2017 (10) TMI 1276 - SC - Indian Laws

Supreme Court Sets New Standard for Calculating Future Prospects Under Motor Vehicles Act for Job and Self-Employed Individuals.

National Insurance Company Limited Versus Pranay Sethi And Others

The SC resolved discrepancies between prior judgments on future prospects under the Motor Vehicles Act, 1988. It established a standard: a 50% income ... Determination of compensation u/s 163-A and 166 of the Motor Vehicles Act, 1988 - claim in the case of death - liability of insurance company - a person who is selfemployed or who is paid fixed wages / salary - Established income of the deceased towards future prospects - Whether there will be no addition after 50 years? - Held that:- Taking into consideration the cumulative factors, namely, passage of time, the changing society, escalation of price, the change in price index, the human attitude to follow a particular pattern of life, etc., an addition of 40% of the established income of the deceased towards future prospects and where the deceased was below 40 years an addition of 25% where the deceased was between the age of 40 to 50 years would be reasonable. The controversy does not end here. The question still remains whether there should be no addition where the age of the deceased is more than 50 years. Sarla Verma thinks it appropriate not to add any amount and the same has been approved in Reshma Kumari. Judicial notice can be taken of the fact that salary does not remain the same. When a person is in a permanent job, there is always an enhancement due to one reason or the other. To lay down as a thumb rule that there will be no addition after 50 years will be an unacceptable concept. We are disposed to think, there should be an addition of 15% if the deceased is between the age of 50 to 60 years and there should be no addition thereafter. Similarly, in case of selfemployed or person on fixed salary, the addition should be 10% between the age of 50 to 60 years. The aforesaid yardstick has been fixed so that there can be consistency in the approach by the tribunals and the courts. In view of the aforesaid analysis, we proceed to record our conclusions:- (i) The two-Judge Bench in Santosh Devi should have been well advised to refer the matter to a larger Bench as it was taking a different view than what has been stated in Sarla Verma, a judgment by a coordinate Bench. It is because a coordinate Bench of the same strength cannot take a contrary view than what has been held by another coordinate Bench. (ii) As Rajesh has not taken note of the decision in Reshma Kumari, which was delivered at earlier point of time, the decision in Rajesh is not a binding precedent. (iii) While determining the income, an addition of 50% of actual salary to the income of the deceased towards future prospects, where the deceased had a permanent job and was below the age of 40 years, should be made. The addition should be 30%, if the age of the deceased was between 40 to 50 years. In case the deceased was between the age of 50 to 60 years, the addition should be 15%. Actual salary should be read as actual salary less tax. (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. (v) For determination of the multiplicand, the deduction for personal and living expenses, the tribunals and the courts shall be guided by paragraphs 30 to 32 of Sarla Verma which we have reproduced hereinbefore. (vi) The selection of multiplier shall be as indicated in the Table in Sarla Verma read with paragraph 42 of that judgment. (vii) The age of the deceased should be the basis for applying the multiplier. (viii) Reasonable figures on conventional heads, namely, loss of estate, loss of consortium and funeral expenses should be ₹ 15,000/-, ₹ 40,000/- and ₹ 15,000/- respectively. The aforesaid amounts should be enhanced at the rate of 10% in every three years. Issues Involved:1. Divergence of opinion between Reshma Kumari and Rajesh cases.2. Methodology for computation of future prospects under Sections 163-A and 166 of the Motor Vehicles Act, 1988.3. Standardization of addition to income for future prospects.4. Determination of multiplicand and multiplier.5. Deduction towards personal and living expenses.6. Conventional heads of compensation: loss of estate, loss of consortium, and funeral expenses.7. Binding precedent and judicial discipline.Issue-wise Detailed Analysis:1. Divergence of Opinion Between Reshma Kumari and Rajesh Cases:The judgment addresses the cleavage of opinion between the decisions in Reshma Kumari and Rajesh, both three-Judge Bench decisions, regarding the computation of future prospects under Sections 163-A and 166 of the Motor Vehicles Act, 1988. The matter was referred to a larger Bench for an authoritative pronouncement.2. Methodology for Computation of Future Prospects:The Court discussed the methodology for computation of future prospects, referencing Sarla Verma, which aimed to simplify the determination of claims by specifying certain parameters. The judgment noted that future prospects should consider factors such as the education of dependants, societal conditions, and inflation.3. Standardization of Addition to Income for Future Prospects:The judgment highlighted the need for standardization in adding future prospects to the income of the deceased. It approved the method of adding 50% of actual salary for those below 40 years with a permanent job, 30% for those aged 40-50, and no addition for those above 50. For self-employed or those on fixed salary, the Court acknowledged the need for a reasonable addition, considering the rise in the cost of living and efforts to generate additional income.4. Determination of Multiplicand and Multiplier:The judgment reiterated the principles laid down in Sarla Verma for determining the multiplicand and multiplier. It emphasized that the multiplier should be selected based on the age of the deceased, as indicated in the Table in Sarla Verma, which was approved for achieving uniformity and consistency.5. Deduction Towards Personal and Living Expenses:The Court approved the deductions for personal and living expenses as specified in Sarla Verma. For married deceased, the deduction should be one-third if there are 2-3 dependants, one-fourth for 4-6 dependants, and one-fifth for more than six dependants. For bachelors, a 50% deduction is standard unless the family is large and dependent, in which case it may be restricted to one-third.6. Conventional Heads of Compensation:The judgment addressed the conventional heads of compensation, such as loss of estate, loss of consortium, and funeral expenses. It found the amounts granted in Rajesh (Rs. 1,00,000 for loss of consortium, Rs. 25,000 for funeral expenses) to be inconsistent. The Court fixed reasonable sums: Rs. 15,000 for loss of estate, Rs. 40,000 for loss of consortium, and Rs. 15,000 for funeral expenses, with a 10% enhancement every three years.7. Binding Precedent and Judicial Discipline:The judgment emphasized the importance of following binding precedents and judicial discipline. It criticized the two-Judge Bench in Santosh Devi for not referring the matter to a larger Bench when taking a different view than Sarla Verma. It also noted that Rajesh, not considering Reshma Kumari, is not a binding precedent. The Court stressed the need for consistency and adherence to established principles to avoid unnecessary contest and ensure just compensation.Conclusions:1. Santosh Devi should have referred the matter to a larger Bench.2. Rajesh is not a binding precedent as it did not consider Reshma Kumari.3. Addition of 50% for future prospects for those below 40 years with a permanent job, 30% for 40-50 years, and 15% for 50-60 years.4. For self-employed or fixed salary, addition of 40% for those below 40 years, 25% for 40-50 years, and 10% for 50-60 years.5. Deduction for personal and living expenses as per Sarla Verma.6. Multiplier selection as per Sarla Verma.7. Age of the deceased as the basis for applying the multiplier.8. Reasonable figures 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% enhancement every three years.The reference was answered accordingly, and the matters were placed before the appropriate Bench.