T.N. Godavarman Thirumulpad Vs. Union of India & Ors [2005] Insc 504 (26 September 2005)

Y.K.Sabharwal, Arijit Pasayat & S.H.Kapadia

IA NO.826 IN IA NO.566 IN WRIT PETITION (C) NO.202 OF 1995 [WITH IA NO.932 IN 819-821, 955,958,985,1001-1001a,1013-1014, 1016-1018, 1019, 1046, 1047, 1135-1136, 1137, 1164, 1180- 1181 AND 1182-1183, 1196, 1208-1209, 1222-1223, 1224-1225, 1229, 1233, 1248-1249, 1253, 1301-1302, 1303-1304, 1312, 1313, 1314, 1315-1316, 1318 AND 1319 IN WP (C) NO. 202 OF 1995] 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 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.

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.

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 or vision for overall development has to evolve a systemic approach so as to balance economic development and environmental protection. Both have 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.

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 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.

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 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 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 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 legislation for environmental 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, 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 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 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 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.

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 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 States in connection with such afforestation, a very large number of States had spent 50% or less amount on afforestation. In this background, taking 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, 2001, after considering the affidavits that had been filed, it was noted that large sums of money had been realized by various 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 about 83% of the funds actually realized by the State Governments, the shortfall being of nearly Rs.200 crores.

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 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 State Government may decide. It was decided that the scheme shall ensure that afforestation takes place as per the permissions which are granted and 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 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 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, 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 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 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 of bio- diversity, wildlife, 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 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 specific plans should be prepared and implemented in a time bound manner;

(f) 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 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.

(g) Plantations must use local and indigenous species since exotics 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 funds.

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 the natural forests are allowed to regenerate and grow by undertaking silvicultural and cultural operations such as fire tracing, singalling 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 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 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 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 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 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 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 were accepted.

An application (I.A.No.1046) 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 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 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 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 10% for the major minerals and 5% for the minor minerals to be levied on the annual royalty. An application (IA 1047) has also been filed by the Ministry of Mines, Government of India taking similar pleas as are taken in IA 1046 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 the EP Act constituting an authority known as Compensatory Afforestation Fund management and Planning Authority (hereinafter referred to as 'CAMPA') 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:

"(i) Director General of Forests and - Chairperson Special Secretary, Ministry of Environment and Forests, Government of India

(ii) Addl.Director General of Forests - Member (Forests) Ministry of Environment and Forests, Government of India

(iii) Addl.Director General of Forests - Member (Wildlife)

(iv) Inspector General of Forests (Forest - Member Conservation), Ministry of Environment And Forests, Government of India

(v) Joint Secretary and Financial Advisor, - Member Ministry of Environment and Forests, Government of India

(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." The powers and functions of the Executive Body are:

"(a) deployment of staff on contractual basis or on deputation;

(b) financial procedure;

(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 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:

"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.

(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).

(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 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:

(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.

(ii) The money received towards Net Present Value (NPV) shall be used for natural assisted regeneration, forest management, protection, infrastructure dev elopement, wildlife protection and management, supply of wood and other forest produce saving devices and other allied activities.

(iii) Monies realized from the user agencies in pursuance of the Hon'ble 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 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.

(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." Clause 6.6 provides for other functions and reads thus:

"(i) The CAMPA may establish Special Purpose Vehicles (SPV) for undertaking compensatory afforestation particularly by involving large public sector undertakings which frequently require forests and for their projects, in consultation and as far as possible with the concurrence of the CEC.

(ii) The CAMPA may also consider evolving new mechanism to generate additional sources of fund for forest conservation works and to create capacity and data base for better conceptualization 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 of NGOs by including in the Executive Body, the conservationists, environmentalists, economists and experts in 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-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 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.

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 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 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 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 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 to the State, the amount deposited by the user-agency as NPV shall be paid to them. It was also contended on behalf of the States that there should be no NPV on degraded forest. The further submission was that all public utility projects shall be exempted from payment of NPV.

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 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 value 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 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 of NPV and determine what is NPV.

The NPV is the present value (PV) 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 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 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 in the NPV.

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 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 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 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 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 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 standing timber. The general expression V for the value of an asset, in the base year O, 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 discounted rate.

The current method of valuing public sector projects, like forestry, has become contentious as public sector undertakings agrees for lower discount rate on account of long gestation period. However, the flaw with this argument 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).

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, Flood Control Benefits Water Production Soil Conservation Outdoor Recreation 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 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 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, 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 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 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, 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 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 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 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.

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:

1. Conservation of biological diversity.

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 socioeconomic benefits to meet the needs of societies.

7. Legal, institutional and economic framework for forest 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 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, 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 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 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 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 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:

"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

1. Maintaining and enhancing forest productivity

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 based on Total Economic Value (TEV). It indicates the components of TEV. 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 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 focuses on market and non-market behaviour of different agents in the society regarding natural and environmental resources, viewed from intergenerational, inter- temporal and different institutional frameworks. (Emphasis supplied by us) It is further stated that one of the major branches of economic theory is the 'theory of value'. Economic theory always makes a distinction between 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 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 TEV expresses the full range of value or benefits both tangible and intangible. Basically, it is understood that natural and environmental resources provide 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 broadly classified into three groups direct, indirect and option values. Direct Use Values (DUV) 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 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 today, when its future demand and supply is uncertain. Take the example of the Narmada river basin.

It is not necessary to 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 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 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 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 of fully stocked forest (density 1.0) would be taken as Rs.126.74 lakhs 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 1 hectare of forest of density 0.4 gives monetary returns worth over Rs.50.696 lakhs over a period of 50 years, may be considered to give a positive cost benefit ratio. The figure of 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 values are to be taken into consideration. As per the study, different components of biodiversity system possess different kinds of value

(1) 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 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 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 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 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 conservation. This implies that biodiversity value for which a market exists must be taken note of, while simultaneously making sure that 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 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 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 :

1. Keeping in mind the location of the park and the consequent joint product nature of its services, cost incurred locally is a 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 would not affect the demand for its services.

2. Cross-substitution between different categories of stakeholders 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 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 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 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 and development grant from Indian Council of Social Sciences research (ICSSR). 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 informed that eminent faculty members in the institute are 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.

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 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 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 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 to hold funds collect on behalf of the Government. This is basis for urging that the Notification dated 23rd April, 2004 is unconstitutional.

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 provision for certain contingencies. Article 110(1)(f) and Article 199(1)(f) 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 :-- (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 State; or XXX XXX XXX 199. 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 :

(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" 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 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 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 India, all loans 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 loans 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 Fund of the State". Article 266(2) stipulates that all other public moneys received by or on behalf of the Government of India or the Government of a State shall 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 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 Comptroller and Auditor-General. Section 10 thereof deals with compilation of accounts of Union and the States by CAG. Under Section 11, the CAG is required to 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 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 the State relating to contingency funds and public account; to audit all 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 of bodies and authorities substantially financed from Union or State revenues. Section 15 provides for the functions of CAG in the case of the grants or 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 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 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 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 utilized for protection of forests 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 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 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 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 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 v. State of Bombay & 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 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 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. 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 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 of the Act and it is to meet such expenses that they levy was made and collections were effected. Therefore, this Court held that such payments were 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:

"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 III of 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 and the charge which is levied for that purpose would come under Entry 47 of List III and, therefore, Article 110 is not attracted.

To sustain ecological, economic and social values, in so far as forests 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 California-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 forest