Supreme Court Of India

Disposing of the petition, the Court HELD: 1. The Executive Body of the Compensatory Afforestation Fund Management and Planning Authority (CAMPA) shall include two more environmentalists, one of whom may be an expert in the field of forest and the other in the field of forest economy development. These members shall be included in the Executive Body in consultation with the Chairperson of the Central Empowered Committee. [569-g; 570-b] 2. Regarding Clause 6.3 (iv) of the Notification dated 23.4.2004 issued by the Ministry of Environment and Forests, it is directed that corporate accounting based on double entry system and auditing should be conducted by the Comptroller and Auditor-General (CAG). [570-c] 3. Clause 6.4 (v) of the Notification provides that the monies received in CAMPA shall be used only in that particular State or Union Territory. The clause seems to be too rigid. Many a time, the effect of degradation of environment or depletion of forest can be felt more in the adjoining area which may be in a different State or Union Territory. The effect of environmental degradation cannot be restricted to a particular area. The impact cannot be limited to the place of origin. Therefore, it is directed that a suitable modification of the clause shall be made so as to provide that ordinarily expenditure shall be incurred in the particular State or Union Territory but leaving it to the discretion of the CAMPA to also incur expenditure in the State or Union Territory other than the one mentioned in clause 6.4 (v), if it is necessary. [570-d-e] 4. Clause 6.6 of the Notification which by use of the word `may' leaves it to the discretion of the CAMPA to establish Special Performance Vehicle (SPV) for undertaking compensatory afforestation deserves to be amended so as to substitute the word `may' by the word `shall' so that the regeneration is done by some SPV in specified areas. [570-f] 5.1. The NPV is the present value (PV) of net cash flow from a project, discounted by the cost of capital. [571-e] 5.2. Forestry is a public project. It is important to bear in mind that a benefit received today is worth more than that received later. The benefit received today is in fact `cost incurred' today. Time value of the cash inflow/outflow is important in investment appraisal. NPV is a method by which future expenditure (cost) benefit is levelised in order to account for the time value of money. The object behind NPV is to levelise costs. What is the value of Rupee today would not be the value of Rupee say 50 years later. For example, let us have the starting point of Rupee in India in the year 2005 and analyse it with the value of Rupee that may be in the year 2050. Cost incurred or to be incurred in 2005 has to be discounted by using appropriate parameters like rate of discount, gestation period and ratio of deflators to GDP. Therefore, expenses incurred in each year between say 2005 and 2050 will have to be brought down to their present values by using appropriate discount rate in the NPV. [571-f-g-h] 5.3. The project like forestry has a long gestation period of 40-50 years. It goes through cost cycles each year depending upon inflation, rate of interest, internal rate of return etc. Therefore, cost for the year 2005 will differ from the cost of 2006 and cost of 2006 will differ from that of the year 2007 and so on and so forth. However, this constitutes what is called as conventional method of accounting cost which does not take into account social and economic cost of diversion of forest. [572-a, b] 6.1. The question then is why charge NPV. In the case of a conventional project like Hydro-electric Project, the accounting procedure is normally based on Return On Investment (ROI) in which the unit cost of energy includes return on capital, investment, depreciation of capital, annual fuel cost and operational and maintenance costs. However, ROI excludes the time value of money. It also excludes the gestation period of the project. Therefore, one has the NPV method which discounts future costs and future benefits by use of appropriate discount rate and brings down such costs and benefits to the reference date which in the present case has been assumed to be the year 2005. [572-d, e] 6.2. The value of any asset is discounted by present value of the economic benefits it will generate in future years. For example, timber asset value is the discounted future stumpage price for mature timber after deducting costs of bringing the timber to maturity. NPV is one of the methods for valuation of standing timber. The general expression V for the value of an asset, in the base year O, is simply the sum of the net economic benefits it yields in each year over the life time, T, of the Asset, discounted to the present value by the discounted rate. [572-f, g] 7.1. Social Cost Benefit Analysis (SCBA) can be applied to the evaluation of environmental impacts of forestry projects. Here, one must appreciate that the environmental outputs from forests appear as public goods for which there is no market. Various environmental outputs can be classified into this category, namely, Flood Control Benefits, Water Production, Soil Conservation, Outdoor Recreation, Biodiversity & Conservation, Habitat and Air Purification. [573-b, c, d] 7.2. The problem in valuation of the above outputs is: allocation of fixed costs according to the contribution of each product in total revenue. This is because except contribution of timber product, contribution of the other above-noted outputs is not known, especially intangible outputs. However, under SBCA, benefits from each of the above environmental outputs are identifiable. For example, flood control benefits arise because of the role of forests as stream regulator. Similarly, valuation method for each of the above outputs differs. In valuing biodiversity, Contingency Value Method (CVM) is useful. SBCA is helpful in placing monetary value on carbon storage on air purification. [573-e, f] 7.3. For each of the above functions of the forests, different methods of valuation have to be applied. Various methods have been used to estimate the value of environment like CVM, Opportunity Cost Method, Travel Cost Method, SBCA etc. It would be appropriate if a body of experts examine the aspect and report to this Court suggesting the best method depending on factors like gestation period, rate of discount (interest), density of the forest, social benefits of the project undertaken by PSU etc. They will take into account economic values associated with forests, viz., direct use values, indirect use values such as value of environmental benefits from the forest, option values and existence value. [573-g, h; 574-a] 8.1. Thus, NPV helps levelising the costs of public projects like forestry. It is an important tool of SBCA. Under SBCA, benefits from each of the above environmental outputs are identifiable. Hence, applying NPV, one can allocate levelised costs according to the contribution of each product in the total revenue. It is important to bear in mind that a benefit or cost received or incurred now is worth more than that received or incurred later. Therefore, using the appropriate discount rate helps to aggregate marginal benefits and costs. The choice of interest rate depends upon time preference. For public projects, such as forestry, a social discount rate, which indicates time preference of the society, should be used. [574- b, c] 8.2. Ultimately, it would be for the experts to examine and assist this Court as to the Model to be adopted for valuation, namely, Total Economic Value, CVM, SBCA etc. It is for the experts to tell this Court as to what NPV should be applied in case of mines and different types of forests. It is to be noted that the basis of these valuations is the theory of sustainable development, i.e. development that meets the needs of the present without compromising with the ability of future generations to meet its own needs. Despite various elaborations, the definition of sustainable development though very old, still is widely accepted world over and has been reiterated by this Court in catena of cases. [577-e, f] Gopal K. Kadekodi: "Environmental Economics in Practice", referred to. 9. Noticing fast depletion of forests, the Fund dealt with by CMPA was ordered to be utilized for protection of forests and environments. The environments are not the State property and are national asset. It is the obligation of all to conserve the environments and for its utilization, it is necessary to have regard to the principles of sustainable development and inter-generational equity. [583-e] 10.1. Reverting now specifically to forests, if it becomes necessary for economic development to use the same for non-forest purpose, then before grant of permission for diversion of forest land, there should be some scheme whereunder loss occurring due to such diversion can be made up by adopting both short term measures as well as long term measures one of it being a regeneration programme. Natural regeneration is a long process. It requires huge amounts. It requires a policy and direction. It requires proper use of funds for regeneration of depleted forest and ecology. The natural resources like forests are in trust with the present generation. The body set up or fund generated to protect ecology and provide for regeneration cannot in constitutional scheme of things be considered and treated as a fund under Article 266 or Article 283 or Article 284 of the Constitution of India. When seen in this light, neither Article 110 nor Article 199 and/or Article 294 or 195 would have any application. [583-f, g, h; 584-a, b] 10.2. Thus, reading Entry 47 with Entry 20 of List III, the imposition of NPV is a charge or a fee which falls within Entry 47 read with Entry 20 of List III of the Seventh Schedule to the Constitution. The Fund set up is a part "of economic and social planning" which comes within Entry 20 of List III and the charge which is levied for that purpose would come under entry 47 of List III and, therefore, Article 110 is not attracted. [585-c] Ratilal Panachand Gandhi v. State of Bombay, [1954] SCR 1055, referred to. 11. The natural resources are not the ownership of any one State or individual; public at large is its beneficiary and, therefore, the contention that the amount of NPV shall be made over to the State Government cannot be accepted. [588-c] M.C. Mehta v. Kamal Nath, [1997] 1 SCC 388, referred to. Lawrence S. Davis, K. Norman Johnson and Theodore E. Howard: "Forest Management" 4th Edn., referred to. 12. The question as to which class of projects deserves to be exempted can first be examined by experts having regard to the principles laid down in this judgment and on receipt of the report from them, this Court would further examine the matter and issue appropriate directions. However, revenue earning projects do not deserve similar treatment as non-revenue earning public welfare projects. [600-b, c] Hindustan Motors Ltd. v. N. Siva Kumar, [2000] 10 SCC 664, referred to. Columbia Journal of Environmental Law (28 Colum.J.Envtl.L.185), referred to. 13. Conclusions by the Court: 1. Except for government projects like hospitals, dispensaries and schools referred to in the body of the judgment, all other projects shall be required to pay NPV though final decision on this matter will be taken after receipt of the Expert Committee Report. [600-f] 2. The payment to CAMPA under notification dated 23.4.2004 is constitutional and valid. [600-g] 3. The amounts are required to be used for achieving ecological plans and for protecting the environment and for the regeneration of forest and maintenance of ecological balance and ecosystems. The payment of NPV is for protection of environment and not in relation to any propriety rights. [600-h; 601-a] 4. Fund has been created having regard to the principles of intergenerational justice and to undertake short term and long term measures. [601-b] 5. The NPV has to be worked out on economic principles. [601-b] 14. Directions of the Court: A. An expert committee comprising of three experts including Ms. Kanchan to be appointed within a period of one month by the Institution of Economic Growth (North Campus). [601-c] B. The committee of experts would examine the following issues:- [601-c] (i) To identify and define parameters (scientific, bio-metric and social) on the basis of which each of the categories of values of forest land should be estimated. (ii) To formulate a practical methodology applicable to different bio- geographical zones of India for estimation of the values in monetary terms in respect of each of the above categories of forest values. [601-d] (iii) To illustratively apply this methodology to obtain actual numerical values for different values for different forest types for each of bio-geographical zone in the country. [601-e] (iv) To determine on the basis of established principles of public finance, who should pay the costs of restoration and/or compensation with respect to each category of values of forests. [601-f] (v) Which projects deserve to be exempted from Payment of NPV. [601-f] C. The user agencies shall give an undertaking for the further payment, if any, as may be determined on receipt of the report from the expert body. [601-g] D. The Special Purpose Vehicle shall be established with the permission of the Court. [601-h] E. The Institute shall send the report of the Committee of Experts within a period of four months. [601-h; 602-a] F. The various clauses of CAMPA shall be suitably modified in terms of this judgment within a period of one month. [602-a] G.E Vahanvati, Solicitor General, A. Sharan and B. Datta, Additional Solicitor Generals, Harish N. Salve, U.U. Lalit, (A.C.), K.K. Venugopal, Dr. Rajiv Dhavan, V.A. Mohta, Altaf Ahmad, Dr. A.M. Singhvi, Jayant Bhushan, Vivek Tankha, K. Parasaran, Shekhar Naphade, Dr. R.G. Padia, Ms. Shobha Dikshit, Anoop G. Chaudhari, Ravi Shankar Prasad, A.T.M. Rangaramanujam, Sidhartha Choudhary, (AC), C. Mukhopadhyay, Ms. Lavleen, Ms Binu Tamta, Aruneshwar Gupta, Addl. Advocate General for State of Rajasthan, Naveen Kumar Singh, Ms. Shivangi, Shivasubramaniam, S. Sukumaran, A. Deb Kumar, M.P. Singh, Ramesh Babu M.R., A.D.N. Rao, B.V. Balram Das, Mukesh K. Giri, S.C. Patodia, Ms. Rachna Srivastava, Addl. Advocate General for Uttaranchal Ms. Sangeet Kumar, Vijay Kumar, Ashwani Garg, S.K. Kulkarni, M. Gireesh Kumar, Prashant Kumar, J.T. Gilda, Manish Pitale, C.S. Ashri, Gurukrishna Kumar, K. Rajeev, Ms. Tasneem Ahmadi, Rajesh Rai, Ajay Sharma, Ajay Majithia, Manish Jain, Dr. Kailash Chand, Bharat Sangal, B. Parthasarathi, John C. Rose, Sanjiv Sen, Manish Pratap Singh Chauhan, Ms. Sarla Chnadra, Sanjeev Kumar, Prateek Jalan, Paras Kuhad, Ms. Sushmita Banerjee, Ms. Minakshi Sharma, Tarun Johri, Sunil Dogra, Ms. Bina Madhavan, S. U.K. Sagar, S. Ravi Shankar, V. Balachandran, Rajiv Patil, Shivaji M. Jadhav, Himanshu Gupta, Brij Kishor Sah, Raj Kumar Mehta, M. Sarada, Ajit Kumar Sinha, J.P. Dabral-in-person, Ms. Rekha Pandey, D.S. Mahra, Himinder Lal, Ajit Pudussery, K. Vijayan, Badri Prasad Singh, Ms. Suchitra A. Chitale, Ms. Hemantika Wahi, Ms. Sadhna Sandhu, Ejaz Maqbool, P.V. Yogeshwaran, Rakesh K. Sharma, Himanshu Shekhar, Naresh K. Sharma, A.P. Mayee, P.K. Manohar, Sewa Ram, K.R. Sasiprabhu, M.K.S. Menon, Ms.G. Indira, Maninder Singh, Ms. Pratibha M. Singh, Angad Mirdha, Kirtiman Singh, Saurabh Mishra, S.W.A. Qadri, Kamlendra Misra, Rajeev Kumar Dubey, Ms. Vimla Sinha, Pradeep Misra, Mohd. Saud, J.K. Bhatia, Ajay Siwach, Manjit Singh, Ms. Vivekta Singh, Harikesh Singh, T.V. George, Ms. Krishna Sarma, V.K. Sidharthan, Riku Sarma, Ms. Suparna Srivastava, Rahul Srivastava, Rajesh Srivastava for Prakash Shrivastava, B.K. Prasad, S.N. Terdal, T.L.V. Iyer, Ramesh Babu M.R., R.K. Rathore, Addl. Advocate General for State of Punjab, S. Krishnaraj, Arun Kumar Sinha, Bimal Roy Jad, Anil Kumar Sangal, Nalin Sangal, D.P. Mohanty, J.S. Attri, Addl. Advocate General for State of Himachal Pradesh, Ms.A. Subhashini, B.S. Banthia, for S.K. Agnihotri, Bharat Sangal, Ms. Sangeeta Panicker, R.R. Kumar, Samyadip Chatterji, Ms. Aruna Gupta, Naveen Kumar Singh, Ms. Shivangi, Rakesh Shukla, Ms. Sumita Hazarika, K.B. Rohatgi, Ms. Aparna Rohatgi Jain, Mahesh Kasana, Manoj Saxena, Amit Meharia, S.K. Mitra, Debojit Borkakati, M.P. Meharia, Bhavanishankar V.Gadnis, Ms. B. Sunita Rao, Nitin Popli, Gopal Singh, Rituraj Biswas, Ms. Sunita R. Singh, B.B. Singh, Kh. Nobin Singh, David Rao, Ms. Kamini Jaiswal, Ms. Shomila Bakshi, Devavrat, Jos Chiramal, S.B. Upadhyay, A. Mariarputham, Ms. Aruna Mathur, S.C. Patodia, Sunil Dogra, S.U.K. Sagar, Mukesh K.Giri, Sanjay R.Hegde, Ranjan Mukherjee, Tara Chandra Sharma, Ms. Neelam Sharma, Tarun Sharma, Anis Subrawardy, M.N. Shroff, J.T. Gilda, Manish Pitale, C.S. Ashri, Prashant Kumar, Suresh A. Shroff, Vishwajit Singh, Ms. Ruby Singh Ahuja, Ramesh N. Keshwani, Ms. Manjula Gupta, Naveen R. Nath, S.N. Bhat, C.N. Sreekumar, Shashi Bhushan, Prashant Bhushan, Shakil Ahmad Syed and Sunil Kumar for the appearing parties.