07 May 1996
Supreme Court


Case number: C.A. No.-007760-007761 / 1996
Diary number: 89397 / 1993






DATE OF JUDGMENT:       07/05/1996




JUDGMENT:                       J U D G M E N T AHMADI, CJI      Special leave granted.      The short question which we are called upon to consider in this  appeal relates to the use of the correct multiplier for determination of compensation to be awarded to the legal representatives of a victim of a road accident. The question arises in the backdrop of the following facts.      Prem Chandra,  aged about  26 years,  met with  a fatal accident on  1st August,  1977. He  was knocked  down by  an omnibus bearing  Registration No.  UTW 1802 belonging to the U.P.   State   Road   Transport   Corporation.   His   legal representatives preferred  a claim  for compensation. Taking his earning capacity at Rs.300/- per month, it was estimated that he  spent Rs.200/-  per month  on his  family  members. Fixing  the  life  expectancy  at  60  years,  the  Tribunal deducted 36  years and  held that the family was deprived of his earning  for 24  years. The compensation was thus worked out at  Rs.57,600/- (200x12x24).  This amount  was raised to Rs.81,600/- as it was realised that the Tribunal had wrongly taken the  age of the deceased at 36 instead of 26 years and head,  therefore,   committed  an  error  in  employing  the multiplier of  24 years  purchase factor instead of 34 years purchase factor.  Thus the compensation came to Rs.200x12x34 = 81,600/-.  The question  then is  whether the Tribunal was right in  employing the  multiplier of  24 or the High Court was right in employing the multiplier of 34?      India is  one of  the countries with the highest number of road  accidents. Motor  accidents are very day affairs. A large number of claims for compensation for injury caused by road accidents are pending in various Motor  Accident Claims Tribunal. In  fatal accident  the dependents of the deceased are entitled  to compensation  for the loss suffered by them on account  of the death. The most commonly practised method of assessing the losss suffered is to calculate the loss for a year  and then  to capitalise  the amount  by  a  suitable multiplier. To  that is added to loss suffered on account of loss of  expectation of life and the like. The Tribunals and High Court  have adopted  divergent methods to determine the suitable multiplier.  Even this  Court has not been uniform;



maybe because  the principle on which this method came to be evolved  has  been  forgotten.  It  has,  therefore,  become necessary to  examine the  law  and  to  state  the  correct principles to be adopted.      The  topic   of  compensation   for  causing  death  by negligent driving came up for serious discussion before this Court in  Gobald Motor  Services Limited  & Ar.  vs.  R.M.K. veluswami and  others AIR  1962 SC  1. The Court referred to the House  of Lords  decision in  Davies vs.  Powell Duffryn Associated Collieries  Ltd.  1942  AC  601  and  quoted  the following passage from the judgment:      "The damages are to be based on the      reasonable expectation of pecuniary      benefit  or  benefit  reducible  to      money  value.   In  assessing   the      damages all circumstances which may      be    legitimately    pleaded    in      diminution of  the damages  must be      considered.      .......The actual pecuniary loss of      each individual entitled to sue can      only be  ascertained by  balancing,      on the one hand, the loss to him of      the future  pecuniary benefit, and,      on   the    other   any   pecuniary      advantage   which   from   whatever      source comes  to him  by reason  of      the death."      The Court  also referred  to the  judgment by  Viscount Simon  in  Nance  vs.  British  Columbia  Electric  Railways Co.Ltd. 1951  AC 601  in  which  the  same  principles  were enunciated for  estimating the  damages, the  method adopted however differed.  Various  factors  that  would  enter  the calculation as  per Viscount  Simon  were  set  out  in  the judgment as under:      "........at  first   the   deceased      man’s expectation of life has to be      estimated having regard to his age,      bodily health  and the  possibility      of pre-mature  determination of his      life by  later accidents, secondly,      the amount  required for the future      provision of his wife shall he used      to  spend   on   her   during   his      lifetime, and  other circumstances;      thirdly, the  estimated annual  sum      is  multiplied  by  the  number  of      years of  the man’s  estimated span      of life,  and the  said amount must      be discounted  so as  to arrive  at      the equivalent  in the  form  of  a      lump  sum  payable  on  his  death;      fourthly, further  deductions  must      be made for the benefit accruing to      the widow  from the acceleration of      her interest  in his  estate;  and,      fifthly, further amounts have to be      deducted for the possibility of the      wife dying  earlier if  the husband      had lived he full span of life; and      it  should   also  be   taken  into      account   that    there   is    the      possibility of the widow remarrying      much  to  the  improvement  of  her      financial  position.  It  would  be



    seen  from   the   said   mode   of      estimation that  many imponderables      enter into the calculation."      The same  principles were recalled by this Court in the case of  Municipal Corporation  of Delhi  vs. Subhagwanti  & Ors.,  AIR  1966  SC  1750.  In  this  case  the  claim  for compensation arose  on account of loss of life caused by the collapse of  the Clock  Tower abutting  a highway. The Court referred to both the aforementioned judgments, and extracted the following  passage from  the judgment  in  the  case  of Davies:      "The starting  point is  the amount      of wages  which  the  deceased  was      earning, the ascertainment of which      to some  extent may depend upon the      regularity of  his employment. Then      there is  an estimate  of how  much      was required  or expended  for  has      own personal  and living  expenses.      The balance  will give  a dictum or      basic figure  which will  generally      be turned into a lump sum by taking      a   certain    number   of   years’      purchase. That sum, however, has to      be taxed  down by having due regard      to  uncertainties,   for  instance,      that the  widow  might  have  again      married  and   thus  ceased  to  be      dependent, and  other like  matters      of speculation and doubt."      In the  case before  the Court  the  deceased  was  Ram Prakash aged  30 years.   The  High Court found it proper to estimate the  amount that  the deceased  would have spent on his wife  and children  in a year and capitalised that for a period of  15 years  and observed  that  the  Trial  Court’s calculation was not excessive.      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 Service’s 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 spent      on them if the deceased were alive.      Conversely,     if     they     got      compensation       under       S.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 S.2  of the Act in respect of      compensation for the loss caused to      the estate.  To put  it differently      if under  S.1. they got capitalised      value of  Y, under  S.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."      The High  Court of  Gujarat in  the case  of M/s. Hirji Virji Transport & Ors. vs. Basiranbibi (1971) 12 Gujarat Law Reporter 783  referred to  all the  three judgments  of this Court mentioned  above, considered  the principles laid down in Davies  and Nance and explained the law to be applied for ascertaining the  damages in  such cases. Reference was also made to the judgment of Lord Reid in Taylor vs. O’Conor 1970 (1) All  England Exports  365 and  the High Court reiterated Lord Reid’s words which we extract:      "In ordinary  cases  which  do  not      involve special  factors, as one in      Taylor’s  case   as   regards   the      questions of income tax and surtax,      the wealth  of experience of Judges      and Counsels  would be  an adequate      guide  to  the  selection  of  this      multiplier without any necessity of      any expert  evidence,  so  that  on      this method  by adopting  a  common      multiplier the  loss of  dependency      over  a  period  of  years  can  be      worked out  a lump  sum to be given      to the dependents."      The Gujarat  High  Court  also  pointed  out  that  the principles laid  down in  the case of Davies and that in the case of Nance led to the same end-results because, although, as per  Viscount Simon  the dependency amount is required to be multiplied  by the  figure of the expected useful life of the  deceased,   the  sum   has  to  be  discounted  because equivalent amount  in lump  sum has to be worked out keeping in view the fact that the sum was to be spread over a period of  years  and  secondly,  allowance  had  to  be  made  for uncertainties like  the possible  pre-mature  death  of  the dependents or  of the deceased had he been alive, remarriage of the  widow.  acceleration  over  other  interest  of  the estate, etc.  The Gujarat  High Court  expressed the opinion that if  proper discount  is done after arriving at the lump sum equivalent  to this dependency, spread over for a period of years  the end-result will be the same as that calculated by using  a proper   multiplier  to the  annual  loss.  This multiplier is  the year’s  purchase factor. Referring to the decision of  Lord Diplock  in Mallet vs. McMonagle, 1969 (2)



All England Reports 178 at 191, wherein an annuity table was worked out,  the High  Court observed  that 12  to 15’ years should be  the normal multiplier and for the case before the court the  outer multiplier  of 15  years purchase  would be proper. The  same view  in regard to the range for a healthy young man  was expressed  by this  Court in  C.K.S.Iyer  vs. T.K.Nair (AIR 1970 SC 376).      For concluding  the analysis  it is  necessary  now  to refer to  the judgment  of this Court in the case of General Manager, Kerala State Road Transport, Trivandrum vs. Susamma Thomas 1994  (2) SCC 176. In that case this Court culled out the   basic   principles   governing   the   assessment   of compensation emerging from the legal authorities cited above the reiterated  that the  multiplier  method  is  the  sound method of assessing compensation. The Court observed :      "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   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  a      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."      The  principle  was  explained  and  illustrated  by  a mathematical example:      "The  multiplier   represents   the      number of  Years’ purchase on which      the   loss    of   dependency    is      capitalised. Take  for  instance  a      case   where    annual   loss    of      dependency is  Rs.10,000. If  a sum      of Rs.1,00,000  is invested  at 10%      annual interest,  the interest will      take  care   of   the   dependency,      perpetually. The multiplier in this      case works  out 10.  If the rate of      interest is  5% per  annum and  not      10% then  the multiplier  needed to      capitalise the  loss of  the annual      dependency at  Rs.10,000  would  be      20. Then  the multiplier  i.e., the      number of  years’  purchase  of  20      will yield  the  annual  dependency      perpetually.  Then   allowance   to      scale  down  the  multiplier  would      have to be made taking into account      the uncertainties  of  the  future,      the allowances  for immediate  lump      sum payment,  the period over which      the dependency  is  to  last  being      shorter and  the capital  feed also      to be spent away over the period of



    dependency is  to last etc. Usually      in  English  Courts  the  operative      multiplier  rarely  exceeds  16  as      maximum.  This   will   come   down      accordingly  as   the  age  of  the      deceased person  (or  that  of  the      dependents,  whichever  is  higher)      goes up."      It was  rightly  clarified  that  there  should  be  no departure from  the multiplier  method on  the  ground  that Section 110-B  Motor Vehicle Act, 1939 (corresponding to the present provision  of Section  168 Motor Vehicles Act, 1988) envisaged  payment   of  ’just’   compensation   since   the multiplier method is the accepted method for determining and ensuring payment  of just  compensation and  is expected  to bring uniformity  and certainty  of the awards made all over the country.      In the  facts of that case the Court said that 12 years was the  correct multiplier  to  be  applied  for  assessing compensation for  the  death  of  the  victim  of  the  road accident who  was 39.  Further it  was observed  that in the absence of evidence it is not unusual to deduct one third of the gross income towards the personal living expenses of the deceased. The  court  further  awarded  a  conventional  sum towards loss of consortium and loss of estate.      We thought  it necessary  to reiterate  the  method  of working out  ‘just’ compensation  because, of  late, we have noticed from  the awards  made by  Tribunals and Courts that the principle  on which  the multiplier method was developed has been  lost sight of and once again a hybrid method based on the  subjectivity of  the  Tribunal/Court  has  surfaced, introducing uncertainty and lack of reasonable uniformity in the matter  of determination  of compensation.  It  must  be realised that  the Tribunal/Court  has to  determined a fair amount  of  compensation  awardable  to  the  victim  of  an accident which  must be  proportionate to the injury caused. The two  English decisions to which we have referred earlier provide the  guidelines for assessing to the loss occasioned to the  victims. Under  the formula advocated by Lord Wright in  Davies,   the  loss  has  to  be  ascertained  by  first determining  the   monthly  income  of  the  deceased,  then deducting therefrom  the amount  spent on  the deceased, and thus assessing  the loss  to the  dependents of the decease, The annual  dependency assessed in this manner is then to be multiplied by  the use  of an appropriate multiplier. Let us illustrate :  X, male,  aged about  35  years,  dies  in  an accident. He  leaves behind  his widow and 3 minor children. His monthly  income as Rs. 3,500/-. First, deduct the amount spent on  X every month. The rough and ready method hitherto adopted who  no definite  evidence was  forthcoming, was  to break up  the family  into units,  taking two  units for  an adult and  one unit for a minor Thus X and his wife make 2 + 2 =  4 units  and each  minor on  unit i.e.  3 units in all, totalling 7  units. Thus  the share  per unit  works out  to Rs.3,5000/ 7 = Rs.500 per month. It can thus be assumed that Rs.1000 was  spent X.  Since he  was a  working member  some provision for  his transport  and out-of-pocket expenses has to be estimated. In the present case we estimate the out-of- pocket expense  at Rs.250/-.  Thus the  amount spent  on the deceased X  works out to Rs.1250 per month leaving a balance of Rs.3500-1250  = Rs.2250  per month.  This amount  can  be taken as  the monthly  loss to  X’s dependents.  The  annual dependency comes  to Rs.2250  X 12 = Rs. 27,000. This annual dependency has to be multiplied by the use of an appropriate multiplier to  asses the compensation under the head of loss



to the dependents. Take the appropriate multiplier to be 15. The compensation  comes to Rs. 27,000 X 15 = Rs.4.05,000. To this may  be added  a conventional  amount by way of loss of expectation of  life. Earlier  this conventional  amount was pegged down  to Rs.3000 but was having regard to the fall in the value of the rupees, it can be raised to a figure of not more  than   Rs.10,000/-.  Thus   the  total  comes  to  Rs. 4,05,000+10,000 = Rs.4,15,000/-.      In the  method adopted by Viscount Simon in the case of Nance also,  first the  annual dependency  is worked out and then  multiplied   by  the  estimated  useful  life  of  the deceased. This  is generally  determined  on  the  basis  of longevity. But  then, proper  discounting on various factors having a  bearing on  the uncertainties  of life,  such  as, premature  death   of  the   deceased  or   the   dependent, remarriage, accelerated  payment and in increased earning by wise and  prudent investments, etc., would become necessary. It  was   generally  felt   that  discounting   on   various imponderables  made   assessment  of   compensation   rather complicated and  cumbersome and  very often  as a  rough and ready measure,  one-third to  one-half of the dependency was reduced, depending  on the  life-span  taken.  That  is  the reason why  courts in India as well as England preferred the Davies’ formula as being simple and more realistic. However, as observed  earlier and  as pointed  out in Susamma Thomas’ case,  usually  English  courts  rarely  exceed  16  as  the multiplier. Courts  in India  too followed  the same pattern till recently  when Tribunal/Courts  began to  use a  hybrid method of  using Nance’s method without making deduction for imponderables.      The situation  has now  undergone  a  change  with  the enactment of  the Motor  Vehicles Act,  1988, as  amended by Amendment  Act,  54  of  1994.  The  most  important  change introduced  by  the  amendment  insofar  as  it  relates  to determination of  compensation is  the insertion  of Section 163A and  163B in  Chapter XI  entitled ’Insurance  of Motor Vehicles against  Third Party  Risks’. Section  165A  begins with a  non-obstante clause  and  provides  for  payment  of compensation, as  indicated in  the Second  Schedule, to the legal representatives  of the  deceased or  injured, as  the case may  be. Now if we turn to the Second Schedule, we find a table  fixing the  mode of calculating of compensation for third party  accident injury  claims arising  out  of  fatal accidents. The  first column  gives the  age  group  of  the victims  of   accident,  the  second  column  indicates  the multiplier and  the subsequent  horizontal figures  indicate the quantum of compensation in thousand payable to the heirs of  the   deceased  victim.  According  to  this  table  the multiplier varies from 5 to 18 depending on the age group to which the  victim belonged.  Thus, under  this schedule  the maximum multiplier  can be upto 18 and not 16 as was held in Susamma Thomas’ case.      We must  at once  point out  that  the  calculation  of compensation and  the amount  worked  out  in  the  schedule suffer from several defects. For example, in item No.1 for a victim aged  15 years,  the multiplier  is shown  to  be  15 years’ and  the multiplicand  is shown  to be Rs.3000/-. The total should  be 3000  X 15  = 45,000 but the same is worked out at  Rs.60,000/-.  Similarly,  in  the  second  item  the multiplier is  16 and  the annual  income is  Rs. 9000;  the total should  have been  Rs.1,44,000  but  is  shown  to  be Rs.1,71,000/-. To  put it briefly, the table abounds in such mistakes. Neither the Tribunals nor the courts can go by the ready reckoner. It can only be used as a guide. Besides, the selection of  multiplier  cannot  in  all  cases  be  solely



dependent on  the age  of the  deceased. For example, if the deceased, a  bachelor,  dies  at  the  age  of  45  and  his dependents are his parents, age of the parents would also be relevant in the choice of the multiplier. But these mistakes are limited  to actual  calculations only and not in respect of other  items. What  were propose  to emphasis is that the multiplier cannot  exceed 18 years’ purchase factor. This is the improvement over the earlier position that ordinarily it should not  exceed 16. We thought it necessary to state that correct legal  position as  Courts and  Tribunals are  using higher multiplier  as in the present case where the Tribunal used the multiplier of 24 which the High Court raised to 34, thereby showing  lack of  awareness of the background of the multiplier system in Davies’ case.      We had indicated we would not interfere with the amount awarded, since  in our  view, while  the multiplier  used is excessive, we are satisfied that a very low multiplicand was used as  the loss  of dependency.  If we were to correct the multiplicand   and   use   the   correct   multiplier,   the compensation would  work out  to near about the same figure. Therefore, while  agreeing with the learned Advocate for the appellant, we  are disinclined  to interfere with the figure of compensation. We, therefore, hold that the Tribunal/Court fell into an error in the choice of the multiplier and allow the  appeal   to  that   extent  but   we  do  not,  in  the circumstances of  the case,  interfere with  the quantum  of compensation. Nor order as to costs.      The copy  of this  judgment may be sent to all the High Court  with   a   direction   to   circulate   it   to   the Courts/Tribunal dealing with the Motor Accident compensation cases.