Oriental Insurance Co.Ltd vs Ram Prasad Varma & Ors

ORIENTAL INSURANCE CO. LTD. ... APPELLANT

Versus

RAM PRASAD VARMA & ORS. ... RESPONDENTS

JUDGMENT

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 2

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.

3

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. 4

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 5

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 6

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 7

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/-."

8 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:

9

"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."

10 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 11

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 13

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] 14

.....................................J. [Cyriac Joseph] New Delhi;

JANUARY 13, 2009