Rs 12 lakh royalty v. Rs 96 crore penalty: Why Orissa High Court set aside ‘manifestly arbitrary’ NGT order

The Orissa High Court said that non-consideration of relevant material or consideration of irrelevant material by the NGT renders the decision arbitrary and violative of Article 14. (File photo)

Findings

• While environmental compensation is not required to bear a direct correlation to royalty paid, the doctrine of proportionality nonetheless requires that the quantum imposed be proportionate with the damage caused and supported by a rational methodology.
• The total royalty paid by the petitioner is approximately Rs 12.6 lakhs, whereas the environmental compensation imposed is approximately Rs 96 crore.
• Even under the polluter pays principle, the doctrine of proportionality cannot be ignored.
• The record reveals that while the final report of the private consultant was furnished to the petitioner, the raw data and methodology forming the basis of such assessment were not supplied.
• A meaningful opportunity of hearing is not satisfied by the mere communication of conclusions.
• Where a decision is founded on technical material, fairness requires disclosure of the material relied upon to enable effective rebuttal.
• The NGT order does not disclose any reasoned consideration of proportionality, nor does it adequately address the petitioner’s contentions relating to third-party illegal mining in the area.
• This omission assumes significance in view of the magnitude of the penalty imposed.
• The petitioner has questioned the correctness of the conclusions arrived at by the NGT.
• He has also questioned the legality of the process by which environmental compensation has been determined.
• The challenge is based on allegations of denial of access to material relied upon and the imposition of a penalty of an extraordinary magnitude without a reasoned examination.
• The petition falls within the recognised exceptions to the rule of alternative remedy.
• A principal grievance of the petitioner is that the NGT order has been passed on a selective consideration of material, while ignoring relevant statutory evidence placed on record.
• Non-consideration of relevant material or consideration of irrelevant material vitiates decisions and renders them arbitrary and violative of Article 14 of the Constitution of India.
• The imposition of environmental compensation of the magnitude involved in the present case undoubtedly entails serious consequences.
• The principles of natural justice, therefore, demand strict adherence.
• While the final report of the private consultant had been furnished to the petitioner, the underlying data and analytical basis were not disclosed.

Background

• The case originates from mining operations at the Damanbhuin laterite stone quarry in Khordha district.
• The petitioner was selected as the preferred bidder pursuant to an auction notice issued by the Tahasildar, Tangi, and was directed to deposit royalty on August 12, 2021.
• Environmental clearance for the quarry was granted on July 6, 2021, and subsequently transferred in favour of the petitioner on March 15, 2022.
• A formal mining lease deed was executed on April 25, 2022, covering an area of 4.139 hectares.
• The petitioner was granted consent to establish on June 29, 2022, and consent to operate on July 15, 2022, permitting extraction of 1,500 cubic metres of laterite stone per annum.
• Mining operations commenced in July 2022.
• In August 2023, one Ajay Behera, filed a plea before the NGT, alleging that the petitioner had engaged in excess and illegal mining beyond the permitted area and quantity.
• The NGT directed the constitution of a joint committee, which undertook inspections with the assistance of the Odisha Space Application Centre (ORSAC) and a private consultancy using satellite imagery, DGPS and drone surveys.
• Relying on these assessments, the NGT, on February 11, 2025, concluded that the petitioner had mined in excess of the consent to establish and imposed environmental compensation of Rs 96,28,50,175.

Petitioner’s arguments

• Challenging the NGT order, the petitioner contended that large-scale illegal mining in the area had been carried out by third parties.
• This was acknowledged by revenue authorities and supported by FIRs registered in June 2022 under the Mines and Minerals (Development and Regulation) Act, he said.
• It was argued that statutory measurements conducted by the geologist in the office of the Tahasildar had already resulted in levy and payment of royalty and minor penalties amounting to around Rs 21 lakh, and that excess mining attributable to the petitioner was limited.
• The petitioner also questioned the reliance on a private consultancy report.
• He contended that while conclusions were shared, the raw data and methodology were never disclosed, thereby denying an effective opportunity to rebut the findings.
• It was further submitted that the application of the net present value (NPV) concept, traditionally used in forest and tree-felling cases to a mineral resource like laterite stone was fundamentally misconceived.

State’s stand

Opposing the petition, the state argued that the NGT order was appealable under Section 22 of the NGT Act, 2010, and that the petitioner had bypassed the statutory remedy.

The authorities maintained that scientific assessment revealed excess extraction of over 79,000 cubic metres of laterite stone, far exceeding permissible limits, and that environmental compensation need not correspond to royalty paid.

They asserted that the NGT, as a specialised environmental forum, had duly considered the material on record before passing the impugned order.

Decision

Concluding that the NGT’s order suffered from non-consideration of relevant material, lack of proportionality, and violation of natural justice, the high court set aside the impugned order dated February 11, 2025, insofar as it related to computation and imposition of environmental compensation.

The matter was remitted to the competent authority for fresh consideration, with directions to furnish all relied-upon material, afford the petitioner a meaningful hearing, and pass a reasoned order in accordance with law.

The writ petition was accordingly disposed of on January 9, 2026, and all interim orders stood vacated.