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The order passed on Friday came in two appeals challenging separate orders passed by the NGT western zone bench at Pune imposing ₹5 crore environment compensation on a ₹335-crore project built by Rhythm County in August 2022 and ₹4.47 crore EC on a ₹76-crore project developed by Keystone Properties in September 2022. Dismissing both appeals, the bench of justices Dipankar Datta and VIjay Bishnoi said, "If a company has a high turnover, it reflects the sheer scale of its operations. Such a company, if found to contribute generously to environmental damage, its turnover can have a direct co-relation with the extent of damage that is caused." Both realty firms challenged the tribunal orders, arguing that the NGT did not have the power under the law to impose such excessive costs. The tribunal order had relied on a 2018 top court judgment in Goel Ganga Developers case, where it was held that as a general rule, up to 5% of the project cost can be levied on defaulting companies that have flagrantly violated the law. In the said case, the court had imposed a higher environment compensation of ₹100 crore (or 10% of project cost) noting the grave damage caused by the project proponent.

The question before the top court bench was whether the NGT Act permitted linking project cost as a factor for determining or enhancing EC. The bench held that in cases relating to protection of the environment, linking a company's scale of operations (like turnover, production volume, or revenue generation) to the environmental harm can be a powerful factor for determining compensation. "Bigger operations signify a bigger footprint. Larger scale often means more resource use, more emissions, more waste leading to more environmental stress," it observed. The court further noted that if a company profits more from its scale of operations, it ought to bear more responsibility for the environmental costs. "Linking scale to impact sends a message that bigger players need to play by greener rules," it held. While the cost fixed for Rhythm came to just 2% of the project cost, Keystone claimed that in their case, the cost was 5.88% which was in excess of the 5% limit as mentioned in the 2018 top court decision. The bench upheld the quantification of the NGT while laying down that "the dictum in Goel Ganga Developers treated 5% of the project cost as a general guiding principle and not as an inflexible ceiling."

Going by the construct of the NGT Act, the court held that the powers conferred upon NGT are "wide, flexible, and principle-oriented" giving it wide amplitude. It cited Section 20 of the Act, which states, "The Tribunal shall, while passing any order or decision or award, apply the principles of sustainable development, the precautionary principle and the polluter pays principle." "The statutory scheme vests the NGT with the discretion to mould the relief guided by the 'polluter pays' principle, having due regard to the scale of the offending activity and the capacity of the violator," the bench said, adding, "Neither the NGT Act nor the jurisprudence of this court calls for the adoption of a uniform formula for the quantification of environmental compensation." At the same time, the court warned that "project turnover or cost cannot be applied mechanically as a blunt instrument" even as it remains a relevant and permissible factor where the factual matrix so warrants. On the whole, the court said that while computing EC, the tribunal should apply appropriate methodologies, including expert-driven and guidelines-based frameworks, to ensure such an exercise is neither arbitrary nor disproportionate. The court found the NGT action in both cases to be "reasoned, proportionate and consistent with the polluter pays principle" and directed the companies to pay the amount to the Maharashtra Pollution Control Board (MPCB) within three months.