Supreme Court Upholds Construction Based on Legitimate Expectation: Sai Baba Sales vs. Union of India (2021)

Introduction

Date of the Judgment: 26 November 2021
Citation: 2021 INSC 767
Judges: R. Subhash Reddy, J. and Hrishikesh Roy, J. (authored the judgment).
Can a project proponent be penalized for relying on an Environmental Clearance (EC) issued by a local authority, when that authority’s power to grant such clearances is later invalidated? The Supreme Court of India addressed this question in a case involving M/s. Sai Baba Sales Pvt. Ltd., where the project proponent had obtained an EC from the Pimpri Chinchwad Municipal Corporation (PCMC). The court had to determine if the construction done under this EC should be protected despite the subsequent invalidation of the notification that empowered the PCMC to grant ECs. The two-judge bench of Justices R. Subhash Reddy and Hrishikesh Roy delivered the judgment, with Justice Hrishikesh Roy authoring the opinion.

Case Background

The case revolves around M/s. Sai Baba Sales Pvt. Ltd. (referred to as “Project Proponent”), who initially planned a construction project with a built-up area of 15,040 sq. mtrs. This area was below the threshold requiring an Environmental Clearance (EC) from the State Environment Impact Assessment Authority (SEIAA). The Project Proponent obtained a commencement certificate from the Pimpri Chinchwad Municipal Corporation (PCMC) on 14 May 2013. Subsequently, the Project Proponent sought to expand the project to 49,012 sq. mtrs, requiring an EC. The Ministry of Environment, Forest and Climate Change (MoEFCC) issued a notification on 9 December 2016, which allowed local authorities like the PCMC to grant ECs for projects between 20,000 and 1,50,000 sq. mtrs. The Project Proponent applied to the PCMC and received an EC on 28 November 2017. However, the National Green Tribunal (NGT) later quashed parts of the 9 December 2016 notification on 8 December 2017. Following this, a resident of Pune filed an Original Application (OA) in 2019, alleging that the Project Proponent’s construction was illegal for not obtaining an EC from the SEIAA. The NGT initially ruled against the Project Proponent, but the Supreme Court remanded the matter back to the NGT, leading to the current appeal.

Timeline

Course of Proceedings

The National Green Tribunal (NGT), in its initial order, found the construction by the Project Proponent irregular. This order was challenged in the Supreme Court, which set aside the NGT’s order and remanded the matter back for a fresh hearing. The NGT then considered the matter again and observed that the EC obtained by the Project Proponent from the PCMC was invalid due to the NGT’s earlier judgment quashing parts of the MoEFCC notification of 9 December 2016. However, the NGT protected the construction already completed, citing the principle established in Goan Real Estate and Construction Ltd. Vs. Union of India, (2010) 5 SCC 388, while directing that any further construction would require a fresh EC from the competent authority. The current appeals before the Supreme Court are against this order of the NGT.

Legal Framework

The core legal issue revolves around the Environmental Impact Assessment (EIA) notification of 14 September 2006, which mandates that projects with built-up areas between 20,000 and 1,50,000 sq. mtrs require an Environmental Clearance (EC) from the State Environment Impact Assessment Authority (SEIAA). The Ministry of Environment, Forest and Climate Change (MoEFCC) issued a notification on 9 December 2016, altering this regime to allow local authorities like the PCMC to grant ECs for projects within the specified area. This notification was later partially invalidated by the NGT on 8 December 2017. The National Green Tribunal Act, 2010, under Section 22, provides for appeals against the orders of the NGT to the Supreme Court.

Arguments

Arguments of the Appellant (M/s. Sai Baba Sales Pvt. Ltd.):

• The Project Proponent initially obtained a sanction plan for 15,040 sq. mtrs on 14 May 2013, which did not require an EC.
• For the expanded project of 49,012 sq. mtrs, they applied for a “Proposed Development Certificate” on 7 November 2016, which was granted on 28 November 2016. This certificate was a prerequisite for applying for an EC from the SEIAA.
• Due to the MoEFCC notification of 9 December 2016, the PCMC became the competent authority to grant ECs for projects of this size.
• The Project Proponent applied to the PCMC on 10 July 2017 and obtained an EC on 28 November 2017 from the competent local authority.
• The NGT’s judgment on 8 December 2017, which invalidated parts of the 2016 notification, did not nullify the ECs granted by local authorities under the altered regime.
• The project proponent acted in accordance with the prevalent legal framework and should not be penalized for changes in the EC regime.
• The principle of legitimate expectation should be applied, as the project proponent had a legitimate expectation that the EC granted by the PCMC was valid.

Arguments of the Respondent (Original Applicant):

• The EC granted by the PCMC on 28 November 2017 was invalid because the NGT struck down parts of the MoEFCC’s 2016 notification.
• The construction done by the Project Proponent is unauthorized and should be penalized.
• The Project Proponent should be prevented from proceeding with further construction.

Arguments of the Government of Maharashtra and the State Pollution Control Board:

• The State of Maharashtra adopted the environmental conditions stipulated in the MoEFCC notification dated 9 December 2016.
• The State of Maharashtra clarified on 29 January 2018, that Municipal authorities should not process pending applications, but did not give any guidance on the implication on ECs already granted.

Arguments of the Ministry of Environment & Forest:

• The competent authority to grant EC at the relevant time was the PCMC and not the SEIAA.
• The internal works for the fourth constructed building can be allowed to be completed.

Innovation of Arguments: The Project Proponent’s argument on the doctrine of legitimate expectation, emphasizing the need for stability and predictability in government dealings, was particularly innovative in this context. It highlighted the unfairness of penalizing a party for adhering to the legal framework prevalent at the time of obtaining the EC.

Issues Framed by the Supreme Court

The main issue framed by the Supreme Court was:

1. Whether the Project Proponent possesses a validly granted Environmental Clearance (EC) under the Environmental Impact Assessment (EIA) notification dated 14.9.2006.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

Judgment

How each authority was viewed by the Court?

• Goan Real Estate and Construction Ltd. Vs. Union of India, (2010) 5 SCC 388:* The Supreme Court followed this authority to protect the already constructed buildings.
• Attorney General of Hong Kong v. Ng Yuen Shiu (1983) 2 AC 629:* The Supreme Court relied on this authority to support the principle of fair dealing by public authorities and the doctrine of legitimate expectation.
• Sethi Auto Service Station vs Delhi Development Authority & Ors (2009) 1 SCC 180:* The Supreme Court used this authority to elucidate the concept of legitimate expectation.
• Food Corporation of India Vs. M/s Kamdhenu Cattle Feed Industries (1993) 1 SCC 71:* The Supreme Court used this authority to further explain the doctrine of legitimate expectation.

What weighed in the mind of the Court?

The Supreme Court’s decision was significantly influenced by the principle of legitimate expectation. The Court noted that the Project Proponent had acted in accordance with the legal framework that existed at the time of obtaining the EC from the PCMC. The Court also considered that the NGT’s invalidation of certain parts of the 2016 notification did not explicitly nullify the ECs already granted by local authorities. The Court emphasized the need for stability and predictability in government dealings, particularly when a project proponent has made substantial investments based on a validly issued EC. The Court also considered the fact that the NGT’s expert committee itself had acknowledged that the PCMC was the competent authority at the time of granting the EC. The court also noted that third party rights had accrued in the interregnum, as 40 out of 64 apartments in the fourth building had already been sold.

The court’s reasoning can be broken down as follows:

The Supreme Court considered alternative interpretations but rejected them. The court could have held that the invalidation of the 2016 notification had a retrospective effect, thereby nullifying all ECs granted under it. However, the court chose to apply the principle of legitimate expectation, thereby protecting the construction already completed. The court also considered that the NGT itself had protected the already constructed structures, indicating that there was no major deviation from the environmental norms. The court quoted the following from the judgment:

“…when a public authority has promised to follow a certain procedure, it is in the interest of good administration that it should act fairly and should implement its promise, so long as implementation does not interfere with its statutory duty.”

“The mere reasonable or legitimate expectation of a citizen, in such a situation, may not by itself be a distinct enforceable right, but failure to consider and give due weight to it may render the decision arbitrary…”

“A Project Proponent is not expected to anticipate the changes in EC regimes, especially as a result of judicial interventions, and keep revisiting the sanctioned clearances by the competent authority or even raze down validly constructed structures.”

The court, therefore, held that the construction already completed should be protected, but any further construction would require a fresh EC from the competent authority as per the currently applicable framework. The court did not venture into the question of the retrospective implication of the invalidation of certain parts of the 2016 notification for other project proponents.

Key Takeaways

• The doctrine of legitimate expectation can protect project proponents who have acted in accordance with the prevailing legal framework.
• Changes in environmental clearance regimes, particularly due to judicial interventions, should not penalize those who have obtained valid clearances under the previous regime.
• Public authorities must maintain stability and predictability in their dealings, especially when significant investments are involved.
• Even if an EC is later deemed invalid, construction already completed under that EC can be protected, if the project proponent has acted in good faith.
• For any further construction, project proponents must obtain fresh clearances from the competent authority as per the currently applicable framework.

Directions

The Supreme Court directed that the four constructed buildings of the Project Proponent are to be treated as having a valid EC. However, for any further construction, the Project Proponent must secure fresh clearance from the competent authority as per the currently applicable framework.

Development of Law

The ratio decidendi of this case is that the doctrine of legitimate expectation can protect project proponents who have acted in accordance with the prevailing legal framework, even if the EC is later deemed invalid due to changes in the legal regime. This case reinforces the principle that public authorities must maintain stability and predictability in their dealings and that changes in environmental clearance regimes should not unfairly penalize those who have acted in good faith. This decision does not change the previous position of the law, but rather clarifies how the doctrine of legitimate expectation should be applied in the context of environmental clearances.

Conclusion

In conclusion, the Supreme Court’s judgment in M/s. Sai Baba Sales Pvt. Ltd. vs. Union of India & Ors. provides crucial clarity on the application of the doctrine of legitimate expectation in the context of environmental clearances. The court protected the construction already completed by the Project Proponent, recognizing that they had acted in accordance with the prevailing legal framework at the time of obtaining the EC from the PCMC. However, the court also made it clear that any further construction would require a fresh EC from the competent authority as per the currently applicable framework. This decision underscores the need for stability and predictability in government dealings and protects project proponents from being penalized for changes in the legal regime that are beyond their control.