Supreme Court Revises Future Prospects Compensation in Motor Accident Case: Reliance General Insurance Co. Ltd. vs. Shalu Sharma (2018)

Date of the Judgment: 02 February 2018

Citation: (2018) INSC 767

Judges: Dipak Misra, CJI, A M Khanwilkar, J, Dr D Y Chandrachud, J

Can the compensation awarded by a Motor Accident Claims Tribunal (MACT) be altered by a higher court? The Supreme Court of India addressed this question in a recent case concerning the calculation of future prospects for a self-employed individual who died in a motor accident. The Court clarified the correct percentage to be added to the income of the deceased for future prospects, based on the age of the deceased. The judgment was delivered by a three-judge bench comprising of Dipak Misra, CJI, A M Khanwilkar, J, and Dr D Y Chandrachud, J.

Case Background

On 14 September 2013, Narinder Sharma tragically died in a motor vehicle accident. The vehicle involved was insured by Reliance General Insurance Company Ltd. The dependents of the deceased filed a claim for compensation before the Motor Accident Claims Tribunal (MACT). The MACT determined that the accident resulted from the negligence of the driver of the insured vehicle. The Tribunal awarded a total compensation of Rs 30,26,810, along with interest at 9% per annum. This included a 30% addition to the deceased’s income for future prospects.

Timeline

Course of Proceedings

The Motor Accident Claims Tribunal (MACT) determined that the accident was caused by the negligence of the driver of the offending vehicle. The MACT awarded compensation of Rs 30,26,810 along with 9% interest per annum, which included a 30% addition for future prospects. The insurance company, Reliance General Insurance Company Ltd., appealed to the Delhi High Court, contesting only the 30% addition for future prospects. The Delhi High Court upheld the MACT’s decision, noting the progressive increase in the deceased’s income. Subsequently, the insurance company filed a Special Leave Petition before the Supreme Court.

Legal Framework

The Supreme Court referred to the judgment in National Insurance Company Limited v Pranay Sethi (2017) 13 SCALE 12, which provides guidelines for calculating future prospects for self-employed individuals. The Court quoted the following principle from the judgment:

“(iv) In case the deceased was self-employed or on a fixed salary, an addition of 40% of the established income should be the warrant where the deceased was below the age of 40 years. An addition of 25% where the deceased was between the age of 40 to 50 years and 10% where the deceased was between the age of 50 to 60 years should be regarded as the necessary method of computation. The established income means the income minus the tax component.”

This framework establishes that self-employed individuals are entitled to an addition for future prospects. The percentage of this addition depends on the age of the deceased at the time of the accident.

Arguments

Appellant (Reliance General Insurance Company Ltd.) Arguments:

• The appellant argued that the 30% addition for future prospects was not justified based on the income tax returns of the deceased for the years 2010-11, 2011-12, and 2012-13.
• The appellant contended that the increase in the gross total income of the deceased did not warrant such a high percentage for future prospects.

Respondent (Dependents of the Deceased) Arguments:

• The respondents argued that the progressive increase in the income of the deceased justified the 30% addition for future prospects as awarded by the Tribunal.
• They relied on the fact that the deceased was self-employed and had a potential for future income growth.

The key point of contention was the percentage to be added to the deceased’s income for future prospects. The insurance company argued against the 30% addition, while the respondents supported it based on the deceased’s income growth and self-employment status.

Issues Framed by the Supreme Court

The primary issue before the Supreme Court was:

1. Whether the High Court was justified in upholding the 30% addition towards future prospects as awarded by the Tribunal.

Treatment of the Issue by the Court

Authorities

Judgment

How each authority was viewed by the Court?

The Supreme Court relied on National Insurance Company Limited v Pranay Sethi (2017) 13 SCALE 12 to determine the correct percentage for future prospects. The Court followed the guidelines laid down in this judgment, which provides for a 25% addition for those between 40 and 50 years of age.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to adhere to the established principles for calculating future prospects as laid down in the Pranay Sethi judgment. The Court emphasized the importance of applying a uniform standard based on the age of the deceased. The court was also influenced by the fact that the deceased was self-employed.

Logical Reasoning:

The Court rejected the High Court’s reasoning that the progressive increase in income justified the 30% addition. The Supreme Court held that the correct approach was to apply the percentage based on the age of the deceased as per the Pranay Sethi judgment.

The Supreme Court stated: “Since the deceased was 42 years of age, an addition of 25% on the ground of future prospects would be warranted instead of 30% computed by the Tribunal.”

The Court also noted: “The Tribunal has held that the annual income of the deceased… would be Rs 1,81,500. Adding a component of 25% for future prospects, the income would stand at Rs 2,26,875.”

The Court further stated: “The total compensation is quantified at Rs 27,66,522 on which the claimants would be entitled to interest @ 9% p.a. from the date of the filing of the claim petition.”

There were no dissenting opinions.

Key Takeaways

• For self-employed individuals, future prospects must be considered in motor accident compensation claims.
• The percentage addition for future prospects depends on the age of the deceased at the time of the accident.
• For individuals between 40 and 50 years of age, a 25% addition to the established income is warranted.
• The National Insurance Company Limited v Pranay Sethi judgment provides the guiding principles for such calculations.

Directions

The Supreme Court directed the appellant to deposit the balance computed in terms of the judgment within eight weeks before the Tribunal. The Tribunal was directed to disburse the amount to the claimants upon due verification. The Court also clarified that if the amount already withdrawn by the claimants exceeded the amount they were entitled to under the judgment, no recoveries would be made.

Development of Law

The ratio decidendi of the case is that the calculation of future prospects for self-employed individuals in motor accident claims must adhere to the guidelines set out in National Insurance Company Limited v Pranay Sethi. The judgment reinforces the principle that the percentage addition for future prospects should be based on the age of the deceased at the time of the accident, and in this case, it was 25% for the deceased who was between 40-50 years of age. There is no change in the previous position of law, but a reaffirmation of the principles laid down in the Pranay Sethi judgment.

Conclusion

In conclusion, the Supreme Court’s judgment in Reliance General Insurance Company Ltd vs. Shalu Sharma clarified the correct method for calculating future prospects for self-employed individuals in motor accident compensation cases. The Court modified the High Court’s decision, reducing the future prospects addition from 30% to 25% based on the principles established in the Pranay Sethi judgment. This decision ensures a consistent and age-based approach to calculating compensation in such cases.