately. This appears to suggest that according to the Court, there is a distinction between the polluter pays principle and Principle 16 of the Rio Declaration, but there is no substantive discussion of this observation in the decision. In Kenchappa, the Court referred to the Rio Declaration generally, without explicitly mentioning Principle 16 of the Rio Declaration, and it traced the foundation of the polluter pays principle to its previous judgments in Bichhri and Vellore.47 Broadly, therefore, the polluter pays principle has been incorporated into domestic environmental jurisprudence.

Application of the Absolute Liability Principle

In the context of environmental pollution, liability rules can perform a curative or preventive function. The curative function is performed when the polluter is held responsible for environmental damage and for payment of compensation to victims.48 Liability rules perform a preventive function when the probability of damages incentivises measures to reduce or preempt environmental damage.49

The nature of liability may be fault-based or no-fault liability. In the case of fault-based liability, harm results from non-compliance with regulatory requirements, or the breach of a general duty of care (also known as negligence). However, the affected party is required to prove the fault of the polluter, which is a heavy burden to discharge. Further, the polluter is not liable to pay damages for environmental harm, which is neither reasonably foreseeable nor avoidable.50 In contrast, no-fault or strict liability is based on the rule laid down in Rylands v. Fletcher.51 There is no requirement to prove the polluter’s fault. However, the application of the rule is subject to a number of exceptions.52 Further, the liability may be limited in amount and the definition of damage tends to be narrow.

In India, the polluter was held liable for the damage resulting from its activities, for instance, as a remedy in tort law, much before the express incorporation of the polluter pays principle into domestic environmental jurisprudence.53 Pollution also falls under public nuisance, which is broadly defined as an unreasonable interference with a general right of the public and, therefore, the provisions relating to public nuisance in civil and criminal laws are also relevant.54

The absolute liability principle was developed by a Constitution bench of the Supreme Court in M. C. Mehta and Anr v. Union of India and Ors (the Oleum Gas Leak case), a case concerning leakage of oleum gas from a unit of Shriram Foods and Fertiliser Industries on 4 and 6 December 1985 (almost a year after the Bhopal gas tragedy), which affected several persons and killed one person.55 The Court held:

... where an enterprise is engaged in a hazardous or inherently dangerous activity and harm results to anyone on account of an accident in the operation of such hazardous or inherently dangerous activity resulting, for example, in the escape of toxic gas the enterprise is strictly and absolutely liable to compensate all those who are affected by the accident and such liability is not subject to any of the exceptions which operate vis-à-vis the tortious principle of strict liability under the rule in Rylands v. Fletcher.56

The Court further observed:

... the measure of compensation ... must be correlated to the magnitude and capacity of the enterprise because such compensation must have a deterrent effect. The larger and more prosperous the enterprise, the greater must be the amount of compensation payable by it for the harm caused on account of an accident in the carrying on of the hazardous or inherently dangerous activity by the enterprise.57

It is pertinent to mention that following the Bhopal gas tragedy of 2/3 December 1984, questions were raised about the extent of liability of corporations in the event that any injurious liquid or gas escapes, on account of negligence or otherwise, and the remedies to secure payment of damages to the affected persons. The absolute liability principle was applied by the High Court of Madhya Pradesh to support the award of interim compensation to the victims of the Bhopal gas tragedy. However, the judgment was never implemented because of the final settlement between the parties.58 In a case challenging the validity of the Bhopal Gas Leak Disaster (Processing of Claims) Act 1985 before the Supreme Court, the Court refused to apply the principle because of the perceived difficulty in the acceptance of this yardstick—domestically and internationally.59 However, Justice K. N. Singh, in his separate judgment, assumed that Union Carbide Corporation had accepted its liability while entering into the settlement.60 Subsequently, in Union Carbide Corporation and Ors v. Union of India and Ors, the petitioners requested the Court to apply the principle of absolute liability instead of the principle of strict liability in cases relating to the Bhopal gas tragedy.61 But, the Court held the law declared in the Oleum Gas Leak case to be obiter.62

Later, the judiciary explored the relationship between the polluter pays principle and the absolute liability principle. In Bichhri, for instance, after opining that ‘any principle evolved in this behalf [i.e. to determine the liability of the polluters] should be simple, practical and suited to the conditions obtaining in this country’,63 the Court relied on the absolute liability principle as laid down in the Oleum Gas Leak case.64 The Court held that the polluting industries are:

absolutely liable to compensate for the harm caused by them to the villagers in the affected area, to the soil and to the underground water and hence, they are bound to take all necessary measures to remove the sludge and other pollutants lying in the affected area ... and also to defray the cost of the remedial measures required to restore the soil and the underground water sources.65

The Court concluded that the polluter pays principle is stated in ‘absolute’ terms in the Oleum Gas Leak case.66 This suggests that the Court recognised the distinction between the absolute liability principle or ‘no-fault’ liability, which applies to inherently dangerous or hazardous activities, and the polluter pays principle, which applies more broadly to different cases of pollution.67 However, in Vellore, after referring to its previous opinion expressed in Bichhri that ‘any principle evolved in this behalf should be simple, practical and suited to the conditions obtaining in this country’,68 the Court went on to hold:

... 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. Remediation of the damaged environment is part of the process of ‘Sustainable Development’ and as such polluter is liable to pay the cost to the individual sufferers as well as the cost of reversing the damaged ecology.69

Vellore appears to have blurred the distinction between different types of polluting activities and endorsed the application of the absolute liability principle as an integral component of the polluter pays principle, so long as the polluting activity results in harm or damage.70 The understanding of the polluter pays principle in Vellore, which extends to the cost of remediation of environmental damage, also goes beyond the formulation in international environmental law, which generally limits the polluter’s liability.71 A number of subsequent decisions have applied the principle of absolute liability to make the polluter pay for pollution, without determining whether or not the polluting substance or industry is inherently dangerous or hazardous in nature. However, in Research Foundation II, a case concerning hazardous waste oil, after observing that ‘in India the liability to pay compensation to affected persons is strict and absolute’,72 the Court did not apply the absolute liability principle. Therefore, it is possible that the Court did not intend to apply the absolute liability principle to all polluting activities.

Operationalising the Polluter Pays Principle

In order to operationalise the polluter pays principle, it is essential to identify the polluter, the situations in which the principle will be triggered, the authority that will be responsible for undertaking the assessment of environmental harm and determination of damages payable by the polluter and the extent of, or the manner in which, damages will be paid by the polluter, etc. This section addresses each of these requirements based on an examination of selected decisions of the Supreme Court, as well as the more recent directives of the NGT.

Who is the Polluter?

The polluter is normally understood as the person or entity responsible for the polluting activity. Even in India, the Court has defined the polluter as the producer of goods.73 However, in a significant departure from the practice in other jurisdictions as well as international environmental law, the courts in India, especially the NGT, have played an important role in expanding the traditional definition of the polluter to include other persons/entities within its scope. For example, in a case concerning disposal of debris and construction waste on the banks of the river Yamuna, the polluter included the contractor and the truck owner who were responsible for dumping, as well as the person whose property created the waste.74

In some cases, the NGT has held government departments and officials directly responsible for pollution. This includes municipal authorities whose inaction led to environmental degradation and/or pollution within the definition of polluter. In Invertis University and Ors v. Union of India and Ors, for example, the municipal body was directed to pay compensation for restitution of the solid waste site to its original condition, and to prevent further damage to the environment.75 In Dr Karan Singh v. State of Himachal Pradesh and Ors,76 a case concerning open burning of municipal wastes, a compensatory cost was imposed on the Municipal Council, which was subsequently recoverable from all the concerned officers and the contractor. In Rohit Choudhary v. Union of India and Ors, the Ministry of Environment and Forests (MoEF), Government of India and the Government of Assam were considered as polluters for permitting unregulated quarrying and mining activities in and around the area of Kaziranga National Park.77 In M/s Cox India Ltd v. M. P. Pollution Control Board and Anr, the regional officer of the State Pollution Control Board (SPCB) was treated as a polluter because of his failure to furnish correct information about the condition of the distillery unit for rectified spirit, which prevented the NGT from taking appropriate action to prevent pollution.78 In the Art of Living case, the NGT imposed fines on the regulatory authorities for dereliction of their statutory duty in allowing an event on the Yamuna floodplains that resulted in environmental damage.79

The public has also been considered as the polluter in some cases. In Gaurav Jain v. State of Punjab and Ors,80 for example, the NGT ‘indicated’ that the authorities will be at liberty to ask for payment of money from the entire population generating municipal solid waste, in order to generate funds for effective execution of municipal solid waste disposal works. In Subhas Datta v. Union of India and Ors,81 a committee was set up to inter alia determine whether it would be appropriate for the authorities to collect fee for environmental pollution caused by the residents of, and visitors to, Puri.

Courts have applied the polluter pays principle regardless of the socioeconomic background of the polluters. Another way of interpreting this is that courts have followed their pre-conceived notion of who is polluting more or less. In Wazirpur Bartan Nirmata Sangh v. Union of India and Ors,82 for example, the pollution and ecological problems resulting from the unhygienic conditions created by the ‘encroachers’ or squatters on public land was the reason for directing their displacement. Similarly, the order of the NGT in Saloni Singh and Anr v. Union of India and Ors, which requires any person found defecating on the railway track or on the railway properties to pay Rs 5,000 per offence in accordance with the polluter pays principle,83 identifies the poor people, who engage in the practice of open defecation on the railway tracks, as polluters.

In some cases, the government pays instead of the polluter where the polluter fails to pay or is unable to pay and it is necessary to compensate the victims immediately.84 The government can subsequently recover the amount from the polluter.85 Such substitution may be necessary in some cases, to ensure timely payment of compensation to victims and/or environmental restoration. In Indian Council for Enviro-legal Action, for example, the Supreme Court directed the state government to pay the portion of the total amount of compensatory damages that the polluting industries were directed to pay to the villagers for loss suffered as a result of damage to crops.86 In another case, the Supreme Court had imposed a liability on the polluters (importers of hazardous waste oil in the garb of lubricating oil) towards the cost of incineration.87 However, on account of non-payment of this cost by the polluters, the Court ordered the customs department to pay the cost and recover it from the importers later.88

Environmental harm or damage is not confined to polluting activities; the unbridled consumption of natural resources is also a problem.89 This includes mining activities, use of biological resources, etc. In such situations, the polluter pays principle may be renamed as the ‘user pays principle’. Courts in India have accommodated this variation of the polluter pays principle. In Nature Lovers Movement v. State of Kerala and Ors,90 for example, the Kerala High Court applied the polluter pays principle and directed the state government to determine the quantum of injury and compensation payable by occupants/encroachers in respect of forest lands sought to be regularised.

Triggering the Polluter Pays Principle

Generally, the application of the polluter pays principle is contingent upon a polluting activity (or emission). The principle may be invoked in different situations: (i) when an established threshold in the form of prescribed standards for the receiving environment is exceeded but does not result in damage; (ii) when an emission exceeds the prescribed standards and results in damage; (iii) when an emission does not exceed the prescribed standards but nevertheless results in damage; (iv) when there is a risk of potential negative environmental impact, irrespective of compliance with prescribed standards; (v) when there are no prescribed standards,91 etc.

The occurrence of harm or the existence of damage has been identified as a precondition for the application of the polluter pays principle in some cases. In Deepak Nitrite v. State of Gujarat,92 for example, the Supreme Court clarified that ‘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’.93 After restating 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’, the Court held that it would not be correct ‘to say that mere violation of the law in not observing the norms would result in degradation of environment’.94 Similarly, in Hindustan Coca-Cola, the NGT observed that the assessment of damage and the amount required to rectify the damage were preconditions, before imposing a liability on the polluter.95

In some cases, courts have issued directions to the potential polluter to pay the amount of damages in advance, that is, before the actual occurrence of environmental pollution. In M. C. Mehta and Anr v. Union of India and Ors, for instance, the Court allowed the company’s caustic chlorine plant to be restarted, subject to fulfillment of certain directions, including the deposit of a bank guarantee, which could be encashed, wholly or in part, and utilised for payment of compensation, in case escape of chlorine gas within a three-year period results in death or injury to any workman or to any person(s) living in the vicinity of the plant.96 Similarly, in some cases, the NGT has directed the alleged polluter to deposit an amount in advance in order to remedy or compensate for future pollution.97

Some SPCBs require polluting industries to post a bank guarantee, to ensure the implementation of corrective actions in accordance with the negotiated compliance schedule. The posting of the bank guarantee is a condition precedent for renewal of consent to operate. However, there are no standard procedures to determine the amount of bank guarantee, the amount of forfeiture in case of non-compliance, or the use of the forfeited amount.98 Significantly, many of the SPCBs believe that existing laws do not allow a bank guarantee and its wide use must be preceded by a legal clarification.99

Forfeiture of the bank guarantee by the Delhi Pollution Control Committee was challenged before the High Court of Delhi. The Court held that the power to issue directions under Section 33A of the Water Act does not confer the power to levy any penalty, by requiring the industry to furnish a bank guarantee and making the grant of consent to establish under the Water Act conditional upon payment of such payments and furnishing of such bank guarantees.100 The NGT has held that the bank guarantee was not penal in nature but was clearly compensatory in its character, and ensured prevention and control of pollution and restoration of environment.101 Subsequently, the Tribunal has held:

... the SPCB cannot use the BG as a penal measure against any non-compliance, but can seek/invoke the BG for ensuring time-bound and well defined substantial improvements in the pollution control system. In simple words, the BG regime shall not be used or rather misused as ‘pollute and pay’. Nor the BG regime can be used as substitute for the legal action against the non-compliance as per the provisions of [the environmental laws] ... Neither the BG can be taken as penalty or compensation for pollution. Wherever the Board requires a unit to furnish bank guarantee for compliance of conditions of consent order, installation of anti-pollution devices and ensuring that it is a pollution-free unit, then, in such cases, the Board should ensure that its order provides for a ‘time targeted action plan’. In default of which and upon inspection, such bank guarantee would be liable to be invoked/encashed for environmental compensation and restoration purposes.102

Even where the occurrence of harm or the existence of damage is a precondition, the courts do not discuss the threshold of harm that will result in the application of the polluter pays principle. However, it is clear that the principle has not been invoked in the case of any or every instance of environmental harm or damage resulting from the pollution. In most cases, the application of the principle by the courts has been pursuant to a finding of ‘some’ environmental harm or damage. This suggests that the courts are applying an implicit threshold of harm. The nature of the activity and the ‘public interest’ involved in its continuation also influences the determination of acceptable risk and, therefore, the threshold of harm, which becomes unacceptable.

However, the existence of damage as a precondition to trigger the polluter pays principle fails to take into account situations where the risk of environmental degradation or pollution necessitates the application of the precautionary principle,103 and/or the principle of prevention.104 For instance, in the Art of Living case, instead of applying the precautionary principle or the principle of prevention and stopping the event on the Yamuna floodplain, the NGT permitted the organisers to proceed with the event, on the condition that they would deposit Rs 5 crores as compensation for potential environmental damage.105 This represents a significant step backward as it does not encourage the (potential) polluter to adopt preventive or precautionary measures before the pollution occurs.

But in some cases, the polluter pays principle and the other principles have been applied in tandem. In Research Foundation II, for example, the Supreme Court observed that ‘the producer of goods or other items should be responsible for the cost of preventing or dealing with any pollution that the process causes. This ... covers cost incurred in avoiding pollution and not just those related to remedying any damage.’106 The Court then limited and distinguished its observation in Deepak Nitrite, that ‘to say that mere violation of the law in not observing the norms would result in degradation of environment would not be correct’.107 It observed that Deepak Nitrite did not lay down a proposition that the application of the polluter pays principle requires actual environmental degradation. The Court distinguished the case before it on the ground that the offending activities (that is, import of hazardous waste oil in the garb of lubricating oil) had the potential to degrade the environment.108 In contrast, in Deepak Nitrite, the Court was dealing with the discharge of effluents by industries into the effluent treatment project in excess of the prescribed parameters.109

More generally, the main issue raised in a number of cases relating to environmental pollution is the non-implementation of the provisions of the existing environmental legislation that require the polluter/potential polluter to construct and operate effluent/sewage treatment plants, or to install and operate pollution control equipment. In these cases, courts have directed the existing or potential polluter to pay by directing them to construct/install and operate the necessary plants/equipment, in order to prevent and control pollution.110 In this form, the Court employs the polluter pays principle to ensure compliance with statutory duties.

Assessment of Loss and
Determination of Compensation

Courts have invoked the polluter pays principle to hold the polluter liable for payment of damages and/or compensation in a number of cases. This has to be followed by the onerous task of assessment of loss, and determination, imposition, and recovery of the amount from the polluter.

The first question relates to the competence of the judiciary to undertake such an assessment. In a number of cases, the Supreme Court has not itself undertaken the task of assessment of the loss resulting from the polluting activity and determination of the amount payable by the polluter for reversing the environmental/ecological damage and the compensation payable by the polluter to the victims (individuals and families). In Bichhri, in a footnote, the Court briefly raised the question of its own competence to impose and recover cost of all measures, including remedial measures (or award damages against private parties), in order to ensure observance of law and its orders as a part of enforcement of fundamental rights, but it did not express any final opinion.111 However, the Court does not appear to have ruled out the possibility that it can award damages.112 Nevertheless, it directed the central government (through the MoEF) to undertake this function in the exercise of its powers under Section 3(3) of the EP Act.113 Insofar as the task of awarding damages for loss suffered by the villagers in the affected area is concerned, the Court left it open to the villagers or any organisation on their behalf to institute civil suits for this purpose.114 However, the judiciary has awarded damages in other cases.115

The same approach has been followed in other cases where the Court has directed the central government to establish an authority, which is required to implement the polluter pays principle.116 In some cases, courts have directed the state government to appoint an authority or commissioner for this purpose.117 In most of these cases, the authority prepares the statement showing the total amount to be recovered, the names of the polluters from whom the amount is to be recovered, the amount to be recovered from each polluter, the persons to whom the compensation is to be paid, and the amount payable to each of them. Then the collector/district magistrate of the area concerned is responsible for recovering the amount from the polluters, if necessary as arrears of land revenue, and its disbursement to the affected individuals and families.118

In Janardan Kundalikrao Pharande v. Ministry of Environment and Forests and Ors,119 after admitting that it lacked any mechanism to quantify the loss caused to the fertility of the agricultural lands of the villagers in the area, the NGT directed the collector to constitute a committee for this purpose. Here too the question of the competence of the authority to implement the polluter pays principle can be raised.

The process of assessment of loss and determination of compensation is subject to a number of additional difficulties.120 One is the difficulty associated with identification of polluters and victims where their number is large. In order to address some of these concerns, in some cases, the amount of compensation has been apportioned among the polluters.121 The methodology applied for valuation, exclusion of certain types of damages and the adequacy of compensation are also thorny issues. In a 2013 decision of the NGT, a direction of the SPCB to the polluting industry to form an expert committee to ‘resolve the matter of damage compensation by mutual understanding with affected farmers’, instead of referring the matter to a district level compensation committee set up for such purposes, pursuant to an order of the High Court, was held to be bad in law.122 However, instead of questioning the formula derived by the polluting industry’s expert committee for this purpose or directing that an independent enquiry should be conducted, the NGT directed the collector and district magistrate to verify whether all the victims had been duly compensated as per this formula.

What Does the Polluter Pay?

The polluter pays principle is based on the premise of making the polluter pay for pollution. As previously mentioned, what the polluter is actually asked to pay depends on the meaning attributed to the principle and its intended function. The non-curative or redistributive function of the polluter pays principle requires the polluter to internalise the social cost borne by the public authorities for prevention and control of pollution.123 Accordingly, in Research Foundation II, the importer of hazardous waste was held liable to pay the amounts to be spent by the government for destroying the goods.124 Akin to the partial-cost internalisation approach towards the polluter pays principle, courts have also directed the polluting industry to adopt pollution prevention and control technologies.125 The curative function of the polluter pays principle involves payment of damages or compensation to victims of pollution, as well as for environmental damages. This subsection will deal with this function of the principle in the Indian context.

Damage or Compensation to Victims of
Pollution and Environmental Restoration

In a number of cases, courts have adopted the full internalisation of costs approach, which requires the polluter to pay damages or compensation to the victims of pollution and to meet the expenses of environmental restoration.126 It is now settled law in India that the ‘one who pollutes the environment must pay to reverse the damage caused by his acts’.127 In Research Foundation II, the Supreme Court held that this includes direct cost to the people or property and full environmental cost (tangible and intangible).128 However, the calculation of the amount payable by the polluter to the victim is often a very complex process.

In some cases, courts have applied the ‘percentage of gross turnover’ formula to determine the quantum of compensation payable by the polluter.129 The Supreme Court has acknowledged that this formula ‘may be a proper measure’ in a given case 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’.130 However, the usefulness of this formula may be undermined where courts include polluters with different annual turnovers within the same band for the purpose of determination of liability, that is, they are required to pay the same amount irrespective of differences in their annual turnover.131 The formula may also fail to have the requisite deterrent effect on polluters if the ‘percentage of gross turnover’ awarded as damages is not high enough. Further, in some cases, it may be difficult to access information about the annual turnover of the polluting industry.132

It appears that in a number of cases, the curative dimension of the polluter pays principle is completely sidelined and it is applied in a manner to avoid addressing the question of liability altogether. For example, in some cases, courts have directed the polluter to pay lump sum compensation (Rs 1 lakh or Rs 5 lakhs)133 while in other cases, a daily penalty amount is imposed.134 This is a regressive approach because it fails to even hold the polluter strictly liable for the pollution.

The determination of the full environmental cost of pollution involves calculation of the market value of natural resources and valuation of environmental damages, which is a very difficult task. In most cases involving environmental pollution, the scope of liability of the polluter is often limited to some tangible environmental costs. For instance, the polluter pays principle underpins the calculation of a ‘net present value’ (NPV) for the diversion of forestland for non-forest purposes (depending upon the area and density of land in question), as recommended by the Court in T. N. Godavarman Thirumulpad v. Union of India and Ors.135 The Court further recommended that the NPV as well as payments received towards compensatory afforestation, additional compensatory afforestation, penal compensatory afforestation or catchment area treatment plan, have to be deposited with the Compensatory Afforestation Planning and Management Authority (CAMPA) and used for specific activities.136

The full internalisation of costs approach suffers from a number of limitations. Although decisions refer to reversing the damage and restoration of the environment, this is not possible in the case of irreversible damage. A preventive and anticipatory approach or a precautionary approach is more appropriate here.137 The assessment of damage can take very long.138 In the absence of verification mechanisms, it is not possible to determine whether the restoration has actually taken place.

Punitive or Exemplary Damages

The primary objective of punitive or exemplary damages is to punish the polluter and to deter the polluter as well as others from causing pollution in the future. Punitive or exemplary damages are different from compensation to victims of pollution and/or damages for restoration of the damaged ecology. But a polluter can be held liable to pay both types of damages.139 In M. C. Mehta v. Kamal Nath and Ors, the Supreme Court considered the aim and purpose of exemplary damages to be ‘almost similar’ to the purpose of punishment (in the nature of fine or imprisonment or both) under domestic environmental laws.140 The Court imposed exemplary damages on the polluter, which were to be used by the state government for flood protection works in the area affected by pollution.141

The Supreme Court has identified the nature and extent of the offending activity, nature of the offending party, and intention behind such activity as the basis of the levy of exemplary and/or penal damages.142 In Sterlite Industries (India) Ltd v. Union of India and Ors,143 the Court referred to its decision in the Oleum Gas Leak case, and after considering the magnitude, capacity, and prosperity of the appellant-company, held it liable to pay a compensation of Rs 100 crores for polluting the environment in the vicinity of its copper smelter plant, and for operating the plant without a renewal of the consents by the SPCB for a long period. The Court also emphasised the deterrent effect of the payment on the appellant-company.144 Similarly, in Him Privesh Environment Protection Society and Anr v. State of Himachal Pradesh and Ors,145 the factors considered by the High Court of Himachal Pradesh while assessing damages included the deterrent effect on the polluter as well as other companies, that the polluter should feel the pinch of the damages and the net worth of the polluter. The Court imposed damages/penalty of Rs 100 crores as a proportion of the total cost of the project (approximately 25 per cent) on the polluter. The Court also considered the blatant falsehoods of the polluter as a factor in the assessment of damages.146

Pollution Fine

There is a distinction between a fine or penalty, which can be imposed after the commission of an offence punishable under a statute is established, and damages or compensation payable in accordance with the polluter pays principle. Although the Supreme Court directed the polluter to show cause why a pollution fine should not be imposed in Kamal Nath I,147 it was subsequently held that a pollution fine cannot be imposed under writ jurisdiction; the fine can be imposed only if it is prescribed in a statute, the polluter is guilty of contravention of its provisions and the polluter is found guilty after fair trial in a competent court.148 In Calcutta Tanneries, however, the Court imposed a pollution fine on the polluters in addition to compensation.149

In some cases, courts have applied the polluter pays principle and directed the polluter to pay a ‘pollution fine’ to compensate affected persons and to cover the cost of restoring the damaged ecology for its period of operation.150 In these cases, courts may not be applying the term ‘pollution fine’ stricto sensu, as understood in statutory enactments. However, the imposition of such a pollution fine may provide the necessary impetus for the polluters to undertake measures to prevent future pollution, thus performing an important function of the polluter pays principle.

Limits of the Polluter Pays Principle: Pay and
Pollute Principle and Utilisation of the Payment

In the 1990s, during the period immediately following the Rio Conference, in a number of cases where the polluter pays principle was expressly invoked, while the Supreme Court acknowledged the importance of the polluting industries in the generation of foreign exchange and employment (directly and in ancillary industries), it finally gave precedence to environmental considerations.151 The Supreme Court has also clarified that the principle does not mean that the polluter can ‘pollute and pay’.152 In Pravinbhai, for instance, the High Court of Gujarat observed that this would ‘legalise the violation, which is impermissible’.153 However, in a large number of cases, courts have invoked the polluter pays principle to impose a fine on the polluter, or to ask him/her to pay damage or compensation for environmental degradation, but then allowed the polluting industry to continue its operations. For instance, in Sterlite, even after accepting that the appellant/polluter had misrepresented and suppressed material facts in its petition, the Court observed that the closure of its plant would be against public interest.154 Similarly, in Him Privesh, the Court noted that the damages should not bring the polluter to a halt.155

The manner in which the polluter pays principle is interpreted in such decisions is likely to set a precedent, which may lead to further pollution or environmental harm in the future. Such an approach runs contrary to the preventive aspect of the polluter pays principle.

Moreover, compensation to victims does not always take the form of disbursement of monies directly to them. Instead the amount collected from the polluter may be utilised for works of socioeconomic upliftment of the villages, and for the betterment of their educational, medical, and veterinary facilities and agriculture and livestock,156 the creation of common facilities such as schools, hospitals, community halls, tube wells, etc., and improvement of the ecology and environment;157 or the construction of common effluent treatment plants (CETPs) in order to prevent further damage to the ground water and to arrest use of untreated water for growing crops and vegetables.158 Instead of payment of monetary compensation, courts may also impose other pollution prevention and control measures. For example, the NGT has ordered the polluter to plant trees in some cases.159 Such judicial directions may or may not contribute to the curative function of the polluter pays principle, if the actual victims of pollution are not adequately compensated. Such instances may also highlight the insufficient focus on the justice dimensions of the polluter pays principle.

Conclusion

The polluter pays principle forms part of the toolkit to address the problems of environmental pollution in India. The Supreme Court of India has read the principle into domestic law, including the Constitution and environmental legislation. In this regard, the Court has been influenced by the development of the principle within the OECD/European Community (regional level) and at the UNCED (international level). However, the principle does not lend itself to direct application or enforcement in domestic laws; it requires interpretation and implementation by the judiciary.

The nature, scope, and content of the principle are illustrated by its varied application by the courts, including the NGT more recently. On the one hand, the flexible approach of the judiciary, for example, to expand the definition of the polluter and the application of the absolute liability principle in certain situations, has contributed to the development of the principle. On the other hand, contradictory case law on similar issues co-exists, depending, inter alia, on the nature of the polluter and the manner in which the judiciary reconciles conflicting interests.

The ability of the principle to perform its preventive function depends on the severity of the amount of compensation/damage to be paid by the polluter, and the ability of the principle to ensure long-term deterrence and not just to compensate for the immediate damage caused; in other words, the cost of compliance should be higher than the cost of non-compliance. However, the principle, as applied by the courts in India, does not often result in the imposition of severe penalty and its deterrent effect is limited. Non-implementation of judicial orders or delay in their implementation also needs to be examined.

Finally, the judiciary appears to have paid more attention to the curative dimension of the principle. But even here, the obstacles relating to the assessment of damages, the insufficiency of the damages awarded by the courts, and the purposes for which they may be utilised may limit the ability of the principle to provide justice to the victims of pollution, including the environment. In some situations, the application of the principle may actually cause injustice to certain sections of the population, for example, where the slum dwellers or the poor ‘polluters’ are removed from their homes or where the closure of polluting industries results in loss of livelihood without redress. The justice/(in)justice dimensions of the principle in the Indian context require further scrutiny.