Abstract  

A recent Apex Court ruling in Project Director, Project Implementation Unit v. P.V. Krishnamoorthy (2021) (Project Director Case) [1] clarified that the Central Government, i.e., the Government of India (GOI), is not required to apply for environmental clearance while acquiring land for land acquisition under the National Highways Act, 1956 (NHAI Act). Instead, it suggested that the Executing Agency (NHAI) is responsible for obtaining environmental clearance for the project — after the land (for construction of National Highway) has been vested by the GOI to NHAI — on completion of the land acquisition process. 

In this context, we have attempted to analyze what happens when the onus of obtaining environmental clearances is shifted from the authority (GOI) — who is authorized to acquire land free of all encumbrances — to the authority (NHAI) — in charge of pre-procurement activities before the start of the bidding process — to find a concessionaire for the project. What concerns us is, considering the Project Director case, the NHAI’s delay in securing environmental clearances might result in private parties incurring cost overrun for the project. Most Concession Agreements for the development of National Highways under a Public-Private Partnership (PPP) framework mandate that all pre-requisite permissions must be obtained as a “condition precedent” before the Right of Way (ROW) is transferred. 

Thus, this blog post attempts to understand how these time bound mandates of obtaining environmental clearances influence the Environmental Impact Assessment (EIA)[2] conducted under the Environmental (Protection) Act, 1986, for these highway projects.

Introduction: Land Acquisition by GOI and NHAI 

The land acquisition process entails assessing the land required for the project, notification for land acquisition, and eventual acquisition. Further, the process includes GOI’s ability to provide land without encumbrances or encroachments, relocate utilities from the project site, and obtain a ROW for the concessionaire to begin the project. 

Traditionally, land required for National Highway projects was acquired under Section 3A of the NHAI Act. However, pursuant to the coming into force of the “Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013” (RFCTLARR Act), the Fourth Schedule of the RFCTLARR Act was made applicable to the NHAI Act. [3] This means that the provisions of the RFCTLARR Act — relating to the determination of compensation, rehabilitation and resettlement, and infrastructure amenities — have also been made applicable to all land acquisition cases under the NHAI Act.[4]  

Nonetheless, the crux of the land acquisition process remains as the original procedure prescribed under the NHAI Act. This is relevant because, under the RFCTLARR, an EIA is mandatory, but the same is absent in the NHAI Act. The Ministry of Environment, Forest, and Climate Change (MoEF) [5] sends out a mandate that any land acquisition for a highway project simultaneously requires obtaining environmental clearance. This essentially formed the ground for appeal in the Project Director Case; wherein, the Apex Court rejected the following contention of the affected Parties: that prior environmental clearance must be sought by GOI “before” issuing notifications under Section 3A of the NHAI Act. This means that it is not mandatory for the GOI to obtain environmental clearances “before” acquiring land for itself and vesting it in the NHAI. The Court lucidly clarified that it is not the GOI but the NHAI (with whom the land finally vests) who can “parallelly” apply for environmental clearances “after” a notification is issued under Section 3A of the NHAI Act and “before” the land is acquired by and vested in the Central Government by way of publication of a declaration under Section 3D of the NHAI Act. This means that the Executing Agency can now apply for environmental clearances even “before” the land finally gets vested in them. The objective was to acknowledge that since land acquisition is a time-consuming process, it is imperative to initiate all actions for environmental clearances in parallel to the acquisition process. Thus, this attempts to ensure that NHAI does not delay the project structuring stage and that the project is ready to be bid out at the earliest.

Environmental Clearances Under Concession Agreements

According to the NHAI’s Model Concession Agreement (MCA), as a “condition precedent,” the NHAI is responsible to the concessionaire for providing 90% of the ROW, including, but not limited to, obtaining all approvals (including environmental clearances). Further, in the event of non-fulfillment, the concessionaire is liable to be paid a specific amount of damages each day. This continues until the total sum surpasses the bid security amount, at which point the concessionaire may terminate the Concession Agreement at its discretion. In some circumstances, the concessionaire is at liberty to terminate the Concession Agreement if the condition precedents are not fulfilled by NHAI, due to which, in most cases, the Parties may end up in arbitration to seek damages for non-fulfillment of the condition precedent. Thus, due to the high opportunity cost of the failure of NHAI to obtain all approvals (including environmental clearances), NHAI resorts to one of the two approaches: (i) provides the ROW to the concessionaire without obtaining all clearances; or (ii) obtains clearances through circumventing various legal compliances by either using a shorthand approach or completely using evasive tactics. Both approaches mentioned above have been discussed below. 

Providing ROW to the Concessionaire without Obtaining all Clearances

In many cases, the concessionaire is left in a conundrum due to the various National Green Tribunal (NGT) cases filed against the concessionaire for its project after commencing work. This is because of NHAI’s failure to obtain all clearances. A similar situation arose in Bengaluru Development Authority v. Sudhakar Hegde (2020).[6] In this case, the Supreme Court held that since the entire project failed to submit the requisite forest clearance, the State Expert Appraisal Committee (SEAC) was authorized to re-examine the entire project, do a fresh EIA, and decide whether there was a need for re-appraisal of the project. Further, the concessionaire gets impleaded in these litigations in such situations due to NHAI’s negligence in not obtaining all clearances. Thus, in most cases, the project fails to see the light of the day despite the initiation of the project by the concessionaire. 

Due to the looming uncertainty and ambiguity as to whether the NHAI has obtained all clearances or not, many developers may have project overruns due to these unforeseen events that occur even after being granted a ROW. The Courts have not been lenient in most cases wherein a project has been completed without obtaining adequate environmental clearances.[7] As a result of such negligence by the NHAI, concessionaires have had to bear huge penalties on account of remedial measures.[8] Thus, the Courts have made it vivid that projects should not be executed until ample scientific evidence is adduced to comprehend the environmental impact of a project.

Circumventing Legal Compliances

In a recent trend, the NHAI — in the construction of National Highway projects — has begun to take advantage of an exemption passed by the MoEF on 22.08.2013. [9] In essence, MoEF has exempted National Highway projects from environmental clearances, except in cases where the National Highway is greater than 100 km and involves additional ROW or land acquisition greater than 40 meters on existing alignments and 60 meters on re-alignments or by-passes. Unfortunately, the NHAI and other road-building agencies have mainly taken advantage of this provision wherein road builders segmented big road projects into smaller pieces of fewer than 100 kilometers to escape EIA, environmental monitoring, and public discussions. This trend has been highlighted in several instances where the Courts have even taken cognizance of the repeated abuse of this provision, such as in National Highway Authority of India v. Pandarinathan Govindarajulu (2021). [10]  

However, the multiplicity of regulations and regulators has caused significant confusion. The applicable rules and regulator varies based on the type of issuer, which could cause reservations among investors. [11] Moreover, the NDRC Guidelines permit up to 50% of green bond proceeds to be used towards the repayment of bank loans and for general corporate operations. This provision is problematic as it goes against the grain of the use of proceeds principle, which functions on the requirement that the entire proceeds be channelised towards the green project. What is heartening, however, is a government-backed push towards more unified standards, which recently culminated in coal-based projects being removed from the green projects list. [12] 

Impact of the Project Director Case

A Hollow Implementation of EIA 

EIAs are an extensive study examining details of forest land and the physical changes to topography, land use, change in water bodies because of construction and operation of the project, and other factors. Public consultation is also undertaken to highlight the project’s impact on the area’s people and the environment. Only based on such empirical data, an informed decision can be taken for grant of environmental clearance. This process ought not to be viewed as an impediment in the project — such as the construction of National Highways — but as a tool for making just and appropriate decisions, including to uphold the doctrines of “public trust,” “precautionary principle,” and “sustainable development.” 

However, what changes after the Project Director case is that essentially the onus of procuring environment clearances happens in parallel with the pre-procurement stage of the project. The pre-procurement stages of a project include, inter alia, such as sending out tenders, bid submissions, granting tender to the concessionaire, closing on funding for the project, and execution of the bank guarantees and other financial documents that ensure the findings for the project corresponds with the cost estimate of the project. Suppose the project gets implemented based on the cost estimate made during the pre-procurement stage. Any contrary finding during the EIA will be rendered meaningless since there have been instances where the site allocated for a project has been disapproved “after” an EIA (if it passes through a green corridor). This leads to proposing a revamp of the project site for which the concessionaire has already been granted the ROW. Thus, consequently, the NHAI may be compelled to procure fresh licenses and ROW for the new site. Unfortunately, to avoid this quandary, in most cases, the NHAI proceeds without proper EIA assessments. 

Further, pursuant to the Project Director case, environmental clearances “can” be obtained by the Executing Agency (NHAI) as soon as the notification to acquire a specific site by the GOI has been issued under Section 3A of the NHAI Act. Although, the same is not compulsory. However, once the project site is finally vested in the Executing Agency (NHAI) by the GOI under Section 5 of the NHAI Act read with Section 11 of the National Highway Authority of India Act, 1988, it is compulsory to obtain the necessary environmental clearances. This renders the entire EIA meaningless because allowing the land acquisition process to “begin” before obtaining environmental clearances and the final feasibility report for that specific site is premature. There is a possibility that the site will be considered for re-alignment after the EIA, thereby causing irreversible loss of time and resources to the NHAI, the GOI, and other stakeholders. Thus, this leads to a complete failure on the part of the State and a violation of Article 48A of the Indian Constitution. Additionally, suppose the EIA has a finding that the project will require tectonic changes. It is unlikely that the same will be considered in revising the bid document due to the high costs involved in revising the project site, especially after all the funding for the project gets finalized in the pre-procurement stage itself. Therefore, this inevitably leads to a violation of Articles 19, 47, 48A, and 51A of the Indian Constitution by the NHAI.

Cost Overrun in Projects 

It is seen that even to obtain funding from international organizations, like the World Bank, a thorough EIA is required to be undertaken. [11] Given the paucity of time during the pre-project development phase, these factors compel NHAI to make hasty EIAs on paper. Before the Project Director case went to appeal in the Supreme Court, it was initially filed in the Madras High Court as P.V. Krishnamoorthy v. Project Director, Project Implementation Unit (2019),[12] wherein the High Court pointed out certain glaring inadequacies in the EIA conducted for the “Salem-Chennai Eight Lane Highway Green Field Project” (also known as the “Green Field Project”). The High Court outrightly rejected the project’s feasibility report for being shoddy and conducted without following the due process of law. For instance, the NHAI delegated the work to a third Party to submit a feasibility report for a scope of work that was outside the bid document. This eventually constrained the Court to order a fresh EIA of the project. The entire report was dismissed since no public hearings were held, the report had plagiarized information, and there was no analysis of the project’s impact on forest areas, water bodies, animals, flora, and fauna. As a result, the Court was forced to request a further review of the proposal. Thus, EIA cannot be done away with in any case. 

Taking the aforementioned into consideration, the lackadaisical approach of NHAI in trying to secure an EIA puts the concessionaire at risk. As we previously discussed, Concession Agreements mandate all necessary approvals (including environmental clearances) to be obtained as a “condition precedent.” However, the NHAI may rush to meet these responsibilities, risking receiving incomplete or incorrect impact evaluations. Later, this may be contested and fined, forcing the concessionaire and other stakeholders into needless legal battles. In some instances, such as the one mentioned in the above Madras High Court example, the Courts have even ordered that the proposal be reconsidered. Thus, this essentially creates unanticipated costs and time overruns in projects, resulting in years of delays and unplanned financial costs.

Conclusion: Adoption of a Flexible Approach in the Concessionaire Agreements 

The Apex Court clarified in the Project Director Case that since environmental clearance is always site-specific until the site is identified for construction of National Highway, as manifested vide Section 3A of the NHAI Act, the question of application for EIA does not arise. This permits NHAI to apply for environmental clearances “parallelly” and even “before” the land is acquired by and vested in the GOI under Section 3D of the NHAI Act. As discussed above, the entire land acquisition process for a specific site may become redundant if the land — which eventually gets vested in the Executive Agency (NHAI) — is later rendered unfit due to the reasons found in the EIA. Further, the repercussions then pass on the concessionaire, who is then in possession of a ROW in which certain encumbrances may re-appear. 

While the Court’s objectives in the Project Director case may appear to assist NHAI in obtaining the necessary environmental clearances as quickly as possible so that they could begin working on the pre-procurement stage for the tenders, this may prove to be a futile exercise if the EIA’s findings are later found to be objectionable, prompting a re-evaluation of the entire project’s site itself. Consequently, the concessionaire faces repercussions in the form of cost and time overruns, or the entire EIA gets compromised. 

Concessionaire Agreements, with a more flexible approach to the impugned project site, might be the way ahead. If a specific site is refused authorization, the Parties under the Concessionaire Agreement should be allowed to work around the project site and replace it with an alternate design. This might include giving the NHAI additional time to obtain necessary permissions for the revised project site and a more flexible approach to how the project is funded if the project’s site needs to be reconsidered due to the recommendation of an EIA. 

If the Concessionaire Agreement has steep damage provisions that require the NHAI to pay the concessionaire substantial compensation for failing to get environmental clearances, this may prevent the NHAI from taking any suggestions given by the EIA seriously. With respect to the concessionaire, they will need to seek protection from the NHAI in the bidding document itself by ensuring that enough flexibility is provided to the concessionaire in terms of time and funds if they need to rework the project owing to any conditions emerging from a changed project site.

About the Author  

Ms. Sabah Taslim is an Associate at Link Legal, Bengaluru. She was assisted by Pushpit Singh, Symbiosis Law School, Hyderabad, in writing this blog post.

Editorial Team 

Managing Editor: Naman Anand   

Editors-in-Chief: Akanksha Goel & Aakaansha Arya   

Senior Editor: Jhalak Srivastav 

Associate Editor: Pushpit Singh 

Junior Editor: Aribba Siddique

Preferred Method of Citation 

Sabah Taslim, “An Actor of Impediment: National Highways Authority of India and Environmental Impact Assessment in Highway Projects” (IJPIEL, 13 September 2021).  

<https://ijpiel.com/index.php/2021/09/06/bond-green-bond-examining-the-regulation-of-green-bonds-in-india/>

Endnotes 

[1] Project Director, Project Implementation Unit v. P.V. Krishnamoorthy, (2021) 3 SCC 572.

[2] What is Impact Assessment?, Convention on Biological Diversity (Apr. 27, 2010), https://www.cbd.int/impact/whatis.shtml; see also Understanding EIA, Centre for Science and Environment, https://www.cseindia.org/understanding-eia-383.

[3] Ministry of Road, Transport, and Highways, No. NH-11011/30/2015-LA (Notified on December 28, 2017).

[4] Id.

[5] Ministry of Environment and Forests, S.O.1533(E) (Notified on September 14, 2006); see also Ministry of Environment, Forests, and Climate Change, Impact Assessment Division, F. No. 22-76/2014-IA-III (Notified on October 7, 2014).

[6] Bengaluru Development Authority v. Sudhakar Hegde, (2020) 15 SCC 63.

[7] Keystone Realtors (P) Ltd. v. Anil V. Tharthare, (2020) 2 SCC 66.

[8] Id.

[9] Ministry of Environment and Forests, S.O. 2559(E) (Notified on August 22, 2013).

[10] National Highways Authority of India v. Pandarinathan Govindarajulu, 2021 SCC OnLine SC 28.

[11] National Highways Interconnectivity Improvement Project, World Bank, https://projects.worldbank.org/en/projects-operations/project-detail/P121185; see also Ministry of Road Transport and Highways, Environmental Management Framework, World Bank (Nov., 2011), https://documents1.worldbank.org/curated/en/650941468258524853/pdf/E29480EA0P12110sed000November020111.pdf.

[12] P.V. Krishnamoorthy v. Project Director, Project Implementation Unit, 2019 SCC OnLine Mad 36205.