Holding

A one‑third deduction for personal expenditure and a multiplier of 18 are appropriate, fixing compensation at Rs. 3,50,000 with interest at 7.5% per annum.

Summary

The appellant insurer challenged a Kerala High Court order that awarded compensation to the claimant, who suffered a 100% permanent disability in a motor accident. The dispute centered on the appropriate deduction for personal expenditure and the multiplier to be applied in computing the lump‑sum award. The Supreme Court held that the deduction for personal expenditure must be decided case‑by‑case and, given the claimant’s age (37) and marital status, a one‑third deduction was proper. It further held that the multiplier should be fixed at 18, reflecting the prevailing banking interest rate and the claimant’s agricultural income, rather than the lower multiplier of 16 argued by the insurer. Accordingly, the compensation was fixed at Rs. 3,50,000 with interest at 7.5% per annum, and the appeal was allowed.

Issues considered

What percentage deduction for personal expenditure is appropriate in a motor accident compensation case?
What multiplier should be applied to compute compensation for a claimant with 100% permanent disability and agricultural income?
Whether the compensation award of Rs. 3,50,000 with interest at 7.5% per annum is lawful.

Legislation cited

Motor Vehicles Act, 1988s. 166

Subjects

Motor accidentCompensationMultiplier methodPersonal expenditure deductionAgricultural incomePermanent disabilityInterest rateSection 166Motor Vehicles Act

Judgment

NEW INDIA ASSURANCE CO. LTD. A
v.
CHARLIE AND ANR.

MARCH 29, 2005

[ARIJIT PASAYAT AND S.H. KAPADIA, JJ.] B

Motor Vehicles Act, 1988 :

Section 166-Motor accident-Injured about 37 years and married~
Was earning Rs. 18, 000 per year-Compensation-Computation of-Multiplier C
method-Fixation of appropriate multiplier-Held : Where the injured has
suffered 100%, logic applicable to a deceased can in appropriate cases ~e
applied-Claimant was deriving income from agriculture, hence, normal rule
of deprivation of income directly not applicable-Other circumstances to be
considered-Multiplier of 18 worked out on basis of the prevalent banking D
rate of interest-Compensation fixed at Rs. 3.5 lakhs with interest @ 7.5%
p.a.

Section 166-Accident compensation-Percentage of deduction for
personal expenditure-Held: Depends upon circumstances of each case-'-On
facts, where the claimant was about 3 7 years of age and married, 1!3rd E
deduction held appropriate for personal expenditure.

In the present appeal the appellant-Insurance Company has
challenged the legality of the judgment rendered by High Court hol~ing
the appellant. liable to pay compensation to respondent No. 1 for the
injuries sustained by him in an automobile accident. F
Appellant contended that while computing compensation, a
multiplier of 16 was adopted on the ground that there was permanent
disability; that the said multiplier is on the higher side and that though
normally 1/3rd deduction is made from the earning for personal
expenditure, but in the instant case the multiplier of 16 has been adqpted G
without making any deduction.

Allowing the appeal, the Court

1173 H
1174 SUPREME COURT REPORTS [2005] 2 S.C.R.

A HELD : 1. What would be the percentage of deduction for personal
expenditure cannot be governed by any rigid rule or formula by universal
application. It would depend upon circumstances of each case. In the
instant case the claimant was nearly 37 years of age and was married.
Therefore l/3rd deduction has to be made for personal expenditure.
(1177-F-GJ
B
2.1. In a fatal accident action, the accepted measure of damages
awarded to the dependants is the pecuniary loss suffered by them as a
result of the death. (1177-H; 1178-A)

C Municipal Corporation of Delhi v. Subhagwanti, (1966] 3 SCR 649,
referred to.

Baker v. Bolton, (1979) 1 All ER 774, referred to.

Ha/sbury's Laws of England, Vol. 34 para 98, referred to

D 2.2. The assessment of damages to comp~nsate the dependants is
beset with difficulties because from the nature oHhings, 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
E 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 together. (1179-B-CI

F Goba/d Motor Service Ltd. v. R.M.K. Veluswami, (1962) 1 CR 929,
referred to.

3. 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
G 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 capitalized by multiplying it by a figure representing
the proper number of year's purchase. (1179-D-E(

H 4.1. The multiplier method involves the ascertainment of the loss of
NEW INDIA ASSURANCE CO. LTD. v. CHARLIE I I 75
dependency or the multiplicand having regard to the circumstances of the A
case and capitalizing the multiplicand by an appropriate multiplier. The
choice of the multiplier is determined by the age of the deceased (or th.at
or the claimants wh.ichever 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. ~n B
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. [1179-G-H; 1180-A)

Nance v. British Columbia Electric Railway Co. ltd., (1951) 2 All ER
448, referred to. C
4.2. In case, where the injured has suffered 100% the logic applicable
to a deceased can, in appropriate cases, taking note of all relevant factors.
be reasonably applied. (1182-B)

Mallett v. Mc Mangle, (1969) 2 All ER 178, referred to.
'D
5. The claimant was deriving income from agriculture. Normal rule
about the deprivation of income is directly not applicable to cases where
agricultural income is the source of deceased's or injured's income. In that
case other circumstances have to be considered. (1182-B-C)
E
6.1. In Susamma Thomas 's case it was noted that the normal rate of
interest was about 10% and accordingly the multiplier was worked out.
As the interest rate is on the decline, the multiplier has to consequentially
be raised. Therefore, instead of 16 the multiplier of 18 as was adopted in
Trilok Chandra's case appears to be appropriate. (1182-D)
F
6.2. The highest multiplier has to be for the age group of 21 years
to 25 years when an ordinary Indian Citizen starts independently earning
and the lowest would be in respect of a person in the age group of 60 to
70, which is the normal retirement age. (1182-F)

General Manager, Kera/a State Road Transport Coporation Trivandrum G
v. Susamma Thomas (Mrs.) and Ors., (1994) 2 SCC 176) and UP. State Road
Transport Corporation and Ors. v. Trilok Chandra and Ors., [1996) 4 SCC
36, referred to.

7. Taking the totality of the circumstances, on the basis of the various
H
1176 SUPREME COURT REPORTS [2005] 2 S.C.R.

A factors indicated above, the quantum of compensation is fixed at Rs. 3,
50, 000. The amount shall carry interest @7.5% per annum from the date
of filing of the claim application up to the date of payment. If any amount
has already been paid the same shall be adjusted from the amount to be
worked out on the above said basis. (1182-G)

B CIVIL APPELLATE JURISDICTION: Ci.vii Appeal No. 1862 of2005.

From the Judgment and Order dated 5.3.2004 of the Kerala High Court
in M.F.A. No. 724 of 2001.(C)

Joy Basu, Rahul Tyagi and Ms. Hetu Arora for the Appellent.
c
R. Sathish for the Respondents.

The Judgment of the Court was delivered by

ARIJIT PASAYA T, J. Leave granted.
D
New India Assurance Co. Ltd. (hereinafter referred to as the 'Insurer')
calls in question legality of the judgment rendered by a Division Bench of the
Kerala High Court holding that the appellant was liable to pay compensation
to the respondent No. 1 for the injuries sustained by him in an automobile
accident. The accident took place on 14.12.1997 at about 3.10 A.M. It was
E claimed by th.e claimant that he sustained injuries because of the ra~h and
negligent driving of the vehicle (Motor Cycle bearing Registration No. KL-
7Q/9 l Ol) driven by the respondent No. 2. The claimant's stand was that he
was travelling as a pillion rider. Total compensation of Rs. 9,00,000 was
claimed. After considering the evidence on record, the Motor Accidents Claims
Tribunal, Peruml:i~.voor (in short the 'MACT') awarded Rs. 4, 68, 825 with
9% interest from the date of application till payment. The figure was arrived
at in the following manner : -

1. Rs. 2,88, 000 for loss of earning;

2. Rs. 2,600 towards transport to hospital;
,.,
..). Rs. 4,000 for extra nourishment expenses;

4. Rs. 250 for damage .to clothing;

5. Rs. 1,18,975 for medical expenses;
NEW INDIA ASSURANCE CO. LTD. v. CHARLIE [PASA YAT, J.] 1177

6. Rs. 15,000 for pain and suffering; A
7. Rs. 40,000 towards compensation for continuing vr
permanent disability.

Total Rs. 4,68,825
B
In appeal filed by the insurer-appellant the amount granted for perman\mt
disability was deleted.

In support of the appeal, learned counsel for the appellant subdlitted
that the age of the injured was about 37 years and a multiplier of 16 was
adopted on the ground that there was permanent disability and, therefore, C
deprivation of contribution is on the higher side. Strong reliance is placed 011
the decisions of this Court in General Manager, Kera/a State Road Transport
Coporation Trivandrum v. Susamma Thomas Mrs. and Ors., [1994] 2 SCC
176 and UP. State Road Transport Corporation and Ors. v. Trilok Chandra
and Ors., [l 996] 4 sec 362 to contend that the multiplier is on the highe~ D
side. It is also submitted that whatever be the earning, a portion of it is spent
for personal expenditure and normally I/3rd deduction is made therefrom.
But in the instant case after taking into account the fact that the income of
the injured was Rs. 18,000 per year, the multiplier of 16 has been applied
without making any deduction.
E
In response, learned counsel for the respondent submitted that the injured
has totally crippled and has been almost rendered immobile by the 100%
disability. Even at the time of discharge he was not in a conscious condition.
Taking into account this factor the quantum as awarded cannot be sai,i to be
on the higher side.
F
What would be the percentage of deduction for personal expenditure
cannot be governed by any rigid rule or formula by universal application. It
would depend upon circumstances of each case. In the instant case the claimant
was nearly 37 years of age and was married. Therefore, as rightly contended
by learned counsel for the appellant, I/3rd deduction has to be made for G
personal expenditure.

Certain principles were highlighted by this Court in the case of Municipal
Corporation of Delhi v. Subhagwanti, [1966] 3 SCR 649 in the matter of
fixing the appropriate multiplier and computation of compensation. In a fatal
accident action, the accepted measure of damages awarded to the dependants H
1178 SUPREME COURT REPORTS (2005) 2 S.C.R.

A is the pecuniary loss suffered by them as a result of the death. "How much
has the widow and family lost by the father's death?" The answer to this lies
in the oft quoted passage from the opinion of lord Wright in Davies v.
Powell Duffiyn ssociated Collieries ltd. which says :

"The starting point is the amount of wages which the deceased
B was earning, the ascertainment of which to some extent may depend
on the regularity of his employment. Then there is an estimate of how
much was required or expended for his own personal and living
expenses. The balance will give a datum or basic figure which will
generally be turned sum, however, has to be taxed down by having
due regard to uncertainties, for instance, that the widow might have
c again married and thus ceased to be dependent, and other like matters
of speculation and doubt."

The rule in common law in Baker v. Bolton, [1979] I All ER 774
enunciated by Lord Ellenborough was that "in a Civil Court, the death of a
D human being could not be complained of as a injury, ". Indeed, the maxim
action personalis moritur cum persona, had the effect that all actions in tort,
with very few exceptions, also became extinguished with that person. Great
changes were brought about by the Fatal Accidents Act, 1846 (now Fatal
Accidents Act, 1976) and the Law Reforms (Miscellaneous Provisions) Act,
1934. Under the statute, as indeed under the Indian Statute as well, there are
E two separate and distinct cause of action, which are maintainable in
consequence of a person's death. There were the dependant's claim for the
financial loss suffered and acclaim for injury, loss or rlamage, which the
deceased would have had, had he lived, and which survives for the benefit
of his estate.
F The measure 0f damage is the pecuniary loss suffered and is likely to
be suffered by each dependant. Thus "except where there is express statutory
direction to the contrary, the damages to be awarded to a dependant of a
deceased person under the Fatal Accidents Acts must take into account any
pecuniary benefit accruing to that dependant in consequence of the death of
G the deceased. It is the net loss on balance which constitutes the measure of
damages." Lord Wright in the Davies 's case (supra) said, "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 sources comes to
him by reason of the death." These words of Lord Wright w~re adopted as
H the principle applicable also under the Indian Act in Gobald Motoi· Service
NEW INDIA ASSURANCE CO. LTD. v. CHARLIE [PASA YAT, J.] 1179

Ltd. v. R.M.K. Veluswami, [1962] 1 SCR 929 where this Court stated th'.at the A
general principle is that the actual pecuniary loss can be ascertained only by
balancing on the one hand the loss to the claimant of the future pecuniary
benefit and on the other any pecuniary advantage which from whatever s~urce
comes to them by reason of the death, that is, the balance of loss and gain
to a dependant by the death, must be ascertained.
B
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 C
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 together.

The manner of arriving at the damages is to ascertain the net income D
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 capitalized by
multiplying it by a figure representing the proper number of year's purchase. E

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 overall picture that
matters", and the court must try to assess as best as it can the loss suffered. F
There were two methods adopted to determine and for calculation of
compensation in fatal accident actions, the first the multiplier mentioned in
Davies case (supra) and the second in Nance v. British Columbia Electric
Railway Co. Ltd., [1951] 2 All ER 448 .

The multiplier method involves the ascertainment of the loss of
G
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 capital sum,
if invested at a rate of interest appropriate to a stable economy, would yield H
1180 SUPREME COURT REPORTS [2005] 2 S.C.R.

A 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 consumcd-
up over the period for which the dependency is expected to last.

The considerations generally relevant in the selection of multiplicand
and multiplier were adverted to by Lord Diplock in his speech in Mallett v.
B Mc Mangle, [1969] 2 All ER 178 where the deceased was aged 25 and left
behind his widow of about the same age and three minor children. On the
question of selection of multipliqmd Lord Diplock observed :

"The starting point in any estimate of the amount of the 'dependency'
is the annual value of the material benefits provided for the dependants
c out of the earnings of the deceased at the date of his death. But ....there
are many'lactors which might have led to variations up or down in
the future. His earnings might have increased and with them the
amount provided by him for his dependants. They might have
diminished with a recession in trade or he might· have had spells of
D unemployment. As his children grew up and became independent the
proportion of his earnings spent on his dependants would have been
likely to fall. But in considering the effect to be given in the award
of damages to possible variations in the dependency there are two
factors to be borne in mind. The first is that the more remote in the
future is the anticipated change the less confidence there can be in the
E chances of its occurring and the smaller the allowance to be made for
it in the assessment. The second is that as a matter of the arithmetic
of the calculation of present value, the later the change takes place
the less will be its effect upon the total award of damages. Thus at
interest rates of 4- 1/2% the present value of an annuity for 20 years
of which the first ten years are at $ l 00 per annum and the second
F
ten years at $ 200 per annum, is about 12 years' purchase of the
arithmetical average annuity of$ 150 per annum, whereas if the first
ten years are at $200 per annum and the second ten years· at $ 100
per annum the present value is about 14 years' purchase of the
arithmetical mean of$ 150 per annum. If therefore the chances of
G variations in the 'd_ependency' are to be reflected in the multiplicand
of which the years' purchase is the multiplier, variations in the
cjependency which are not expected to take place until after ten years
~hould have only a relatively small effect in increasing or diminishing
the 'dependency' used for the purpose of assessing the damages."

H In regard to the choice of the multiplicand the Halsbury's Laws of
NEW INDIA ASSURANCE CO. LTD. v. CHARLIE [PASAYAT, J.] 1181

England in vol. 34, para 98 states the principle thus : A
"98. Assessment of damages under the Fatal Accident Act, 1976 -
The courts have evolved a method for calculating the amount of
pecuniary benefit that dependants could reasonably expect to have ·
re<;eived from the deceased in the future. First the annual value to the
dependants of those benefits (the multiplicand) is assessed. In the B
ordinary case of the death of a wage-earner that figure is arrived at
by deducting from the wages the estimated amouni· of his own personal
and living expenses.

The assessment is split into two parts. The first part comprises
damages for the period between death and trial. The multiplicand is C
multiplied by the number of years which have elapsed between those
two dates. Interest at one-half the short-term investment rate is also
awarded on that multiplicand. The second part is damages for the
period from the trial onwards. For that period, the number of years
which have based on the number of years that the expectancy would D
probably have lasted; central to that calculation is the probable length
of the deceased' s working life at the date of death."

As to the multiplier, Halsbury states :

"However, the multiplier is a figure considerably Jess than the number E
of years taken as the duration of the expectancy. Since the dependants
can invest their damages, the lump sum award in respect of future
loss must be discounted to reflect their receipt of interest on invested
funds, the intention being that the dependants will each year draw
interest and some capital (the interest element decreasing and the
capital drawings increasing with the passage of years), so that they F
are compensated each year for their annual loss, and the fund will be
exhausted at the age which the court assesses to be the correct age,
having regard to all contingencies. The contingencies of life such as
illness, disability and unemployment have to be taken into account.
Actuarial evidence is admissible, but the courts do not encourage G
such evidence. The calculation depends on selecting an assumed rate
of interest. In practice about 4 or 5 per cent is selected, and inflation
is disregarded. 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. The multiplier may be
increased where the plaintiff is a high tax payer. The multiplicand is H
1182 SUPREME COURT REPORTS (2005] 2 S.C.R.

A based on the rate of wages at the date of trial. No interest is allowed
on the total figure.''

In case, where the injured has suffered 100% the logic applicable to a
deceased can, in appropriate cases, taking note of all relevant factors be
reasonably applied.
B
The claimant was deriving income from agriculture.

Normal rule about the deprivation of income is directly not applicable
to cases where agricultural income is the source of deceased's or injured's
income. In that case other circumstances have to be considered.
c
In both Susamma Thomas and Trilok Chand's cases (supra) the multiplier
appears to have been adopted taking note of the prevalent banking rate of
interest.

In Susamma Thomas 's case (supra) it was noted that the normal rate of
D interest was about 10% and accordingly the multiplier was worked out. As
the interest rate is on the decline, the multiplier has to consequentially be
raised. Therefore, instead of 16 the multiplier of 18 as was adopted in Trilok
Chandra's case (supra) appears to be appropriate. In fact in Trilok Chand's
case (supra), after reference to Second Schedule to the Act, it was noticed
E that the same suffers from many defects. It was pointed out that the same is ... --~

to serve as a guide, but cannot be said to be invariable ready reckoner.
However, the appropriate highest multiplier was held to be 18. The highest
multiplier has to be for the age group of 21 years to 25 years when an
ordinary Indian Citizen starts independently earning and the lowest would be
in respect of a person in the age group of 60 to 70, which is the normal
F retirement age.

Taking the totality of the circumstances, on the basis. of the various
factors indicated above, the quantum of compensation is fixed at Rs. 3,50,000.
The amount shall carry interest @7 .5% per annum from the date of filing of
the claim application up to the date of payment. If any amount has already
G been paid the same shall be adjusted from the amount to be worked out on
the above said basis.

Appeal is allowed to the aforesaid extent. No costs.

B.B.B. Appeal allowed.