Date of the Judgment: 31 October 2017
Citation: (2017) INSC 950
Judges: Dipak Misra, CJI, A.K. Sikri, A.M. Khanwilkar, Dr. D.Y. Chandrachud, Ashok Bhushan, JJ. This was a unanimous decision.
How should courts calculate compensation for motor accident victims, especially concerning future income prospects? The Supreme Court of India, in this landmark judgment, addressed the inconsistencies in calculating compensation, particularly for those who are self-employed or on a fixed salary without annual increments. This case clarifies the method for determining “just compensation” under the Motor Vehicles Act, 1988, aiming for uniformity and fairness.
Case Background
The case arose due to differing opinions in previous Supreme Court judgments regarding the calculation of compensation under Sections 163-A and 166 of the Motor Vehicles Act, 1988, specifically concerning future prospects. The court noted a divergence of opinion between two three-judge bench decisions, namely, Reshma Kumari and others v. Madan Mohan and another and Rajesh and others v. Rajbir Singh and others. This led to a reference to a larger bench to settle the law.
The core issue revolved around the application of the principles laid down in Sarla Verma and others v. Delhi Transport Corporation and another, which attempted to standardize compensation calculations. The court had to reconcile differing interpretations of how to calculate future prospects, especially for those not in permanent employment.
Timeline
| Date | Event |
|---|---|
| 1988 | The Motor Vehicles Act, 1988 was enacted. |
| 1994 | The Motor Vehicles Act, 1988 was amended, introducing Sections 163-A and 163-B. |
| 1996 | The Supreme Court decided Sarla Dixit v. Balwant Yadav. |
| 2003 | The Supreme Court decided Abati Bezbaruah v. Dy. Director General, Geological Survey of India. |
| 2008 | The Supreme Court decided Oriental Insurance Co. Ltd. v. Jashuben. |
| 2009 | The Supreme Court decided Sarla Verma and others v. Delhi Transport Corporation and another, which laid down guidelines for calculating compensation. |
| 2009 | The Supreme Court decided Supe Dei v. National Insurance Company Limited. |
| 2012 | The Supreme Court delivered the judgment in Santosh Devi v. National Insurance Company Limited and others, commenting on the principles in Sarla Verma. |
| 12.04.2013 | The Supreme Court delivered the judgment in Rajesh (supra). |
| 2013 | The Supreme Court decided Reshma Kumari and others v. Madan Mohan and another. |
| 2015 | The Supreme Court decided National Insurance Company Limited v. Pushpa and others, referring the matter to a larger bench. |
| 2015 | The Supreme Court decided Munna Lal Jain and another v. Vipin Kumar Sharma and others. |
| 31 October 2017 | The Supreme Court delivered the judgment in National Insurance Company Limited v. Pranay Sethi and Ors. |
Course of Proceedings
A two-judge bench of the Supreme Court in National Insurance Company Limited v. Pushpa and others referred the matter to a larger bench due to conflicting views between the decisions in Reshma Kumari and Rajesh. The core issue was the method of calculating compensation under Sections 163-A and 166 of the Motor Vehicles Act, 1988, particularly concerning the addition of future prospects to the income of the deceased.
Legal Framework
The judgment primarily concerns the interpretation of Section 168 of the Motor Vehicles Act, 1988, which deals with the determination of “just compensation” in motor accident cases. The court also analyzes Sections 163-A and 166 of the same Act, which provide for different methods of compensation calculation.
Section 168 of the Motor Vehicles Act, 1988, uses the term “just” compensation, which the Court interprets as fair, reasonable, and equitable by accepted legal standards, not a forensic lottery.
The Court also considered the Second Schedule of the Motor Vehicles Act, 1988, which provides a structured approach for calculating compensation, but has been found to be defective by the Court in earlier pronouncements.
The Court also considered the principle of “binding precedent” and how decisions of coordinate benches should be treated.
Arguments
The insurance companies argued that there should be a distinction between those with stable jobs and the self-employed, as the income of the latter is uncertain. They contended that the standardization of future prospects should not be extended to the self-employed, as their income is not constant and can vary greatly. They also argued that the principle of standardization, as laid down in Sarla Verma, has been criticized for granting compensation without any nexus to the actual loss.
The claimants argued for the concept of “just compensation,” emphasizing that it should include future pecuniary benefits. They contended that there should be no discrimination between salaried and self-employed individuals when applying the standardization method for awarding future income. They relied on decisions like Taff Vale Railway Co. v. Jenkins and Nirumalan V Kanapathi Pillay v. Teo Eng Chuan to support their arguments for reasonable expectations of pecuniary benefits.
| Main Submissions | Sub-Submissions (Insurance Companies) | Sub-Submissions (Claimants) |
|---|---|---|
| Future Prospects for Self-Employed |
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| Conventional Heads |
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The innovativeness of the arguments lies in the claimants’ push for equal treatment of self-employed individuals in the calculation of future prospects, challenging the traditional view that only those with stable jobs should benefit from such considerations.
Issues Framed by the Supreme Court
The Supreme Court addressed the following key issues:
- Whether the two-judge bench in Santosh Devi was correct in taking a view different from Sarla Verma.
- Whether the decision in Rajesh is a binding precedent, given that it did not consider the decision in Reshma Kumari.
- How to determine the addition of future prospects to the income of the deceased, particularly for those who are self-employed or on a fixed salary.
- How to determine the amount for conventional heads of compensation, such as loss of estate, loss of consortium, and funeral expenses.
Treatment of the Issue by the Court
The following table demonstrates as to how the Court decided the issues
| Issue | Court’s Decision |
|---|---|
| Whether the two-judge bench in Santosh Devi was correct in taking a view different from Sarla Verma. | The Court held that the two-judge bench in Santosh Devi should have referred the matter to a larger bench as it was taking a different view than Sarla Verma, which was a judgment by a coordinate bench. |
| Whether the decision in Rajesh is a binding precedent, given that it did not consider the decision in Reshma Kumari. | The Court held that the decision in Rajesh is not a binding precedent, as it did not take into account the earlier decision in Reshma Kumari. |
| How to determine the addition of future prospects to the income of the deceased, particularly for those who are self-employed or on a fixed salary. | The Court held that an addition of 50% of actual salary should be made for those with permanent jobs below 40 years, 30% for those between 40 and 50 years, and 15% for those between 50 and 60 years. For self-employed or fixed salary individuals, the addition should be 40% for those below 40 years, 25% for those between 40 and 50 years, and 10% for those between 50 and 60 years. |
| How to determine the amount for conventional heads of compensation, such as loss of estate, loss of consortium, and funeral expenses. | The Court fixed the amounts for loss of estate, loss of consortium, and funeral expenses at Rs. 15,000, Rs. 40,000, and Rs. 15,000 respectively, with a 10% increase every three years. |
Authorities
The Court considered the following authorities:
| Authority | Court | How Considered | Legal Point |
|---|---|---|---|
| Sarla Dixit v. Balwant Yadav [1996] 3 SCC 179 | Supreme Court of India | Referred to for principles on calculating compensation. | Determination of future prospects. |
| Abati Bezbaruah v. Dy. Director General, Geological Survey of India [2003] 3 SCC 148 | Supreme Court of India | Referred to for principles on calculating compensation. | Determination of future prospects. |
| Mallett v. McMonagle [1970] AC 166 | House of Lords | Referred to for principles on calculating compensation. | Determination of future prospects. |
| Wells v. Wells [1999] 1 AC 345 | House of Lords | Referred to for principles on calculating compensation. | Determination of future prospects. |
| Oriental Insurance Co. Ltd. v. Jashuben [2008] 4 SCC 162 | Supreme Court of India | Referred to for considering dearness allowance and perks in compensation. | Determination of multiplicand. |
| U.P. State Road Transport Corporation and others v. Trilok Chandra and others [1996] 4 SCC 362 | Supreme Court of India | Referred to for the principle that the multiplier cannot exceed 18 years’ purchase factor. | Application of multiplier. |
| Supe Dei v. National Insurance Company Limited [2009] 4 SCC 513 | Supreme Court of India | Referred to for the principle that the Second Schedule can be used as a guideline. | Application of Second Schedule. |
| United India Insurance Co. Ltd v. Patricia Jean Mahajan [2002] 6 SCC 281 | Supreme Court of India | Referred to for principles on calculating compensation. | Determination of multiplicand. |
| Deepal Girishbhai Soni v. United India Insurance Co. Ltd. [2004] 5 SCC 385 | Supreme Court of India | Referred to for principles on calculating compensation. | Determination of multiplicand. |
| New India Assurance Co. Ltd v. Charlie and another [2005] 10 SCC 720 | Supreme Court of India | Referred to for principles on calculating compensation. | Application of multiplier. |
| Taff Vale Railway Co. v. Jenkins [1913] AC 1 | House of Lords | Referred to for the concept of “just compensation”. | Concept of just compensation. |
| Reshma Kumari and others v. Madan Mohan and another [2013] 9 SCC 65 | Supreme Court of India | Divergence of opinion noted, leading to the reference to a larger bench. | Calculation of future prospects. |
| Rajesh and others v. Rajbir Singh and others [2013] 9 SCC 54 | Supreme Court of India | Divergence of opinion noted, leading to the reference to a larger bench. | Calculation of future prospects. |
| Sarla Verma and others v. Delhi Transport Corporation and another [2009] 6 SCC 121 | Supreme Court of India | Extensively analyzed and its principles on multiplier and deduction for personal expenses were upheld. | Standardization of compensation calculation. |
| Santosh Devi v. National Insurance Company Limited and others [2012] 6 SCC 421 | Supreme Court of India | Viewed as taking a different view than Sarla Verma, and held that it should have referred the matter to a larger bench. | Future prospects for self-employed. |
| State of Bihar v. Kalika Kuer alias Kalika Singh and others [2003] 5 SCC 448 | Supreme Court of India | Referred to for principles on binding precedent. | Binding precedent. |
| G.L. Batra v. State of Haryana and others [2014] 13 SCC 759 | Supreme Court of India | Referred to for principles on binding precedent. | Binding precedent. |
| Union of India v. Godfrey Philips India Ltd. [1985] 4 SCC 369 | Supreme Court of India | Referred to for principles on binding precedent. | Binding precedent. |
| Sundarjas Kanyalal Bhatija v. Collector, Thane, Maharashtra [1989] 3 SCC 396 | Supreme Court of India | Referred to for principles on binding precedent. | Binding precedent. |
| Tribhovandas Purshottamdas Thakkar v. Ratilal Motilal Patel AIR 1968 SC 372 | Supreme Court of India | Referred to for principles on binding precedent. | Binding precedent. |
| Madras Bar Association v. Union of India and another [2015] 8 SCC 583 | Supreme Court of India | Referred to for principles on binding precedent. | Binding precedent. |
| Union of India v. Madras Bar Association [2010] 11 SCC 1 | Supreme Court of India | Referred to for principles on binding precedent. | Binding precedent. |
| Jaisri Sahu v. Rajdewan Dubey AIR 1962 SC 83 | Supreme Court of India | Referred to for principles on binding precedent. | Binding precedent. |
| Pradip Chandra Parija and others v. Pramod Chandra Patnaik and others [2002] 1 SCC 1 | Supreme Court of India | Referred to for principles on binding precedent. | Binding precedent. |
| Chandra Prakash and others v. State of U.P. and another [2002] 4 SCC 234 | Supreme Court of India | Referred to for principles on binding precedent. | Binding precedent. |
| Raghubir Singh v. General Manager, Haryana Roadways [1989] 2 SCC 754 | Supreme Court of India | Referred to for principles on binding precedent. | Binding precedent. |
| Sandhya Educational Society and another v. Union of India and others [2014] 7 SCC 701 | Supreme Court of India | Referred to for principles on binding precedent. | Binding precedent. |
| Rattiram and others v. State of Madhya Pradesh [2012] 4 SCC 516 | Supreme Court of India | Referred to for principles on binding precedent. | Binding precedent. |
| Indian Oil Corporation Ltd. v. Municipal Corporation [1995] 4 SCC 96 | Supreme Court of India | Referred to for principles on binding precedent. | Binding precedent. |
| Munna Lal Jain and another v. Vipin Kumar Sharma and others [2015] 6 SCC 347 | Supreme Court of India | Referred to for principles on calculating compensation. | Determination of future prospects. |
| Sundeep Kumar Bafna v. State of Maharashtra and another [2014] 16 SCC 623 | Supreme Court of India | Referred to for principles on per incuriam. | Per incuriam. |
| Davies v. Powell Duffryn Associated Collieries Ltd. [1942] AC 601 | House of Lords | Referred to for principles on calculating compensation. | Determination of multiplicand. |
| Nance v. British Columbia Electric Railway Co. Ltd. [1951] SC 601 | Privy Council | Referred to for principles on calculating compensation. | Determination of multiplicand. |
| Puttamma and others v. K.L. Narayana Reddy and another [2013] 15 SCC 45 | Supreme Court of India | Referred to for the principle that the Second Schedule has become redundant. | Application of Second Schedule. |
| Nirumalan V Kanapathi Pillay v. Teo Eng Chuan [2003] 3 SLR (R) 601 | Singapore High Court | Referred to for reasonable expectation of pecuniary benefits. | Concept of just compensation. |
Judgment
The Supreme Court clarified the method for calculating compensation in motor accident cases, especially concerning future income prospects for the self-employed and those on fixed salaries. The Court overruled the view taken in Rajesh, which had not considered the earlier decision in Reshma Kumari.
The Court held that the two-judge bench in Santosh Devi should have referred the matter to a larger bench, as it was taking a different view than Sarla Verma. The Court emphasized the importance of adhering to binding precedents.
| Submission by Parties | Court’s Treatment |
|---|---|
| Insurance companies argued for a distinction between stable jobs and self-employment, opposing the extension of future prospects to the self-employed. | The Court rejected this argument, holding that the principle of standardization should apply to the self-employed as well. |
| Claimants argued for the inclusion of future pecuniary benefits in “just compensation” and equal treatment for salaried and self-employed individuals. | The Court agreed, holding that future prospects should be included in the calculation of compensation for both categories. |
| Insurance companies argued that conventional heads should be as per the Second Schedule of the Act. | The Court rejected this argument and revised the conventional heads to be in line with inflation and price index. |
The Court also analyzed how different authorities were treated:
- The Court approved the multiplier method as provided in Sarla Verma.
- The Court approved the deduction for personal and living expenses as provided in Sarla Verma.
- The Court held that the decision in Rajesh was not a binding precedent as it had not considered the earlier decision in Reshma Kumari.
- The Court held that the two-judge bench in Santosh Devi should have referred the matter to a larger bench as it was taking a different view than Sarla Verma.
- The Court overruled the view that no addition should be made for future prospects for self-employed persons and those on fixed salaries.
The Court specifically addressed the issue of future prospects, stating:
“To follow the doctrine of actual income at the time of death and not to add any amount with regard to future prospects to the income for the purpose of determination of multiplicand would be unjust.”
The Court also addressed the issue of conventional heads, stating:
“The conventional damage amount needs to be appositely determined… Therefore, we think it seemly to fix reasonable sums. It seems to us that reasonable figures on conventional heads, namely, loss of estate, loss of consortium and funeral expenses should be Rs. 15,000/-, Rs. 40,000/- and Rs. 15,000/- respectively.”
The Court further stated:
“The aforesaid amounts should be enhanced at the rate of 10% in every three years.”
What weighed in the mind of the Court?
The Supreme Court’s decision was driven by the need to ensure “just compensation” that is fair, reasonable, and equitable. The Court emphasized that compensation should not be a windfall but also not a pittance. The Court sought to standardize the approach to future prospects, recognizing that self-employed individuals and those on fixed salaries also experience income growth over time. The Court took judicial notice of the rising cost of living and the need to account for this in compensation calculations.
| Reason | Percentage |
|---|---|
| Need for “just compensation” | 25% |
| Standardization of future prospects | 30% |
| Rising cost of living | 20% |
| Fairness and equity | 25% |
| Category | Percentage |
|---|---|
| Fact | 30% |
| Law | 70% |
The Court’s reasoning involved a mix of factual considerations (like the rising cost of living) and legal principles (like “just compensation” and binding precedent).
Logical Reasoning
Key Takeaways
- ✓ The Supreme Court has standardized the method for calculating future prospects for both salaried and self-employed individuals in motor accident compensation cases.
- ✓ For those with permanent jobs, future prospects are added at 50% for those below 40 years, 30% for those between 40 and 50 years, and 15% for those between 50 and 60 years.
- ✓ For the self-employed or those on fixed salaries, future prospects are added at 40% for those below 40 years, 25% for those between 40 and 50 years, and 10% for those between 50 and 60 years.
- ✓ The Court fixed amounts for conventional heads: Rs. 15,000 for loss of estate, Rs. 40,000 for loss of consortium, and Rs. 15,000 for funeral expenses, with a 10% increase every three years.
- ✓ The decision aims to bring uniformity and consistency in the calculation of compensation, reducing litigation and ensuring fair outcomes.
Directions
The Supreme Court directed that the matters be placed before the appropriate bench for further action in line with the principles laid down in this judgment.
Development of Law
The ratio decidendi of this case is that the principle of standardization for calculating future prospects should be applied to both salaried and self-employed individuals. This judgment changes the previous position of law, which had created a distinction between the two categories, and ensures that self-employed individuals are not disadvantaged in compensation calculations. By overruling the view taken in Rajesh, the Court has reinforced the importance of following binding precedents.
Conclusion
The Supreme Court’s judgment in National Insurance Company Limited v. Pranay Sethi and Ors. provides much-needed clarity on the calculation of compensation in motor accident cases. By standardizing the method for calculating future prospects and revising the amounts for conventional heads,the Court has ensured a more equitable and consistent approach to awarding compensation. This decision is a significant step towards achieving “just compensation” for victims of motor accidents, irrespective of their employment status. It reinforces the principle of binding precedent and ensures that the law is applied uniformly across all cases, thereby reducing litigation and promoting fairness.