From Prior to Post: A Shift to the Polluter Pays Principle Through Environmental Clearances

Ashwin Murthy*

In the late 1960s, there was a growing consciousness for environmental concerns. This led to legislations mandating environmental impact assessments (“EIA”) to anticipate the effects of large-scale projects from a socio-ecological perspective. Through EIAs, measures can be taken to reduce the negative impacts and improve the decision-making process. India also adopted the EIA process, however in practice, they have limited environmental impact and only mitigate the worst environmental excesses. This piece examines how the EIA process has been further blunted through the system of providing ex post facto environmental clearances (“EC”).

How Have EIAs Been Implemented In India?

Under Section 3 of the Environment (Protection) Act of 1986 (“Act”), the Central Government has the power to “take all such measures as it deems necessary or expedient for the purpose of protecting and improving the quality of the environment and preventing, controlling and abating environmental pollution”. Rule 5(3) of the Environment (Protection) Rules of 1986 (“Rules”) empowers the Central Government to impose prohibitions or restrictions on the location of any industry or the carrying on of processes and operations in an area.

Through the power granted by the Act and Rules, on 27 January 1994, the Ministry of Environment, Forest and Climate Change (“MoEFCC”, previously known as the Ministry of Environment and Forests) published Notification No. SO 60(E) requiring mandatory EIAs for designated projects. The 1994 notification was superseded into the current framework, through Notification No. SO 1533(E) dated 14 September 2006. While there is a draft EIA notification that has been published in 2020, it still has not taken effect at the time of writing this piece.

Under the current statutory framework, project proponents in designated sectors are required to submit to the relevant governmental authority an environmental assessment report, an environmental management plan, and conduct a public hearing in the vicinity of the project. At the culmination of the EIA process, the authority provides an EC, and only then is the project proponent allowed to commence operations. Projects designated as requiring prior ECs include mining activities, refineries and construction projects but do not include power transmission projects or renewable energy projects.

Any project commenced without an EC is deemed a “violation case”. The language of the 2006 notification is clear that an EC is required prior to commencing a project. The 2006 notification was naturally silent on ex post facto ECs allowing the continuation of the project (after the commencement of the project), as allowing for ex post facto ECs would be contradictory to the requirement of obtaining a prior EC.  

Why Are Prior ECs Important?

The principle behind requiring an EC prior to commencement of operations is intuitive. An EIA scopes out the potential for harm and assesses local concerns, including indigenous rights and environmental justice considerations, before allowing a project to go through. Projects that could cause damage are modified or tailored to minimize damage. EIAs therefore are meant to provide information both to the government and the public with the goal of improving decision-making. ECs form the more traditional command-and-control regulation, as they lay down prescriptive regulation preventing action without the necessary government clearances.

Obtaining an EC post commencement of operations defeats the entire purpose behind an EIA, as the potential for harm is scoped after the harm is already occurring. Ex post facto ECs also flip the command-and-control style of regulation on its head, as they imply that regulated actions are permitted until the government states otherwise instead of the reverse.

Ex post facto ECs shift the regulations from determining whether the project is environmentally and socially feasible to a “polluter pays” approach where environmental violations are condoned through fines. Fundamentally, the polluter pays principle is contradictory to ECs and EIAs. The polluter pays principle does not aim to protect the intrinsic value of the environment or prevent potential harm (which is the goal of EIAs) but rather looks at allocation of costs for environmental harm. The polluter pays principle is also inadequate as damages to the environment are often irreparable, and compensation may not suffice. Effectively, ex post facto ECs become a pollute and then pay model. Moreover, ex post facto ECs can lead to fait accompli situations, where construction or operations have commenced, and it is considered too late to stop the project from continuing despite their failure to obtain an EC.

Developments Over The Legality Of Ex Post Facto ECs

Both the MoEFCC and courts have grappled with the idea of ex post facto ECs in the years following the 2006 notification. Courts have flip-flopped between rejecting and permitting ex post facto ECs, while the MoEFCC has consistently tried to push ex post facto ECs forward.

The start of ex post facto ECs

Despite the fact that the 2006 notification mandates prior ECs and does not allow for ex post facto ECs, the Supreme Court (“SC”) in the case of Lafarge Umiam Mining (P) Ltd. v. Union of India (“Lafarge”) determined that ex post facto ECs, while not condoned, would not prevent the continuation of operations.[1] Instead, the SC stated that the legality of ex post facto ECs must be determined on a “proportionality test”, balancing the environmental impact of the operations and the economic consequences of closing such operations. Lafarge, resting on a peculiar set of facts involving alleged inadvertent misinformation when obtaining the EC, opened a path for the courts to permit ex post facto ECs. This was followed by Electrotherm (India) Ltd. v. Patel Vipulkumar Ramjibhai (“Electrotherm”),[2] which also involved a somewhat peculiar set of facts where a company was granted an EC in 2008 and 2009 for expansion despite not conducting any public hearings or consultations, and then was taken to court for a subsequent proposed expansion and application for an EC in 2010, again without a public hearing or consultation. The court followed the proportionality test laid down in Lafarge and validated the operation of a power plant “in public interest”, again despite the failure to obtain a prior EC. The court noted once more that ex post facto ECs were not to be condoned, and it was only the specific facts at hand that justified their decision.

In both Lafarge and Electrotherm, the SC considered it against the interests of justice to order the closure of the entire plant. The SC instead ordered conducting a public hearing, noting that if the hearing led to a negative mandate, then the operations could be scaled down accordingly. The cases take up more of a status quo approach, prioritising economic considerations over the environmental principles. However, the unusual nature of the facts may have served as enough justification for the SC to allow operations to continue and to overlook (but not condone) the violations of law.  

At the same time, the MoEFCC attempted to legalise ex post facto ECs, issuing two office memorandums in 2010 and 2012 for dealing with violation projects, where physical progress towards the construction of projects was made before receiving an EC. Under the memorandums, these cases would be submitted to the MoEFCC and their environmental policy would be analysed. The project proponent could also be fined, shifting to a polluter pays approach.

Pushing back against ex post facto ECs

At this point, the courts stepped up to halt the MoEFCC. Recognising that these memorandums in effect permitted ex post facto ECs, the National Green Tribunal (“NGT”) struck down the memorandums as ultra vires of the 2006 notification.[3] The NGT in the case of Rohit Prajapati v. Union of India (“Rohit Prajapati”) stated that ex post facto ECs were contrary to law, and ordered the closure of any industrial units operating without a prior EC.[4]

Taking it a step further, in the excellent decision of Common Cause v. Union of India (“Common Cause”), the SC refused to condone an ex post facto EC, stating that an EC is mandatory and cannot be retrospective or performed mechanically.[5] Common Cause noted that an ex post facto EC was “completely alien to environmental jurisprudence including [the 1994 and 2006 notifications]”, and that a prior EC was required to prevent irreparable degradation to the environment. Interestingly, Common Cause made no reference to Lafarge or Electrotherm, possibly because the facts were relatively straightforward and the activity in question was mining without an EC, rather than the construction and operation of industrial plants. Nevertheless, Common Cause recognised that the core of an EC was to prevent potential harm, thereby prioritising environmental principles over economic considerations in line with the law and the purpose of EIAs. By rejecting ex post facto ECs, the SC also implicitly rejected the idea of the “polluter-pays” principle.

The return of ex post facto ECs

The MoEFCC was undeterred, issuing Gazette Notification S.O. 804(E) in March 2017 which allowed projects which had undertaken construction activities or were operating without obtaining an EC to apply for a post-facto EC. The MoEFCC declared that such notification was necessary given the volume of violation projects approaching the MoEFCC for approval. The MoEFCC claimed that the notification was “for the purpose of protecting and improving the quality of the environment” and would bring the violating projects under regulation.

In 2020, the SC had the opportunity to continue the path of Common Cause. The case of Alembic Pharmaceuticals Ltd. v. Rohit Prajapati (“Alembic”), arising out of an appeal from the prior case of Rohit Prajapati decided by the NGT, addressed the issue of ex post facto ECs again.[6] As the case arose out of an appeal for matters prior to the 2017 notification, the SC focused on the law prior to the 2017 notification. In what is now familiar ground for environmental judgments authored by Justice D.Y. Chandrachud, Alembic agreed with Common Cause that ex post facto ECs were against the principle of the 1994 notification, but then proceeded to overrule the NGT and rejected the closure of those units that did not receive prior ECs. Instead, the SC ordered for payment for damage caused, citing Electrotherm and Lafarge’s proportionality test – despite the fact that the case possessed no peculiar facts, and simply arose out of companies operating with ECs obtained multiple years after operations commenced. The SC was largely concerned with the resultant unemployment and the “irreparable loss” that the companies would face from closure of the facilities. In the court’s mind, the fact that the companies were all granted ECs eventually, even if they were post commencement of operations, was to be taken into account when applying Lafarge’s proportionality test. This, in the court’s mind, was a “balanced approach which holds the industries to account”. While the court was satisfied with this conclusion, the contradiction with itself and Common Cause remains clear, as it condoned ex post facto ECs despite considered them to be “alien to environmental jurisprudence”. In effect, despite the strong statements in support of Common Cause, Alembic shifted jurisprudence back towards the polluter pays principle and towards balancing (or even prioritising) economic considerations against environmental principles.

Alembic led to a series of judgments from 2021 where the SC routinely observed that ex post facto ECs should not be “routinely granted”, but operations were not to be halted as the industries contribute to the “economy of the country”.[7] The SC stated that the failure to obtain the required EC was merely a “procedural lapse”,[8] and that the Act and the notifications did not prohibit ex post facto ECs.[9] The SC, relying on Lafarge and now explicitly on the polluter pays principle, stated that closure would be “against public interest” and that the consequences of denial of the EC are to be balanced against the consequences of its approval.[10] Critically, Alembic shifted the boundaries Lafarge and Electrosteel held for what was to be considered peculiar facts. Now all ex post facto ECs were considered as “exceptional circumstances”, even if the facts were as simple as that the project operator was unsure of whether their actions required an EC.[11] ECs therefore became trivial procedural requirements, walking back the statements made in Common Cause. The result however is confusing legally: the SC repeatedly makes reference to Common Cause on the fact that “environment law cannot countenance the notion of an ex post facto clearance” but focuses on the holding and end result of Alembic, in that the court could avoid ordering the closure of the units.[12] The SC seemingly fails to recognise that the polluter pays principle is inherently contradictory with prior ECs.

Likely, the SC has taken this stance because it is the most convenient stance to take. Through criticising ex post facto ECs, but not ordering the closure of the units, the SC can have its cake and eat it too. The reasoning of Alembic hints at this approach of convenience. Alembic stated that “it is not possible to individually determine the exact extent of the damage caused to the environment by the three industries”, relying on general pollution studies of the areas rather than ordering for specific assessments. This allows the courts to easily dispose of the cases, by restating the principle that they do not condone ex post facto ECs, and then prioritise economic considerations over environmental principles through the polluter pays principle.

The MoEFCC further trivialised the requirement for prior ECs, first through the draft 2020 notification (that remains not in effect), and an office memorandum dated 7 July 2021. The 2021 notification, amending the 2006 notification, detailed the process for grant of an ex post facto EC. As a nail in the coffin, the 2021 notification cited Alembic as justification for imposing a polluter pays approach to granting ex post facto ECs.

In a surprising twist however, in 2024, the SC issued an interim stay on the 2021 notification after it was argued that ex post facto ECs were violative of the existing 2006 notification. The SC decision arose from, and was followed by, a Madras High Court decision determined to steady the ship. The Madras High Court, in Fatima v. Union of India (“Fatima”), noted that the Act and 2006 notifications do not enable providing ex post facto ECs and the usage of the word “prior” implies that ECs cannot be granted post facto. Compellingly, Fatima also noted that ex post facto ECs would be an overreach of the Central Government’s powers under Section 3 of the Act, which allow for actions aimed at protecting the environment only, which Fatima argued was not achieved through ex post facto ECs. It is to be seen if the SC will follow along the same lines, and reject the normalisation of ex post facto ECs. Ideally the SC will follow the reasoning of Common Cause and the holding of the NGT in Rohit Prajapati by ordering closure of the units and rejecting the polluter pays principle explicitly.

While there are legitimate concerns of unemployment and environmental degradation caused by the closure of the facilities, there are alternatives available to the court. The court could order the penalties to be paid to any employees laid off, or could order for the employer to offer jobs in other facilities. Further, the court could order for a graduated closure, to focus on minimising environmental impact. There are creative options available to the court beyond merely adopting the inherently unsuitable polluter pays model, so as to not completely ignore pragmatic considerations.

What About MoEFCC?

To achieve actual change of project operators, the MoEFCC needs to take a proactive step, and decisively punish projects which attempt to bypass the EC process through closure orders and hefty fines. However, such change would contradict the majority of actions taken by the government with regards to prioritising environmental concerns. As early as three months after the 1994 notification was passed, the MoEFCC diluted the EIA process and dismantled environmental safeguards in favour of economic objectives. Despite the NGT judgements and Common Cause explicitly holding that ex post facto ECs were contrary to the law, the MoEFCC pushed forward a number of memorandums attempting to normalise violations of the requirement to have prior ECs. The pervasiveness of corporate interests within the government is not a secret. As a blatant example, a full time advisor of Adani Green Energy Limited, Janardhan Choudhary, was appointed to the Expert Appraisal Committee for River and Hydroelectric Projects by the MoEFCC. The government has repeatedly made it clear that environmental considerations, and with them considerations of the local people, are secondary. The 2020 draft notification, on the same lines, intends to further relax environmental regulations.

Until the MoEFCC is dramatically redirected towards actually protecting the environment, the only check is the courts. Unsurprisingly, project developers have taken advantage of this back and forth on the legality of ex post facto ECs, and of the government’s tacit approval, and have continued to commence operations prior to obtaining an EC. The SC in Alembic has itself noted this back and forth as justification to reject closure of the facilities and allow for ex post facto ECs. Even if the courts were opposed to ex post facto ECs, they were often caught in a difficult position, where the project in question was near completion and its demolition may cause further environmental damage.[13]

Ideally, the SC seizes the chance to promptly course correct, and holds decisively that ex post facto ECs are violative of Section 3 of the Act and ultra vires of the 2006 notification, establishing rule of law and preventing companies from taking advantage of the lack of clarity. If the courts can decisively hold that ex post facto ECs are not condoned and place heavy fees and penalties on companies, it may limit the number of project operators who attempt to circumvent the EIA process and force the government to close the ex post facto EC process altogether. This would also clearly demarcate the role of the executive and the judiciary. Courts would be limited to identifying that the company breached the law by not obtaining a prior EC (and would avoid the Lafarge proportionality test altogether) instead of taking over the role of the executive in ordering EIAs and condoning ECs. Hopefully the upcoming case closes this chapter in favour of environmental principles and rejects ex post facto ECs conclusively.  

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*Ashwin Murthy is a Negative Emissions Fellow at the Sabin Center for Climate Change Law at Columbia Law School. His work focuses on the legal framework around negative emissions and ocean-based carbon dioxide removal, at both the national and international level.

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[1] Lafarge Umiam Mining (P) Ltd. v. Union of India, (2011) 7 SCC 338 at 119.

[2]  Electrotherm (India) Ltd. v. Patel Vipulkumar Ramjibhai (2016) 9 SCC 300.

[3] SP Muthuraman & Others v. Union of India & Others, Original Application No. 37 of 2015, Judgment dated 7 July 2015.

[4] Rohit Prajapati v. Union of India, Original Application No. 66 of 2015, Judgement dated January 8, 2016.

[5] Common Cause v. Union of India, (2017) 9 SCC 499 at 124 (affirmed in Common Cause v. Union of India, (2019) 11 SCC 674).

[6] Alembic Pharmaceuticals Ltd. v. Rohit Prajapati, (2020) 17 SCC 157

[7] See Electrosteel Steels Limited v. Union of India, 2021 SCC OnLine SC 1247; Pahwa Plastics Pvt Ltd. v. Dastak Ngo, 2022 SCC OnLine SC 362; Gajubha Jadeja Jesar v. Union of India and Others, 2022 SCC OnLine SC 993; D. Swamy v. Karnataka State Pollution Control Board, 2022 SCC OnLine SC 1278.

[8] Pahwa Plastics Pvt Ltd. v. Dastak Ngo, 2022 SCC OnLine SC 362 at 50.

[9] Electrosteel Steels Limited v. Union of India, 2021 SCC OnLine SC 1247 at 75.

[10] Swamy v. Karnataka State Pollution Control Board, 2022 SCC OnLine SC 1278 at 41.

[11] Pahwa Plastics Pvt Ltd. v. Dastak Ngo, 2022 SCC OnLine SC 362 at 88.

[12] Pahwa Plastics Pvt Ltd. v. Dastak Ngo, 2022 SCC OnLine SC 362 at 60.

[13] Calicut Landmark Builders and Developers of India [P] Ltd v Shaji A.K., 2024 SCC OnLine Ker 1014