- within Environment topic(s)
- in Australia
- with readers working within the Law Firm industries
- within Environment, Real Estate and Construction and Strategy topic(s)
Introduction
In a landmark decision with major implications for the real estate and infrastructure sectors, a three-judge bench of the Supreme Court of India by a majority view allowed the Review Petition filed by the Confederation of Real Estate Developers of India (CREDAI) seeking review of the earlier judgment of the Court in Vanashakti v Union of India, 2025 SCC OnLine SC 1139 (Judgment Under Review/ JUR), which held that the mechanism for granting ex post facto Environmental Clearance (EC) is invalid. The Supreme Court by a 2:1 majority set aside the JUR and restored the original petitions for fresh hearing, thereby temporarily lifting the imminent threat of demolition or closure of projects that were completed or near-completion, but lacked a prior EC.
Requirement of prior EC
The foundation of India's Environmental Regulatory Framework is the Environment Impact Assessment Notification 2006 (EIA Notification, 2006) which provides that the expansion or modernization of certain existing project or industrial activity which results in an addition of capacity beyond the limits specified or a change in product mix in an existing manufacturing unit beyond the specified range would require a prior EC.
Recognizing that many projects had commenced or expanded operations without the requisite EC, in 2017, the Ministry of Environment, Forest & Climate Change (MoEFCC) issued a notification providing that ex-post facto EC may be granted to projects which were operating without an EC upon fulfilment of conditions (2017 Notification).
All projects which were in breach on the date of issuance of the 2017 Notification were eligible to apply for EC within six months from the date of Notification subject to stringent conditions including payment of huge penalties, execution of a remedial plan and community augmentation plan, and mandatory closure and demolition if the project was not permissible under prevailing laws or not environmentally sustainable.
Subsequently, in 2021 MoEF&CC issued an Office Memorandum (2021 OM) containing Standard Operating Procedure (SOP) for Identification and handling of violation cases under EIA Notification, 2006 in compliance with the order of the Hon'ble National Green Tribunal in Tanaji B. Gambhire v Chief Secretary, Government of Maharashtra & Ors. O.A. No. 34/2020 WZ. The SOP for processing the applications was issued in January 2022.
The Vanshakti judgment of May 2025
Meanwhile, in 2023, the validity of the 2017 Notification and 2021 OM was challenged in the Supreme Court by an environmental NGO Vanashakti and other parties.
The Hon'ble Supreme Court in Vanashakti v Union of India, 2025 SCC OnLine SC 1399 struck down the 2017 Notification and 2021 OM holding that concept of ex post facto or retrospective EC is completely alien to environmental jurisprudence. See here our ERGO Update on Vanashakti v Union of India. The two Judge Bench in Vanashakti was of the view that grant of EC after a project has commenced its activity in violation of environmental protection laws defeats the purpose of environmental protection, which necessitates a precautionary approach to prevent damage to the environment.
It also held that illegal activities commenced after the period provided in 2017 notification were not protected. The Court, however, protected the projects which have already been granted ex-post facto EC as it held that such projects would not be disturbed. The Court further restrained the Central Government from issuing Circulars/Orders/OMs/Notifications providing for grant of ex post facto EC in any form or manner or for regularizing the acts done in contravention of the EIA Notification, 2006.
The review judgment
A Review Petition was filed against the Vanashakti Judgment, led by CREDAI and strongly supported by the Union of India and state governments on the ground inter alia that coordinate benches of the Hon'ble Supreme Court had earlier held that ex post facto EC can be granted in exceptional cases which had not been considered by the JUR and that there will be irreversible economic and public interest damage resulting from the JUR.
It was argued in the Review Petition that the JUR failed to consider or follow the coordinate bench rulings of the Supreme Court in the matter of D Swamy v Karnataka State Pollution Control Board (2023) 20 SCC 469, Electrosteel Steels Limited v Union of India 2021 SCC OnLine SC 1247, Pahwa Plastics Pvt Limited and Another (2023) 12 SCC 774, where benches of equal strength had already examined and effectively upheld the legality of ex post facto EC framework.
The Supreme Court by a 2:1 majority allowed the review petition, recalling the Vanashakti Judgment noting that the Vanashakti Judgment was rendered without taking notice of the judgments of coordinate benches of the Court and is hence per incuriam.
The Chief Justice of India (CJI) also observed that in the Common Cause Case (2017) 9 SCC 499, the Supreme Court permitted mining leaseholders to start mining operations only after statutory compliances were made and all dues were paid.
The CJI observed that a two judge bench in Alembic Pharmaceuticals Ltd., even while holding that post facto EC should not normally be granted, regularised the ex post facto ECs with a direction to pay monetary penalties. It was also observed by CJI that in cases like D Swamy v Karnataka State Pollution Control Board, Electrosteel Steels Limited v Union of India and Others and Pahwa Plastics Private Limited and Another v Dastak NGO it was held that EC can be granted in exceptional cases on post facto basis.
The CJI further opined that if EC is held to be invalid, the only course available is to demolish the construction and then to apply for fresh EC which would add to the pollution and will not be in the public interest. Drawing on precedents like Bindu Kapurea v Subhashish Panda (2025 INSC 784), the CJI emphasized that in cases of flagrant violations, the Court should nonetheless adopt a balanced approach in larger public interest rather than choosing to direct the demolition of a completed project. The CJI observed that even in accordance with 2017 Notification and 2021 OM, an EC can be granted only in respect of the projects which are otherwise permissible in law. The 2017 Notification and OM 2021 in any case have provision for imposition of huge penalties on an errant builder/developer while allowing operation of a project which is otherwise permissible.
In view of the same, the CJI decided to recall the Vanashakti judgment and directed it to be placed before the appropriate bench. It may be noted that Justice Ujjal Bhuyan disagreed with CJI as according to him, no case for review has been made out.
Justice K. Vinod Chandran agreeing with CJI observed that review is not only warranted but imperative and expedient. He also observed that when prior requirement of EC was mandated by the Government itself, the Government also has the power to relax it.
The Vanashakti v Union of India judgment dated 16 May 2025 now stands recalled and the matters will be placed before the CJI on the administrative side for seeking necessary orders, suggesting the possibility of the matter being heard by a larger bench for definitive adjudication on the issue of ex-post facto EC.
Conclusion
The Review Judgment comes as a respite for the real estate industry as it removes the imminent threat of mandatory demolition or closure of a project that was operating without EC. The legal basis for the quashing of 2017 Notification and 2021 OM has been recalled, which means that the process for evaluating applications under the 2021 OM can potentially resume, subject to the final outcome of the restored petitions. The projects which were stalled at the final stage of EC approval now have a window to request for formal issuance of the EC.
It is however noted that the Review Judgment did not uphold the validity of 2017 Notification and 2021 OM and has simply restored the case to the file, postponing the final decision. It is therefore advisable that all new projects must strictly adhere to the requirement of obtaining prior EC under the EIA Notification, 2006 and existing projects must continue to focus on demonstrating environmental sustainability and pursue their applications with regulatory authorities to finalize the grant of EC.
The content of this document does not necessarily reflect the views / position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up, please contact Khaitan & Co at editors@khaitanco.com.
