Supreme Court of India
ORIENTAL INSURANCE CO. LTD.versusRAM PRASAD VARMA & ORS.
- Citation
- 2009 INSC 24
- Decided
- 13 January 2009
- Disposal
- Disposed off
- Bench
- S B SINHA
Holding
A multiplier of eight is proper, the one‑third deduction is unnecessary, but income‑tax must be deducted from the net salary; the interest rate of 9% stands.
Summary
Ram Prasad Varma, a 55‑year‑old ONGC employee, lost both legs in a motor vehicle accident and claimed compensation under the Motor Vehicles Act, 1988. The Motor Accidents Claims Tribunal awarded Rs 19.63 lakhs using the structured formula in the Second Schedule with a multiplier of eight and 12% interest; the High Court reduced the interest to 9%. The insurer appealed, arguing that the multiplier was too high given the claimant’s imminent retirement, that one‑third of the income should be deducted for miscellaneous expenses, and that income‑tax should be deducted from the gross salary. The Supreme Court held that, considering the claimant’s total loss of earnings and allowances, a multiplier of eight was appropriate, the one‑third deduction was not required for a totally disabled but alive claimant, but income‑tax must be deducted from the net salary. The Court left the interest rate at 9% and directed the Tribunal to recompute compensation after tax deduction, dismissing the appeal with that modification.
Issues considered
- The appropriateness of applying a multiplier of eight under the Second Schedule of the Motor Vehicles Act in a case where the claimant was near retirement age.
- Whether one‑third of the claimant’s income should be deducted for miscellaneous expenses in calculating compensation for a permanently disabled but living claimant.
- Whether income‑tax should be deducted from the claimant’s gross salary when computing compensation under the structured formula.
- The correctness of the interest rate of 9% per annum awarded by the High Court.
Legislation cited
- Motor Vehicles Act, 1988s. 163A, s. 166, s. 173
- Workmen's Compensation Act, 1923
Subjects
Motor Vehicles ActCompensationMultiplierPermanent disabilityIncome tax deductionMiscellaneous expensesInterest rateClaims TribunalSecond ScheduleStructured formula
Judgment
[2009] 1 S.C.R. 209
ORIENTAL INSURANCE CO. LTD. A
v.
RAM PRASAD VARMA & ORS.
(Civil Appeal No.106 of 2009)
JANUARY 13, 2009
B
[S.S. SINHA AND CYRIAC JOSEPH, JJ.]
Motor Vehicles Act, 1988 - ss.166 and 163A:
Claimant, employee in public sector undertaking, c
suffering permanent disability due to accident - Both his legs
amputated - Claimant 55 years of age at that time and
earning gross income of Rs.2.3 lacs - Determination of
cofT)pensation by applying structured formula as contained in
the Second Schedule - Appropriate multiplier- Held: Though D
Second Schedule, as such, might not have been applicable
as maximum annual income of a deceased or an injured
which could be taken into consideration therefor is
Rs.40, 0001-, however, keeping in view the peculiar factual
circumstances of the case, the Tribunal was justified in E
adopting the multiplier of eight.
Claimant suffering permanent disability - While
determining compensation, Tribunal not deducting 1/3rd
income towards miscellaneoas expenses - Challenge to -
Held: Where claimant, though alive, is not in a position to F
move and for every sr:nall thing h~s to depend upon others,
a direction to deduct 1!3rd amount from his income need not
always be insisted upon - On facts, no interference called for.
Compensation - Determination of - While determining G
compensation, Tribunal not deducting amount of income tax
from gross salary of claimant - Challenge to - Held: An
employee when not in employment is not to pay his tax -
Income tax payable from salary, therefore, was required to be
deducted.
209 H
210 SUPREME COURT REPORTS (2009) 1 S.C.R.
A Respondent No.1 was an employee in ONGC, a
public sector undertaking. He was hit by a lorry which ran
over his legs. Consequently both his legs were
amputated. At the relevant time, respondent no.1 was 55
years of age and was earning a gross salary of about 2.3
s lacs p.a. Respondent No.1 having suffered permanent
disability filed claim petition for compensation. The
Claims Tribunal applied the structured formula as
contained in the Second Schedule appended to the Motor
Vehicles Act and adopting the multiplier of eight, awarded
c a sum of Rs.19.63 lakhs with interest at the rate of 12%
p.a. from the date of filing of the petition till realization.
Appeal thereagainst by the insurance company was
dismissed by the High Court, which however, considering
the prevailing rate of interest, reduced the rate of interest
to 9% p.a.
0
In appeal to this Court, it was contended by the
insurance company that the Tribunal, and consequently
the High Court, committed serious error in applying the
multiplier of eight as respondent no.1 was to retire within
E few years, i.e. on attaining the age of sixty years and that
while determining compensation, the Tribunal further
erred in not deducting the amount of income tax from the
gross salary of claimant as also in not deducting his one-
third income towards miscellaneous expenses.
F
Disposing of the appeal, the Court
HELD:1.1. The life expectancy of an Indian citizen is
about 62 years. Respondent no.1 was a highly placed
employee in a prestigious public sector undertaking. He
G was to retire within a few years, but in view of the injuries
suffered he had to give up his job. A person on retirement,
in the event if pension scheme is applicable, would be
entitled to pensionary benefits. Had respondent no.1
worked for five years more, the amount of pension
H calculated on the basis of last pay drawn would have
ORIENTAL INSURANCE CO. LTD. v. RAM PRASAD 211
VARMA&ORS.
been more than what might have become payable in the A
year 1998 when he met with the accident. By reason of
termination of service, he was 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. [Paras 10 and B
15] [215-F-G; 218-C]
1.2. 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 C
basis of the other materials brought on record. In a case
of this nature, the Tribunal cannot be said to have
committed any illegality in applying the structured
formula. The Second Schedule as such may not have any
application as the maximum annual income of a deceased D
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 should be adopted is eight for the
purpose of determining fair compensation. [Paras 8 and E
9] (215-C-E]
1.3. 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
F
survival. Incidentally, from the note appended to the
Second Schedule, it is clear that 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, G
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, a direction to deduct 1/3rd of the
H
212 SUPREME COURT REPORTS [2009] 1 S.C.R.
A amount from his total income need not always be insisted
upon. [Para 11) [215-H; 216-A-C]
1.4. 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
8 from his net salary. However, 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. [Para 18) [220-F-
C G]
1.5. No case has been made out for interference with
the rate of interest as directed to be paid by the High
Court. The appeal is dismissed subject to the
D 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. [Para 19) [222-B]
E General Manager, Kera/a State Road Transport
Corporation, Trivandrum vs. Susamma Thomas (Mrs.) & ors.
(1994) 2 SCC 176; U.P. State Road Transport Corporation
and Ors. v. Trilok Chandra and Ors. (1996) 4 sec 362;
Bangalore Metropolitan Transport Corporation. v. Sarojamma
F and Anr. (2008) 5 SCC 142 and National Insurance Company
Ltd. v. Indira Srivastava and Ors. (2008) 2 SCC 763, relied
on.
New India Assurance Co. Ltd. v. Charlie and Anr. (2005)
G 10 SCC 720; Sunil Kumar v. Ram Singh Gaud & Ors. (2007)
12 SCALE 792 and BijoyKumar Dugar v. Bidyadhar Dutta
and Ors. (2006) 3 SCC 242, referred to.
Halsbury's Laws of England, Vol.34, para 98, referred
to.
H
ORIENTAL INSURANCE CO. LTD. v. RAM PRASAD 213
VARMA&ORS.
Case Law Reference: A
(2005) 1o sec 120 referred to Para 12
(2007) 12 SCALE 792 referred to Para 13
(2006) 3 sec 242 referred to Para 14 B
(1994) 2 sec 116 relied on Para 16
(1996) 4 sec 362 relied on Para 17
(2008) s sec 142 relied on Para 17
c
(2008) 2 sec 763
- relied on
CIVIL AP PELLATE JURISDICTION : Civil Appeal No.106
of 2009.
Para 18
From the Judgment and final Order dated 17.2.2006 of the D
High Court of Judicature, Andhra Pradesh, Hyderabad, in CMA
No. 3499 of 2000.
Pankaj Seth and Manjeet Chawla for the Appellants.
K.V. Vishwanathan, A. Ramesh, G. Madhavi, Anup Kumar, E
Venkat Suramania and T.N. Rao for the Respondent.
The Judgment of the Court was delivered by
S.B. SINHA, J. 1. Leave granted.
F
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 G
legs. He was admitted in the hospital. Indisputably, both his legs
v 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 releva.nt time, respondent was aged 55 years and his annual H
214 SUPREME COURT REPORTS [2009] 1 S.C.R.
A 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/
B
- 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.
c 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
D 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.
E 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
,..
F 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
G 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
H the total amount of his income by way of
ORIENTAL INSURANCE CO. LTD. v. RAM PRASAD 215
VARMA & ORS. [S.B. SINHA, J.]
miscellaneous expenses. A
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
8
source was Rs.30,748.00.
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 C
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 D
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 E
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.
F
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 respondent worked G
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 H
216 SUPREME COURT REPORTS [2009] 1 S.C.R.
A 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
B 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
C 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
D 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 happen in a case, where such a premise does not exist,
did not fall for consideration.
E
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
F 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.
G 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.
H It was stated:
ORIENTAL INSURANCE CO. LTD. v. RAM PRASAD 217
VARMA & ORS. [S.B. SINHA, J.]
_._
"14. The multiplier method involves the ascertainment of A
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 B
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 c
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:- D
"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 E
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 F
18 [as per the Second Schedule to Section 163A of the
Act], the total loss of income comes to Rs.2,59,200/-."
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 G
capacity would be reduced.
In the instant case, respondent has become totally
immobile.
H
218 SUPREME COURT REPORTS [2009] 1 S.C.R.
A 14. Our attention has also been drawn to a decision of this
Court in Bijoy Kumar Dugar v. Bidyadhar Dutta and Ors.
[(2006) 3 sec 242]. In that case, multiplier of 12 was applied.
However, some obseNations were made that in regard to future
prospects of income in the course of employment or business
B 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
C termination of seNice, 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,
D Kera/a State Road Transport Corporation, Trivandrum vs.
Susamma Thomas (Mrs.) & ors. [(1994) 2 SCC 176]. this
Court held:
"9. The assessment of damages to compensate the
dependants is beset with difficulties because from the
E
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
F 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.
G
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 ofhis income as the deceased was accustomed
H to spend upon himself, as regards both self-maintenance
ORIENTAL INSURANCE CO. LTD. v. RAM PRASAD 219
VARMA & ORS. [S.B. SINHA, J.]
and pleasure, and to ascertain what part of his net income A
...
~
the deceased was accustomed to spend for the benefit of
the dependants. Then that should be capitalised by I
, multiplying it by a figure representing the proper number
of year's purchase.
B
11. Much of the calculation necessarily remains in the
-- 'I-
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."
c
17. This aspect of the matter has also been considered
in UP. 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: D
"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
E
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 F
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 G
.,.. 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 H
220 SUPREME COURT REPORTS [2009] 1 S.C.R.
A 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
B 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 ""c-
capitalised income that might have been spent on ""
them ifthe deceased were alive. Conversely, if they
c 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
D
got capitalised value ofY, 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."
E {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
F 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
G
deducted. It was so held in National Insurance Company Ltd.
v. Indira Srivastava and Ors. [(2008) 2 SCC 763],,stating:
"17. This Court in Asha (supra) did not address itself the
questions raised before us. It does not appear that any
H precedent was noticed nor the term 'just compensation'
ORIENTAL INSURANCE CO. LTD. v. RAM PRASAD 221
VARMA & ORS. [S.B. SINHA, J.]
was considered in the light of the changing societal A
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 B
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
c
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 D
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."
E
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 the purpose of payment of income-tax or F
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 G
" 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
H
222 SUPREME COURT REPORTS [2009] 1 S.C.R.
A 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
8 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
C of this case, there shall be no order as to costs.
8.8.8. Appeal disposed of.
t
Search Indian case law
Ask in plain English, not just keywords. 25,000 AI words free, no card.
Try "Motor Vehicles Act"Sign in to search