Holding

The Court upheld the CEC's NPV rates and methodology, deeming the 4% social discount rate appropriate and the prescribed exemptions valid.

Summary

The Supreme Court examined the methodology for compensating diversion of forest land for non‑forest developmental projects under the Environment Protection Act, 1986. It accepted the recommendations of the Central Empowered Committee (CEC) that the user agency must pay a Net Present Value (NPV) based on ecological classes and canopy density, with rates fixed for a three‑year period. The Court held that the CEC's use of a 4% social discount rate was appropriate and that a uniform NPV schedule was practicable given the vastness of India's forests. It also endorsed a list of specific exemptions for public‑welfare projects such as schools, hospitals, minor irrigation, and defence roads. The Court directed that any further exemptions would be decided case‑by‑case and that the NPV rates would be reviewed after three years.

Issues considered

The appropriate quantum of Net Present Value (NPV) compensation for diversion of forest land under the Environment Protection Act, 1986.
Whether the social discount rate of 4% adopted by the CEC is legally and economically valid.
Whether a uniform NPV schedule can be applied across diverse forest types and regions.
Whether the specified exemptions for certain public‑welfare projects are permissible.

Legislation cited

Environment (Protection) Act, 1986s. 3(3)

Subjects

Environment Protection ActNet Present ValueForest diversionCompensatory afforestationSocial discount rateCentral Empowered CommitteeEcological valuationPublic‑welfare exemptions

Judgment

[2008] 6 S.C.R. 321

}
T.N. GODAVARMAN THIRUMULPAD . A
V.
UNION OF INDIA & ORS.
I.AS No. 826 etc.
IN
(Writ Petition (C) No. 202 of 1995) B
MARCH 28, 2008
(K.G. BALAKRISHNAN, CJ. AND DR. ARIJIT PASAYAT
AND S.H. KAPADIA, JJ.)
c
Environment Protection Act, 1986:
s.3(3) - S~tting up of Central Empowered Committee -
Considering use of forest are.as in developmental activities
for non forest purposes - Recommendations by CEC for
payment of Net Present Valµe (NPV) on the basis of D
..... classification of forest made by it for diversion of forest- Held:
Recommendations accepted - It is made clear that the NPV
rates so fixed would hold good for a period of three years and
subject to verification after three years - The exemptions
recommended are also accepted - If, in any case, exemption E
is required by nature of peculiar circumstances of the case,
the same would be decided as and when necessary on a case
to case basis.
TN. Godavarman Thirumulpad vs. Union of India & Ors.
(2008) 3 SCR 141 and T.N. Godavarman Thirumulpad vs. F
·--1
Union of India & Ors. (2006) 1 SCC 1 - referred to.
CIVIL APPELLATE JURISDICTION:
I.A Nos. 826 in 566 with 955 in 566, 958, 985, 1001-
1001A, 1013-14, 1016-1018, 1019, 1046, 1047, 1135-1136, G
1164, 1180-1181, 1182-1183, 1196, 1208-1209, 1222-1223,
>~ 1224-1225, 1229, 1233 in 1135-1136, 1248-1249, 1253, 1301-
1302,1303-1304,1312, 1313, 1314, 1318, 1319in1137, 1325,
1364, 1365-1366, 1370-1370A, 1371, 1384, 1385-1386, 1387,
321 H
322 SUPREME COURT REPORTS [2008] 6 S.C.R.

A i 434, 1435-1437, 1438, 1441 with 1634, 1475-14 76, 1513,
1573, 1639 in 1135-1136 in IA 566, 1664, 1665, 1671, 1676,
1707, 1721, 1779 in 1164 in 566, 1785-1786 in I.A. No. 1441,
1980-1981, 1993, 2013, 207 4-2076, 2077-2078 in 1441 & 2098
in 1233 in 1135-1136, 2145-2146, 2147-2148, 2149-2150 &
B 2153-2154 in I.A. 566 in W.P. (C) No. 202/1995

Altaf H. Naiyak. A.G., G.E., Vahanvati. S.G. Gilda,
Aruneshwar Gupta AAGs. Gopal Subramanium. Parag Tripathi
and A. Suran. ASGs., Harish N. Salve, Uday U. Lalit, F.S.
Nariman. L. Nageswara Rao. Arun Jaitley, Mukul Rohtagi. V.C.
C Mahajan, Ranjit Kumar, R.P. Bhat, Altaf Ahmed. VA. Mohta.
S.B. Upadhyay, A.V. Savant. P.P. Rao, K.K. Venugapal,
P.H. Parekh (for M/s. Parekh & Co.) and Kailash B., Siddhartha
Chowdhury, P.K. Manohar. Viplav Sharma, Amit Kr. Chawla,
Sanjay R. Hegde, Anurag Singh, Naresh Bakshi. Raj Panjwani,
0
Purnima Bhat Kak, P. Parmeswaran, Harris Beeran, D.S. Mahra,
Alka Sharma, f~achna Srivastava, Ajit Pudussery, Sunil Dogra,
S.U.K. Sagar, Bina Madhavan (for M/s. Lawyer's Knit & Co.),
G. Ramakrishna Prasad, Suyodhan Byrapaneni, Siddharth
Patnaik. G. Arun Pratap Venugopal, Dileep Poolakkot. Sanjeev
E Kumar, Kumar Mihir (for M/s. Khaitan & Co.), Tara Chandra
Sharma, Ajay Sharma, Tasleem Ahmadi, R.S. Jena, Manu Nair,
Anuj Puri, Nidhi Minocha, Rajesh Srivastava, Sanjib Sen, Ratna
Kaul, Prashant Kumar (M/s. APJ Chambers), Manjit Singh, T.V.
George, Dhruv Mehta. Harshvardhan Jha, Yashraj S. Deora (for
F Mis K.L. Mehta & Co.), Shobha (for M/s. K.L. Mehta & Co.),
Pallav Shishodia, H.D. Thanvi, Manju Mishra, D.N. Mishra, M.L.
Lahoty, BhupenderYadav, S.S. Shamshery, P.V. Dinesh, Sindhu
T.P. A.V. Rao, Prabhakar Parnam, Venkateshwara Rao
Anumolu, Ajai Bhalla, Abha R. Sharma, Vikas Mahajan, D.B.
G Vohra, Wasim A. Qadri, Subair Ahmad Khan, B.K. Prasad,
Aruna Gupta, Sumita Hazarika, P.S. Narasimha, Sridhar
Potaraju. D. Julius R., S.C. Patel, Gopal Jain, R.N. Karanjawala,
M. Karanjawala. Nandini Gore, Debmalya Sanerjee, Sonia
Nigam, Dattatray Vyas, Mahima C. Shroff, Chirag M. Shroff,
H H.K. Puri, S.K. Puri, Priyavri, V.l\t1. Chauhan, J.T. Gilda, Manish
T.N. GODAVARMAN THIRUMULPAD v. UNION OF !NOIA 323
& ORS.

Pitale, C.S. Ashri. Nikhil Nayyar, Ankit Singhal, T.V.S. A
Raghavendra Sreyas, G. Prakash. R.R. Dubey, Santosh Mishra,
Sharmila Upadhyay, Bhavanishankar V. Gadnis, Sunita Rao,
B.S. Banthia, Vikas Upadhyay, A.P. Mayee, Umapathy, N.M.
Popli, Asha G. Nair. M.P. Singh, Dr. Vipin Gupta, A. Subhashini,
Savitri Pandey, Mohd. Fuzail Khan,Anil Kr. Jha,Amit Kr. Chawla, B
Arul Varma, Vikrant Yadav, Kh. Nobin Singh, David Rao, Tarun
Jamwal, S. Biswajit Meitei, Vijay Prakash, Naveen Kr. Singh,
Shashwat Gupta, Kuldip Singh. R.K. Pandey, H.S. Sandhu, Anil
Karnwal, Dr. Sushi! Balwada, E.C. Agrawala, Mahesh Agarwal,
Rishi Agrawala, Ashutosh Garg, Neha Aggarwal, Gourav Goyal, · c
Momta Oinam (for Ms. Corporate Law Group), K.N.
Madhusoodhanan. R. Sathish.Anil Shrivastav, Ritl.J Raj, Pratap
Venugopal, Surekha Raman Dileep P. (for M/s. K.J. John & Co.),
Raj Kumar Mehta, Mragank, Nalini Pa!, Vishnu, B. Saharya (for
M/s. Saharya & Co.), SuchitraA. Chitale, P.V. Yogeswaran, Ejaz
0
Maqbool, V. Balachandran, Vinay Kumar, K.R. Sasiprabhu,
. Sangeeta Kumar, Rajesh, Alok Rai, S. Sukuinar, B.P. Singh,
Sanjeev Kumar, Sarla Chandra, Mukesh K. Giri, Gopal Singh
Anukul Raj, Ajit Kr. Sinha, Himinder Lal, Anis Suhrawardy,
Mehedi Imam, Ashwani Garg, Hemantika Wahi, Pinky, Jesal,
V.B. Joshi, Sanjib Sen, Ratna Kaul, Prashant Kumar, Sanjiv Sen, E
Praveen Swarup, S. Akbar Abbas Abdi, Archana Singh and
Savitri Pandey for the Appearing parties.

The following Order of the Court was delivered:
It is an undisputed fact that the forest in this country is an F
important and vital component to sustain the life support system
on this planet. For various reasons, our forest is being slowly
depleted. At the same time, as part of our developmental
activities, some areas of the forest have to be used for non-
forest purposes. The economic development shall not be at the G
cost of complete degradation of the forest or the environment
and eco-system provided by the green area of the forest.
Therefore, it was considered whether the user agency of such
land which is required for developmental activities to
compensate for the diversion of the forest and on the H
324 SUPREME COURT REPORTS [2008] 6 S.C.R.

A recommendations of the Central Empowered Committee
(hereinafter being referred to as "CEC"), it was decided by this
Court that the user agency shall be required to make payment
of net present value(NPV) of such diverted land so as to utilize
this for getting back in the long run which are lost by such
B diversion. A scheme was submitted by Ministry of Environment
and Forests(MOEF) alongwith an affidavit dated 22.3.2002. The "-
CEC considered all relevant aspects including the scheme
submitted by MOEF and filed a report on 9.8.2002. These
reports were accepted by this Court. This Court in T.N.
C Godavarman Thirumu/pad Vs. Union of India 2006(1) SCC
1 finally directed that the question as to what amount of NPV is
required to be paid and to achieve these objectives, it was
directed that the question is to be examined by experts. A
Committee! comprising of three experts including Mrs. Kanchan
Chopra was appointed and this Court gave the following
0
directions:-
(i) to identify and define parameters {scientific,
biometric and social) on the basis of which each of
the categories of values of forest land should be
E estimated.
(ii) To formulate a practical methodology applicable to
different biogeographical zones of India for
estimation of the values in monetary terms in respect
of each of the above categories of forest values.
F
(iii) To illustratively apply this methodology to obtain actual
numerical values for different forest types for each
. '

biogeographical zone in the country.
(iv) To determine on the basis of established principles
G of public finance, who should pay the costs of
restoration and/or compensation with respect to each
category of values of forests.
(v) 'Which projects deserve to be exempted from
payment of NPV.
H
TN. GODAVARMAN THIRUMULPAD v. UNION OF INDIA 325
& ORS.
~
On the basis of the directions issued by this Court, a A
Committee consisting of Mrs. Kanchan Chopra gave a report
and the same was examined by the CEC.
The report contains detailed study of the relevant factors.
The Forest Survey of India, has since last two decades, been
undertaking forest cover mapping of the country using satellite B
'.":
data obtained by the NRSA, Hyderabad. The methodology of
mapping involves the geo-rectification of the satellite imagery
using the Survey of India toposheets followed by the digital
interpretation of the same and extensive ground truthing. It was
found that the forest cover maps depicts mainly three tree c
canopy density classes, viz., very dense, moderately dense and
open. There were other classifications in the Forest of India and
"Champion and Seth" have classified the forests of India into
16 major groups. The major basis of classification included the
climate, the soil and the past treatment as these factors D
determine the vegetation type of a given locality: CEC has
classified the forest taking in view the ecological role and value
of the forests and for the purpose of the report, 16 major forest
types have been further grouped into 6 ecological classes
depending upon their ecological functions. E
Eco-Class I - Consisting of Tropical Wet Evergreen
Forests, Tropical Semi Evergreen Forests
and Tropical Moist Deciduous Forests
Eco- Class 11 - Consisting of Littoral and Swamp Forests F
~--
Eco-Class 111 - Consisting of Tropical bry Deciduous
Forests
Eco-Class IV - Consisting of Tropical Thorn Forests and
Tropical Dry Evergreen Forests
G
Eco-Class V - Consisting of Sub-tropical Broad Leaved
-4-
Hill Forests, Sub-Tropical Pine Forests
and Sub Tropical Dry Evergreen Forests
Eco-Class VI - Consisting of Montane Wet Temperate
H
326 SUPREME COURT REPORTS [2008] 6 S C.R.

A Forests, Himalayan Moist Temperate
Forests, Himalayan Dry Temperate
Forests, Sub Alpine Forest, Moist Alpine
Scrub and Dry Alpine Scrub
Based on the ecological importance of forest falling in
B different eco-value and canopy density classes, relative
weightage factors have also been taken into consideration. By
using these relative weightage factors, the equalized forest area
in eco-value Class I and very dense forest corresponding to
forest falling in different eco-value and density classes have
C been compiled. For example, 17,997 sq. km. of open forest of
Eco-Class IV has been calculated to be equivalent lo 7,558 sq.
km. of very dense forest of Eco-Value Class I. Accordingly, the
entire forest area of the country has been calculated and found
to be equivalent to 5.2 !akh sq. km. forest area having highest
D ecological significance as that of forest falling in eco-value Class
I with density above 70%.
The net present value per hectare of forest has been fixed
based on this data. For calculating the average net percent value
per hectare of forest in India, the following monetary value of
E goods and services provided by the forest have been
considered:-
(i) Value of timber and fuel wood
(ii) Value of Non Timber Forest Products (NTFP)
F
(iii) Value of fodder
(iv) Value of Eco-tourism
(v) Value of bio-prospecting
G (vi) Value of Ecological services of forest
(vii) Value of Flagship Species
(viii)Carbon Sequestration Value
Based on this, the NPV was fixed and the following
H
TN. GODAVARMAN THIRUMULPAD v. UNION OF INDIA 327
& ORS.

recommendations have been made:- A
(i) for non-forestry use/diversion of forest land, the NPV
may be directed to be deposited in the Compensatory
Afforestation Fund as per the rates given below:-
(in Rs.) B
Eco-Value Very Dense Dense Open
class Forest Forest Forest

Class I 10,43,000 9,39,000 7,30,000

Class II 10,43,000 9,39,000 7,30,000
c
Class Ill 8,87,000 8,03,000 6,26,000

Class IV 6,26,000 5,63,000 4,38,000
D
Class V 9,39,000 8,45,000 6,57,000

Class VI 9,91,000 8,97,000 6,99,000

(ii) the use of forest land falling in National Parks I Wildlife
Sanctuaries will be permissible only in totally E
unavoidable circumstances for public interest
projects and after obtaining permission from the
Hon'ble Court. Such permissions may be considered
on payment of an amount equal to ten times in the
case of National Parks and five times in the case of
F
Sanctuaries respectively of the NPV payable for such
......~~- areas. The use of non-forest land falling within the
National Parks and Wildlife Sanctuaries may be
permitted on payment of an amount equal to the NPV
payable for the adjoining forest area. In respect of
non-forest land falling within marine National Parks G
. I Wildlife Sanctuaries, the amount may be fixed at
five times the NPV payable for the adjoining forest
--i area;
(iii) these NPV rates may be made applicable with H
328 SUPREME COURT REPORTS [2008] 6 S.C.R.

-(
A prospective effect except in specific cases such as
Lower Subhanshri Project, mining leases of SECL,
Field Firing Ranges, wherein pursuant to the orders
passed by this Hon'ble Court, the approvals have
been accorded on lump-sum payment I no payment
B towards the NPV; and
(iv) for preparation and supply of district level maps and ;., .
GPS equipments to the concerned State I UT Forest
Departments and the regional offices of the MoEF,
the Ad-hoc CAMPA may be asked to provide an
c amount of Rs.1.0 crore to the Forest Survey of India
out of the interest received by it.
Ministry of Environment and Forests also has filed its
response and has accepted the recommendations made by
CEC. Various user agencies have filed its objections. We heard
D
the learned senior Counsel Mr. Nariman and other learned senior
Counsel who appeared before us. The main contention raised
is that the NPV value was fixed on the basis of the net flow
accruing over 20 years at a 5% social discount rate. This,
according to the applicants, is too low. It has been contended
E that the Economic and Research Department of the Asian
Development Bank is of the view that a survey of the social
discount rate policies of individual countries show significant
variations and the developing countries apply higher social
discount rate. The paper published by Asian Development Bank
F shows that India should have a social discount rate of 12%. It
may be noted that the Expert Committee under the leadership >,
of Mrs. Kanchan Chopra recommended 5% social discount rate
but the CEC has reduced further and accepted 4% social
discount rate. It may be noted that the CEC had made
G consultation with eminent economists and it was of the view
that the social discount rate should be around 2% in India. We
do not find much force in the contention advanced by the learned
Counsel who appeared for the user agents. The 10% suggested ~

by them cannot be applied to the present case because 10% is
H the rate linked to assumptions about the opportunity cost of
TN. GODAVARMAN THIRUMULPAD v. UNION OF INDIA 329
& ORS.
I- capital. One cannot apply that rate for social time preference in A
evaluating the benefits from an environmental resource such as
forests. In project evaluation, the horizon is compatible with the
life of the project whereas in forest matters, the horizon spans
over several generations. Therefore, the r~te of 10%, as
suggested by the user agency cannot be accepted. B
·-* Another contention raised by the applicant(FI MI) is that the
NPV is not fixed on site specific and, therefore, the fixation of
the rate is based on surmises and conjectures and the same
rate cannot be applied to the large extent of area covered by
the forests. This question was elaborately considered by the c
CEC. Considering the large extent of this country and the forest
being spread over in various parts of the State, it is difficult to fix
the NPV based on the specific area. It is not feasible to fix NPV
in each and every individual case. The entire forest area in each
of the State/UT is calculated by considering the monetary value D
of the services provided by it. The average NPV per hectare of
../>. the forest area in the State has also been calculated. If NPV is
to be calculated on the specific area, the process would be time
consuming and in most of the cases, it may be beyond the
capability of the Range Forest Officers or other officials posted E
at the grassroot level. Moreover, the NPV is linked with the type
of the forest and no useful purpose would be served by carrying
out NPV calculations in each case involving the diversion of
forest areas.

We are of the view that the NPV now fixed is more scientific F
'·.i, and is based on all available data. We accept the
recommendations and we make it clear that the NPV rate now
fixed would hold good for a period of three years and subject to
variation after three years. The following exemptions have been
recommended:- G
(i) public works such as schools, hospitals, children play
' I grounds of non-commercial nature and the public
~-
welfare projects such as community centres in rural
areas which require forest land upto 2 ha;
H
330 SUPREME COURT REPORTS [2008] 6 S.C.R.

A (ii) rural infrastructure and basic services such as the ...
construction of the overhead tanks, village roads.
etc.

(iii) the minor irrigation projects upto 1O ha. of storage
area, municipal water supply projects, drinking water
B supply pipelines;

(iv) activities necessary for the ecological management, :JK'

relocation of the villages from the sactruaries and
the national parks, regularization of pre-1980 eligible
c 19ncroachers;

(v) housing for the rehabilitation of tribals; laying of the
underground optical fibre cables;

(vi) laying of the pipelines for the underground gas
transportation;
D
(vii) the district and rural roads;
(viii) shifting cultivation;
(ix) roads constructed by Defence in border areas;
E
(x) construction of the transmission lines.
The above recommendations for exemptions are
accepted. If, in any case, exemption is required by nature of the
peculiar circumstances of the case, the same would be decided
F as and when necessary on a case to case basis.

R.P. I. As disposed of >'