On 22 May 2018, the Central Government issued a notification by which the scale of compensation for third party fatal accidents and injury claims under the Second Schedule of the Motor Vehicles Act 1988 (MV Act) was amended. These claims for compensation are considered on a 'no-fault liability' basis as envisaged under §163A of the MV Act. In other words, the claimant is not required to prove or plead that death or permanent disablement was due to 'any wrongful act or neglect or default of the owner of the vehicle.'
The erstwhile Second Schedule of the MV Act provided for compensation on a 'structured formula basis' which was indicated in a tabular form. Broadly, compensation was formulated on the basis of the victim's age and income and suffered from several defects and inconsistencies as observed by the Supreme Court in Sarla Verma v Delhi Transport Corporation [(2009) 6 SCC 121]. Further, the Court noted in Sarla Verma that different tribunals were utilising different calculation mechanisms on similar factual scenarios which was leading to a lack of uniformity and consistency in awarding compensation under such claims.
In addition, the Supreme Court in Puttamma v KL Narayan Reddy [(2013) 15 SCC 45] observed that the Second Schedule of the MV Act was in need of an urgent amendment, as it was based on the prevailing cost index of 1994.
The notification of May 2018 has now amended the Second Schedule and removes the formula system that had existed without amendment since 1994.
As per the substituted Second Schedule, compensation will now payable be as follows:
- For accidents resulting in minor injury: fixed compensation of ₹20,000.
- For accidents resulting in permanent disability: compensation payable will be calculated based on the 'disability percentage' specified in Schedule I of the Employee's Compensation Act 1923, where the minimum compensation payable shall be not less than ₹50,000 and the maximum compensation payable shall be ₹5 lakhs.
- For fatal accidents: fixed compensation of ₹5 lakhs.
The notification further provides that the amounts payable in case of death, permanent disability and minor injury will be increased at the rate of 5% annually, effective from 1 January 2019.
It is pertinent to note that additional compensation for various conventional heads, such as funeral expenses, loss of estate and consortium are no longer expressly provided for in the amended Second Schedule. It is unclear if these amounts will now be considered to be encompassed within the compensation amounts prescribed.
While the amendment reflects a much required update of the structured formula system that had been in existence since 1994, the actual impact of this notification is yet to be tested, particularly in the case of larger claims.
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