New Delhi — The Supreme Court has overturned a ₹50-crore penalty imposed by the National Green Tribunal (NGT) on a Moradabad-based handicraft exporter, ruling that even in environmental matters, penalties must be legally sound and proportionate.

The apex court, in its August 22 judgment, pulled up the NGT for basing the hefty fine on the company’s turnover without establishing a direct link between revenue and the pollution caused. A bench comprising Chief Justice D.Y. Chandrachud and Justice K. Vinod Chandran noted that while the firm, CL Gupta Export Ltd, had indeed violated environmental norms, the NGT’s reasoning lacked legal basis and fairness.

“The rule of law does not permit the state or its agencies to extract a ‘pound of flesh’, even in environmental matters,” the court observed, referring to the NGT’s calculation of fines purely on the basis of the company’s ₹550 crore turnover.

The court took particular exception to the NGT’s judgment, calling it unnecessarily lengthy and lacking in substantive judicial reasoning. “The application of mind was not proportionate to the number of pages,” the bench remarked, adding that courts and tribunals must go beyond rhetoric and base their judgments on a clear connection between law and facts.

The NGT had earlier imposed the fine using a methodology it linked to the company’s annual revenue—a practice the Supreme Court said is “totally unknown to any principle of law.”

While acknowledging the company’s previous non-compliance with environmental standards, the court noted that a penalty had already been imposed based on a methodology developed by the Central Pollution Control Board (CPCB). If the NGT found that insufficient, it should have referred to the CPCB’s framework instead of defaulting to turnover-based calculations, the court said.

The bench also struck down a separate NGT directive instructing the Enforcement Directorate to launch a money laundering probe against the company. The court said the tribunal had overstepped its powers under Section 15 of the NGT Act, 2010, and should stay within its legal remit.

Clarifying its ruling, the Supreme Court said it was not disputing the company’s violations or the role of the Pollution Control Boards in enforcing compliance. It also left the door open for further action by environmental authorities, allowing them to continue monitoring the unit and impose new penalties if future non-compliance is detected.

However, the top court was clear that any enforcement must follow due process and rest on a sound legal foundation—not arbitrary estimates based on company size or revenue. “We are not convinced that, having accepted the report of compliance, there was any warrant for a sweeping direction to close divisions of the company falling short of full compliance,” the bench added.

While setting aside the ₹50-crore penalty, the court also made it clear that it had not verified whether the company had already paid any part of it. If avenues for appeal still exist, the company is free to pursue them within the legal time limits, the court said.

In conclusion, the Supreme Court upheld the importance of strict environmental regulation but cautioned against overreach and arbitrary penalty mechanisms, reinforcing the principle that enforcement must remain within the bounds of law.