Environmental Clearance (EC) as Condition Precedent is the most settled but most violated principle of Indian Environmental Law.

Rule: For any project listed in Schedule of EIA Notification, 2006 under Environment (Protection) Act, 1986, you must obtain Prior EC before:

• Starting construction,
• Preparing land (leveling, digging), or
• Expanding existing project beyond threshold.

EC is not a post-facto license. It is a Condition Precedent to the project itself.

1. Legal Architecture

EIA Notification, 2006 - Para 2:

"The following projects or activities shall require prior environmental clearance from concerned regulatory authority..."

Categories:

• Category A: National level - MoEFCC - Mining >100 ha, Thermal Power >500 MW, Building >1,50,000 sqm
• Category B: SEIAA State level - Building 20,000-1,50,000 sqm, Mining 5-100 ha

Process: Screening > Scoping (ToR) > Public Consultation > Appraisal by EAC/SEAC > Grant/Reject EC with conditions.

Condition Precedent Means:

1. For Contract: If SPA says "Completion subject to EC" - transaction cannot close without EC. Buyer can walk away.
2. For Bank Finance: Banks cannot disburse term loan until Prior EC shown. RBI circular - finance is contingent on EC.
3. For Construction: Any construction without Prior EC is illegal ab initio. Structure is liable to demolition, not regularisation.
4. For Consent to Operate: SPCB cannot grant CTO under Air/Water Act if Prior EC not obtained.

Supreme Court in Electrotherm (India) Ltd vs Patel Vipulkumar 2016 6 SCC 198 - EC conditions are binding and enforceable as law.

2. The Vanashakti Trilogy - The Current Law as of 2026

This is now the leading case law on EC as condition precedent. It has 3 judgments:

Phase I - Vanashakti I - Vanashakti vs Union of India 2025 SCC OnLine SC 1139 - 16 May 2025 - Two Judge Bench Justice A.S. Oka & Ujjal Bhuyan

Challenge to MoEFCC Notification 14 March 2017 and Office Memorandum 7 July 2021 which created SOP for granting ex-post facto EC to projects that started without EC.

Held:

• EC granted after the event is completely foreign to environmental law and alien to environmental jurisprudence.
• Prior EC is mandatory condition precedent. You cannot build first and apologise later.
• Quashed 2017 Notification and 2021 OM. Directed MoEFCC to not grant any retrospective EC.
• All projects that started without Prior EC are illegal.

Phase II - CREDAI vs Vanashakti - Review Petition - 18 Nov 2025 - 2:1 Majority - CJI B.R. Gavai & K.V. Chandran majority

Confederation of Real Estate Developers Associations (CREDAI) filed review. Real estate industry argued thousands of buildings would be demolished, Rs. 10 lakh crore at stake.

Majority Held (Recalls Vanashakti I):

• Central Government has power under Sec 3 EP Act to formulate bounded amnesty schemes for non-compliant projects.
• Ex-post facto EC is not per se illegal if it is part of a bounded, one-time amnesty scheme with heavy penalties, environmental compensation, and public hearing.
• Recalled 16 May 2025 judgment. Reinstated 2017 Notification and 2021 OM with conditions.

Dissent by Justice Ujjal Bhuyan: Ex-post facto EC destroys Article 21 Right to clean environment. Cannot be allowed.

Phase III - Vanashakti II / III - 29 July 2026 - Three Judge Bench CJI Surya Kant, Joymalya Bagchi, Vipul M Pancholi - FINAL CURRENT LAW

After confusion from recall, 3-judge bench clarified:

• Prior EC remains the rule under EIA Notification, 2006.
• Ex-post facto EC is an exception, not a right. It can only be granted under a validly framed amnesty scheme by Central Govt under Sec 3 EP Act, not by administrative OM.
• Future post-facto clearances through mere OM are prohibited. Government must bring proper Rules.
• Projects that already got post-facto EC under 2017/2021 regime before 16 May 2025 judgment and relied on it in good faith are protected. Future violators will not be.
• Centre to resume appraising post-facto cases only under strict conditions and heavy environmental compensation.

Current Position: Build First = Illegal. EC is condition precedent. Retrospective EC is permissible only if covered by a formal amnesty scheme notified under EP Act with penalties, not as routine.

3. Other Landmark Case Laws Where EC as Condition Precedent Enforced

1. Common Cause vs Union of India (2017) 9 SCC 499 & 2018 INSC 1044 - Mining

Sarda Mines Pvt Ltd (SMPL) continued iron ore mining beyond EC validity. SC held environmental clearance granted to SMPL was not retrospective and limited to extraction of Run-of-Mine. Mining without prior EC was illegal. Retrospective approvals rejected. Ordered recovery of 100% value of illegally mined ore - Rs. 17,000 crores from Odisha miners. Principle: Mining without prior EC violates condition precedent, cannot be condoned by later EC.

2. Lafarge Umiam Mining Pvt Ltd vs Union of India (2011) 7 SCC 338

Lafarge limestone mining in Meghalaya for Bangladesh cement plant without proper public hearing and prior EC. SC stopped mining. Laid down that EAC must apply mind, public hearing mandatory, and EC must precede land acquisition. Introduced concept of ex-ante and ex-post assessment.

3. Hanuman Laxman Aroskar vs Union of India (2020 INSC 49) - Mopa Airport Goa

Challenge to EC for Greenfield International Airport at Mopa granted 28 Oct 2015. SC Bench of Justice D.Y. Chandrachud found process flawed - EIA did not disclose Western Ghats ecology, no proper cumulative impact assessment, non-application of mind by EAC. Quashed EC. Held rigorous environmental clearance process is condition precedent, not formality. Directed fresh appraisal. Airport construction halted for 2 years.

4. Electrosteel Steels Ltd vs Union of India (2021 INSC 859) - 9 Dec 2021

Jharkhand HC had discontinued interim order allowing Electrosteel to operate under regulatory supervision without EC. SC set aside HC order and reinstated requirement to decide EC application on merits but allowed operation under strict monitoring with environmental compensation. Proportionality: Even where EC as condition precedent violated, SC may allow operation to protect investment and workers but with heavy penalty, not as of right.

5. Alembic Pharmaceuticals vs Rohit Prajapati (2020) 17 SCC 157

Pharma companies in Gujarat operated without prior EC, later applied for ex-post facto EC under 2017 Notification. NGT imposed penalty. SC held ex-post facto EC cannot be granted routinely. Companies must demolish or pay environmental compensation + 10% of project cost + undergo public hearing. Established that environmental damage already done cannot be undone by post-facto paper.

6. Vanashakti vs Union of India Real Estate Interpretation - 2025 SCC OnLine SC 1703

SC clarified EC necessary for all large scale building and construction projects including educational institutions under EIA Notification. Building projects 20,000 sqm and above - Prior EC is condition precedent before any construction work or preparation of land begins. Cannot obtain EC after building plinth.

7. State of J&K vs Raja Muzaffar Bhat - Civil Appeal No. 8055 of 2022 - Sand Mining

SC held No Sand Mining Clearance Without Studies. Valid, final District Survey Report (DSR) with replenishment study is non-negotiable pre-condition for sand mining auction and EC. Draft DSR untenable. EC granted without DSR is void.

4. Practical Implications for Contracts and Banks

In Share Purchase Agreement / Asset Purchase Agreement, draft EC as Condition Precedent like this:

"The obligation of Purchaser to consummate transaction is subject to Seller obtaining Prior Environmental Clearance from MoEFCC/SEIAA for project, free from any challenge, and same shall not have been revoked, suspended or modified. In absence thereof, Purchaser may terminate and Seller shall indemnify for environmental compensation levied due to construction without EC."

For Lenders:

If bank disburses before Prior EC, loan becomes irregular and bank liable for abetment under Sec 15 EP Act. Many thermal power projects in 2012-14 became NPAs because EC was quashed after disbursement.

For Real Estate:

Sale deed of flat in project without Prior EC is voidable. RERA Authority in Maharashtra has started refusing registration of projects without Prior EC after Vanashakti I.