As per the case facts, a person died in a car accident. The Motor Vehicle Accident Claims Tribunal awarded compensation, but the High Court significantly reduced it. The current appeal ...
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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.7046 OF 2022
[Arising out of Special Leave Petition (C) No. 31931 of 2017]
K. Ramya & Ors. … Appellant(s)
VERSUS
National Insurance Co. Ltd. & Anr. … Respondent(s)
JUDGMENT
Surya Kant, J.
1.Leave Granted.
2.The present appeal is directed against the judgment dated
30.06.2017 passed by the High Court of Judicature at Madras,
Madurai Bench whereby the appeal preferred by the National
Insurance Co. Ltd. (Respondent No.1; hereinafter, “Insurance
Company”) against the award dated 06.10.2012 passed by Motor
Vehicle Accident Claims Tribunal, Tiruchirappalli (hereinafter,
“Tribunal”) was allowed and the compensation granted to Apellants
was reduced from Rs. 4,29,37,700/ to Rs. 57,90,000/ along with
requisite interest. The factual matrix is succinctly discussed below
before delving into the issue of law regarding determination of
quantum of compensation which requires adjudication before us.
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A. FACTS
3.S. Kumareshan (hereinafter, “Deceased”) was a resident of
Tiruchirappalli, Tamil Nadu. On the fateful day, at about 4 PM in the
evening, he was travelling alone in a Lancer Car bearing Registration
No. TN 45 S 9199 and met with an unfortunate accident with an
Ambassador Car bearing Registration No. TN 59 E 9288 along the
stretch of road between Sethathupatti and Soriampattti. The collision
was so powerful that the drivers of both vehicles passed away before
any medical assistance could reach them. The sole survivors of the
collision were occupants of the Ambassador Car, who miraculously
escaped death but were saddled with multiple injuries.
4.The Deceased was aged above 31 years at the time of death and
was an income tax assessee. He was a businessman who held diverse
interests in arenas such as jewellery, textiles, exports and transport.
Furthermore, he also drew income from his agricultural lands and
leased out real estate. At the time of his demise, he left behind a
widow, two minor children and parents who were stated to be
dependent on him. It is to be noted that among these dependents, the
father of the Deceased passed away during the proceedings before the
High Court.
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5.The Deceased’s dependents filed a claim petition for Rs.
7,00,00,000/ in August 2004, alleging, inter alia, that he died as a
result of the injuries suffered in the abovementioned accident of
10.06.2004, which occurred due to the rash and negligent driving of
the Ambassador Car which the Insurance Company had insured.
Before the Tribunal, the Insurance Company took the stance that the
Deceased was the one who was responsible for the accident and that
the compensation sought by the Deceased was exorbitant. It is worth
noting that the injured occupants of the Ambassador Car who
survived the crash also filed their respective claim petitions.
6.In reaching its verdict, the Tribunal relied upon the statements
of the abovementioned injured occupants to conclude that it was the
driver of the Ambassador Car who was solely responsible for the crash
and therefore assigned liability for the accident to him, which
ultimately was to be borne by the Insurance Company. As a result, the
claim petition of the Deceased’s dependents was allowed partly, and
compensation of Rs 4,29,37,700/ was granted along with interest at
the rate of 7.5% per annum. The Tribunal relied on the Deceased’s
income tax returns and other financial documents, which were
supported by the testimonies of the chartered accountant, auditor,
and wife of the deceased (Appellant No. 1).
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7.The aggrieved Insurance Company filed its appeal which was
decided through the impugned judgement dated 30.06.2017. The High
Court although being in total agreement with the Tribunal’s reasoning
in finding that the Ambassador Car driver was solely liable for the
accident, disagreed with the approach of the Tribunal in respect to the
computation of compensation, primarily under the head of ‘loss of
income’. It emphasized that the Deceased before his death had
transferred his interest in some of the partnership firms in favour of
his minor children. Furthermore, it highlighted that almost all of the
Deceased’s income consisted of returns he received on his capital
assests. Even after his death, the same assets were transferred to his
legal heirs who continued to enjoy the benefits derived from them. The
impugned judgement’s reasoning was hinged on the premise that
income derived from capital assets cannot be said to be income earned
out of the Deceased’s personal skills as there was no real contribution
by him. Consequently, the High Court concluded that the Deceased’s
dependants suffered no loss of income and instead computed the
compensation by fixing his salary at Rs 25,000/ per month on a
notional basis as per his educational qualification. Furthermore, it
also made minor alterations under other conventional heads and
accordingly, the compensation was reduced to Rs 57,90,000/ along
with interest of 7.5% per annum.
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B. CONTENTIONS
8.We have heard the learned counsel for parties and perused the
documents produced on record. It must be noted that Learned
counsels for both sides have not disputed the finding concerning the
Insurance Company’s liability to pay the compensation. The only
limited question that remains disputed before us in the present
proceedings pertains to concerning the quantum of compensation that
is to be granted to the Appellants.
9.Mr. K. Radhakrishnan, learned senior counsel for the Appellants
contended that – Firstly, High Court via impugned decision has erred
by computing the compensation on the basis of notional income
despite the fact that the Appellants adduced specific evidence to
ascertain the income earned by Deceased. He strongly asserted that
the Tribunal rightly relied on the income tax returns and the audit
reports of the Deceased to compute the amount under the head of
‘loss of income’ and stated that relevant testimonies supported the
same; Secondly, he contended that the Deceased was actively involved
in running multiple businesses and even undertook specialized
courses to achieve success. Hence, the High Court has unjustly
concluded that the Deceased has earned no income from his personal
skills; Thirdly, it is argued that the only deduction allowed while
computing an individual’s income is the tax payable by him in terms
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of the decision of the Constitution Bench in National Insurance Co.
Ltd. v Pranay Sethi.
1
; Finally, he contended that the computation of
compensation under Section 168 of Motor Vehicles Act, 1988
(hereinafter, “The Act”) must be ‘just’ and the same must corelate to
the standard of ‘fairness, reasonableness and equitability’ as per the
decision in Pranay Sethi.
2
10.On the contrary, learned counsel for the Insurance Company
argued that High Court has rightly reduced the compensation in view
of the fact that the income tax returns and the audit reports highlight
that the Deceased’s income essentially constituted of returns from his
capital assets which have been duly bequeathed to the Deceased’s
dependents. It was argued that loss of income must be equivalent to
only that portion which corresponds to the skill of the deceased, as a
consequence of which there has been no loss of income to the
Appellants in the present case. High Court has rightly taken notional
income as the basis of determination of compensation under the head
of ‘loss of income’. The learned counsel has placed substantial reliance
on the decision of this court in Rani Gupta v United India
Insurance Limited
3
to advance the argument that in the case of
accidental death of people in business, the genuine determination for
1 National Insurance Co. Ltd. v Pranay Sethi (2017) 16 SCC 680, para 59.3.
2 ibid, para 55.
3 Rani Gupta v United India Insurance Limited (2009) 13 SCC 498, para 24.
Page | 6
loss of income depends on ascertaining the Deceased’s contribution in
running the business and the same is a factual enquiry which varies
on the facts and circumstances of each case.
C. ANALYSIS
C.1 DETERMINATION OF ‘JUST’ COMPENSATION UNDER A SOCIAL WELFARE
STATUTE
11.At the outset, it is pertinent to reiterate the concept of ‘just’
compensation under Section 168 of the Act. It is a settled proposition,
now through a catena of decisions
4
including the one rendered by the
Constitution Bench in Pranay Sethi
5
that compensation must be fair,
reasonable and equitable. Further, the determination of quantum is a
factdependent exercise which must be liberal and not parsimonious.
It must be emphasized that compensation is a more comprehensive
form of pecuniary relief which involves a broadbased approach unlike
damages as noted by this court in Yadava Kumar v Divisional
Manager, National Insurance Co. Ltd
6
. The discussion in the
abovementioned cases highlights that Tribunals under the Act have
4 Helen C. Rebello v Maharashtra State Road Transport Corporation (1999) 1 SCC
90; United India Insurance Co. Ltd. v Patricia Jean Mahajan (2002) 6 SCC 281; New
India Assurance Co. Ltd. v Charlie (2005) 10 SCC 720; National Insurance Co. Ltd. v
Indira Srivastava (2008) 2 SCC 763.
5 Pranay Sethi (n 1), para 55.
6 Yadava Kumar v Divisional Manager, National Insurance Co. Ltd. (2010) 10 SCC
341, para 17.
Page | 7
been granted reasonable flexibility in determining ‘just’ compensation
and are not bound by any rigid arithmetic rules or strict evidentiary
standards to compute loss unlike in the case of damages. Hence, any
interference by the Appellate Courts should ordinarily be allowed only
when the compensation is ‘exorbitant’ or ‘arbitrary’.
12.Furthermore, Motor Vehicles Act of 1988 is a beneficial and
welfare legislation
7
that seeks to provide compensation as per the
contemporaneous position of an individual which is essentially
forwardlooking.
8
Unlike tortious liability, which is chiefly concerned
with making up for the past and reinstating a claimant to his original
position, the compensation under the Act is concerned with providing
stability and continuity in peoples’ lives in the future.
9
Keeping the
abovementioned principles in the backdrop, we now move on to the
facts at hand.
C.2 RELIABILITY ON INCOME TAX RETURNS AND AUDIT REPORTS TO
DETERMINE ‘LOSS OF INCOME’
13.The Deceased in the present case was a businessman and
during the proceedings before the Tribunal, the Appellants produced
the relevant income tax returns, audit reports and other relevant
7 Ningamma v United India Insurance Co. Ltd. (2009) 13 SCC 710, para 34.
8 Peter Cane, Atiyah’s Accidents, Compensation and the Law (7
th
edn, Cambridge
University Press 2006) 411412.
9 ibid.
Page | 8
documents pertaining to the commercial ventures of the Deceased to
prove the loss of income attributable on account of his sudden demise.
The Tribunal relied on the same and computed the income by taking
an average of the income recorded in three prior financial years (FY
20002001, FY 20012002 and FY 20022003) to determine the
compensation under the head of ‘loss of income’.
14.In contrast, the High Court set aside the same on the ground
that the income earned was out of capital assets and cannot be said to
have been earned out of personal skills of the deceased. It
consequently went on to determine the income of the Deceased on a
notional basis as per his educational qualification. Unfortunately,
such an approach, in our opinion, is erroneous in view of the
decisions of this court in Amrit Bhanu Shali v National Insurance
Co. Ltd.
10
and Kalpanaraj v Tamil Nadu State Transport Corpn.
11
wherein this court has held that documents such as income tax
returns and audit reports are reliable evidence to determine the
income of the deceased. Hence, we are obliged to modify the
compensation, especially when neither any additional evidence has
been produced to showcase that the income of the Deceased was
contrary to the amount mentioned in the audit reports nor it is the
10 Amrit Bhanu Shali v National Insurance Co. Ltd. (2012) 11 SCC 738, para 17.
11 Kalpanaraj v Tamil Nadu State Transport Corpn. (2015) 2 SCC 764, para 8.
Page | 9
stand taken by the Insurance Company that the said reports inflated
the income.
15.At this stage, to facilitate our analysis, it would be pertinent to
divide the income as mentioned in the audit reports into two parts –
(a) Income from Business Ventures and other Investments and (b)
Income from House Property and Agricultural Land. It should be
emphasized that these audit reports only showcase amounts which
specifically stem from the shares and interest held by the Deceased in
the businesses and it is not a case wherein the entire turnover of
businesses are depicted as Deceased’s income. Moreover, it deserves
to be clarified that the income under the abovementioned two parts
have been computed at gross value as per the audit reports and
includes the deductions such as interest paid on loans and expenses
incurred by the deceased.
C.2.1 – Treatment of Income from Business Ventures and other
Investments
16.As per the audit report and other documents, the income under
this part was attributable to the amounts earned from the deceased’s
multiple business ventures, which included the partnership firms and
other investments such as shares and bank interests. On perusal of
the documents on record, it is to be noticed that almost all business
Page | 10
ventures were the result of the initiatives taken by the Deceased, and
he was actively involved in the daytoday management of these
entities. In fact, the testimony of the Deceased’s wife points out that
the Appellants had to sell the buses which were utilized in the
transport business because they were not able to take care of the
vehicles on account of the demise of the Deceased and even the export
business was shut down due to the same reason.
17.The mere fact that the Deceased’s share of ownership in these
businesses ventures was transferred to the Deceased’s minor children
just before his death or to the dependents after his death is not a
sufficient justification to conclude that the benefits of these
businesses continue to accrue to his dependents. On the contrary, it
has come on record that the Deceased was actively involved in the
daytoday administration of these businesses from their stage of
infancy, had undergone specialized training to administer his business
and that the audit reports neatly delineate Deceased’s share of income
from the businesses. These facts necessitate that the entire amount
from the business ventures is treated as income. Similarly, the
amount earned from the bank interests and remaining investments
must also be included as income.
Page | 11
18.The Appellants have produced audit reports for the last four
financial years which highlight the amounts under ‘Income from
Business Ventures and other Investments’ which is as per follows – (i)
for FY 20002001 is Rs. 8,95,812/ (ii) for FY 20012002 is Rs.
10,31,091/ (iii) for FY 2002 2003 is Rs. 14,65,060/ and (iv) for FY
20032004 is Rs. 9,79,099/. The average of these amounts comes up
to Rs. 10,92,765.50/, which is rounded off to Rs 10,93,000/ and the
same is awarded to the Appellants as loss of income derived under
‘Income from Business Ventures and other Investments’.
C.2.2 – Treatment of Income from House Property and Agricultural Land
19.As per the audit reports, the Deceased used to draw all his rental
income from the share he held in a commercial building known as
‘Lakshmi Complex’ and the remaining income was from his
agricultural lands, which have been bequeathed to his legal heirs on
his death. The audit reports indicate the amounts under the ‘Income
from House Property and Agricultural Land’ as per follows – (i) for FY
20002001 is Rs. 6,90,396/ (ii) for FY 20012002 is Rs. 6,47,127/
(iii) for FY 2002 2003 is Rs. 6,14,329/ and (iv) for FY 20032004 is
Rs. 4,78,240/. The average of these amounts comes up to Rs.
6,07,523/.
Page | 12
20.At this juncture, we must note the decision in Shashikala v
Gangalakshmamma
12
whereby this court deducted the entire
amount earned as income from house property while determining the
compensation under the Act. The decision in Shashikala
13
was a split
decision because of disagreement between the bench on whether
future prospects are to be considered for awarding compensation
when the deceased is a selfemployed person. Accordingly, the matter
was tagged and heard along with Pranay Sethi
14
, wherein this court
had conclusively decided the abovementioned issue regarding future
prospects. After that, the matter was remitted back to a threejudge
bench for redetermination of compensation, wherein this court again
deducted the entire amount earned as income from house property.
15
21.Now, the sole issue which remains before this court is whether
the entire amount under ‘Income from House Property and
Agricultural Land’ should be deducted or not. In this respect, we are
guided by the observations of this court in State of Haryana v
Jasbir Kaur
16
wherein it was noted that –
8. xxxx
12 Shashikala v Gangalakshmamma (2015) 9 SCC 150.
13 ibid.
14 Pranay Sethi (n 1).
15 Shashikala v Gangalakshmamma (Civil Appeal No 2836 of 2015, 14 February
2019).
16 State of Haryana v Jasbir Kaur (2003) 7 SCC 484.
Page | 13
The land possessed by the deceased still remains with his
legal heirs. There is however a possibility that the claimants
may be required to engage persons to look after agriculture.
Therefore, the normal rule about the deprivation of income
is not strictly applicable to cases where agricultural income
is the source. Attendant circumstances have to be
considered.
(Emphasis Applied)
In our opinion, the abovementioned observations, though made in the
context of agricultural land, would also be applicable to rent received
from leased out properties as the loss of dependency arises mainly out
of loss of management capacity or efficiency. As a rule of prudence,
computation of any individual’s managerial skills should lie between
10 to 15 per cent of the total rental income but the acceptable range
can be increased in light of specific circumstances. The appropriate
approach, therefore, is to determine the value of managerial skills
along with any other factual considerations.
22.In the instant case, documents produced on record indicate two
salient aspects with respect to ‘Lakshmi Complex’, which was the sole
source of rental income for the deceased. The partition deed related to
the land on which the commercial building is situated, highlights that
the building was constructed on account of the joint investment made
by the Deceased and his partners. Furthermore, as per the rental
records, ‘Lakshmi Complex’ was leased out to more than ten different
Page | 14
commercial entities. Hence, keeping in mind that – first, the rental
amount which is sought to be deducted partakes the character of
investment; and second, that the managerial skills required for
supervising the said building would require sophisticated contract
management skills and goodwill among the business community, it is
necessary that we determine the value of managerial skills of the
Deceased on the higher side.
23.Accordingly, we deem it appropriate to award Rs 2,50,000/ as
the amount for the Deceased’s managerial skills. It is clarified that the
said amount would also include the amount for the managerial skills
in respect of the Deceased’s agricultural lands. It is further clarified
that the remaining amount which has been deducted by us includes
the tax which has to be deducted in terms of the decision in Pranay
Sethi
17
.
D. CONCLUSION
24.In light of the above discussion, income of the Deceased is
computed by adding the amount awarded under the two parts ( Rs
10,93,000/ + Rs 2,50,000/), which comes to Rs 13,43,000/. In
terms of Pranay Sethi
18
, forty per cent of the income has to be added
towards future prospects, which would come to Rs 18,80,200/. After
17 Pranay Sethi (n 1), para 59.3.
18 Pranay Sethi (n 1), para 59.3.
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deducting onefourth towards personal expenses as per Sarla
Verma
19
, the net amount comes to Rs 14,10,150/ per annum.
Applying the multiplier of 16, the total loss of dependency on account
of the Deceased’s income is calculated at Rs 2,25,62,400/. We further
grant compensation under the remaining conventional heads as per
the decisions in Pranay Sethi
20
and Satinder Kaur
21
.
25.Hence, the compensation is determined as per follows
Head Amount
1.Loss of Income = [(Income + Future
Prospects computed at 40%) – 1/4
th
Deduction for Personal Expense] x
Multiplier
Rs 2,25,62,400/
2.Funeral Expenses Rs 15,000/
3.Loss of Estate Rs 15,000/
4.Loss of Spousal Consortium Rs 40,000/
5.Loss of Parental Consortium (Rs 40,000 x 2) =
Rs 80,000/
Total compensation (1+2+3+4+5) Rs 2,27,12,400/
26.We also direct that the interest at the rate of 7.5% per annum
shall be payable on the aforesaid amount from the date of filing the
claim petition till the date of realization. The enhanced amount shall
be paid to the claimants within three months from today. Needless to
19 Sarla Verma v DTC (2009) 6 SCC 121.
20 Pranay Sethi (n 1), para 59.8.
21 United Insurance Company Ltd. v Satinder Kaur (2021) 11 SCC 780, para(s) 33
37.
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say, that the amount already paid or deposited shall be adjusted while
depositing the enhanced compensation awarded by this court.
27.Hence, the judgment under appeal of the High Court is set aside
and the Appellants are held entitled to enhanced compensation as
determined above.
28.The appeal stands disposed of along with any pending
applications in above terms.
………..………………… J.
(SURYA KANT)
…………………………...J.
(V. RAMASUBRAMANIAN)
NEW DELHI
DATED: 30.09.2022
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