2025 (9) TMI 407 - SC - Money Laundering

Turnover-based environmental penalties unlawful; fines require a rational nexus to harm and PMLA powers confined to designated authorities

M/s C.L. Gupta Export Ltd. Versus Adil Ansari & Ors.

M/s C.L. Gupta Export Ltd. Versus Adil Ansari & Ors. - 2025 INSC 1035 ISSUES PRESENTED AND CONSIDERED 1. Whether the adjudicatory tribunal (NGT) may lawfully compute and impose environmental compensation (EC) by reference to the alleged polluter's turnover (percentage of revenue) absent a rational nexus between turnover and environmental harm, and whether the quantum imposed (Rs.50 crores) was sustainable. 2. Whether the NGT may direct invocation of the Prevention of Money Laundering Act (PMLA) and the Enforcement Directorate (ED) to examine and take action in respect of environmental violations, in the absence of a registered FIR or a finding of criminality constituting scheduled offences under PMLA. 3. Whether the NGT's sweeping direction for closure of divisions of the industrial unit that were reported compliant (per Joint Committee reports) or otherwise subject to ongoing monitoring was justified, or whether closure power must be reserved to statutory pollution control boards (PCBs) subject to conditions and active non-compliance. 4. Whether directions for continuous water audit, monitoring, restoration (including aquifer recharge, water balance monitoring, recycling and reduced groundwater withdrawal) and area-wide environmental load management fall within the NGT's statutory powers and are maintainable as continuing supervisory measures. 5. Whether the maintainability of the underlying public interest petition (PIL) requires adjudication at this stage when interim Joint Committee reports indicate prima facie environmental violations but later reports record compliance. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legality and quantum of EC computed by reference to turnover Legal framework: NGT's power to grant relief and compensation under its constituting statute; CPCB/UPPCB methodologies for assessment of EC (including CPCB's 2019 methodology and the CPCB's 2019/2019-derived protocols and multipliers); principle embodied in 'polluter pays'. Precedent treatment: The Court followed and applied its earlier analysis in Benzo Chem Industrial (P) Ltd. (noting that imposition of penalty by reference to revenue/turnover without nexus was impermissible) and treated that reasoning as binding on proportionality and rule-of-law grounds; it rejected use of turnover as a blunt multiplier. The NGT's practice of referencing turnover was disapproved as inconsistent with legal principles. Interpretation and reasoning: The Court emphasized requirement of a rational nexus between quantum of environmental compensation and the nature/extent of environmental damage or statutory criteria, rejecting a pure revenue-based 'pound of flesh' approach. Where statutory bodies had earlier computed EC based on CPCB methodology and the appellant had paid EC and later reported compliance, the NGT erred in imposing an additional flat turnover percentage penalty (Rs.50 crores) without applying or referring to the CPCB's established methodology or demonstrating nexus. The Court accepted that NGT could enhance penalty where justified but must do so by reference to recognised methodology or reasoned nexus to harm and statutory considerations, not mere turnover figures taken from public domain. Ratio vs. Obiter: Ratio - the NGT cannot lawfully impose EC by reference to turnover absent nexus or recognised methodology; such imposition is violative of rule of law and lacks jurisprudential basis. Obiter - observations criticizing 'pound of flesh' rhetoric and expansive comments on permissible methodology beyond immediate facts. Conclusion: The imposition of Rs.50 crores by the NGT by reference to admitted turnover is set aside. The Court left intact the EC imposed by statutory PCBs (subject to challenge by the appellant through appropriate remedies and limitation laws) and preserved the PCBs' power to recover any shortfall or impose further EC on fresh non-compliance. Issue 2 - Power of NGT to direct invocation of PMLA / ED action Legal framework: PMLA (Section 3 and the concept of scheduled offences requiring illegal gain), the statutory remit of NGT under Section 15 of NGT Act (environmental adjudication, relief and compensation) and institutional competence of enforcement agencies (ED) and criminal process (FIR, prosecution). Relevant Supreme Court jurisprudence (Vijay Madanlal Choudhary and subsequent cases) regarding scope of PMLA and dependency on establishment of illegal gain/registered criminality. Precedent treatment: The Court relied on Waris Chemicals and Vijay Madanlal Choudhary line of authority to conclude that PMLA operates where illegal gain from scheduled offences is established; prior decisions raised doubts about NGT's competence to direct invocation of PMLA/ED absent requisite criminal process. Interpretation and reasoning: The Court held that Section 3 PMLA presupposes illegal gain resulting from criminal activity constituting a scheduled offence, and that invocation of PMLA/ED ordinarily follows registration of FIR/appropriate criminal complaint and prosecutorial processes. The NGT does not possess jurisdiction akin to courts constituted under PMLA to direct ED to investigate/prosecute under PMLA; its mandate under Section 15 does not extend to initiating PMLA action. Thus, directions to ED were beyond NGT's statutory competence and unsustainable. Ratio vs. Obiter: Ratio - NGT's direction to ED to examine and act under PMLA is set aside for lack of jurisdiction and absence of requisite criminal predicate. Obiter - the Court did not determine whether any PMLA offence actually existed on facts; that question was left open. Conclusion: Direction to Enforcement Directorate/PMLA action is set aside; no observation made on existence of offences or compliance with criminal law prerequisites. Issue 3 - Validity of sweeping closure directions where compliance reported Legal framework: Statutory powers of PCBs to issue closure/stop-work notices for non-compliance; NGT's supervisory remedial powers; doctrine of proportionality and requirement of specific findings of ongoing non-compliance before closure orders are justifiable. Precedent treatment: The Court reaffirmed that closure powers lie with statutory PCBs subject to statutory sanction; NGT may direct remedial measures and monitor compliance but should not order sweeping closures when records show compliance or when jurisdictional agencies have statutory remedies to act on fresh violations. Interpretation and reasoning: Given the Joint Committee's final report recording full compliance (30.07.2021) and subsequent joint inspection confirming remedial measures (flow-meters, piezometers, STP/ETP, negligible water abstraction variance), the Court held that a blanket direction to close divisions still allegedly non-compliant lacked justification. The Court preserved the PCBs' right to act on future non-compliance but set aside the NGT's closure direction as excessive and unnecessary in light of reported compliance and available statutory remedies. Ratio vs. Obiter: Ratio - sweeping closure directions are unjustified where compliance has been established; closure should be a measured response by PCBs on specific non-compliance. Obiter - commentary on need for proportional adjudication and restraint in rhetoric. Conclusion: NGT's directions for closure of divisions are set aside while leaving open PCB actions for proven future non-compliance. Issue 4 - Validity of continuing audit, monitoring and restoration directions Legal framework: NGT's mandate to grant relief, compensation and protective measures for environmental conservation; statutory and administrative roles of CPCB/PCBs; remedial environmental management principles (aquifer recharge, water balance monitoring, recycling, area-wide load management). Precedent treatment: The Court accepted CPCB's position that audit, monitoring and restoration fall within NGT powers and are appropriate continuing measures; previous authorities recognizing remedial supervisory directions were treated as supportive. Interpretation and reasoning: The Court held that directions for fresh water audit, monitoring, restoration and area-wide environmental load management are legitimate exercises of the NGT's remedial powers and should be retained. Restoration measures should focus on aquifer recharge, continuous water-balance monitoring, recycling of treated water and reduced groundwater withdrawal. Such measures are ongoing regulatory/supervisory steps compatible with statutory objectives and environmental protection imperatives. Ratio vs. Obiter: Ratio - continuing audit, monitoring and restoration directions are within the NGT's competence and are to be maintained. Obiter - specific technical measures and emphasis on design of compliance regimes are advisory but consistent with remedial intent. Conclusion: Directions relating to continuous monitoring, fresh water audit and restoration are upheld and retained as continuing processes to ensure compliance and environmental protection. Issue 5 - Maintainability of PIL at this stage Legal framework: Judicial principles on maintainability of public interest litigation (PIL) and scope outlined in seminal authority (Ashok Kumar Pandey). Precedent treatment: The Court noted the contours of PIL maintainability but declined to determine maintainability in this proceeding at the interlocutory stage because initial Joint Committee reports showed prima facie violations warranting NGT action and remedial intervention. Interpretation and reasoning: The Court observed that maintainability need not be decided when factual records (early Joint Committee reports) disclose violations prompting regulatory response; later compliance reports do not automatically negate the propriety of the proceedings initiated or the need for remedial oversight. The Court therefore refrained from adjudicating maintainability, reserving that question for appropriate context. Ratio vs. Obiter: Obiter - non-decision on maintainability; procedural prudence recognized. Ratio - none, as the Court expressly declined to decide the issue. Conclusion: Maintainability of the PIL was not adjudicated; the Court proceeded on merits limited to directions and their propriety.