REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.  106       OF 2009 [ARISING OUT OF S.L.P. (CIVIL) NO. 16785 OF 2006]

ORIENTAL INSURANCE CO. LTD.      … APPELLANT

Versus

RAM PRASAD VARMA & ORS.      … RESPONDENTS

J U D G M E N T

S.B. SINHA, J.

1. Leave granted.

2. Ram  Prasad  Varma,  respondent  No.  1,  an  Assistant  Executive

Engineer, was employed with Oil and Natural Gas Corporation (ONGC) at

Rajahmundry.   On or about 9.9.1998, while he was going to the workshop,

he was hit by a lorry bearing registration No. AP-16-W-5839.  The lorry ran

over his legs.  He was admitted in the hospital. Indisputably, both his legs

were amputated.  The fact that an accident had taken place owing to rash

and negligent driving on the part  of the driver of the said lorry is not in

dispute.  It is also not in dispute that, at the relevant time, respondent was

aged 55 years and his annual income was Rs.2,27,471.00.   

3. Respondent  having  suffered  permanent  disability  filed  a  Claim

Petition  in  terms  of  Section  166  of  the  Motor  Vehicles  Act  claiming

compensation  of  a  sum  of  Rs.20  lakhs;  Rs.50,000/-  towards  extra

nourishment; Rs. 50,000/- towards compensation for mental agony, pain and

suffering; Rs. 50,000/- for loss of amenities in life and Rs.2 lakhs for the

expenditure of attendant throughout the life and Rs.16.50 lakhs towards loss

of future earnings.  

4. The  Motor  Accidents  Claims  Tribunal  awarded  a  sum  of

Rs.19,63,000/- with interest at the rate of 12% per annum from the date of

filing of the petition till realization.   

5. An appeal  preferred thereagainst  by the Insurance Company before

the High Court in terms of Section 173 of the Act has been dismissed by

reason of the impugned judgment.  The High Court, however, considering

the  prevailing  rate  of  interest  reduced  the  rate  of  interest  from 12% per

annum to 9% per annum.   

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6. Mr.  Pankaj  Seth,  learned counsel  appearing  on  behalf  of  appellant

would contend:

(i) The  learned  Tribunal,  and  consequently  the  High  Court,

committed  a  serious  error  in  applying  multiplier  of  eight

although  respondent  would  have  retired  from  services  on

attaining the age of sixty.  

(ii) The  Tribunal  in  determining  the  amount  of  compensation

should have deducted the amount of income tax from his gross

salary as compensation  has been granted on the basis  of  the

structured formula.  

(iii) The Tribunal in determining the said amount of compensation

should have deducted one-third from the total  amount of  his

income by way of miscellaneous expenses.

7. Indisputably,  the  respondent  was  an  Assistant  Executive  Engineer.

He was an income tax payee.  He had submitted income tax return for the

year 1998-99 showing his gross salary at Rs.2,27,471.40 and the amount of

income-tax deducted at source was Rs.30,748.00.

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8. A claimant  who  had  suffered  injuries  in  a  motor  vehicle  accident

resulting in amputation of both legs is  entitled to 100% compensation in

terms of the First Schedule appended to the Workmen’s Compensation Act,

1923.  The amount of compensation which represents the loss of income can

be calculated either in terms of the structured formula as contained in the

Second Schedule appended to the Motor Vehicles Act or on the basis of the

other materials brought on record.  It is not in dispute that in a case of this

nature,  the  Tribunal  cannot  be  said  to  have  committed  any  illegality  in

applying the structured formula.

9. The Second Schedule as such may not  have any application as  the

maximum annual income of a deceased or an injured which could be taken

into consideration therefor is Rs.40,000/- per annum.  However, keeping in

view the peculiar factual  circumstances of the case,  the proper multiplier

which,  in  our  opinion,  should  be  adopted  is  eight  for  the  purpose  of

determining fair compensation.   

10. Indisputably, he was to retire within a few years, but in view of the

injuries suffered he had to give up his job.  The life expectancy of an Indian

citizen is about 62 years. A person on retirement, in the event if pension

scheme is  applicable,  would be entitled  to  pensionary benefits.   Had the

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respondent worked for five years more, the amount of pension calculated on

the basis of last  pay drawn would have been more than what might have

become payable in the year 1998.   

11. One-third  amount  is  deducted  from  computation  of  compensation

from the total income on the premise that some expenses were necessary for

one’s own survival.  Incidentally, we may notice that in the note appended

to the Second Schedule, the amount of compensation arrived in the case of

fatal accident claims is required to be reduced by one-third in consideration

of the expenses which the victim would have incurred towards maintaining

himself had he been alive.  A person, although alive, but when he is not in a

position to move and even for every small thing he has to depend upon the

services of another, in our opinion, a direction to deduct 1/3rd of the amount

from his total income need not always be insisted upon.   

12. Our attention, however, has been drawn to a decision of this Court in

New India Assurance Co. Ltd. v. Charlie and Anr.  [(2005) 10 SCC 720]

wherein 1/3rd was directed to be deducted towards personal expenditure, we

do not find that any legal principle was laid down therein.  It also does not

appear that the premise on which such deduction is allowed and what would

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happen  in  a  case,  where  such  a  premise  does  not  exist,  did  not  fall  for

consideration.   

In  Charlie (supra), this court itself opined that in a case, where the

injured had suffered 100% disability, the legal principle for determination of

compensation applicable to a deceased can, in appropriate cases, taking note

of  all  relevant  factors  be  reasonably  applied  even  in  a  case  of  totally

permanent  disabled  person.   This  Court  referred  to  Halsbury's  Laws  of

England, Volume 34, para 98 wherein it was held that the multiplier may be

increased  where the  plaintiff  is  a  high  tax  payer.   That  principle  is  also

applicable in this case.   

In  Halsbury  (supra),  it  was  stated  that  in  applying  the  structured

formula it is assumed that the return on fixed interest bearing securities is so

much  higher  than  4  to  5  per  cent  that  rough  and  ready  allowance  for

inflation is thereby made.   

It was stated:

“14.  The  multiplier  method  involves  the ascertainment  of  the  loss  of  dependency  or  the multiplicand having regard to the circumstances of the  case  and  capitalizing  the  multiplicand  by an

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appropriate multiplier. The choice of the multiplier is determined by the age of the deceased (or that of the  claimants  whichever  is  higher)  and  by  the calculation as to what capital sum, if invested at a rate  of  interest  appropriate  to  a  stable  economy, would  yield  the  multiplicand  by  way  of  annual interest. In ascertaining this, regard should also be had  to  the  fact  that  ultimately  the  capital  sum should  also  be consumed-up over  the period  for which the dependency is expected to last.”

13. Our attention has also been drawn to a recent decision of this Court in

Sunil Kumar vs. Ram Singh Gaud & Ors. [2007 (12) SCALE 792] wherein

a Division Bench has opined as under:-

“9. Taking  into  consideration  the  present income of the appellant as Rs.4,000/- per month; and the permanent disability of 45% suffered by him, we are of  the view that the capacity of the appellant  to  earn  in  future  would be  reduced  by Rs.1,800/-  per  month  approximately.  If  1/3rd is deducted towards miscellaneous expenses, the loss of income comes to Rs.1,200/- per month which, in  turn,  comes  to  Rs.14,400/-  per  annum. Appellant  was  29  years  of  age  at  the  time  of accident. Taking the multiplier to be 18 [as per the Second Schedule to Section 163A of the Act], the total loss of income comes to Rs.2,59,200/-.”

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In that case, the injured suffered permanent disability of 45%.  Even

therein  the  multiplier  of  18  was applied.   It  was  held  that  by reason  of

disability suffered by the claimant his earning capacity would be reduced.  

In the instant case, respondent has become totally immobile.   

14. Our attention has also been drawn to a decision of this Court in Bijoy

Kumar Dugar v. Bidyadhar Dutta and Ors.  [(2006) 3 SCC 242].  In that

case, multiplier of 12 was applied.  However, some observations were made

that in regard to future prospects of income in the course of employment or

business  or  profession,  as  the  case  may  be,  some  cogent  and  reliable

evidence have to be led.   

15. In this case, respondent was a highly placed employee in a prestigious

public sector undertaking.  By reason of termination of service, he is not

only deprived of his salary but also various other allowances to which he

was otherwise entitled to.  His family members could have taken benefit of

some of the allowances.

16. We may, however, notice that in General Manager, Kerala State Road

Transport  Corporation,  Trivandrum vs.  Susamma Thomas  (Mrs.)  &  ors.

[(1994) 2 SCC 176], this Court held:

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“9. The assessment of  damages to compensate the dependants  is  beset  with  difficulties  because from  the  nature  of  things,  it  has  to  take  into account  many  imponderables,  e.g.,  the  life expectancy  of  the  deceased  and  the  dependants, the amount that  the deceased would have earned during the remainder of his life, the amount that he would have contributed to the dependants during that period, the chances that the deceased may not have lived or the dependants  may not  live up to the  estimated  remaining  period  of  their  life expectancy,  the chances  that  the deceased  might have  got  better  employment  or  income or  might have lost his employment or income altogether.

10. The manner of arriving at the damages is to ascertain the net income of the deceased available for the support of himself and his dependants, and to deduct therefrom such part of his income as the deceased was accustomed to spend upon himself, as regards both self-maintenance and pleasure, and to  ascertain  what  part  of  his  net  income  the deceased was accustomed to spend for the benefit of the dependants. Then that should be capitalised by  multiplying  it  by  a  figure  representing  the proper number of year's purchase.

11. Much of the calculation necessarily remains in  the  realm  of  hypothesis  "and  in  that  region arithmetic  is  a  good  servant  but  a  bad  master" since there  are  so  often many imponderables.  In every case "it is the over-all picture that matters" and the court must try to assess as best as it can the loss suffered.”

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17. This aspect of the matter has also been considered in U.P. State Road

Transport Corporation and Ors. v. Trilok Chandra and Ors. [(1996) 4 SCC

362] by a Three-Judge Bench of this Court in the following terms:

“9. The  compensation  to  be  awarded  has  two elements. One is the pecuniary loss to the estate of the deceased resulting from the accident, the other is the pecuniary loss sustained by the members of his  family  for  his  death.  The  Court  referred  to these two elements in the Gobald Motor Seivice's [AIR 1962 SC 1] case. These two elements were to be awarded under Section 1 and Section 2 of the Fatal Accidents Act, 1855 under which the claim in that case arose. The Court in that case cautioned that while making the calculations no part  of the claim under the first or the second element should be  included  twice.  The  Court  gave  a  very  lucid illustration, which can be quoted with profit:

‘An illustration may clarify the position. X is the income of the estate of the deceased, Y is the yearly expenditure incurred by him on his dependents (we will ignore the other expenditure incurred by him). X-Y i.e. Z, is the  amount  he  saves  every  year.  The capitalised value of the income spent on the dependents,  subject  to relevant  deductions, is  the  pecuniary  loss  sustained  by  the members  of  his  family  through  his  death. The capitalised value of his income, subject to  relevant  deductions,  would  be  the  loss caused  to  the  estate  by  his  death.  If  the claimants under both the heads are the same, and if they get compensation for the entire loss caused to the estate, they cannot claim again  under  the  head  of  personal  loss  the capitalised  income  that  might  have  been

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spent  on  them if  the  deceased  were  alive. Conversely, if they got compensation under Section 1, representing the amount that the deceased  would  have  spent  on  them,  if alive,  to  that  extent  there  should  be deduction in their claim under Section 2 of the Act in respect  of compensation for the loss  caused  to  the  estate.  To  put  it differently  if  under  Section  1  they  got capitalised value of Y, under Section 2 they could get only the capitalised value of Z, for the capitalised value Y + Z = X would be the capitalised value of his entire income.”

{See  also  Bangalore  Metropolitan  Transport  Corporation. vs. Sarojamma

and Anr. [(2008) 5 SCC 142]}

18. Following the aforementioned precedents, we are of the opinion that

in the peculiar facts and circumstances of this case, it  is not necessary to

interfere either with the application of multiplier of eight or non-deduction

of  1/3rd from his  net  salary.   However,  what  was  the  net  salary  of  the

respondent for the said purpose should have been determined.  An employee

when not in employment is not to pay his tax. Income tax payable from the

salary, therefore, was required to be deducted.  It was so held in  National

Insurance  Company Ltd.  v.  Indira  Srivastava  and  Ors.    [(2008)  2  SCC

763], stating:

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“17. This Court in  Asha (supra) did not address itself  the  questions  raised  before  us.  It  does  not appear that any precedent was noticed nor the term 'just compensation' was considered in the light of the changing societal  condition as also the perks which are paid to the employee which may or may not  attract  income  tax  or  any  other  tax.   What would be 'just compensation' must be determined having  regard  to  the  facts  and  circumstances  of each case. The basis for considering the entire pay packet  is  what  the  dependents  have  lost  due  to death  of  the  deceased.  It  is  in  the  nature  of compensation  for  future  loss  towards  the  family income.  

xxx xxx xxx

19. The  amounts,  therefore,  which  were required  to  be  paid  to  the  deceased  by  his employer by way of perks, should be included for computation of his monthly income as that would have been added to his monthly income by way of contribution  to  the  family as  contradistinguished to the ones which were for his benefit.  We may, however, hasten to add that from the said amount of  income,  the  statutory  amount  of  tax  payable thereupon must be deducted.”

Incidentally, we may notice that in that case also this Court held:

“21. If  the  dictionary  meaning  of  the  word 'income' is taken to its logical conclusion, it should include those benefits, either in terms of money or otherwise, which are taken into consideration for

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the  purpose  of  payment  of  income-tax  or profession  tax  although  some  elements  thereof may or  may not  be taxable  or  would  have  been otherwise taxable but for the exemption conferred thereupon under the statute.  

xxx xxx xxx

25. The expression 'just' must also be given its logical meaning. Whereas it cannot be a bonanza or a source of profit but in considering as to what would  be  just  and  equitable,  all  facts  and circumstances must be taken into consideration.”

19. The High Court has directed payment of interest at the rate of 9% per

annum.  We do not think that any case has been made out for interference

with the rate of interest.  The appeal is dismissed subject to the modification

that from the gross income of the respondent, the amount of income tax as

was applicable at the relevant  time should be deducted.  The Tribunal  is

directed  to  redetermine  the  amount  of  compensation  in  the  light  of  this

judgment.  However, in the facts and circumstances of this case, there shall

be no order as to costs.

……………….…..………….J. [S.B. Sinha]

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..………………..……………J. [Cyriac Joseph]

New Delhi; JANUARY 13, 2009

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