A 5 Judge Bench of the Supreme Court in National Insurance Company Limited v Pranay Sethi[1], has laid down guidelines on the fixation of future prospects in cases of motor accidents for victims who are permanently employed, receiving a fixed salary, or self-employed.

After analysing the decision in Sarla Verma v Delhi transport Corporation[2], the Court concurred with the view therein regarding the standardisation of the addition to income towards future prospects in accordance with §168 of the Motor Vehicles Act 1988. It also observed that the concept of "just compensation" has to be determined on the foundation of fairness, reasonableness and equitability on acceptable legal standards since such determination "can never be in arithmetical exactitude".

Prior Position:

In Sarla Verma, the Court determined and made a rule that 50% of actual salary could be added if the deceased had a permanent job and if the age of the deceased was between 40-50 years. No addition was to be made if the deceased was more than 50 years. Further, they ruled that where the deceased was self-employed or had a fixed salary (without provision for annual increment), courts would take only the actual income at the time of death. A departure from this rule was permissible only in rare and exceptional cases involving special circumstances.

Prior to the Sarla Verma decision, the practice was to award 50% of the last drawn salary as compensation in fatal accident claims. Subsequently, the calculation table laid down in Sarla Verma containing fixed percentages on the basis of different age groups was followed for calculating future prospects for permanent jobholders.

It was this straitjacket demarcation between permanently employed persons within the taxable range, and the other category where the deceased were self-employed or employed on fixed salary, which was analysed in the present case.

Position Pursuant to National Insurance v Pranay Sethi:

The Court departed from the reasoning in Sarla Verma, and held that the calculation of future prospects for the purpose of compensating victims should be extended to persons who are self-employed or earn a fixed salary, and not just those having a permanent job. The Court, in this regard, reasoned that:

"To have the perception that he (self-employed person) is likely to remain static and his income to remain stagnant is contrary to the fundamental concept of human attitude which always intends to live with dynamism and move and change with the time."

The Court also remarked that different tribunals calculating compensation differently on the same facts leads to a lack of uniformity and consistency in awarding compensation. Therefore, in order to regulate the calculation of compensation and keeping in view the principle of certainty, stability and consistency, the Court agreed to the "principle of "standardization" so that "a specific and certain multiplicand is determined for applying the multiplier on the basis of age" for claims where the deceased had a permanent job.

Further, the Court, considering various factors such as the passage of time, escalation of prices, human attitude to follow a particular pattern of life, and the change in price index, among others, observed that, the principle of standardisation should be applied for a person with a fixed salary or a self-employed person as well.

The Court has therefore laid down a computation of fixed percentage for addition to the actual salary of a self-employed person or a person earning a fixed salary. It has also introduced such calculation for victims between the ages of 50 to 60 years, which was not previously available under the guidelines laid down by Sarla Verma.

In summary, the Court has determined the applicable percentages for determination of future prospects, in case of deceased with a permanent job, and has also added the category where the deceased was self-employed or on a fixed salary, to be as follows:

The Court has also laid down reasonable compensation figures for conventional heads in the following terms:

  1. ₹15,000 in case of loss of estate;
  1. ₹40,000 in case of loss of consortium, and
  1. ₹15,000 for funeral expenses.

These amounts are to be enhanced at the rate of 10% with every three-year period.

This development and the slabs laid down above would go a long way in standardising the mode of computation of compensation in fatal accident cases, and shall help in eliminating ambiguity in future cases. It shall also save judicial time by eliminating the need for detailed calculations by various courts/tribunals.

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[1] Special Leave Petition (Civil) No. 25590 of 2014 pronounced on 31 October 2017

[2] 2009 AIR SC 3104

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