Supreme Court allows operation of units pending environmental clearance: M/S Pahwa Plastics vs. Dastak NGO (2022)

Date of the Judgment: 25 March 2022
Citation: 2022 INSC 203
Judges: Indira Banerjee, J. and J.K. Maheshwari, J.

Can a factory that has been operating with consent from pollution control authorities be shut down for not having prior environmental clearance? The Supreme Court of India recently addressed this critical question in a case involving manufacturing units that had applied for ex post facto environmental clearance. The court considered whether such units should be allowed to operate while their applications are pending, balancing environmental concerns with economic and livelihood considerations. The judgment was delivered by a two-judge bench comprising Justice Indira Banerjee and Justice J.K. Maheshwari.

Case Background

The case involves three manufacturing units owned by M/s Pahwa Plastics Pvt. Ltd. and M/s Apcolite Polymers Private Limited, all located in Haryana. These units manufacture basic organic chemicals, specifically Formaldehyde, and fall under the category of Micro, Small, and Medium Enterprises (MSME). The units had obtained Consent to Establish (CTE) and Consent to Operate (CTO) from the Haryana State Pollution Control Board (HSPCB). However, they did not have prior Environmental Clearance (EC), which later became a point of contention.

M/s Pahwa Plastics Pvt. Ltd. has two units: one in Rohtak and another in Yamuna Nagar. M/s Apcolite Polymers Private Limited has one unit in Yamuna Nagar. The companies applied for CTE, and the HSPCB granted it on June 2, 2016, for the Yamuna Nagar unit of M/s Pahwa Plastics. This CTE was valid for 60 months and could be extended. The HSPCB also granted CTO to M/s Pahwa Plastics on March 26, 2018, valid until March 31, 2022. M/s Apcolite Polymers received its CTE on March 31, 2010, and CTO on January 16, 2012, which was extended until March 2026.

The companies argued they believed that prior EC was not required for manufacturing Formaldehyde. The HSPCB also seemed unsure about the necessity of EC for such units. The companies invested heavily, taking loans to set up their units. The Ministry of Environment, Forest and Climate Change (MoEF&CC) issued a notification on March 14, 2017, allowing for ex post facto EC for projects that had commenced without prior EC. The Appellants applied for EC in accordance with this notification. Dastak NGO filed a case before the National Green Tribunal (NGT) seeking closure of units operating without prior EC. The NGT ordered closure of the units. The Appellants then appealed to the Supreme Court.

Timeline

Course of Proceedings

The National Green Tribunal (NGT) had ordered the closure of the units based on the application filed by Dastak NGO. The NGT held that establishments without prior Environmental Clearance (EC) could not be allowed to operate. The NGT did not accept the argument that the units were operating with valid Consent to Operate (CTO) and had applied for ex post facto EC. The NGT also did not consider that the units were not causing pollution. The NGT did not consider the notification dated 14th March 2017 which provided for grant of ex post facto EC.

The Appellants then appealed to the Supreme Court against the order of the NGT.

Legal Framework

The judgment discusses several key legal provisions:

• The Water (Prevention and Control of Pollution) Act, 1974: Enacted to prevent and control water pollution and maintain the wholesomeness of water.
• The Air (Prevention and Control of Pollution) Act, 1981: Known as “the Air Pollution Act,” this act provides for the prevention, control, and abatement of air pollution. It establishes the Central Pollution Control Board (CPCB) and State Pollution Control Boards (SPCB). Section 16 of the Air Pollution Act empowers CPCB to take steps to improve air quality and control pollution. Section 17 empowers SPCBs to plan programs for preventing and controlling air pollution. Section 18 allows the Central Government to issue binding directions to the CPCB, and SPCBs are bound by directions from the CPCB or the State Government.
• The Environment (Protection) Act, 1986 (EP Act): Enacted to protect and improve the quality of the environment and prevent, control, and reduce environmental pollution. Section 3 of the EP Act empowers the Central Government to take measures for protecting the environment. Section 5 of the EP Act empowers the Central Government to issue directions that are binding on any person, officer, or authority.
• The Environment (Protection) Rules, 1986 (EP Rules): Rules made by the Central Government in exercise of powers conferred by Sections 6 and 25 of the EP Act.
• Environmental Impact Assessment Notification dated 27th January 1994: Issued under the EP Act, mandating prior Environmental Clearance (EC) for certain projects. This notification was superseded by a notification dated 14th September 2006.
• Notification S.O. 1533 (E) dated 14th September 2006: Requires prior environmental clearance from the Central Government or State-Level Environment Assessment Authority.
• Notification S.O. 804(E) dated 14th March 2017: Provides for grant of ex post facto EC for projects that commenced without prior EC.
• Section 21 of the General Clauses Act, 1897: Provides that the power to issue notifications includes the power to amend, vary, or rescind them.

These provisions collectively form the legal framework for environmental protection and regulation in India. The Environment (Protection) Act, 1986 is the umbrella legislation that empowers the Central Government to take measures for protecting the environment. The notifications issued under the EP Act and EP Rules have a statutory character and are binding on all stakeholders.

Arguments

Appellants’ Arguments:

• The Appellants argued that they were under the bona fide impression that prior EC was not required for setting up their manufacturing units for Formaldehyde. They relied on the CTE granted by HSPCB and invested heavily, taking loans to establish their units.
• The Appellants contended that they had valid Consent to Operate (CTO) from the HSPCB and were operating without causing any pollution. They had also applied for ex post facto EC as per the notification dated 14th March 2017.
• The Appellants submitted that their units contribute to the economy and provide livelihood to around 8,000 employees. They argued that closing down the units would cause significant economic hardship and unemployment.
• The Appellants relied on the judgment of the Supreme Court in Electrosteel Steels Limited v. Union of India [2021 SCC online SC 1247], which held that an establishment contributing to the economy should not be closed down for a technical irregularity without an opportunity to regularize its operations.
• The Appellants argued that the notification dated 14th March 2017, which allows for ex post facto EC, is a valid statutory notification and should be considered.

Respondents’ Arguments:

• The Respondent No.1, Dastak NGO, argued that the units were operating illegally without prior EC, which is mandatory under the Environment Impact Assessment Notification, 2006.
• The Respondent contended that the notification dated 14th March 2017, which allows for ex post facto EC, is against the principles of environmental jurisprudence and the precautionary principle.
• The Respondent relied on the judgment of the Supreme Court in Alembic Pharmaceuticals Ltd. v. Rohit Prajapati [2020 SCC Online SC 347], which deprecated ex post facto clearances.
• The Respondent argued that allowing units to operate without prior EC would undermine environmental regulations and could lead to irreparable damage to the environment.

Haryana State Pollution Control Board (HSPCB):

• HSPCB admitted that it was under the misconception that prior EC was not necessary for units manufacturing Formaldehyde.
• HSPCB stated that it had taken a policy decision to allow units without prior EC to operate for six months, provided they apply for EC within sixty days.
• HSPCB also stated that the units were operating in good faith with valid CTOs and were not causing pollution.

Innovativeness of the argument: The Appellants innovatively relied on the ex post facto notification and the Electrosteel Steels case to argue that closure of their units would be disproportionate. The HSPCB’s admission of its own misconception was also a novel point.

Issues Framed by the Supreme Court

The Supreme Court framed the following key issue for consideration:

1. Whether an establishment employing about 8000 workers, which has been set up pursuant to Consent to Establish (CTE) and Consent to Operate (CTO) from the concerned statutory authority and has applied for ex post facto EC can be closed down pending issuance of EC, even though it may not cause pollution and/or may be found to comply with the required pollution norms.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

How each authority was viewed by the Court?

• Electrosteel Steels Limited v. Union of India [2021 SCC online SC 1247]* The Court followed this authority, emphasizing that an establishment contributing to the economy should not be closed for a technical irregularity.
• Alembic Pharmaceuticals Ltd. v. Rohit Prajapati [2020 SCC Online SC 347]* The Court distinguished this authority, noting that it was in the context of a circular which was inconsistent with the statutory notification unlike the present case which had a statutory notification.
• Lafarge Umiam Mining Private Limited v. Union of India [2011 7 SCC 338]* The Court cited this authority to emphasize the need for proportionality in environmental matters.
• Shree Sidhbali Steels Ltd. & Others v. State of Uttar Pradesh & Others [2011 3 SCC 193]* The Court cited this authority to support the power to amend or modify notifications.
• Puducherry Environment Protection Association v. Union of India [2017 SCC OnLine Mad 7056]* The Court cited this authority to note that a one-time relaxation was permissible.

What weighed in the mind of the Court?

The Supreme Court’s decision was influenced by a combination of factors, including the need to balance environmental protection with economic and livelihood considerations. The Court recognized that while prior Environmental Clearance (EC) is essential, a rigid approach to enforcement could lead to disproportionate outcomes. The Court also considered the fact that the Haryana State Pollution Control Board (HSPCB) was itself under the misconception that prior EC was not required for the units in question.

The Court emphasized that the units were not causing pollution hazards and were operating with valid CTOs. The Court also noted that the units had applied for ex post facto EC and were in the process of obtaining it. The Court’s sentiment was that the units should not be closed down for a technical irregularity, especially when they were contributing to the economy and providing livelihood to thousands of employees.

The Court’s reasoning was also influenced by the principle of proportionality, as highlighted in Lafarge Umiam Mining Private Limited v. Union of India [2011 7 SCC 338]. The Court held that the adverse consequences of denying ex post facto approval outweighed the consequences of regularizing operations, provided the units complied with environmental norms.

The Court rejected the argument that ex post facto EC is always impermissible, distinguishing the Alembic Pharmaceuticals Ltd. [2020 SCC Online SC 347] case. The Court held that ex post facto EC can be granted in exceptional circumstances, provided the units comply with environmental norms and the adverse consequences of denial outweigh the consequences of regularization.

The Court quoted from the judgment:

• “The question is whether an establishment contributing to the economy of the country and providing livelihood to hundreds of people should be closed down for the technical irregularity of shifting its site without prior environmental clearance, without opportunity to the establishment to regularize its operation by obtaining the requisite clearances and permissions, even though the establishment may not otherwise be violating pollution laws, or the pollution, if any, can conveniently and effectively be checked. The answer has to be in the negative.”
• “The 1986 Act does not prohibit ex post facto Environmental Clearance. Some relaxations and even grant of ex post facto EC in accordance with law, in strict compliance with Rules, Regulations Notifications and/or applicable orders, in appropriate cases, where the projects are in compliance with, or can be made to comply with environment norms, is in over view not impermissible.”
• “Ex post facto environmental clearance should not however be granted routinely, but in exceptional circumstances taking into account all relevant environmental factors. Where the adverse consequences of ex post facto approval outweigh the consequences of regularization of operation of an industry by grant of ex post facto approval and the industry or establishment concerned otherwise conforms to the requisite pollution norms, ex post facto approval should be given in accordance with law, in strict conformity with the applicable Rules, Regulations and/or Notifications.”

There were no dissenting opinions in this case. The bench comprised of two judges, both of whom agreed on the final decision.

Key Takeaways

• Units operating with valid CTE and CTO that have applied for ex post facto EC should not be closed down pending the issuance of EC.
• Ex post facto EC can be granted in exceptional circumstances, considering economic and livelihood factors, provided the units comply with environmental norms.
• The principle of proportionality should be applied in environmental matters, balancing environmental protection with economic and livelihood considerations.
• Authorities should not adopt a pedantic approach to enforcement, especially when there are technical irregularities and no actual pollution.
• The judgment emphasizes the need for a balanced approach to environmental regulation, considering both environmental protection and economic development.

Directions

The Supreme Court gave the following directions:

• The impugned order of the NGT was set aside in so far as it applied to the units of the Appellants which had CTE and CTO and had applied for ex post facto EC.
• The Respondents were directed to take a decision on the applications of the Appellants for EC within one month.
• Pending the decision on EC, the operation of the Pahwa Yamuna Nagar Unit and the Apcolite Yamuna Nagar Unit was not to be interfered with.
• The Appellants were allowed to operate the units, and electricity, if disconnected, was to be restored.
• The Union of India was directed to inform the Appellants within three working days if anything further was required for the EC application.
• The final decision on the application for EC was to be taken within three weeks thereafter.

Specific Amendments Analysis

There was no specific amendment analysis in the judgment.

Development of Law

The ratio decidendi of this case is that ex post facto environmental clearances can be granted in exceptional circumstances where the adverse consequences of denial outweigh the consequences of regularization, provided that the units comply with environmental norms. This judgment clarifies that while prior EC is essential, a balanced approach is necessary, considering economic and livelihood implications. This case also clarifies the position of law regarding ex post facto clearances and distinguishes the position in Alembic Pharmaceuticals Ltd. The Supreme Court has reiterated that the 1986 Act does not prohibit ex post facto environmental clearance.

Conclusion

The Supreme Court allowed the appeal, setting aside the NGT order that had directed the closure of the Appellants’ units. The Court held that the units, which had valid CTE and CTO and had applied for ex post facto EC, should not be closed down pending the issuance of EC. The Court emphasized the need to balance environmental protection with economic and livelihood considerations and held that ex post facto EC can begranted in exceptional circumstances. This judgment provides a significant precedent for cases involving establishments operating without prior EC but complying with other environmental norms and contributing to the economy.