Holding

The levy of Net Present Value on user agencies for forest land diversion is a constitutional fee under Entry 47 of List III and must be paid, with the proceeds to be used for ecological restoration via CAMPA.

Summary

The petition sought directions on whether user agencies diverting forest land for non‑forest purposes must compensate by paying the Net Present Value (NPV) of the lost forest benefits and what guidelines should govern NPV calculation. The Court examined the statutory framework of the Forest (Conservation) Act, 1980, the Environment (Protection) Act, 1986, and constitutional provisions, emphasizing the public‑trust nature of forests and the need for inter‑generational equity. It held that the Compensatory Afforestation Fund Management and Planning Authority (CAMPA) is a valid body and that the levy of NPV is a fee under Entry 47 read with Entry 20 of List III, not a tax, and therefore constitutionally permissible. The Court directed the inclusion of two additional environmental experts in CAMPA, amendment of specific clauses of the 2004 Notification, and the constitution of an expert committee to devise NPV methodology and identify exempt projects. It further clarified that amounts collected under CAMPA are to be used for ecological restoration and not to be credited to any State’s consolidated fund. The petition was disposed of after issuing these comprehensive directions.

Issues considered

Whether user agencies must compensate for diversion of forest land by paying NPV of the lost benefits
Whether the levy of NPV constitutes a fee within the constitutional competence of the Union
What guidelines should uniformly apply for determination of NPV across projects
Whether any classes of projects should be exempted from NPV payment
Constitutionality and structure of the Compensatory Afforestation Fund Management and Planning Authority (CAMPA)
Whether the funds collected under CAMPA should be credited to State consolidated funds

Legislation cited

Comptroller and Auditor General (Duties, Powers and Conditions of Service) Act, 1971s. Section 10, s. Section 11, s. Section 12, s. Section 13, s. Section 14, s. Section 15, s. Section 16, s. Section 17, s. Section 18, s. Section 20
Constitution of Indias. Article 110, s. Article 199, s. Article 266, s. Article 283, s. Article 284, s. Article 48A, s. Article 51A, s. Entry 20 List III, s. Entry 47 List III
Environment (Protection) Act, 1986s. Section 3, s. Section 5
Forest (Conservation) Act, 1980s. Section 2
Indian Forest Act, 1927s. Section 11, s. Section 20, s. Section 23, s. Section 25, s. Section 29, s. Section 3, s. Section 30, s. Section 35, s. Section 39, s. Section 5

Subjects

Forest conservationNet Present ValueCompensatory afforestationEnvironmental lawPublic trust doctrineSustainable developmentInter‑generational equitySpecial Purpose VehicleCAMPAExemption of projectsValuation methodsSocial cost benefit analysis

Judgment

A T.N. GODAV ARMAN THIRUMULPAD
v.
UNION OF !NOIA AND ORS.

SEPTEMBER 26, 2005

B [Y.K. SABHARWAL,ARIJITPASAYAT ANDS.H. KAPADIA,JJ.]

Environment & Ecology:

Fores/ (Conservation) Act, 1980: Section 2.
c Forest and ecology-Conservation, preservation and protection of-
Use offorest land for non-forest purposes-Measures to compensate for loss
offorest land and to compensate effect on ecology-Benefits lost by diversion
offorest land-Payment of Net Present Value (NPV) of such diverted land/or
getting back in the long run the benefits lost by such diversion--Guidelines
D for determination of NPV-Uniform application of guidelines to all-Method
~ of calculation of NP V-Constitution, management and funding of
Compensatory Afforestation Fund Management and Planning Authority
(CAMPA)-Value ofenvironment-Estimation of-Contingency Value Method,
Opportunity Cost Method, Travel Cost Method and Social Benefits Cost
E Analysis-Held: Conclusions given and direction issued-Environment
Protection Act, 1986, Ss. 3 and 5-Constitution of India, 1950-Arts. 110,
199, 266, 283 & 284, 7th Sch., Entry 47 rlw 20 of list Ill-Notification dated
23.4.2004 issued by Ministry of Environment and Forests.

The following questions arose before the Court:-

F Whether before diversion of forest land for non-forest purposes and
consequential loss of benefits accruing from the forests should not the user
agency of such land be required to compensate for the diversion? If so, should
not the user Agency be required to make payment of Net Present Value (NPV)
of such diverted land so as to utilize the amounts received for getting back in
G the long r~n the benefits which are lost by such diversion? What guidelines
should be issued for determination of NPV? Should guidelines apply
uniformly to all? How to calculate NPV? Should some projects be exempted
from payment of NPV?

Disposing of the petition, the Court
H 552
T.N. GOO AV ARMAN THIRUMULPAD v. U.0.1. 553
HELD: 1. The Executive Body of the Compensatory Afforestation Fund A
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. 1569-G; 570-B]
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 (Y) of the Notification provides that the monies received in
c
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 D
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] 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 F
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. 1571-El

5.2. Forestry is a public project. It is important to bear in mind that a G
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 Ievelise costs. What is the value of Rupee
today would not be the value of Rupee say 50 years later. For example, let us H
554 SUPREME COURT REPORTS [2005) SUPP. 3 S.C.R.

A 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 dellators to GDP. Therefore,
expenses incurred in each year between say 2005 and 2050 will have to be
B 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
C the cost of 2006 and cost of 2006 will differ from that of the year 2007 arid 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, BJ

6.1. The question then is why charge NPV. In the case of a conventional
D 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
E 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
F 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 0, 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
G discounted rate.1572-F, GI

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 environmeptal outputs from forests appear as public goods for which there
is no market. Various environmental outputs can be classified into this
H category, namely, Flood Control Benefits, Water Production, Soil
T.N. GODAVARMAN THIRUMULPAD v. U.0.1. 555
Conservation, Outdoor Recreation; Biodiversity & Conservation, Habitat and A
Air Purification. (573-B, C, DJ

7.2. The problem in valuation of the above outputs is: allocation offixed
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 B
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 C
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 D
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) E
8.1. Thus, NPV helps levelising the costs of public projects like forestry.
It is an important tool ofSBCA. Under SBCA, benefits from each of the above
environmental outputs are identifrable. Hence, applying NPV, one can allocate
levelised costs according to the contribution of each product in the total F
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, CJ G
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. H
556 SUPREME COURT REPORTS (2005] SUPP. 3 S.C.R.

A 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, Fl

B 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
C 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-EJ

10.1. Reverting now specifically to forests, ifit becomes necessary for
economic development to use the same for non-forest purpose, then before
D 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
E 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 II 0 nor Article 199 and/or Article 294 or
F 195 would have any application. [583-F, G, H; 584-A, BJ

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
G 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.

H 'I I. The natural resources are not the ownership of any one State or
T.N. GODAVARMAN THIRUMULPAD v. U.0.1. 557
individual; public at large is its beneficiary and, therefore, the contention that A
the amount of NPV shall be made over to the State Government cannot be
accepted. 1588-CI

M.C. Mehta v. Kamal Nath, 11997] l SCC 388, referred to.

Lawrence S. Davis, K. Norman Johnson and Theodore E. Howard: B
"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 C
earning projects do not deserve similar treatment as non-revenue earning
public welfare projects.1600-B, q

Hindustan Motors Ltd. v. N. Siva Kumar, 12000110 SCC 664, referred
to.

Columbia Journal of Environmental Law (28 Colum.J.Envtl.l.185), D
referred to.

13. Conclusions by the Court:

I. Except for government projects like hospitals, dispensaries and
schools referred to in the body of the judgment, all other projects shall be E
required to pay NPV though final decision on this matter will be taken after
receipt of the Expert Committee Report.1600-FI

-I 2. The payment to CAMPA under notification dated 23.4.2004 is
constitutional and valid.1600-G]

3. The amounts are required to be used for achieving ecological plans F
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.
1600-H; 601-AI

4. Fund has been created having regard to the principles of G
intergenerational justice and to undertake short term and long term measures.
1601-B]

5. The NPV has to be worked out on economic principles. 1601-B]

14. Directions of the Court: H
558 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.

A 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). 1601-Cj

B. The committee of experts would examine the following issues:-
[601-C]
B
(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-
C geographical zones of India for estimation of the values in monetary terms in
respect of each of the above categories of forest values. [601-DI

(iii) To illustratively apply this methodology to obtain actual numerical
values for different values for different forest types for each of bio-
D geographical zone in the country. 1601-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 offorests. (601-F[

(v) Which projects deserve to be exempted from Payment of NPV.
E (601-Fl

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-GI
F D. The Special Purpose Vehicle shall be established with the permission
of the Court. [601-Hl

E. The Institute shall send the report of the Committee of Experts within
a period of four months. [601-H; 602-A[
G F. The various clauses of CAMPA shall be suitably modified in terms of
this judgment within a period of one month. (602-Al

CIVIL ORIGINAL JURISDICTION: I.A. No. 826 in I.A. No. 566, LA. No.
932 in 819-821, 955, 958, 985, 1001-IOOlA, 1013-1014, 1016-1018, 1019, 1046,
H 1047, 1135-1136, 1137, 1164, 1180-1181, 1182-1183, 1196, 1208-1209, 1222-1223,
T.N. GODAVARMAN THIRUMULPAD v. U.0.1. 559

1224-1225, 1229, 1233, 1248-1249, 1253, 1301-1302, 1303-1304; 1312, 1313, 1314, A
1315-1316, 1318, 1319.

IN

Writ Petition (C) No. 202 of 1995.
B
(Under Article 32 of the Constitution of India.)

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 C
Dikshit, Anoop G. Chaudhari, Ravi Shankar Prasad, A.T.M. Rangaramanujam,
Sidhartha Choudhary, (AC), C. Mukhopadhyay, Ms. Lavleen, Ms Binu Tamta,
Aruneshwar Gupta, Addi. 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. Bairam Das, Mukesh K. Giri, D
S.C. Patodia, Ms. Rachna Srivastava, Addi. 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 Shanna, Ajay
Majithia, Manish Jain, Dr. Kailash Chand, Bharat Sangal, B. Parthasarathi,
John C. Rose, Sanjiv Sen, Manish Pratap Singh Chauhan, Ms. Sarla Chnadra, E
Sanjeev Kumar, Prateek Jalan, .Paras Kuhad, Ms. Sushmita Banerjee, Ms.
Minakshi Shanna, 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. Mabra, Himinder Lal,
Ajit Pudussery, K. Vijayan, Badr; Prasad Singh, Ms. Suchitra A. Chitale, Ms. F
Hemantika Wahi, Ms. Sadhna Sandhu, Ejaz Maqbool, P.V. Yogeshwaran, Rakesh
K. Shanna, Himanshu Shekhar, Naresh K. Shanna, 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 G
Misra, Mohd. Saud, J.K. Bhatia, Ajay Siwach, Manjit Singh, Ms. Vivekta
Singh, Harikesh Singh, T.V. George, Ms. Krishna Sanna, V.K. Sidharthan, Riku
Sanna, Ms. Supama 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, Addi. Advocate General for State of Punjab, S. Krishnaraj, Arun
Kumar Sinha, Bimal Roy Jad, Anil Kumar Sangal, Nalin Sangal, D.P. Mohanty, G
560 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.

A J.S. Attri, Addi.· 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.
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,
C 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.

D The Judgment of the Court was delivered by

Y.K. SABHARWAL, J. Natural resources are the assets of entire nation.
It is the obligation of all concerned including Union Government and State
Governments to conserve and not waste these resources. Article 48A of the
Constitution of India requires the State shall endeavour to protect and improve
E the environment and to safeguard the forest and wild life of the country.
Under Article 51A, it is the duty of every citizen to protect and improve the
natural environment including forest, lakes, rivers and wild-life and to have
compassion for living creatures.

F In the present case, the question is about conservation, preservation
and protection of forests and the ecology. When forest land is used for non-
forest purposes, what measures are required to be taken to compensate for
loss of forest land and to compensate effect on the ecology, is the main
question under consideration.

G Forests are a vital component to sustain the life support system on the
earth. Forests in India have been dwindling over the years for a number of
reasons, one of it being the need to use forest area for development activities
including economic development. Undoubtedly, in any nation development is
also necessary but it has to be consistent with protection of environments
and not at the cost of degradation of environments. Any programme, policy
H or vision for overall development has to evolve a systemic approach so as
T.N. GODA YARMAN THIRUMULPADv. U.0.1. [SABHARWAL, .I.) 561

to balance economic development and environmental protection. Both have A
to go hand in hand. In ultimate analysis, economic development at the cost
of degradation of environments and depletion of forest cover would not be
long lasting. Such development would be counter productive. Therefore,
there is an absolute need to take all precautionary measures when forest lands
are sought to be directed for non forest use.
B
The point in issue is whether before diversion of forest land for non-
forest purposes and consequential loss of benefits accruing from the forests
should not the user agency of such land be required to compensate for the
diversion. If so, should not the user Agency be required to make payment
of Net Present Value (NPV) of such diverted land so as to utilize the amounts C
so received for getting back in long run the benefits which are lost by such
diversion? What guidelines should be issued for determination of NPV?
Should guidelines apply uniformly to all? How to calculate NPV? Should some
projects be exempted from payment of NPV? These are the main aspects
which require examination and determination in the backdrop of various
legislations which we would presently notice. D
The legislature to provide for conservation of forest and for matters
connected therewith or ancillary or incidental thereto enacted the Forest
(Conservation) Act, 1980 (for short, the 'FC Act'). It postulates that no State
Government or other authority shall make, except with the prior approval of
the Central Government, any order directing that any forest land or any E
portion thereof may be used for any non-forest purpose. The Central
Government under the FC Act has been empowered to constitute a Committee
to advice it with regard to grant of approval. Under Section 2 of the Act the
question of use of any forest land for non-forest purposes and any other
matter connected with the conservation of forest may be referred to such a F
committee by the Central Government under the FC Act. The contravention
of any of the provisions of Section 2 has been made an offence.

Noticing the decline in environment quality due to increasing pollution,
loss of vegetal cover and biological diversity, excessive concentrations of
harmful chemicals in the ambient atmosphere and in food chains, growing G
risks of environmental accidents and threats to life support system, the
Environment (Protection) Act, 1986 (for short, the 'EP Act') has been enacted.
It has been noted in the Statement of Objects and Reasons that although
there are existing laws dealing directly or indirectly with several environmental
matters, it is necessary to have a general le~islation for environmental H
562 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.

A protection. Existing laws generally focus on specific types of pollution or on
specific categories of hazardous substances. Some major areas of environmental
hazards are not covered. There also exist uncovered gaps in areas of major
environmental hazards. There are inadequate linkages in handling matters of
industrial and environmental safety. Control mechanisms to guard against
slow, insidious build up of hazardous substances, especially new chemicals,
B in the environment are weak. Because of a multiplicity of regulatory agencies,
there is need for an authority which can assume the lead role for studying,
planning and implementing long-term requirements of environmental safety
and to give direction to, and co-ordinate a system of speedy and adequate
response to emergency situations threatening the environment. The EP Act
C was, therefore, enacted to provide for protection and improvement of
environment and for matters connected therewith. The Central Government
has been given wide powers to take measures to protect and improve the
environment as provided under Section 3 including the power to constitute
an authority or authorities for the purpose of exercising and performing such
of the powers and functions, including the power to issue directions under
D Section 5, of the Central Government under the Act and for taking measures
with respect to such of the matters referred to in sub-section (2) of Section
3 as may be mentioned in the order and subject to the prejudice and control
of the Central Government. Section 5 of the EP Act empowers the Central
Government, in exercise of its powers and performance of its function under
E the Act, to issue directions in writing to any person, officer or any authority
and such person, officer or authority shall be bound to comply with such
directions. The Central Government has the power to direct the closure,
prohibition or regulation of any industry, operation or process or stoppage
of regulation of the supply of electricity or water or any other service.

F Parliament has also enacted enactments to prevent and control water
pollution and air pollution [The Water (Prevention and Control of Pollution)
Act, 1974 and the Air (Prevention and Control of Pollution) Act, 1981 ].

A statement was placed before this Court by the Central Government
showing the position as on 20th March, 2000 of the cases approved for
G diverting forest lands, stipulation for compensatory afforestation under the
FC Act and the compensatory -afforestation done, funds to be utilized and
actually utilized. The Court noted the dismal situation as there was a shortfall
to the extent of 36% of total afforestation compensatory or otherwise
afforestation. It further noted that though funds had been realized by all the
H States in connection with s,uch afforestation, a very large number of States
T.N.GODAVARMANTHIRUMULPADv. U.0.1.(SABHARWAL,J.] 563

had spent 50% or less amount on afforestation. In this background, taking A
suo moto action, notices were directed to be issued to the States mentioned
in the Order dated 17th April, 2000 to explain as to why moneys realized have
not been spent on carrying out afforestation.

On 23rd November, 200 I, after considering the affidavits that had been
filed, it was noted that large sums of money had been realized by various B
States from the user-agency to whom permits were granted to use forest land
for non-forest purposes. The moneys were paid by user agencies to the State
Governments for compensatory afforestation but the utilization was only
ab_out 83% of the funds actually realized by the State Governments, the
shortfall being of nearly Rs.200 crores. C
The Ministry of Environment and Forests (MOEF) was directed to
formulate a scheme providing that whenever any permission is granted for
change of use of forest land for non-forest purposes and one of the conditions
of the permission is that there should be compensatory afforestation, then the
responsibility of the same should be that of user-agency and it should be D
required to set apart a sum of money for doing the needful. In such a case
the State Government will have to provide or make available land on which
reforestation can take place and this land may have to be made available
either at the expense of the user-agency or of the State Government, as the
Stat~ Government may decide. It was decided that the scheme shall ensure
that afforestation takes place as per the permissions which are granted and E
there should be no shortfall.

The scheme was submitted by MOEF alongwith an affidavit dated 22nd
March, 2002.

The Central Empowered Committee (CEC) on consideration of relevant F
material including the scheme submitted by MOEF made its report (IA 826)
containing recommendations dated 9th August, 2002. The report, taking note
of the present system of compensatory afforestation as per guidelines issued
by MOEF from time to time under the FC Act, the procedure for receipt and
utilization of funds for compensatory afforestation, activities permissible under G
compensatory afforestation, adequate compensation for loss of forest land -
recovery of Net Present Value, funds for catchment area, treatment plant and
involvement of user-agency for compensatory afforestation, made the following
recommendations.:
(a) in addition to the funds realized for compensatory afforestation, H
564 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.

A net present value of the forest land diverted for non-forestry
purposes shall also be recovered from the user agencies, while
according approval under the Forest (Conservation) Act, 1980;
(b) · a 'Compensatory Afforestation Fund' shall be created in which
all the monies received from the user-agencies towards
B compensatory afforestation, additional compensatory
afforestation, penal compensatory afforestation, net present value
of forest land, Catchment Area Treatment Plan funds, etc., shall
be deposited. The rules, procedure and composition of the body
for management of the Compensatory Afforestation Fund shall
be finalized by the Ministry of Environment & Forests with the
c concurrence of Central Empowered Committee within one month;
(c) the funds received from the user-agencies in cases where forest
land diverted falls within Protected Areas i.e. area notified under
Section 18, 26A or 35 of the Wild Life (Protection) Act; 1972, for
undertaking activities related to protection ofbio-diversity, wildlife,
D etc., shall also be deposited in this Fund. Such monies shall be
used exclusively for undertaking protection and conservation
activities in protected areas of the respective State/UT;
(d) the amount received on account of compensatory afforestation
but not spent or any balance amount lying with the State/UT or
E any amount that is yet to be recovered from the user agency shall
also be deposited in this Fund;
(e) besides artificial regeneration (plantations), the funds shall also
be utilized for undertaking assisted natural regeneration, protection
of forests and other related activities. For this purpose, site
F specific plans should be prepared and implemented in a time
bound manner;
(t) the user agencies especially the large public sector undertakings
such as Power Grid Corporation, NTPC, etc., which frequently
require forest land for their projects should also be involved in
G undertaking compensatory afforestation by establishing Special
Purpose Vehicle. Whereas the private sector user-agencies may
be involved in monitoring and most importantly, in protection of
compensatory afforestation. Necessary procedure for this purpose
would be laid down by the MOEF with the concurrence of the
Central Empowered Committee.
H
T.N. GODAVARMAN THIRUMULPAD v. U.0.l. [SABHARWAL, J.) 565
(g) Plantations must use local and indigenous species since exotics A
have long term negative impacts on the environment; and

(h) an independent system of concurrent monitoring and evaluation
shall be evolved and implemented through the Compensatory
Afforestation Fund to ensure effective and proper utilization of
~~. B
The aforesaid report, inter alia, notes that there was general consensus
amongst the States/Union Territories that the present practice of concentrating
only on artificial regeneration through plantations should be dispensed with
as it does not adequately compensates the loss of natural forest and that a
part of the fund should also be used for assisted natural regeneration wherein C
the natural forests are allowed to regenerate and grow by undertaking
silvicultural and cultural operations such as fire tracing, sjngalling of seedlings,
protection, etc. These activities help in regenerating the rootstock which may
exists in the degraded forests. Besides, this helps in restoring the natural
forests, which is not possible through plantations. It also noted that to
compensate for the loss of tangible as well as intangible benefits flowing from D
the forest lands which has been diverted for non-forest use, the NPV of such
land is being recovered from the user agency in the States of Madhya
Pradesh, Chhattisgarh and Bihar. In the states of Madhya Pradesh and
Chhattisgarh, the NPV is being recovered at the rate of Rs.5.80 lac per hectare
to Rs.9.20 lac per hectare of the forest land depending upon the quality and E
density of the forest land diverted for non-forestry use. The underlying
principle for recovery of NPV was that the plantations raised under the
compensatory afforestation scheme could never adequately compensate for
the loss of natural forests as the plantations require more time to mature and
even then they are a poor substitute to natural forest. It noted that States/
Union Territories as well as MOEF are of the view that in addition to the funds F
realized for compensatory afforestation, the NPV of the forest land being
directed for non-forestry purposes should also be recovered from the user-
agencies.

The MOEF, in principle, accepted the aforesaid recommendations of G
CEC. The order dated 29th October, 2002 notices this fact. Further noticing
that no other State had filed any response to the report of CEC, the Court
presumed that the State Governments were also not opposed to the said
report and have accepted the same in the same manner as Union of India. On
detailed examination of the report, the recommendations of CEC were accepted
and Union of India was directed to frame comprehensive rules with regard to H
566 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.

A the constitution of a body and management of the compensatory afforestation
funds in concurrence with the CEC. It was directed that the compensatory
afforestation funds which had not yet been realized by the States shall be
transferred to -the aforesaid body by respective States and the user agencies
within six months of its constitution. In addition, while according approval
under the FC Act for change in user, the user-agency shall also pay into the
B said fund, the NPV of forest land diverted for non-forest purposes at the rate
of Rs.5.80 lac per hectare to Rs.9.20 lac per hectare of forest land depending
upon the quality and density of the land in question converted for non-forest
use. The amount was subject to upward revision by the MOEF in consultation
with CEC as and when necessary. The aforesaid recommendations of CEC
C were accepted.

An application (I.A.No. I 046) was filed by the MOEF, inter alia, seeking
directions that the NPV calculation shall be part of the detailed project report
submitted to it for a forestry clearance under the FC Act. During the course
of hearing, learned Solicitor General informed this Court that the Government
D was agreeable to the suggestions of CEC that money received from user-
agencies for compensatory afforestation fund should be kept in an interest
bearing account, though initially it had some reservations about it. Reference
has also been made in the application about exemption being granted to some
projects from payment of NPV, an aspect which we would consider later at
E an appropriate stage so also the basis of the calculation of the NPV. We may,
however, note that although in the application it was stated that the format
issued by the World Bank for calculation for NPV for the projects shall be
the basis of its calculation, the learned Solicitor General stated that he was
not relying upon the said format. Regarding the mining projects, the application
mentions that there has to be difference in approach for mineral of high
F volume and low volume and low value and minerals of high value and low
volume. It is stated that levying of flat rates of NPV per hectare basis will,
therefore, not be rational. The application states that in case of mining, NPV
should be calculated at the rate of I 0% for the major minerals and 5% for the
minor minerals to be levied on the annual royalty. An application (IA I 047)
has also been filed by the Ministry of Mines, Government of India taking
G similar pleas as are taken in IA I046 seeking directions that in mining NPV
may be calculated at the rate of 10% and 5% as above noted.

Now, we may refer to Notification dated 23rd April, 2004 issued by
MOEF in exercise of the powers conferred by sub-section (3) of Section 3 of
H the EP Act constituting an authority known as Compensatory Afforestation
T.N. GODAVARMAN THIRUMULPADv. U.0.1. [SABHARWAL, J.] 567
Fund management and Planning Authority (hereinafter referred to as 'CAMPA') A
for the purpose of management of money towards compensatory afforestation,
NPV and any other money recoverable in pursuance of this Court's order and
in compliance of the conditions stipulated by the Central Government while
according approval under the FC Act for non-forestry uses of the forest land.
The Executive Body of the Authority comprises of the following:
B
"(i) Director General of Forests and - Chairperson
Special Secretary, Ministry of
Environment and Forests,
Government of India
(ii) Addi. Director General of Forests
(Forests) Ministry of Environment and
-Member
c
Forests, Government of India
(iii) Addi. Director General of Forests - Member
(Wildlife)
(iv) Inspector General of Forests (Forest -Member D
Conservation), Ministry of Environment and
Forests, Government of India
(v) Joint Secretary and Financial Advisor, -Member
Ministry of Environment and Forests,
Government of India E
(vi) Chief Executive Officer (CEO) -Member
(vii) A professional ecologist, not being from -Member
The Central and State Government, for A
period of two years at a time, for up Two
consecutive terms." F
The powers and functions of the Executive Body are:

"(a) deployment of staff on contractual basis or on deputation;
(b) financial procedure;
(c) delegation of financial or administrative powers; G
(d) other day-to-day working in respect of receipts of funds;
(e) investment of funds;
(f) expenditure on establishment and other overheads including office
H
568 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.

A accommodation subject to the approval of the annual budget by
the Governing Body."

The management of the fund is provided in clause 6.3 and the
disbursement of the fund in clause 6.4 of the Notification. These clauses read
as under:
B
"6.3. Management of the Fund:

(i) The amount collected by the CAMPA shall be invested in Reserve
Bank of India, Nationalized Banks, Post Office, Government
Securities, Government Bonds and deposits.
c (ii) The non-recurring as well as recurring cost for the management
of CAMPA including the salary and allowances payable to its
officers and staff shall be met by utilizing a part of the income
by way of accused interest on the funds invested by the CAMPA
excluding income from funds received as per para 6.2(ii).
D
(iii) The expenditure incurred on independent monitoring and
evaluation shall be borne by the CAMPA out of the income by
way of interest on the funds invested by the CAMPA excluding
income from funds received as para 6.2(iii).
(iv) The CAMPA shall get the annual accounts audited internally as
E well as externally through chartered accountant(s) who are on the
panel of the Comptroller and Auditor-General of India and the
auditor(s) shall be selected on the approval of the Governing
Body.
6.4. Disbursement of Funds:
F
(i) The money received for compensatory afforestation, additional
compensatory afforestation may be used as per the site specific
schemes received from the States and Union Territories along
with the proposals for diversion of forest land under the Forest
(Conservation) Act, 1980.
G
(ii) The money received towards Net Present Value (NPV) shall be
used for natural assisted regeneration, forest management,
protection, infrastructure development, wildlife protection and
management, supply of wood and other forest produce saving
devices and other allied activities.
H
T.N. GOD AV ARMAN THIRUMULPAD v. U.O.I. [SABHAR WAL, J.] 569
(iii) Monies realized from the user agencies in pursuance of the A
Hon 'hie Supreme Court's order or decision taken by the National
Board for Wildlife involving cases of diversion of forest land in
protected areas shall form the corpus and the income therefrom
shall be used exclusively for undertaking protection and
conservation activities in protected areas of the States and the B
Union Territories and in exceptional circumstances, a part of the
corpus may also be used subject to prior approval of the CAMPA.
(iv) CAMPA shall release monies to concerned State and Union
Territory in predetermined installments through the State Level
Management Committee as per the Annual Plan of Operation
(APO) finalized by the concerned State and the Union Territory. C
(v) The monies received in CAMPA from a State or the Union Territory
as per para 6.2 and the income thereon after deducting expenditure
incurred by the CAMPA on its establishment cost, monitoring
and evaluation on a prorate basis shall be used only in that
particular State or the union Territory." D
Clause 6.6 provides for other functions and reads thus:

"(i) The CAMPA may establish Special Purpose Vehicles (SPY) for
undertaking compensatory afforestation particularly by involving
large public sector undertakings which frequently require forests E
and for their projects, in consultation and as far as possible with
the concurrence of the CEC.
(iO The CAMPA may also consider evolving new mechanism to
generate additional sources of fund for forest conservation works
1 and to create capacity and data base for better conceptualization F
and management of fund."

Having regard to the nature of the functions of the Executive Body of
the CAMPA, we find substance in the suggestion of learned Amicus Curiae
that there should be more involvement ofNGOs by including in the Executive
Body, the conservationists, environmentalists, economists and experts in G
forestry. We are of the view that the Executive Body deserves to be expanded
as, presently, only one professional ecologist is its member, remaining all
being officers of the Government. We may note here that a forthright and fair
stand was taken by the learned Solicitor General not only in regard to the
constitution of CAMPA but on other aspects also, keeping in view the non- H
570 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.

A adversarial nature of the litigation. Learned Solicitor General submitted that
the Government is committed to conserve the forest and protect the
environments, and would implement, in letter and spirit, the directions issued
by this Court.

In view of above, we direct that clause 2.2 shall be suitably amended
B so as to include two more environmentalists, one of whom may be 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 CEC.

C Regarding clause 6.3(iv), it was suggested that there should be corporate
accounting based on double entry system and auditing should be conducted
by the Comptroller and Auditor-General (CAG). We see substance in this
suggestion as well.

Clause (v) in 6.4 provides that the monies received in CAMPA shall be
D used only in that particular State or Union Territory. The clause seems to be
too rigid. Many a times, 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, we direct that a suitable modification of the clause shall be
E 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 6.2 if it considers it necessary.

Clause 6.6 which by use of the word 'may' leaves it to the discretion
F 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.

Now, we come to the question of the guiding principle to be laid for
G determining the NPV. Reference was made to opinions of various experts
laying down as to what is the concept of NPV and how it is to be calculated.
The question is also about the legal and jurisdictional basis to levy NPV.
Most of the States did not object to the recovery of the NPV from the user-
agency but strenuously urged that since the land under the forest belongs
H to the State, the amount deposited by the user-agency as NPV shall be paid
T.N. GODAV ARMAN THIRUMULPAD v. U.0.1. [SABHARWAL, J.] 571
to them. It was also contended on behalf of the States that there should be A
no NPV on degraded forest. The further submission was that all public utility
projects shall be exempted from payment ofNPV. On the other hand, relying
upon the principles of inter-generational equity and sustainable development,
Mr. Harish Salve, learned senior counsel and Amicus Curiae contended that
forest is a part of eco-system and, therefore, the value to be put and calculated B
is not only on trees and leaves but the basis has to be the preservation of
bio-diversity. It is submitted that NPV is to be levied and collected not
because property rights of the States are affected but on account of effect
on ecology by conversion of forest land for non-forest purpose. Further, Mr.
• Salve submits that the basis for calculation of NPV should be the economic
value, spread over a period of 50 years, which would be regenerational valu.e C
for forest regeneration to be taken into account as opposed to restoration
value, i.e., financial value. Regarding legal and jurisdictional basis to levy
NPV, Mr. Salve contended that there are various legal principles which act as
source of power to levy NPV. In this regard, reference has been made to
provision of the FC Act, EP Act and Forest Policy of 1988. It is contended
that these enactments and the policy are the measures taken by the legislature D
and the Government to discharge the constitutional obligation to protect the
environments. Reliance is also placed upon the doctrine of public trust, which
learned counsel submits is a constitutional doctrine.

First, we may consider the meaning ofNPV and determine what is NPV .. E

The NPV is the present value (PY) of net cash flow from a project,
discounted by the cost of capital.

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 F
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
expenditures (costs) and benefit are 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 value of Rupee in India in the year G
2005 and analyse it with the value of Rupee that may be in the year 2050. Cost
incurred or to be incurred in 2050 have to be discounted by using appropriate
parameters like rate of discount, gestation period, ratio of deflators to GDP.
Therefore, expenses incurred in each year between say 2005 and 2050 have
to be brought down to their present values by using appropriate discount rate H
in the NPV.
572 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.

A The project like forestry has 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, costs 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
B economic cost of diversion of forest.

Cost is a function of the discount rate (a measure of the value of capital)
used. Under NPV, all costs are discounted to some reference date which we
have taken as 2005 for illustration. The total cost reckoned at this reference
C date is the sum of present value or future value of costs discounted to the
year 2005. Similarly, one can calculate the present value of the revenues from
the expected benefits of forest regeneration.

The question then is why charge NPV. In the case of a conventional
project like Hydro-electric Project, the accounting procedure is normally based
D 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, we have
the NPV method which discounts future costs and future benefits by use of
E .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.

The question, which we have to answer, is concerning the relevance of
fixing appropriate discount rate in valuation of the costs and benefits arising
p from forestry as a project.
'
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
G standing timber. The general expression V for the value of an asset, in the
base year 0, is simply the sum of the net economic benefits it yields in each
year over the life time, T, ?f the Asset, discounted to the present value by
the discounted rate.
-
The current method of valuing public sector projects, like forestry, has
H become contentious as public sector undertakings agrees for lower discount
T.N. GODA VARMAN THIRUMULPAD v. U.0.1. [SABHAR WAL,J.) 573
rate on account oflong gestation period. However, the flaw with this argument A
is that the low rate of return is computed without including the intangible or
environmental impacts/benefits emanating from forest.

How does one value the intangibles? There are several methods, viz,
opportunity cost, replacement cost, travel cost, contingent value method
(CVM) and social benefit cost analysis (SBCA). B
SBCA 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,
c
Flood Control Benefits
Water Production
Soil Conservation
Outdoor Recreation
D
Biodiversity & Conservation
Habitat
Air Purification
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 E
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 F
outputs differs. In valuing biodiversity, CVM is useful. SBCA is helpful in
placing monetary value on carbon storage on air purification.

The point is that for each of the above functions of the forests, difforent
methods of valuation have to be applied. Various methods have been used
to estimate the value of environment like CVM, Opportunity Cost Method, G

- Travel Cost Method, SBCA etc. It would be appropriate if 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 H
574 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.

A values, indirect use values such as value of environmental benefits from the
forest, option values and existence value.

The above discussion shows that 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,
B 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
C preference. For public project, such as forestry, a social discount rate, which
indicates time preference of the society, should be used.

Forest sustainability is an integral part of forest management and policy
that also has a unique dominating feature and calls for forest owners and
society to make a long-term (50 years or longer) commitment to manage the
D forest for future generation. One of the viewpoints for sustaining forest is a
naturally functioning forest ecosystem. This view point takes a man and
nature relationship to the point of endorsing to, the extent possible, the
'\
notion of letting forest develop and process without significant human
intervention. A strong adoption of the naturalistic value system that whatever
nature does is better than what humans do, this is almost the "nature dominates
E man" perspective. Parks and natural reserve creations; non-intervention in
insect; disease and fire process; and reduction of human activities are typical
policy situation. This viewpoint has been endorsed by 1988 Forest Policy of
Government of India.

F .Yet another viewpoint recognizes the pragmatic reality faced by the
governments and the administrative, namely, trees don't vote while people do.
Some of the criteria reflecting key elements of ecological, economic and social
. sustainability are:
I. Conservation of biological diversity.
G 2. Maintenance of productive capacity of forest ecosystems.
3. Maintenance of forest ecosystem health and vitality.
4. Conservation and maintenance of soil and water resources.
5. Maintenance of forest contribution to global carbon cycles.
6. Maintenance and enhancement of long-term multiple
H socioeconomic benefits to meet the needs of societies. t.
T.N.GODAVARMANTHIRUMULPADv. U.0.1.[SABHARWAL,J.] 575
7. Legal, institutional and economic framework for forest A
conservation and sustainable management.

An expert dealing with principles and applications of forest valuation,
on the aspect of value of inputs and outcomes and conditions, says :

"Decision making in forest management requires that we understand B
the relative values. of inputs, outcomes, and conditions. Cost values
for inputs such as labour, capital, interest, supplies, legal advice,
trades, and other management activities as well as the market value
of existing timber stands are relatively easy to obtain. Outcomes or
resulting condition values are more difficult, but we need measures of
the values of timberland, recreation, water, wildlife, visual amenities, C
biodiversity, environmental services, and ecological process to help
guide management decisions. By understanding market, social and
other values of forests, we can better allocate our scarce and valuable
resources to attain the desired mix of outcomes and conditions."

The emphasis is on ecosystem, management philosophy that has greater D
emphasis on integration, biological diversity and ecological processes.

In respect of working economic values of the outcome, it is said:

"In real world forest management situations, decision makers are faced
with several alternatives and potentially large sets of criteria related E
to the ecological, economic and social impacts of these alternatives.
It would be very easy to generate a nearly incomprehensible table that
documented every physical, biological, economic, and social outcome
and condition resulting from each management alternative. Such
information could include outcome levels for water yield, sediment p
production, and timber growth; population trends for important wildlife
species; and recreation use for backcountry and developed recreation
sites. Similarly, information on the economic value of these outcomes
can be estimated by means of the methods discussed in chapter 8 and
added to our impact table. To this avalanche of information, we could
add the impacts on the social well-being of local and regional G
communities. The forest management analyst can easily overwhelm
the decision makers and stakeholders with information."

Dealing with fundamental of decision analyses to achieve ecological,
economic and social goals, it is said that what is to be broadly kept in view
is: H
576 SUPREME COURT REPORTS [2005) SUPP. 3 S.C.R.

A "Ecological and environmental goals are important to forest managers,
landowners, and their stakeholders, we need information about how
decision alternatives affect such goals. These goals can be broadly
stated as

I. Maintaining and enhancing forest productivity
B
2. Conservation of biological diversity

3. Protecting and enhancing environmental conditions."

The aforesaid also shows that NPV as a tool of SBCA is required to be
C based on Total Economic Value (TEV). It indicates the components ofTEV.
It further shows what are the type of agency or experts which are required
to examine these issues.

Dealing with co-relation between economics and environmental
management, in 'Environmental Economics in practice' edited by Mr. Gopal
D K. Kadekodi in his write up through case studies, answers the question as (
to what has economics got to do with environmental management. The author
says that economics is the science of explaining the behaviour of different
agents who take part in production, consumption and distribution activities
in the economy and make decisions regarding the use of resources. That,
;
\
environmental economics focusses on market and non-market behaviour of
E different agents in the society regarding natural and environmental
resources, viewed from intergenerational, inter-temporal and different
institutional frameworks. (Emphasis supplied by us)

ft is further stated that one of the major branches of economic theory
is the 'theory of value'. Economic theory always makes a distinction between
F value and price. Answering the question as to why value natural resources
specifically, it is stated that one reason is that there is no market for ecosystem
services such as nutritional cycle, carbon sequestration, watershed functions,
temperature control, soil conservation etc. It is also stated that assuming
there are markets, they do not do their job well. This market may be regulated
G one. There may be restrictions on entry as a result of licensing or rationing
introduced by the Government. For the above reasons, it is concluded that
valuation beyond the present is necessary and for natural resource Accounting
NPV method is a must.

Mr. Salve advocates for Total Economic Value (TEV) on the ground that
H TEV expresses the full range of value or benefits - both tangible and intangible.
T.N.GODAVARMANTHIRUMULPADv. U.0.1 [SABHARWAL,J.] 577

Basically, it is understood that natural and environmental resources provide A
several 'use values' and 'non-use values' to enhance human welfare and
provide sustainability to all lives (often termed as anthropogenic values).
Conceptually, it is the sum of use values (UV) and non-use value (NUV)
which constitutes the TEV. Further elaborations UV, option value (OV) non-
use value (NUV) etc. have been given. The UV, it is stated, can be further B
broadly classified into three groups - direct, indirect and option values. Direct
Use Values (DUY) refer to the current use (consumption) of the resources and
services provided directly by natural and environmental resources. Examples

- are the use of timber and non-timber forest products. Recreation (tourism to
wildlife sanctuaries or Himalayan Glaciers, mountains), education, research
etc., are examples of direct non-consumptive use values. Indirect Use Values
(IUV) generally are referred to the ecological functions that natural resource
C

environments provide. It can be broadly classified into three groups -watershed
values, ecosystem services and evolutionary processes. The Optional Value
(OV) is associated with the benefits received by retaining the option of using
a resource (say a river basin) in the future by protecting or preserving it D
today, when its future demand and supply is uncertain. Take the example of
the Narmada river basin.

It is not necessarx}o delve further in this matter since ultimately it
would be for the experts to examine and assist this Court as to the Model to
be adopted for valuation, namely, TEV, CVM, SBCA etc. It is for the experts E
to tell us as to what NPV should be applied in case of mines and different
types of forests. We may only note that 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 their own needs. Despite various elaborations, definition of sustainable F
development, though very old, still is widely accepted world over and has
been reiterated by this Court in catena of cases.

Regarding the parameters for valuation of loss of forest, we may only
note as to what is stated by Ministry of Environment and Forests, Government
in its handbook laying down guidelines and clarifications upto June 2004 G
while considering the grant of approval under Section 2 of the FC Act.
Dealing with environmental losses (soil erosion, effect on hydrological cycle,
wildlife habitat, microclimate upsetting of ecological balance), the guidelines
provide that though technical judgment would be primarily applied in
determining the losses, as a thumb rule, the environmental value of one
hectare offully stocked forest (density 1.0) would be taken as Rs.126.74 lakhs H
578 SUPREME COURT REPORTS (2005) SUPP. 3 S.C.R.

A to accrue over a period of 50 years. The value will reduce with density, for
example, if density is 0.4, the value will work out at Rs.50.696 lakhs. So, if a
project which requires deforestation of I hectare of forest of density 0.4
gives monetary returns worth over Rs.50.696 /akhs over a period of 50
years, may be considered to give a positive cost benefit ratio. The figure of
B assumed environmental value will change if there is an increase in bank rate;
the change will be proportional to percentage increase in the bank rate. Ms.
· Kanchan Chopra, while conducting the case study of Keoladeo National Park
in respect of economic valuation of biodiversity at the institute of economic
growth, Delhi as a part of the Capacity 21 project sponsored by the UNDP
and MOEF, Government of India examined the question as to what kind of 'C

C values are to be taken into consideration. As per the study, different
components of biodiversity system possess different kinds of value (I) a
commodity value (as for instance the value of grass in a park), (2) an amenity
value (the recreation value of the park) and/or (3) a moral value (the right of
the flora and fauna of the park to exist). It is recognized that it is difficult to
D value ecosystem, since it possesses a large number of characteristic, more
than just market oriented ones. It also leads to the need to carry out bio-
diversity valuation both in terms of its market linkage and the existence value
outside the market as considered relevant by a set of pre-identified stakeholders.
It is, however, evident that while working out bio-diversity valuation, it is not
trees and the leaves but is much more. Various techniques for valuing
E biodiversity that have been developed to assess the value of living resources
and habitats rich in such resources have been considered by the author for
her case study while considering the aspect of value, their nature and
stakeholders interest. In so far as the value of ecology function in which the
stakeholders or scientists, tourists, village residents, non-users, the nature of
F value is - regulation of water, nutrient cycle, flood control. These instances
have been noted to highlight the importance of the biodiversity valuation to
protect the environments. The conclusions and the policy recommendations
of the author are:

"Biodiversity valuation has important implications for decision making
G with respect to alternative uses of land, water and biological resources.
Since all value does not get reflected in markets, its valuation also
raises methodological problems regarding the kinds of value that are
being captured by the particular technique being used. Simultaneously,
in the context of a developing country, it is important to evolve
methods of management that enable self-financing mechanisms of
H conservation. This implies that biodiversity value for which a market
T.N. GODAVARMAN THIRUMULPAD v. U.0.1 (SABHARWAL, J.] 579
exists must be taken note of, while simultaneously making sure that A
the natural capital inherent in biodiversity rich areas is preserved and
values which are crucial for some stakeholders but cannot be expressed
in the market are reflected in societal decision making.

A focus on both the above aspects is necessary. It is important
to take note of the nature of market demand for aspects of biodiversity B
that stakeholders, such as tourists, express a revealed preference for
by way of paying a price for it. Simultaneously, it is important to
examine the extent to which a convergence or divergence exists between
value perceptions of this and other categories of stakeholders. It is
in this spirit that two alternative methodologies are used here to arrive C
at an economic valuation of biodiversity in Keoladeo National Park.
The travel-cost methodology captures the market-linked values of
tourism and recreation. It throws up the following policy implications:
I. Keeping in mind the location of the park and the consequent
joint product nature of its services, cost incurred locally is a D
better index of the price paid by tourists. It is found that demand
for tourism services is fairly insensitive to price. A redistribution
of the benefits and costs of the park through an increase in entry
fee wou Id not affect the demand for its services.
2. Cross-substitution between different categories of stakeholders E
can improve the financial management of the wetland. A part of
the proceeds can go to the local management. Also, high-income
tourists, scientists and even non-users with a stake in preservation
can pay for or compensate low-income stakeholders for possible
loss in welfare due to limits on extraction and use.
3. However, the limit to such a policy is determined by the number F
of visitors and their possible impact on the health of the wetland.
Such a constraint did not appear to be operational in the context
of the present park.
Identification and ranking of values of different aspects of biodiversity
resources as perceived and expressed by different categories of G
stakeholders namely scientists, tourists, local villagers and non-users
is an important object in the process of valuation. In the KNP study,
a fair degree of congruence with respect of ecological function value
and livelihood value is discovered to exist in the perceptions of
diverse groups. Stakeholders as diverse as scientists, tourists, local H
580 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.

A villagers and non-users give high rankings to these uses."

Next question is to which expert reference shall be made. Counsel for
parties agree that Institute of Medical Economic Growth is an institute of
eminence-having been set up about half a century earlier. It has also been
pointed out that this Institute is getting regular maintenance oXand development
B grant from Indian Council of Social Sciences Research (JCSSR). Further, it
appears that the Institute is also receiving research and training grants from
Ministry of Finance, Ministry of Health and Family Welfare and Ministry of
Agriculture, besides National Bank for Agriculture and Rural Development.
We have been infonned that eminent faculty members in the institute are
C engaged in the field of research and Ms. Kanchan Chopra, (Ph.D. Economics,
University of Delhi) is one such faculty member and her field of specialization
is resources and environmental economics, agriculture and rural development
and project evaluation. The matter deserves to be referred to a committee of
experts in respect whereof we will in latter part of the judgment issue appropriate
directions.
D
Next, we will deal with the contention of Mr. Venugopal who, appearing
for State of Kerala, submitted that the State has no objection to the levy of
NPV but the amount so received should come to the State. Referring to
Notification dated 23rd April, 2004 constituting CAMPA, learned counsel
contended that clause 6.4 of the said Notification, which deals with
E disbursement of the funds, does not envisage the amount being disbursed
to the State Government. Learned senior counsel also challenged the
constitutional validity of the Notification. The contention put forth is that the
Notification does not have any Parliamentary or Legislative control. Referring
to various clauses of the notification, it was contended that fund sought to
p be created under CAMPA lacks accountability and puts aside financial control.
There is a total lack of financial discipline which, learned counsel contends,
is against the constitutional framework. It was further contended that the
forests vest in the Government; the same are State properties and, therefore,
all amounts received shall go to Consolidated Fund of India or Consolidated
Fund of the State or to Public Funds, as the case may be. Reference has also
G been made to the provisions of the Comptroller and Auditor-General (Duties,
Powers and Conditions of Service) Act, 1971 (for short, the 'CAG Act') and
the submission is that no provision under the Notification shows that the
account can be subjected to audit under the CAG Act. The contention, in
short, is that constitutionally it is not permissible to any person or authority
H to hold funds collect on behalf of the Government. This is basis for urging
T.N. GODA V ARMAN THIRUMULPAD v. U.0.1 [SABHAR WAL, J.] 581
that the Notification dated 23rd April, 2004 is unconstitutional. A
For examining the nature of the fund sought to be regulated by CAMPA,
brief reference is necessary to be made to some of constitutional provisions.

Article 110 in so far as the Parliament is concerned and Article 199 in
so far as the State is concerned, while defining Money Bills make a deeming B
provision for certain contingencies. Article l IO(l)(t) and Article 199(1)(t) read
as under:

"110. Definition of "Money Bills".-(1) For the purposes of this Chapter,
a Bill shall be deemed to be a Money Bill if it contains only provisions
dealing with all or any of the following matters, namely :- C
(a) to (d) ....

(f) the receipt of money on account of the Consolidated Fund of
India or the public account of India or the custody or issue of
such money or the audit of the accounts of the Union or of a D
State; or
xxx xxx xxx
199. definition of "Money Bills".-(!) For the purposes of this Chapter,
a Bill shall be deemed to be a Money Bill if it contains only
provisions dealing with all or any of the following matters, namely: E
(a) to (d) ...

(f) the receipt of money on account of the Consolidated Fund of the
State or the public account of the State or the custody or issue
of such money; or"
F
The contention is that Notification constituting CAMPA shall be deemed
to be a Money Bill.

Articles 294 and 295 deal with succession to property, assets, rights,
liabilities and obligations in certain cases as from the commencement of the
Constitution of India, providing for vesting of the properties and assets in G
the Union and in the States. These articles were referred to contend that
forest is the property and asset of the State.

Article 266 deals with Consolidated Fund of India and of the States.
Article 283 deals with custody of the consolidated funds, contingency funds H
582 SUPREME COURT REPORTS (2005) SUPP. 3 S.C.R.

A and the moneys credited to the public accounts. Article 284 deals with other
monies received by public servants in courts and postulates the same shall
be paid into the public account of India or the public account of the State,
as the case may be.

Article 266(1) deals with all revenues received by the Government of
B India, all Joans raised by that Government by the issue of treasury bills, loans
or ways and means advances and all moneys received by that Government
in repayment of Joans shall form one consolidated fund to be entitled "the
Consolidated Fund of India", and likewise the sum received by Government
of State shall form one consolidated fund to be entitled "the Consolidated
C Fund of the State". Article 266(2) stipulates that aJJ other public moneys
received by or on behalf of the Government of India or the Government of
a State shaJJ be credited to the public account of India or the public account
of the State, as the case may be.

Third category of receipt is in terms of Article 284 which is required to
D be paid into the public account of India or the public account of the State,
as the case may be.

Chapter III of CAG Act deals with duties and powers of the ComptroJJer
and Auditor-General. Section I 0 thereof deals with compilation of accounts
of Union and the States by CAG. Under Section 11, the CAG is required to
E prepare and submit accounts to the President, Governors of State and
Administrators of Union Territories having Legislative Assemblies. Under
Section 12, CAG is required to give information and render assistance to the
Union Government and the State Governments. Section 13 sets out general
provisions relating to audit. Under this provision, it shall be the duty of the
F CAG to audit all expenditure from the Consolidated Fund of India and of each
State and of each Union Territory having a Legislative Assembly and to
ascertain whether the moneys shown in the accounts as having been disbursed
were legally available for and applicable to the service or purpose to which
they have been applied or charged and whether the expenditure conforms to
the authority which governs it; to audit all transactions of the Union and of
G the State relating to contingency funds and public account; to audit aJJ
trading, manufacturing, profit and loss accounts and balance sheet and other
subsidiary accounts kept in any department of the union or of a State; and
in each case to report on the expenditure, transactions or accounts so audited
by him. Section 14 of CAG Act deals with audit of receipts and expenditure
H of bodies and authorities substantially financed from Union or State revenues.
T.N. GODAVARMAN THIRUMULPAD v. U.0.1 [SABHARWAL, J.] 583

Section 15 provides for the functions of CAG in the case of the grants or A
loans given to other authorities or bodies. Section 16 deals with audit of
receipts of Union or of States and Section 17 with audit of accounts of stores
and stock. Section 18 provides for the powers of CAG in connection with
audit and accounts. The audit of Government companies and corporations by
CAG is dealt with under Section 19. Section 20 is in the nature of a residuary
provision providing that CAG, if requested by the President of India or the B
Governor of the State or the Administrator of Union of Territory having a
Legislative Assembly to undertake the audit of the accounts of such other
body or authority of which audit has been entrusted to CAG, the CAG shall
undertake such audit. Chapter III shows the responsibility of CAG to conduct
audit in the manner provided in the law or on request made for the audit in C
the manner provided under Section 20.

Relying on aforesaid constitutional provisions and also of CAG Act, it
was contended that the notification constituting CAMPA is unconstitutional
as it does not stipulate that the amounts collected on behalf of Government
shall go to the relevant consolidation fund or to public fund. Further, no D
provision has been made for audit under the CAT Act. To examine this
contention, it is necessary to determine the nature of Fund dealt with by
CAMPA.

The background under which the fund came to be created has already
been noted. Noticing fast depletion of forests, the fund was ordered to be E
utilized for protection offorests 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.

Reverting now specifically to forests, if it becomes necessary for
F
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 G
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. In this light, various
statutes noted above have been enacted by the Parliament. Keeping in view
the letter and spirit of those statutes and constitutional provisions, the H
584 SUPREME COURT REPORTS [2005) SUPP. 3 S.C.R.

A legality of CAMPA and the power to issue directions for natural regeneration
and utilization of funds is required to be appreciated. 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
B would have any application.

There is an additional reason for the view that NPV will not fall under
Article 110 or 199 or 195 of the Constitution. Our constitution draws a distinct
line between a "TAX" and a "FEE". In case of Ratilal Panachand Gandhi
C v. State of Bombay and Ors., (1954) SCR 1055, one of the questions which
arose for determination was regarding constitutional validity of Section 58 of
Bombay Public Trust Act, 1950. That section makes it obligatory on every
Public Trust to pay to the Administration Fund a contribution at such time
and in such manner as may be prescribed. Under the rules, the contribution
:was fixed at the rate of 2% per annum upon the gross annual income of every
D Public Trust. Failure to pay such contribution was made liable to penalty
under Section 66 of the Act. It was contended on behalf of the Trustees that
the levy of contribution under Section 58 was in substance the levy of a tax,
it was beyond the competence of the State legislature to enact such a provision.
This argument was rejected by this Court by holding that the Administration
E Fund constituted under Section 57 of Bombay Public Trust Act was a Special
Fund which was to be applied exclusively for payment of charges for expenses
incidental to the regulation of Public Trusts and in carrying into effect the
provisions of the Act. Under Section 57 Special Fund vested in the Charity
Commissioner. That Fund was set up from the charges levied on various
Trusts in the State. The Fund was to be managed by the Charity Commissioner.
F All investments were to be made by the Charity Commissioner. All
disbursements were to be made by him in the manner prescribed by the rules.
The collections of these charges, deployed in the Special Fund, were not
merged in the general revenue, but these collections were earmarked and set
apart for the purposes of the Act. This Court further noticed that the Charity
Commissioner and the servants appointed under the Act drew their salary
G from the Consolidated Fund of the State. However, this Court observed that
Section 57 was enacted to facilitate the Administration and not with a view
to mix up the Fund with the general revenue collected for government purposes.
Therefore, this Court held that Public Trusts Administration Fund was set up
to meet all expenses of the administration of Trust property within the scheme
H of the Act and it is to meet such expenses that they levy was made and
T.N.GODAVARMANTHIRUMULPADv. U.0.1 [SABHARWAL,J.] 585
collections were effected. Therefore, this Court held that such payments were A
levied for rendering service which the State considers beneficial in public
interest. In the circumstances, it was held that Section 57 and Section 58 of
the 1950 Act were not ultra vires the State legislature because they did not
levy a tax but they levied a fee which came within Entry 47 of List III of
Seventh Schedule to the Constitution, which reads as under:
B
"47. Fees in respect of any of the matters in this List, but not including
fees taken in any court."

Thus reading Entry 47 with Entry 20 of the same List, the imposition of
NPV is a charge or a fee which falls within Entry 47 read with Entry 20 of List
JII of Seventh Schedule to the Constitution. The Fund set up is a part "of C
economic and social planning" which comes within Entry 20 of List JII and
the charge which is levied for that purpose would come under Entry 47 of List
JII and, therefore, Article 110 is not attracted.

To sustain ecological, economic and social values, in so far as forests D
are concerned, primarily, it is a question of Forest Management. In the
introduction chapter of Forest Management, Fourth Edition, co-authored by
Lawrence S. Davis, Professor Emeritus, University of Califomia-Brakeley, K.
Norman Johnson, Orgeon State University, Peter S. Bettinger, Orgeon State
University and Theodore E. Howard, University of New Hampshire, authors
have said that "forest management remains the attempt to guide forests E
toward a society's goals. A forest manager is the catalyst of this effort. As
such, the manager needs an earthy understanding of biological process; a
knowledge of animals and their habitats; an appreciation of streams and their
environments; the long-raoge viewpoint of a planner; the patience of a labour
negotiator, the skills of an administrator; and th~ alertness, flexibility and all-
round resourcefulness of a successful business executive. Above all, the F
forest manager requires a genuine sense and feeling for the forest as an
entity." This objective is to be borne in mind while considering the question
of ecology as opposed to mere compensatory afforestation. Compensatory
afforestation is only a small portion in the long range efforts in the field of
regeneration. It has been said that recognizing the aforesaid uniqueness while G
applying the principles of management is the heart of forest management.

Forest Management planning involves a blend of ecological, economic
and social systems with the economic and social sides of planning often just
as complex as the ecological sides. Table I. I gives examples of decisions
needed in the management of forest as under : H
586 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.

A ·"Table 1.1.
Examples of decisions needed in the management of forests

Type of decision Example

B Extent and distribution reserves of Wilderness

Management em phases for areas Big game emphasis, high-intensity
where active management will occur timber production, scenic areas

Types of activities allowed Timber harvest, prescribed fire
c
Aggregate harvest level over time Evenflow, nondeclining yield

Silvicultural system Even-aged, uneven-aged

Age structure of forest Areas by I 0-year age classes
D
Size and shape of treatment units Small units versus large units

Spatial pattern of treatment units Concentrated or dispersed cutting
blocks

E Protection strategy Wildfire suppression policy

Vertical and horizontal diversity/ Approach to partial cutting and
stand density prescribed burning

Regeneration harvest timing Rotation age (even-aged), cutting cycle
p Regeneration method (uneven-aged) Clearcutting, clearcutting
with leave trees, shelterwood, selection,
prescribed fire, natural disturbance."

When permission is granted by the Government of India to use the
forest land for non-forest purposes, it is not unconditional. Conditions are
G attached mainly with a view to protect the environments and to make goJd
the loss likely to occur by grant of such permission. The payment into such
a fund or imposition of conditions are for the protection of natural resources.
The Notification dated 23rd April, 2004 sets up a body to which payment is
made so that the said body can carry out the statutory and constitutional
H obligations. Since the amount does not go to the accounts postulated by
T.N.GODAVARMANTHIRUMULPADv. U.0.1 [SABHARWAL,J.] 587
Article 283, the said provision shall have no application. Similarly, the A
provisions of the CAG Act would also have no application. At the same time,
it. may be noted that clause 6.3 stipulates the audit through Chartered
Accountants on the panel of CAG. In order to provide for financial discipline,
transparency and accountability, it would be appropriate to provide for
corporate accounting on the principles of double entry system. We are further
of the view that the accounts of the Fund shall be subjected to internal B
Statutory Audit, the Statutory Auditors to be taken from the panel of CAG.
The internal audit shall be conducted every six months.

The .duty to preserve natural resources in pristine purity has been
highlighted in MC. Mehta v. Kamal Nath and Ors., [ 1997) I SCC 388. After C
considering the opinion of various renowned authors and decisions rendered
by other countries as well on environment and ecology, this Court held that
the notion that the public has a right to expect certain lands and natural areas
to retain their natural characteristics is finding its way into the law of the land.
The Court accepted the applicability of public trust doctrine and held that it
was founded on the ideas that certain common properties such as rivers, sea- D
shore, forests and the air were held by the Government in trusteeship for the
free and unimpeded use of the general public. These natural resources have
a great importance to the people as a whole that it would wholly unjustified
to make them subject to private ownership. These resources being a gift of
nature, should be made freely available to everyone irrespective of the status E
in life. The doctrine enjoins upon the Government to protect the resources
for the enjoyment of the general public rather than to permit their use for
private ownership or commercial purposes. It was held that our legal system
- based on English common law - includes the public trust doctrine as part
of its jurisprudence. The State is the trustee of all natural resources which are
by nature meant for public use and enjoyment. Public at large is the beneficiary F
of these resources. The State as a trustee is under a legal duty to protect
these natural resources. Summing up the Court said :

"We are fully aware that the issues presented in this case illustrate
the classic struggle between those members of the public who would
preserve our rivers, forests, parks and open lands in their pristine G
purity and those charged with administrative responsibilities who,
under the pressures of the changing needs of an increasingly complex
society, find it necessary to encroach to some extent upon open lands
heretofore considered inviolate to change. The resolution of this
conflict in any given case is for the legislature and not the courts. If H
588 SUPREME COURT REPORTS (2005) SUPP. 3 S.C.R.

A there is a law made by Parliament or the State Legislatures the courts
can serve as an instrument of determining legislative intent in the
exercise of its powers of judicial review under the Constitution. But
in the absence of any iegislation, the executive acting under the
doctrine of public trust cannot abdicate the. natural resources and
convert them into private ownership, or for commercial use. The
B aesthetic use and the pristine glory of the natural resources, the
environment and the ecosystems of our country cannot be permitted
to be eroded for private, commercial or any other use unless the
courts find it necessary, in good faith, for the public good and in
public interest to encroach upon the said resources."
c In view of above, we hold that the natural resources are not ownership
of any one State or individual, public at large is its beneficiary and, therefore,
the"i:ontention of Mr. Venugopal that the amount ofNPV shall be made over
to the State Government cannot be accepted.

D The Indian Forest Act was enacted to consolidate the law relating to
forests, the transit of forest-produce and the duty leviable on timber and other
forest-produce. The focus of this Act is on the proprietary rights. Section 3
empowers the State Government to constitute any forest land or waste land
which is the property of the Government or over which the Government has
proprietary rights, or to the whole or any part of the forest produce of which
E . the Government is entitled in a reserved forest in the manner provided in the
Act. As provided in Section 5, no right can be acquired over the land in
respect whereof notification has been issued under Section 4. In the manner
provided in Section 11, the Forest Settlement Officer is empowered to acquire
the land. Section 20 provides for declaration of reserved forest. No right in
p or over a reserved forest can be acquired, as provided in Section 23. Acts
prohibited in respect of forests have been incorporated in Section 25. Section
29 deals with declaration of protect forest and Section 30 empowers the State
Government to issue notification reserving trees etc. in a protected forest. The
power of the State Government for protection of forest has been provided in
Section 35. The power to impose duty on timber and other forest produce is
G contained in Section 39 of the Act.
From the above, it can be seen that scheme of 1927 Act is a State
management and regulation of the forest. On the assumption that local
communities were incapable of scientific management of forest, the British
H Government introduced Forest Policy and Management by setting up a forest
T.N.GODAVARMANTHJRUMULPADv. U.0.1 [SABHARWAL,J.] 589
department and enacting the Indian Forest Act, 1878 which was amended from A
time to time. By passage of time, it was found that the provisions of the said
Act were not adequate and, thus, in order to consolidate the law relating to
forest, the transit of forest produce and the duty leviable for timber and other
forest produce, the Indian Forest Act, 1927 was enacted. To further tighten
the management and regulation, the FC Act of I 980 was enacted. It became
necessary for conservation of forest on realizing that there has been large B
scale of deforestation which is causing ecological imbalance leading to
environmental deterioration. This led to enactment of the FC Act providing
for prohibition for use of forest land for non-forest purpose by anyone
including the State Government or other authorities except with the prior
approval of the Central Government. This legislature was enacted, as already C
noted, after Forest and Wildlife were taken out from the State list and placed
in the Concurrent list. At the same time, Article 48A was inserted in the
Constitution of India for protection and improvement of environments and
safeguarding forest and wildlife in the year I 977.

The basis objectives leading to the laying down of the National Forest D
Policy, 1988 may also be noted and also the need and requirement for its
enforcement. This policy was framed on realizing that 1952 Forest Policy for
the management of State forest in the country had not halted the depletion
of forests. It was, therefore, considered necessary to evolve a fresh policy for
future to lay down new strategies of forest conservation which had become E
imperative. Conservation includes preservation, maintenance, sustainable
utilization, restoration and enhancement of the natural environment. The
principal aim of the forest policy is to ensure environmental stability and
maintenance of ecological balance including atmospheric equilibrium which
are vital for sustenance of all life forms, human, animal and plant. The. derivation
of direct economic benefit must be subordinated to this principal aim. F
The forest policy has a statutory flavour. The non-fulfillment of afortsaid
principle aim would be violative of Articles 14 and 21 of the Constitution. The
basic objectives of the Forest Policy, 1988 are:

"2.1 The basic objectives that should govern the National Forest G
Policy are the following:

Maintenance of environmental stability through preservation and,
where necessary, restoration of the ecological balance that has
been adversely disturbed by serious depletion of the forests of
the country. H
590 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.

A Conserving the natural heritage of the country by preserving the
remaining natural forests with the vast variety of flora and fauna,
which represent the remarkable biological diversity and genetic
resources of the country.
Checking soil erosion and denudation in the catchment areas of
B rivers, lakes reservoirs in the interest of soil and water
conservation, for mitigating floods and droughts and for the
retardation of silation of reservoirs.
Checking the extension of sand-dunes in the desert areas of
Rajasthan and along the coastal tracts.
c Increasing substantially the forest/tree cover in the country
through massive afforestation and social forestry programmes,
especially on all denuded, degraded and unproductive lands.
Meeting the requirements of fuelwood, fodder, minor forest
produce and small timber of the rural and tribal populations.
D
Increasing the productivity of forests to meet essential national
needs.
Encouraging efficient utilization of forest produce and maximum
substitution of wood.

E Creating a massive people's movement with the involvement of
women, for achieving these objectives and to minimize pressure
on existing forests.
-
22. The principal aim of Forest Policy must be to ensure environmental
stability and maintenance of ecological balance including
F atmospheric equilibrium which are vital for sustenance of all life
forms, human, animal and plant. The derivation of direct economic
benefit must be subordinated to this principal aim."

It has been recognized that one of the essentials for forest management
is the conservation of total biological diversity, the network of national parks,
G sanctuaries, biosphere reserves and other protected areas to be strengthened
and extended adequately.

The strategy under the Forest Policy is to have a minimum of one-third
of the total land area of the country under forest or tree-cover. In the hills
and in mountainous regions, the aim should be to maintain two-third of the
H area under such cover in order to prevent erosion and land degradation and
T.N.GODAVARMANTHIRUMULPADv. U.0.I [SABHARWAL,J.) 591
to ensure the stability of the fragile ecosystem. Clause 4.3 lays down the A
aspects of management of State forests. It would be instructive to reproduce
hereunder certain parts of the Policy with a view to have clarity of the aim
to be achieved.

"4.3.1. Schemes and projects which interfere with forest that clothe
steep slopes, catchments of rivers, lakes, and reservoirs, geologically B
unstable terrain an d such other ecologically sensitive areas should
be severely restricted. Tropical rain/moist forest, particularly in areas
like Arunachal Pradesh, Kerala, Andaman and Nicobar Islands should
be totally safeguarded.

4.3.2. No forest should be permitted to be worked without the C
Government having approved the management plan, which should be
in a prescribed format and in keeping with the National Forest Policy.
The Central Government should issue necessary guidelines to the
State Government in this regard and monitor compliance.

xxx xxx xxx D
4.4.1. forest land or land with tree cover should not be treated merely
as a resource readily available to be utilized for various projects and
programmes, but as a national asset which requires to be properly
safeguarded for providing sustained benefits to the entire community.
Diversion of forest land for any non-forest purpose should be subject E
to the most careful examinations by specialists from the standpoint of
social and environmental costs and benefits. Construction of dams
and reservoirs, mining and industrial development and expansion of
agriculture should be consistent with the needs for conservation of
trees and forests. Projects which involve such diversion should be F
least provide in their investment budget, funds for regeneration/
compensatory afforestation.

4.4.2. Beneficiaries who are allowed mining and quarrying in forest
land and in land covered by trees should be required to repair and re-
vegetate the area in accordance with established forestry practice. No G
mining lease should be granted to any party, private or public, without
a proper mine management plan appraised from the environmental
angle and enforced by adequate machinery.

xxx xxx xxx
H
592 SUPREME COURT REPORTS (2005) SUPP. 3 S.C.R.

A 4.6. Having regard to the symbiotic relationship between the tribal
people and forests, a primary task of all agencies responsible for
forest management, including the forest development corporations
should be to associate the tribal people closely in the protection,
regeneration and development of forests as well as to provide gainful
employment to people living in and around the forest. While
B safeguarding the customary rights and interests of such people,
forestry programmes should pay special attention to the following

One of the major cause for degradation of forest is illegal cutting
and removal by contractors and their labour. In order to put an
end to this practice, contractors should be replaced by institutions
c such as tribal cooperatives, labour cooperatives, government
corporations, etc. as early as possible;

Protection, regeneration and optimum collection of minor forest
produce along with institutional arrangements for the marketing
of such produce;
D
Development of forest villages on par with revenue villages;
.,....- Family-oriented schemes for improving the status of the tribal
beneficiaries; and,

-
Undertaking integrated area development programmes to meet
E the needs of the tribal economy in the around the forest areas,
including the provision of alternative sources of domestic energy
on a subsidized basis, to reduce pressure on the existing forest
areas.

xxx xxx xxx
F
4.8.1. Encroachment on forest lands has been on the increase. This
trend has to be arrested and effective action taken to prevent its
continuance. There should be no regularization of existing
encroachments.

G xxx xxx xxx
4.9. The main considerations governing the establishment of forest-
based industries and supply of raw material to them should be as
follows:

As far as possible, a forest-based industry should raise the raw
H material needed for meeting its own requirements, preferably by
T.N.GODAVARMANTHIRUMULPADv. U.0.1 [SABHARWAL,J.] 593

establishment of direct relationship between the factory and the A
individuals who can grow the raw material by support the
individuals with inputs including credit, constant technical advice
and finally harvesting and transport services.

No forest-based enterprise, except that at the village or cottage
level, should be permitted in the future unless it has been first B
cleared after a careful scrutiny with regard to assured availability
of raw material. In any case, the fuel, fodder and timber
requirements of local population should not be sacrificed for this
purpose.

Forest-based industries must not only provide employment to C
local people on priority but also involve them fully in raising
trees and raw-material.

Natural forests serve as a gene pool resources and help to
maintain ecological balance. Such forests will not, therefore, be
made available to industries for undertaking plantation and for D
any other activities.

Farmers, particularly small and marginal farmers would be
encouraged to grow, on marginal/degraded lands available with
them, wood species required for industries. These may also be
grown along with fuel and fodder species on commurtity lands E
not required for pasture purposes, and by forest department/
corporations on degraded forests, not earmarked for natural
regeneration.

The practice of supply of forest produce to industry at
• concessional prices should cease. Industry should be encouraged F
to use alternative law materials. Import of wood and wood products
should be liberalized.

The above considerations will, however, be subject to the current
policy relating to land ceiling and land-laws.

xxx xxx G
4.16. The objective of this revised Policy cannot be achieved without
the investment of financial and other resources on a substantial
scale. Such investment is indeed fully justified considering the
contribution of forests in maintaining essential ecological
processes and life-support systems and in preserving genetic H
594 SUPREME COURT REPORTS (2005) SUPP. 3 S.C.R.

A diversity. Forest should not be looked upon as a source of
revenue. Forests are a renewable natural resource. They are a
national asset to be protected and enhanced for the well being
of the people and the Nation."

It is clearly a constitutional imperative to preserve and enhance forest
B cover as a natural gene pool reserve.

As opposed to the above, the ground reality has been depletion of
forest.

The shift in the approach of the legislation is evident from the FC Act
C of 1980 when compared with the scheme underlying the Indian Forest Act,
1927 which was State oriented for conserving the Forest Policy of 1952.
Further, in 1977, Forest and Wildlife were taken out from the State list and
incorporated in Concurrent list. Considering compulsions of States and large
depletion of forest, these legislative measures have shifted the responsibility
D from States to Centre. Moreover, any threat to the ecology can lead to
violation of right of enjoyment of healthy life guaranteed under Article 21
which is required to be protected. The Constitution oflndia enjoins upon this
Court a duty to protect environments.

The aforesaid background has been given to demonstrate that the
E object of amount ofNPV is to utilize the fund to conserve the ecology without
in any manner affecting proprietary rights of the State Government over the
land, timber or the minerals. The Notification dated 23rd April, 2004 does not
deprive any State of any land timber or mineral and, therefore, there is no
question of disbursement of any amount to the State. The damage to
environment is a damage to the country's assets as a whole. Ecology knows
F no boundaries. It can have impact on the climate. The principles and parameters
for valuation of the damage have to be evolved also keeping in view the likely
impact of activities on future generation.

We have already noted that this matter came to be examined on Central
Government filing statement showing the dismal state of affairs of the forest
G in the country. It is evident that despite the FC Act and the forest policy the
forests have been rapidly depleting. The forest policy recognizes this fact
and, in fact, was involved to check the menace of fast eroding of forest in
the country. Despite constitutional amendments made effective from the
beginning of 1977 and despite various environmental laws enacted between
H 1974-1986 depletion of forest has not halted.
T.N. GODAVARMAN THIRUMULPAD v. U.0.1 [SABHARWAL, J.] 595
The State of Forest Report 1995 published by Forest Survey of India A
when compared with the State of Forest Report 1997 also shows that there
has been considerable depletion of forest cover. It also shows the limited
regeneration. A comparison of the two reveals that total forest cover of the
country decreased from 638,879 sq.km. to 633,397 sq.km., thus showing a net
loss of 5,482 sq.km. Further it reveals that there has been a net decrease of
17,777 sq.km. of dense forest cover of the country while open forests and B
mangroves have increased by 12,001 sq.km. and 294 sq.km respectively. The
redeeming feature, however, is an improvement which can be seen from the
State ofForest Report 200 I. Learned Amicus Curiae submits that improvement
is a result of strict vigil on account of various orders passed by this Court
from time to time. It cannot be doubted that it is necessary to continue the C
efforts for regeneration of forest.

It would also be useful to make a mention of the order dated 22nd
September, 2000 passed by this Court which led to grant of sanction of rupees
1,000 crores for maintenance of forest under the 12th Finance Commission
(2005-20 I 0). The said order took note of the fact that felling of the trees is D
far in excess of what would be justified with reference to regeneration, and
the main cause is non-availability of sufficient funds. It also notices that even
with regard to the felling of trees as per working plans in the last three years,
the corresponding prescription for regeneration has not been implemented. It
further notices that there cannot be any felling without regeneration because E
that will, over a period of time, only result in forest vanishing. Further, the
order says that the shortfall of regeneration which has resulted in depletion
of forest cover has to be made up. The court took note of the suggestion that
for regeneration there should be a joint venture between State of Madhya
Pradesh - a State having a large forest area, and the Central Government
whereby the working capital, in whole or substantially the whole, can be F
provided by the Central Government and the regeneration of degraded forests
carried out. Taking an overall view, it is important for the nation that in certain
areas where natural forest exists, the same should be preserved and at the
same time the Central Government should consider whether the deficient
States should not be asked to contribute towards the preservation of the
existing forest cover and the compensation/incentive given to the forest rich G
States to preserve and regenerate forests. In a sense, there should be a
partnership of all the States to ensure the maintenance and improvement of
forest cover. It was observed that this suggestion should be considered by
a Committee of Secretary (MOF) and the Secretary (MOEF) in consultation
with the Chief Secretaries of all the States. H
596 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.

A Para 14.25 of the 12th Finance Commission Report deals with maintenance
of forest. Noticing that several States have represented that subsequent to
the restrictions placed by this Court on exploitation of forest wealth, the
forests have become a net liability for the States rather than a source of
revenue and maintenance of forest has become a problem due to financial
B constraints, these States pleaded that separate grant should be provided for
maintenance of forest. Recognising that forest are a national wealth and the
country as a whole has the responsibility in preserving the said national
wealth, the Commission decided to recommend a grant of rupees 1000 crores
spread over the award period 2005-2010 for maintenance of forest. This would
be over and above what the States have been spending through their forest
C departments. The amount was distributed among the States based on their
forest area, to be spent for preservation of forest wealth. In this light, it is
not open to the State Government to contend that the amount of NPV paid
by the user agency shall be handed over to them.

Reference may also be made to report of the Planning Commission
D (Chapter IX) relating to forest environments in Tenth Five Year Plan (2002-
2007) which has taken note of the fact that sustainability is not an option but
imperative since without it environmental deterioration and economic decline
will be feeding each other leading to poverty, pollution, poor health, political
upheaval and unrest. Environment cuts across all sectors of development.
E The rapid increase in green house gases in the atmosphere, land degradation,
deteriorating conditions of fragile eco-systems, deforestation, loss of
biodiversity and environmental pollution have become subjects of serious
global concern. The overall impact of these phenomena is likely to result in
depletion of ozone layer, change of climate, rise in sea-level loss of natural
resources, reduction in' their productivity ultimately leading to an ecological
F crisis affecting livelihood options for development and over all deterioration
in quality of life.

From the above report, it follows that the deterioration and consequently
preservation of eco-systems cannot be area or state specific and that utmost
attention is required to be accorded to conservation of natural resources and
G for improvement of the status of our environments. The report notices the
need to tackle the environmental degradation in a holistic manner in order to
ensure both economic and environmental sustainability. Forests play an
important role in environmental and economic sustainability. It takes note of
the forests being consistently and seriously undervalued in economic and
H social terms. It recognizes that the economic value of the eco-system services
T.N. GODAVARMAN THIRUMULPAD v. U.0.1 [SABHARW;\L. J.] 597
of the forests is vast though it is extremely difficult to quantify. It takes note A
of the fact that generally much of the land-use decision that presently drives
forest change takes relatively little account of these values. The country's
forest resource is under tremendous pressure. Note has been taken of the fact
that India's biological diversity is reflected in the heterogeneity of its forest
· cover. It is one of the 12 'mega-diversity' countries of the world. India is also B
at the meeting zone of three major zone of three major bio-geographic realms,
namely, the Indo-Malayan (the richest in the world), the Eurasian and Afro-
tropical. India also has the two richest bio-diversity areas, one in the northeast
and the other in the Western Ghats. The biological diversity is being conserved
through a network of biosphere reserves, national parks and sanctuaries,
however, the challenges for conservation emanate from population pressures, C
adverse impacts of industrialization and intensifying threat from illegal trade.

The importance of conserving and managing existing natural forest and
forest soils, which are very large stores of carbon, has been emphasized as
it will significantly reduce greenhouse gas emissions. To develop and protect
forest, a scientific management is necessary so as to enhance productivity, D
density and health. Forestry projects have to lay emphasis on management
and rejuvenation of natural forests. The fragile eco-systems should be properly
managed in order to safeguard the livelihood of millions of people.

The national development agenda must recognize the necessity of
protecting the long-term ecological security. The problem area is the growing E
population, high degree of mechanism and steep rise in energy use which has
led to activities that directly or indirectly affect the sustainability of the
environment.

It is recognized that the sustainable use of bio-diversity is fundamental F
to ecological sustainable. The loss of bio-diversity stems from destruction of
the habitat, extension of agriculture, filling up of wet lands, conversion ofrich
bio-diversity sites for human settlement and industrial development, destruction
of coastal areas and uncontrolled commercial exploitation. It is thus evident
that the preservation of eco-systems, bio-diversity and environment whether
examined on common law principle or statutory principle or constitutional G
principle eying from any angle it is clearly a national issue to be tackled at
the national level. All initiatives are required to seriously pursue.

Dealing with inter-generational justice, it has been rightly observed that
posterity shall not be treated like dirt. In an article published in 2003 C-olumbia
Journal of Environmental Law (28 Colum.J.Envtl.L.185), the author says that H
598 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.

A the way in which a society cares or does not care for its dirt - its land - reflects
the degree to which it cares or does not care for its own long-term future.

We may also briefly refer to Public Trust doctrine and its applicability
to the matters under consideration. The Public Trust Doctrine looks beyond
the need of the present generation and also suggests that certain resources
B are invested with a special nature. It would be instructive to make a note of
a story given in by Timothy Patrick Brady in Boston College Environmental
Affairs Law Review, Spring 1990 under the title 'But most of it belongs to
those yet to be born'. The story relates to digging of well at the time of
drought. When a Frenchman told villagers of a prudent African solution of
C digging well, many villagers agreed but others argued that it will bring people
from other villages and they would bring their cattle and that would increase
the pressure on the already precious water. The Frenchman told the villagers
that why not explain to them that the well is only for your own village and
they can dig their own. It was then said that 'water is not only ours, but is
gift of nature from God and must be shared.' Ultimately, they concluded that
D it was wiser not to dig the well at all. The moral of the story is that we are
trustees of natural resources which belong to all including future generation
as well. The public trust doctrine has to be used to protect the right of this
as also future generation.

Having regard to the above, amounts under CAMPA have to be used
E for regeneration of eco-system and the same cannot be handed over to any
State Government on the premise that ecology is not property of any State
but belongs to all being a gift of nature for entire nation. The object of the
FC Act and EP Act is protection of environments. These Acts do not deal
with any propriety rights of anyone.
F As already stated the question as to what amount of NPV is required
to be paid to achieve these object is a matter to be gone into by the experts.
However, the amounts shall have to be updated from time to time after every
three years. For grant of approval under Section 2 of the FC Act besides
payment of NPV as being presently calculated by MOEF, the user agencies
G shall have to give undertakings to pay the remaining amount, if any, pending
finalization of determination by the experts.

Turning now to the grant of exemption to certain projects, learned
Solicitor General submitted that Government hospitals, dispensaries, non-
commercial government ventures like schools, rain water harvesting tanks,
H sever lines, village roads etc. are the projects meant for public welfare and
T.N. GODAVARMANTHIRUMULPADv. U.0.1 [SABHARWAL,J.] 599

have no adverse impact on environment as such and, therefore, these cases A
deserve to be granted exemption. Learned Amicus Curiae has no objection
to non-commercial and non-revenue earning Government public welfare projects
being treated differently and granted exemption from the purview of the
payment ofNPV. Submission was also made by learned counsel appearing for
some of the parties that other projects like irrigation, hydro electricity or other B
similar projects engaged in public welfare and public utility activities too
deserve to be similarly treated and granted exemption. On behalf of the
National Hydro Project Corporation Ltd. (NHPC), it was submitted that dams/
hydro electric projects and other similar projects are undertaken in public
interest and these will also not create environmental pollution and mere fact
of these are revenue earning projects should not be taken as a ground to treat C
them differently. Reliance has been placed on observations made in Hindustan
Motors Ltd. and Anr. v. N. Siva Kumar and Anr., [2000] l 0 SCC 664 to contend
that such a project is not a pollution industry. This decision is not relevant
for determining the question about levy and payment of NPV. The question
is not only about these and projects referred by the Solicitor General not D
creating pollution but is about diversion of forest land for non-forest purpose,
thereby depleting forest so as to utilize land area in setting up these projects.
A distinction has to be maintained between a project set up for providing
public utility but which is revenue earning, the category to which the project
of NHPC falls and the government projects of the nature above referred like
hospitals, schools etc., non-revenue earning projects. A balance is required E
to be maintained in the development and protection of environments. As
already noted, the development has to be based on sustainability. If NHPC
uses the forest land for non forest purposes, the payment ofNPV is to protect
the ecological and bio-diversity having regard to the doctrines above referred.
Generally speaking, projects like NHPC are commercial ventures.
F
What we have stated above is also applicable to submissions made on
behalf of Grid Corporation ofOrissa (GRIDCO), State ofUttranchal and State
of Madhya Pradesh. We are unable to accept the submission that wherever
the government is the user agency in notified forest area, protected forest/
reserved forest etc., NPV should not be charged. Such a submission cannot G
be accepted in the teeth of Section 2 of the FC Act and other environmental
laws noticed hereinbefore.

The submission made on behalf of the Federation of Indian Mineral
Industries about calculation ofNPV at the rate of IO per cent for major mineral
and 5 per cent for minor mineral as already noted cannot be accepted. The H
600 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.

A question is not of the value of the mineral or it being high value and low
volume and mineral of high volume and low value, the question is about use
of the forest areas and need to protect the environments in the manner above
stated. A larger public interest has to be the guiding principle and not the
present interest of user agency only.

B We are of the view that the question as to which class of projects
deserve to be exempted can first be examined by experts having regard to
principles laid in this judgment and in receipt of the report from them, this
Court would further examine the matter and issue appropriate directions.
However, prima facie we feel that revenue earning projects do not deserve
C similar treatment as non-revenue earning public welfare projects.

We are clear that if let loose, the benefits achieved as indicated in the
State Forest Report of 200 I would be lost and we may be again where we were
in 1990's or !980's and earlier period during which there was immense depletion
of forest and insignificant regeneration.
D
The work of regeneration and also of compulsory afforestation requires
special, specific and expert attention and we see no illegality in establishment
of Special Purpose Vehicle (SPV) in tenns of clause 6.6 above quoted except
that for present till further orders it would be necessary to monitor the
establishment ofSPV. Thus, in respect of clause 6.6 in relation to establishment
E ofSPV, we hold that before establishing SPV, its fonnat shall be filed in Court
and SPV shall not be established without pennission of the Court. Further in
our view the constitution of authority (CAMPA) is necessary to fully and
effectively implement recommendation dated 9th August, 2002 made by CEC
for protection of environment.
F In view of the aforesaid discussion, our conclusions are:

I. 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 Expert Committee Report.
G
2. The payment to CAMPA under notification dated 23rd April,
2004 is constitutional and valid.
3. The amounts are required to be used for achieving ecological
plans and for protecting the environment and for the regeneration
H of forest and maintenance of ecological balance and eco-systems.
T.N.GODAVARMANTHlRUMULPADv. U.0.1 [SABHARWAL,J.] 601
The payment of NPV is for protection of environment and not in A
relation to any propriety rights.
4. Fund has been created having regard to the principles of
intergenerational justice and to undertake short term and long-
term measures.
5. The NPV has to be worked out on economic principles. B
In view of the above, we issue following directions:
A. An expert committee comprising of three experts including Ms.
Kanchan to be appointed w\thin a period of one month by the
Institution of Economic Growth (North Campus). c
B. The committee of experts would examine the following issues:

co 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.
D
(ii) To formulate a practical methodology applicable to different
bio-geographical zones oflndia for estimation of the values
in monetary terms in respect of each of the above categories
of forest values.

(iii) To illustratively apply this methodology to obtain actual E
numerical values for different forest types for each bio-
geographical zone in the country.

(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 F
forests.

(v) Which projects deserve to be exempted from Payment of
NP\!.
c. The user agencies shall give undertakings for the further payment,
G
if any, as may be determined on receipt of report from the expert
body.
D. The Special Purpose Vehicle shall be established with the
permission of the Court.
E The Institute shall send report of Committee of Experts within a H
602 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.

A period of four months.
F. The various clauses of CAMPA shall be suitably modified in
terms of this judgment within a period of one month.

List after four months.

B v.s.s. Writ Petition disposed of.