REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. __________ of 2009

(Arising out of SLP ( C ) No 8205 of 2007).

Reshma Kumari and others … Appellants

Versus

Madan Mohan and another … Respondents

WITH

CIVIL APPEAL NO. __________ of 2009

(Arising out of SLP ( C ) No 21649 of 2006).

Smt. Puneet Kaur and others … Appellants

Versus

Delhi Transport Corporation … Respondents

AND

1

CIVIL APPEAL NO. __________ of 2009

(Arising out of SLP ( C ) No 6791 of 2006).

Anjani Singh and others … Appellants

Versus

Salauddin and others … Respondents

J U D G M E N T

S.B. SINHA, J.

1.Application of the principles for grant of compensation under the

Motor Vehicles Act, 1939 (for short ‘the 1939 Act’) and the Motor Vehicles

Act, 1988 (for short ‘the 1988 Act’) is the question involved herein. Before,

embarking on the said question we may notice the fact of the matters

involved in each case.

Civil Appeal arising out of SLP (C) NO.8205/2007

2.Madan Mohan Singh Saini met with an accident on 3

rd

September,

1987, when the scooter on which he was riding, collided with a Maruti van,

driven by respondent No.1. Respondent No.2 is the insurer. He was

admitted to Ram Manohar Lohia Hospital where he succumbed to his

injuries on 8

th

September, 2006.

2

Appellants herein who are, wife, children and mother of the deceased

filed a claim petition before the Motor Accident Claims Tribunal, New

Delhi, under Sections 110-A and 92-A of the Act.

By an award dated 13

th

July, 1992 the Tribunal awarded a sum of

Rs.3,36,000/- by way of compensation with 12% interest from the date of

filing of the claim petition.

3.Aggrieved by and dissatisfied with the said amount, appellants filed

an appeal being FAO before the High Court of Delhi. A learned Single

Judge of the High Court by reason of the impugned judgment and order

dated 8

th

February, 2007 enhanced the compensation by Rs.17,000/-.

The appellants still dissatisfied have filed the present appeal by

obtaining special leave.

Civil Appeal arising out of SLP (C) No.21649 of 2006.

4.Jagmohan Singh, (deceased), husband of appellant No.1; father of

appellant Nos. 2 and 3 and son of appellant Nos. 4 and 5, died in an accident

with a D.T.C. bus.

3

The appellants filed a claim petition before the Additional District

Judge/Motor Vehicle Accident Tribunal, Ghaziabad claiming a sum of

Rs.27,50,000/- by way of compensation.

By its order dated 21

st

May, 1996 a sum of Rs.2,88,000/- with 12%

interest thereon from the date of filing of the claim petition, was awarded.

5.Feeling dissatisfied, the appellants filed an FAO before the Allahabad

High Court. A Division Bench of the said Court by its judgment and order

dated 26

th

May, 2006 enhanced the amount of compensation to Rs.

4,08,000/-.

Aggrieved by and dissatisfied with the said judgment, the appellants

have preferred this appeal by special leave.

Civil Appeal arising out of SLP (C) No.6791 of 2007.

6.Sergeant Dalbir Singh died in a road accident on 17

th

September, 1997

with a truck which was driven by respondent No.1. Respondent Nos. 2 and

3 are the owner and insurance company respectively.

4

The appellants, who are the legal heirs, i.e. wife, children and mother

of the deceased, filed a claim petition before the Motor Accident Claims

Tribunal, Faridabad under Sections 166 and 140 of the 1988 Act for grant of

compensation of Rs.15,00,000/-. The Motor Accident Claims Tribunal by

its award dated 26

th

June, 2000 awarded a sum of Rs.2,49,600/-with 12%

interest on the said amount by way of compensation.

7.Feeling dissatisfied, appellants filed an FAO before the High Court of

Punjab and Haryana at Chandigarh and by the impugned judgment and

order, a learned Single Judge of the High Court partly allowed the appeal

and enhanced the amount compensation by Rs.1,20,600/- besides interest @

6% per annum on the enhanced compensation.

8.The common questions which arise for our consideration in these

appeals are :-

1) Whether the multiplier specified in the Second Schedule

appended to the Act should be scrupulously applied in all

the cases?

5

2) Whether for determination of the multiplicand, the Act

provides for any criterion, particularly as regards

determination of future prospects?

Before we, however, advert to the said questions we may notice that

Section 163-A of the Act was inserted on or about 14

th

November, 1994.

9.Even prior to the enactment of the said provision, this Court in

General Manager, Kerala State Road Transport Corporation, Trivandrum

v. Susamma Thomas and others, [ (1994) 2 SCC 176 ] following the

decisions of the English Courts applied structured formula for determination

of the amount of compensation. The principle with regard to the

determination of the amount of compensation on the basis of the structured

formula in Susamma Thomas (supra) was considered having regard to the

decision of Diplock, J in his speech in Mallett's case [ (1970) AC 166 :

(1969) 2 All ER 178 178 ]. We would refer to Mallett (supra) a little later

but we may at this stage notice that the principle laid down therein has been

stated to be logically sound and legally well established.

6

10.So far as the question of loss of future earnings on the basis of

average life expectancy is concerned, this Court, having regard to the

phraseology used in Section 110-B of the Motor Vehicles Act, 1939

envisaging payment of just compensation to the victims and/or the

successors of the deceased, stated that any application of a rigid formula

may not be applied.

In Susamma Thomas (supra) it was observed that the multiplier

method is the appropriate one which should ordinarily be not departed from

save in rare and extraordinary circumstances and very exceptional cases.

The rationale for applying the said principle was laid down stating :-

“17. 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

to 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

7

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 dependants, whichever is

higher) goes up,”

11.It is, however, of some significance to notice that at the relevant point

of time the rate of bank interest was about 12% per annum to which

reference has also been made by the High Court at some length.

12.In Susamma Thomas (supra) apart from applying the structured

formula with regard to the determination of the amount of compensation as

regards the future prospect, it was opined :-

“19. In the present case the deceased was 39 years

of age. His income was Rs 1032 per month. Of

course, the future prospects of advancement in life

and career should also be sounded in terms of

money to augment the multiplicand. While the

chance of the multiplier is determined by two

factors, namely, the rate of interest appropriate to a

stable economy and the age of the deceased or of

the claimant whichever is higher, the

ascertainment of the multiplicand is a more

difficult exercise. Indeed, many factors have to be

put into the scales to evaluate the contingencies of

8

the future. All contingencies of the future need not

necessarily be baneful. The deceased person in this

case had a more or less stable job. It will not be

inappropriate to take a reasonably liberal view of

the prospects of the future and in estimating the

gross income it will be unreasonable to estimate

the loss of dependency on the present actual

income of Rs 1032 per month. We think, having

regard to the prospects of advancement in the

future career, respecting which there is evidence

on record, we will not be in error in making a

higher estimate of monthly income at Rs 2000 as

the gross income. From this has to be deducted his

personal living expenses, the quantum of which

again depends on various factors such as whether

the style of living was spartan or bohemian. In the

absence of evidence it is not unusual to deduct

one-third of the gross income towards the personal

living expenses and treat the balance as the amount

likely to have been spent on the members of the

family and the dependents. This loss of

dependency should capitalize with the appropriate

multiplier. In the present case we can take about

Rs 1400 per month or Rs 17,000 per year as the

loss of dependency and if capitalized on a

multiplier of 12, which is appropriate to the age of

the deceased, the compensation would work out to

(Rs 17,000 x 12 = Rs 2,04,000) to which is added

the usual award for loss of consortium and loss of

the estate each in the conventional sum of Rs

15,000.”

13.Parliament thereafter inserted Section 163A and the Second Schedule

in the Act. One of the features thereof which we may immediately notice is

9

that it provides for claim of compensation in a case involving no fault,

stating :-

“163A. Special provisions as to payment of

compensation on structured formula basis

(1) Notwithstanding anything contained in this Act

or in any other law for the time being in force or

instrument having the force of law, the owner of

the motor vehicle or the authorised insurer shall be

liable to pay in the case of death or permanent

disablement due to accident arising out of the use

of motor vehicle, compensation, as indicated in the

Second Schedule, to the legal heirs or the victim,

as the case may be.

Explanation.-For the purposes of this sub-

section, "permanent disability" shall have the

same meaning and extent as in the Workmen's

Compensation Act, 1923 (8 of 1923).

(2) In any claim for compensation under sub-

section (1), the claimant shall not be required to

plead or establish that the death or permanent

disablement in respect of which the claim has been

made was due to any wrongful act or neglect or

default of the owner of the vehicle or vehicles

concerned or of any other person.

(3) The Central Government may, keeping in view

the cost of living by notification in the Official

Gazette, from time to time amend the Second

Schedule.”

14.After the aforementioned provision was brought in the Statute Book,

this Court had the occasion to consider the applicability of the structured

10

formula once again in U.P. State Road Transport Corporation. v. Trilok

Chandra, [ (1996) 4 SCC 362]. Ahmadi, C.J. noticed certain discrepancies

therein and inter alia pointed out :-,

“18. 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 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

3000x15=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. “

15.However, it is pertinent to notice that the Bench categorically laid

down that those mistakes are limited to actual calculations only and not in

respect of other items. It was emphasized that the multiplier cannot exceed

18 years’ purchase factor. It noticed that the same was an improvement over

the earlier position that ordinarily it should not exceed 16.

This Court stated the law thus :-

“15. We thought it necessary to reiterate the

method of working out ‘just’ compensation

11

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 determine 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 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

dependants of the deceased. 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 was Rs 3500.

First, deduct the amount spent on X every month.

The rough and ready method hitherto adopted

where 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 one

unit i.e. 3 units in all, totalling 7 units. Thus the

share per unit works out to Rs 3500/7=Rs 500 per

month. It can thus be assumed that Rs 1000 was

spent on 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

12

Rs 3500-1250=Rs 2250 per month. This amount

can be taken as the monthly loss to X’s

dependants. The annual dependency comes to

Rs 2250x12=Rs 27,000. This annual dependency

has to be multiplied by the use of an appropriate

multiplier to assess the compensation under the

head of loss to the dependants. Take the

appropriate multiplier to be 15. The compensation

comes to Rs 27,000x15=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 now

having regard to the fall in the value of the rupee,

it can be raised to a figure of not more than

Rs10,000. Thus the total comes to

Rs 4,05,000+10,000= Rs 4,15,000.

16.We may place on record that despite the recommendations made by

this Court in Trilok Chandra (supra) the Parliament did not amend the

Second Schedule.

17.We must also place on record that according to Mr. Atul Nanda,

learned counsel appearing on behalf of the Insurance Company, the Second

Schedule does not contain any such mistake. Be that as it may this Court

even in subsequent decisions reiterated the said principle in a large number

of cases. We would, however, notice only a few of them.

13

In Kaushnuma Begum v. New India Assurance Co. Ltd., [ (2001) 2

SCC 9 ] this Court observed:-

22. The appellants claimed a sum of Rs 2,36,000.

But PW 1 widow of the deceased said that her

husband’s income was Rs 1500 per month. PW 4

brother of the deceased also supported the same

version. No contra-evidence has been adduced in

regard to that aspect. It is, therefore, reasonable to

believe that the monthly income of the deceased

was Rs. 1500. In calculating the amount of

compensation in this case we lean ourselves to

adopt the structured formula provided in the

Second Schedule to the MV Act. Though it was

formulated for the purpose of Section 163-A of the

MV Act, we find it a safer guidance for arriving at

the amount of compensation than any other

method so far as the present case is concerned.”

In United India Insurance Co. Ltd. v. Patricia Jean Mahajan,

[ (2002) 6 SCC 281 ] this Court held :-

“21. The purpose to compensate the dependants of

the victims is that they may not be suddenly

deprived of the source of their maintenance and as

far as possible they may be provided with the

means as were available to them before the

accident took place. It will be a just and fair

compensation. But in cases where the amount of

compensation may go much higher than the

amount providing the same amenities, comforts

and facilities and also the way of life, in such

circumstances also it may be a case where, while

14

applying the multiplier system, the lesser

multiplier may be applied. In such cases, the

amount of multiplicand becomes relevant. The

intention is not to overcompensate.

22. We therefore, hold that ordinarily while

awarding compensation, the provisions contained

in the Second Schedule may be taken as a guide

including the multiplier, but there may arise some

cases, as the one in hand, which may fall in the

category having special features or facts calling for

deviation from the multiplier usually applicable.”

It is evident from the above that this Court in the said decision had

taken a departure from the Second Schedule.

In Jyoti Kaul v. State of M.P., [ (2002) 6 SCC 306 ] multiplier of 15

was adopted, stating :-

“The aforesaid decision makes it clear that the

principle of multiplier would depend on the facts

and circumstances of each case. Looking to the

facts of this case we find that the Tribunal has

given good reasons for applying the multiplier of

15. This was in addition of taking into

consideration that the predecessors of the deceased

all lived for more than 80 years. The High Court

reduced the multiplier from 15 to 10 without

taking into consideration circumstances considered

by the Tribunal and thus committed the error. We,

accordingly, set aside the findings of the High

Court only to the extent of the application of

15

multiplier and uphold other findings including

reduction of interest. The present appeal,

accordingly, succeeds in part. The computation of

compensation now shall be made on the basis of

multiplier of 15. The difference of enhanced

amount which has yet not been paid by the

respondent State shall be paid to the claimants

within a period of three months from today.”

18.The said decisions have not yet been overruled. We may, however,

immediately notice that recently this Court had advocated application of a

lower multiplier in cases involving Section 166 of the Act, but no legal

principles have been laid down therein. In New India Assurance Co. Ltd. v.

Shanti Pathak, (2007) 10 SCC 1, this Court held :-

6. Considering the income that was taken, the

foundation for working out the compensation

cannot be faulted with. The monthly contribution

was fixed at Rs 3500. In the normal course we

would have remitted the matter to the High Court

for consideration on the materials placed before it.

But considering the fact that the matter is pending

since long, it would be appropriate to take the

multiplier of 5 considering the fact that the mother

of the deceased was about 65 years at the time of

the accident and age of the father was more than

65 years. Taking into account the monthly

contribution at Rs 3500 as held by the Tribunal

and the High Court, the entitlement of the claim

would be Rs 2,10,000. The same shall bear

interest @ 7.5% p.a. from the date of the

application for compensation. Payment already

made shall be adjusted from the amount due.

16

8. In the instant case the age of the deceased was

52 years as per the post-mortem report, and the

multiplier thus has to be 8 instead of 13 as

adopted by the Tribunal and upheld by the High

Court. The rate of interest awarded does not need

any interference. The monthly income has to be

taken as Rs 11,684 and one-third has to be

deducted therefrom for personal expenses. Thus,

the annual loss of income comes to Rs 93,939.

The same is rounded to Rs. 93,000. The

entitlement for loss of income comes to

Rs 7,44,000. The other amounts awarded by the

Tribunal totalling Rs 29,500 remain unaltered.

Thus, the claimant is entitled to Rs 7,73,500

along with interest at the rate fixed by the

Tribunal. The payment already made shall be

adjusted.”

19.Learned counsel for the appellants contended that later decisions

should not be followed keeping in view the binding precedents of this Court

in the earlier cases. It was urged that the prospective loss of future earnings

by way of career advancement as also revision in the scale of pay must be

taken into consideration for the purpose of determination of the multiplicand

while applying the structured formula contained in the Second Schedule

appended to the Act.

20.The compensation which is required to be determined must be just.

While the claimants are required to be compensated for the loss of their

17

dependency, the same should not be considered to be a windfall. Unjust

enrichment should be discouraged. This Court cannot also lose sight of the

fact that in given cases, as for example death of only son to a mother, she

can never be compensated in monetary terms.

21.The question as to the methodology required to be applied for

determination of compensation as regards prospective loss of future

earnings, however, as far as possible should be based on certain principles.

A person may have a bright future prospect; he might have become eligible

to promotion immediately; there might have been chances of an immediate

pay revision, whereas in another the nature of employment was such that he

might not have continued in service; his chance of promotion, having regard

to the nature of employment may be distant or remote. It is, therefore,

difficult for any court to lay down rigid tests which should be applied in all

situations. There are divergent views. In some cases it has been suggested

that some sort of hypotheses or guess work may be inevitable. That may be

so.

22.As regards future prospects for determination of compensation, some

precedents may also be noticed by us.

18

In Sarla Dixit v. Balwant Yadav, [ (1996) 3 SCC 179 ], this Court has

held :-

“7. So far as the adoption of the proper multiplier

is concerned, it was observed that the future

prospects of advancement in life and career should

also be sounded in terms of money to augment the

multiplicand. While the chance of the multiplier is

determined by two factors, namely, the rate of

interest appropriate to a stable economy and the

age of the deceased or of the claimant whichever is

higher, the ascertainment of the multiplicand is a

more difficult exercise. Indeed, many factors have

to be put into the scales to evaluate the

contingencies of the future. All contingencies of

the future need not necessarily be baneful.

Applying these principles to the facts of the case

before this Court in the aforesaid case it was

observed that the deceased in that case was of 39

years of age. His income was Rs 1032 per

month. He was more or less on a stable job and

considering the prospects of advancement in future

career the proper higher estimate of monthly

income of Rs 2000 as gross income to be taken as

average gross future income of the deceased and

deducting at least 1/3rd therefrom by way of

personal living expenses, had he survived the loss

of dependency, could be capitalised by adopting

the multiplicand of Rs 1400 per month or

Rs 17,000 per year and that figure could be

capitalised by adopting multiplier of 12 which was

appropriate to the age of deceased being 39 and to

that amount was added the conventional figure of

Rs 15,000 by way of loss of consortium and

loss of estate. Adopting the same scientific

yardstick as laid down in the aforesaid judgment,

the computation of compensation in the present

case can almost be subjected to a well-settled

19

mathematical formula. Deceased in the present

case, as seen above, was earning gross salary of

Rs 1543 per month. Rounding it up to figure of

Rs 1500 and keeping in view all the future

prospects which the deceased had in stable military

service in the light of his brilliant academic record

and performance in the military service spread

over 7 years, and also keeping in view the other

imponderables like accidental death while

discharging military duties and the hazards of

military service, it will not be unreasonable to

predicate that his gross monthly income would

have shot up to at least double than what he was

earning at the time of his death, i.e., up to Rs 3000

per month had he survived in life and had

successfully completed his future military career

till the time of superannuation. The average gross

future monthly income could be arrived at by

adding the actual gross income at the time of

death, namely, Rs 1500 per month to the maximum

which he would have otherwise got had he not

died a premature death, i.e., Rs 3000 per month

and dividing that figure by two. Thus the average

gross monthly income spread over his entire future

career, had it been available, would work out to

Rs 4500 divided by 2, i.e., Rs 2250. Rs 2200 per

month would have been the gross monthly average

income available to the family of the deceased had

he survived as a breadwinner. From that gross

monthly income at least 1/3rd will have to be

deducted by way of his personal expenses and

other liabilities like payment of income tax etc.

That would roughly work out to Rs 730 per month

but even taking a higher figure of Rs 750 per

month and deducting the same by way of average

personal expenses of the deceased from the

average gross earning of Rs 2200 per month

balance of Rs 1450 which can be rounded up to

Rs 1500 per month would have been the

average amount available to the family of the

20

deceased, i.e., his dependants, namely, appellants

herein. It is this figure which would be the datum

figure per month which on annual basis would

work out to Rs 18,000. Rs 18,000 therefore would

be the proper multiplicand which would be

available for capitalisation for computing the

future economic loss suffered by the appellants on

account of untimely death of the breadwinner. As

the age of the deceased was 27 years and a few

months, at the time of his death the proper

multiplier in the light of the aforesaid decision of

this Court in G.M., Kerala SRTC

2

would be 15.

Rs 18,000 multiplied by 15 will work out to

Rs 2,70,000. To this figure will have to be added

the conventional figure of Rs 15,000 by way of

loss of estate and consortium etc. That will lead to

a total figure of Rs 2,85,000. This is the amount

which the appellants would be entitled to get by

way of compensation from Respondents 1 and 2

subject to our decision on Point No. 2.”

In Abati Bezbaruah v. Dy. Director General, Geological Survey of

India, [ (2003) 3 SCC 148 ] it was observed :-

“11. It is now a well-settled principle of law that

the payment of compensation on the basis of

structured formula as provided for under the

Second Schedule should not ordinarily be deviated

from. Section 168 of the Motor Vehicles Act lays

down the guidelines for determination of the

amount of compensation in terms of Section 166

thereof. Deviation from the structured formula,

however, as has been held by this Court, may be

resorted to in exceptional cases. Furthermore, the

amount of compensation should be just and fair in

the facts and circumstances of each case.”

21

23.Learned Single Judge of the Delhi High Court in the appeal filed

against the Award which is subject matter of SLP (C) No. 8205 of 2007

opined that one of the two methods adopted to determine the amount of

compensation in fatal accident actions is the multiplier method adopted in

Davies v. Powell Duffregn Associaed Colliers Ltd. [ 1942 AC 601 ].

According to learned Judge it takes care of future prospects. A statement

has been appended, which we intend to reproduce hereinafter for

consideration as to whether the assumption made by him that the Second

Schedule takes care of inflation of interest, loss of future prospects, is

correct. The statement reads, thus:-

S.No. Year Money in

Capital

Account

Interest (12%

for 87-95,

10% for 95-

02, 8% for 02-

12)

Loss of dependency

(Assuming 10%

increase every eyar)

Excess of

interest over

dependency

1, 1987- 88 3,36,000 40,320 1344 x 12 - 16128 24,192

2. 1988 - 89 3,60,192 43,223 1478 x 12 = 17736 25,487

3. 1989 - 90 3,85,679 46,281 1625 x 122 = 19500 26,781

4. 1990 - 91 4,12,461 49,495 1787 x 12 = 21444 28,051

5. 1991 - 92 4,69, 793 52,861 1965 x 12 = 25932 29,281

6. 1992 - 93 4,69,793 56,375 2161 x 12 = 25932 30,443

7. 1993 - 94 5,00,236 60,028 2376 x 12 = 28512 31,516

8. 1994 - 95 5,31,753 63,810 2613 x 12 = 31356 32,454

9. 1995 – 96 5,64,207 56,421 2874 x 12 = 34,488 21,933

10. 1996 – 97 5,86,140 58,614 3161 x 12 = 37931 20,682

11. 1997 - 98 6,06,822 60,682 3476 x 12 = 41712 18,970

12. 1998 - 99 6,25,792 62,579 3823 x 12 = 45,876 16,703

13. 1999 - 00 6,42,495 64,250 4205 x 12 = 50460 13,790

14. 2000 - 01 6,56,285 65,628 4625 x 12 = 55500 10,128

15. 2001 - 02 6,66,413 66,641 5087 x 12 = 61044 5,597

16. 2002 - 03 6,72,010 55,761 5595 x 12 = 67140 13,379

22

17. 2003 – 04 6,58,631 52,960 6154 x 12 - 73848 21,558

18. 2004 – 05 6,37,474 50,998 6769 x 12 = 81228 30,230

19. 2005 – 06 6,07,224 48,579 7445 x 12 = 89340 40,881

20. 2006 - 07 5,66,363 45,309 8189 x 12 = 98268 52,959

21. 2007 - 08 5,12,404 41,072 9007 x 12 = 108084 67,012

22. 2008 - 09 4,46,393 35,711 9907 x 12 = 118884 83,173

22. 2009 - 10 3,63,220 29,058 10897 x 12= 130764 1,01,706

24. 2010 – 11 1,61,514 20,291 11986 x 12=143832 1,22,911

25. 2011 - 12 1,38,603 11,088 13184x12=158208 1,47,120

24.An attempt has been made by the learned Judge to show that till the

15

th

year, there will be an excess of interest over dependency. The excess

interest can be capitalized for the next year and after 15 years, the capital is

eroded and stands completely eroded in the 25

th

year.

25.Mr. Nanda, learned counsel appearing for the insurance company,

however, submits that not only earning growth but also inflation and

uncertainty of life are taken care of by applying the structured formula. In

support of the aforementioned proposition reliance has been placed upon the

decision of Bhagwandas v. Mohd. Arif, AIR 1988 A.P. 99 wherein the

learned Judge opined :-

“10. In the entire gamut of the law of tort damages,

this is the most difficult problem. However, over

the years, the Courts have, with the aid of modern

techniques in the field of Demography, Statistics

and the Mathematical Theory of Probability and

23

Actuaries, developed systems which are today very

near perfect.”

As regards application of actuary’s-multiplier, the learned Judge

stated :-

18A. What is the basis for the actuary's multiplier,

what are the factors it takes into account, is the

next question. In the judgment in A.P.S.R.T.C. v.

Shafiya Khatoon (AIR 1985 Andh Pra 83) the

mathematical and actuarial background was,

perhaps for the first time, explained at considerable

length. The net future losses from date of trial for

the remaining expected period of life (in accident

cases) and the net future losses from date of death

of the person (in fatal cases) have to be estimated.

This involves two exercises :

(I) Firstly, the mortality rates for the future years

have to be ascertained year by year to off-set the

future uncertainties of life. The annual loss for

each future year is to be multiplied by the chance

of living up to the end of the year. If the chance of

an injured person living from 20 to 21st year is

0.99 (from mortality tables), and the actual loss is

Rs. 12,000/-, the real loss is Rs. 12,000/-x 0.99.

For the next year, if the probability of living up to

22nd year is (say) 0.90, the real loss would be Rs.

12,000 x 0.90. Like this, the real losses for all the

future years, say up to 58 or 60 years (in the case

of those in service) or up to 70 years or so (in the

case of non-salarised persons) have to be

computed, the future annual probabilities of living

decreasing. The sum total is not, therefore, the

gross sum arrived at by adding the Rs. 12000/- for

all the future years, but a gross sum arrived at by

24

multiplying each future Rs. 12,000/- by the

probability of the victim living in each of the

future years as taken from the mortality rates

published by the Government.

(II) The next exercise consists of taking each of the

figures for the future years i.e., Rs. 12,000 x 0.99.,

Rs. 12,000 x 0.90; and so on and converting them

to their present value or discounting them for

accelerated payment. The simple, mathematical

formula were for purpose is the reverse of the

compound interest formula. (See Munkman 1985,

page 57) Po= Pn / (1+r)

n

/100 where Pn is the

future annual figures, r is the rate of interest n is

the number of years (between the date of trial and

date relating to the year for which the income is

being converted into present value; in fatal

accident cases it will be the date of death and the

relevant future year whose income is being

converted). Like that, the income for each future

year, is reduced to present value. Then these sums

for each of the future years are added up.”

26.Decisions of English, Australian, Canada, U.S.A., Switzerland as also

the Netherland Courts were liberally applied. The learned Judge applied

Mallet case (supra) in the Indian context and the decisions of the different

High Courts where principles were either applied taking into consideration

the rate of interest, inflation etc There has been no decision rendered either

by the High Court or this Court as to what is the real rate of interest which

25

would be appropriate in India and what multiplier should be applied in this

country.

27.We may at this juncture refer back to Mallet case (supra). We may at

once notice the formula applied therein which is to the following effect :-

S.No. Year Capital Formula

1. 1

st

year 0 150 x 12 = 1800

2. 2

nd

year 1800 1800x1.045-100= 1781

3. 3

rd

year 1781 1761.14

4. 4

th

year 1761.14 1740.39

5. 5

th

year 1740.39 1718.71

6. 6

th

year 1718.71 1596.05

7. 7

th

year 1596.05 1672.37

8. 8

th

year 1672.37 1647.62

9. 9

th

year 1647.62 1621.76

10. 10

th

year 1621.76 1594.74

11. 11

th

year 1594.74 1800x1.045-200=1566.51

12. 12

th

year 1466.51 1382.50

13. 13

th

year 1332.50 1192.46

14. 14

th

year 1192.46 1046.13

15. 15

th

year 1046.46 893.20

16. 16

th

year 893.20 733.40

17. 17 year 733.40 566.40

18. 18

th

year 566.40 391.89

19. 19

th

year 391.89 209.52

20. 20

th

year 209.52 18.95

Lord Diplock observed :-

26

“The starting point in any estimate of the amount

of the "dependency" is the annual value of the

material benefits provided for the dependants out

of the earnings of the deceased at the date of his

death. But, quite apart from inflation with which I

have already dealt, there are many factors 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

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 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 per cent. the present value of

an annuity for 20 years, of which the first ten years

are at £100 per annum and the second 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 variations in the "dependency" are

to be reflected in the multiplicand of which the

years' purchase is the multiplier, variations *178 in

the dependency which are not expected to take

place until after ten years should have only a

relatively small effect in increasing or diminishing

27

the "dependency" used for the purpose of assessing

the damages.”

28.We may also notice a later decision of House of Lords in Wells v.

Wells [ [1998] 3 W.L.R. 329 ]. It was a case where the plaintiff had

sustained serious injuries classified as injuries of maximum severities. The

question before the House was whether a lump-sum award could be made

which takes into account all of the elements of future loss as well as the loss

for the past. It was opined that index linked government securities should be

accepted as the best guide to calculate the appropriate discount rate. Lord

Hope of Craighead supplemented the reasonings of Denning, L.J., stating :-

“Some of the assumptions which have to be made

in the assessment of future loss are made at the

stage of arriving at the multiplicand for each head

of the claim. The selection of the right multiplier

requires that further assumptions be made, so that

the calculation can be related to the period of the

annual loss or expense which is to be compensated

for. The general point of principle which is raised

in all three cases relates to the final stage in the

selection of the multiplier. This is the choice of the

interest rate, which represents the discount for the

payment now of a lump sum to compensate for

loss to be sustained over a period of years in the

future.

28

The measure of the discount is the rate of return

which can reasonably be expected on that sum if

invested in such a way as to enable the plaintiff to

meet the whole amount of the loss during the

entire period which has been assumed for it by the

expenditure of income together with capital. It was

suggested for the defendants in the course of the

argument that the plaintiff was under a duty to

minimise the loss to be borne by the defendants by

investing the lump sum prudently, that is to say

with a view to obtaining a reasonable return for it.

The duty to invest prudently was an important part

of the reasoning which was designed to show that

this meant a duty to invest in equities, and that the

discount rate to be applied was that appropriate to

the return to be expected on equities. But I do not

think that the duty to minimise loss has anything to

do with the selection of the appropriate discount

rate. The stage at which the duty to minimise loss

is to be applied is at the earlier stage when the

court has to identify the amount of the annual sum

to be compensated for and the period over which it

is to be compensated. That exercise is over and

done with when the time comes to select and apply

the discount rate.”

It was furthermore observed :-

“There is much to be said for the view that a better

return can be obtained by the ordinary investor

who invests his money in equities. But the rises

and falls in the market value of equities are

unpredictable both as to their timing and as to their

amount. Further problems are presented by the cost

of investment advice and by the possible impact of

capital gains tax if reliance has to be placed on the

capital gains which can be achieved to deal with

29

inflation and to supplement the income return by

way of dividend. Moreover the plaintiff who is

receiving the amount of his future loss in the form

of a lump sum is not an ordinary investor. The

amount awarded under each head of his claim is

calculated on the assumption that this part of his

loss will have to be met entirely out of the relevant

portion of the lump sum.”

29.The Parliament enacted the Actuaries Act, 2006. However, its

activities are little known. We do not know whether any Actuarial Society

has come into effect. It is also not clear what sort of service is being

rendered by it. Not much assistance, therefore, can be derived from

referring to the said Act to which our attention has been drawn by Mr.

Nanda.

30.Indisputably, grant of compensation involving an accident is within

the realm of law of torts. It is based on the principle of restitution in

integrum. The said principle provides that a person entitled to damages

should, as nearly as possible, get that sum of money which would put him in

the same position as he would have been if he had not sustained the wrong.

[See Livingstone v. Rawyards Coal Co. [ (1880) 5 AC 25 ].

30

31.The accident may result in death ; it may result in injuries which may

be of different counts. When a death occurs the benefit accruing to the

dependent must be taken into account ; the balance of loss and gain to him

must be ascertained ; the position of each dependent in each case may have

to be considered separately [ See Davis v. Powell Duffrya Associated

Collieries Ltd. [ 1942) AC 601 ].. The said principle has been applied by

this Court in Gobald Motor Service Ltd., Allahabad v. R.M.K.

Veluswami, [ AIR 1962 SC 1 ] as also in Susamma Thomas (supra)

32.The heads of pecuniary loss are basically two. One, loss of earnings

upto the date of trial and the other, loss of future earnings. Principally we

are concerned with the second issue herein. For calculating future earning,

the following factors are taken into consideration:-

(i) interest method ;

(ii) lump sum method ; and

(iii) multiplier method.

Whereas in the first and third method, interest method for all intent

and purport has not been applied in India. Multiplier method was applied as

a mode of estimating the present value as a loss of benefit to the dependent

in Davis (supra) wherein it was observed:

31

“ In the case of the appellant, Mrs. Williams, I

think the judge has awarded a wholly inadequate

sum. There is no question here of what may be

called sentimental damage, bereavement or pain

and suffering. It is a hard matter of pounds,

shillings and pence, subject to the element of

reasonable future probabilities. The starting point

is the amount of wages which the deceased 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 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. It seems as if the

award of 250l. was based on something like three-

and-a-half years' purchase of the basic figure. This

appears to me to be out of all proportion and much

too low. I should, after allowing for all reasonably

probable chances of the diminution of the loss,

accept the figure taken by Luxmoore L.J. of 750l.

as being not unfair, and I should increase the

damages recoverable by the appellant, Mrs.

Williams, accordingly. In that respect I should

allow her appeal.”

The said principle was reiterated in Nance v. British Columbia

Electric Railway Co, Ltd. { 1951 AC 601 } wherein it was observed :-

“ The claim to damages in the present case

falls under two separate heads. First, if the

32

deceased had not been killed, but had eked out the

full span of life to which in the absence of the

accident he could reasonably have looked forward,

what sums during that period would be probably

have applied out of his income to the maintenance

of his wife and family? (Under this head in the

present case the wife or widow need alone be

considered, since his children and step-children

were all adults and self supporting, and at the time

of his death he contributed nothing material to

their maintenance.) Secondly, in addition to any

sum arrived at under the first head, the case has

been argued on the assumption, common to both

parties, that according to the law of British

Columbia it would be proper to award a sum

representing such portion of any additional savings

which he would or might have accumulated during

the period for which, but for his accident, he would

have lived, as on his death at the end of this period

would probably have accrued to his wife and

family by devolution either on his intestacy or

under his will, if he made a will.”

33. An element of sentiment of the deceased was also introduced while

determining compensation payable to the dependent. One of the factors

which had been taken into consideration in Davis (supra) was that the widow

might be again married and ceases to be dependent; in India, we cannot

proceed on such presumption.

33

34.In the Indian context several other factors should be taken into

consideration including education of the dependents and the nature of job.

In the wake of changed societal conditions and global scenario, future

prospects may have to be taken into consideration not only having regard to

the status of the employee, his educational qualification; his past

performance but also other relevant factors, namely – the higher salaries and

perks which are being offered by the private companies these days. In fact

while determining the multiplicand this Court in Oriental Insurance

Company Ltd. v. Jashuben and others,_[ (2008) 4 SCC 162 ] held that

even dearness allowance and perks with regard thereto from which the

family would have derived monthly benefit, must be taken into

consideration.

35.One of the incidental issues which has also to be taken into

consideration is inflation.

36.Is the practice of taking inflation into consideration wholly incorrect?

Unfortunately, unlike other developed countries in India there has been no

scientific study. It is expected that with the rising inflation the rate of

34

interest would go up. In India it does not happen. It, therefore, may be a

relevant factor which may be taken into consideration for determining the

actual ground reality. No hard and fast rule, however, can be laid down

therefor.

37.A large number of English decisions have been placed before us by

Mr. Nanda to contend that inflation may not be taken into consideration at

all. While the reasonings adopted by the English courts and its decisions

may not be of much dispute, we cannot blindly follow the same ignoring

ground realities.

38.We have noticed the precedents operating in the field as also the rival

contentions raised before us by the learned counsel for the parties with a

view to show that law is required to be laid down in clearer terms. The

Second Schedule refers to Section 163-A of the 1988 Act, which, as noticed

hereinbefore, provides for quantum of compensation to a third party in case

of fatal accident or injuries suffered. It provides for a table. It specifies the

amount required to be paid to the legal heirs/representatives of the deceased

in the case of fatal accident and the claimants in the case of injuries suffered

35

by them depending upon his age and annual income as specified therein.

The question which arises for consideration is as to whether the multiplier

specified in the second schedule should be taken to be a guide for calculation

of amount of compensation payable in a case falling under Section 166 of

the 1988 Act?

39.We have noticed hereinbefore that in Patricia Jean Mahajan (supra)

and Abati Bezbaruah and the other cases following them multiplier specified

in the Second Schedule has been taken to be guiding factor for calculation of

the amount of compensation even in a case under Section 166 of the Act.

However, in Shanti Pathak (supra) this Court advocated application of lesser

multiplier, although no legal principle has been laid therein.

40.In Trilok Chandra (supra) this Court has pointed out certain purported

calculation mistakes in the Second Schedule. It, however, appears to us that

there is no mistake therein. Amount of compensation specified in the

Second Schedule only is required to be paid even if a higher or lower

amount can be said to be the quantum of compensation upon applying the

multiplier system.

36

41.Section 163-A of the 1988 Act does not speak of application of any

multiplier. Even the Second Schedule, so far as the same applies to fatal

accident, does not say so. The multiplier, in terms of the Second Schedule,

is required to be applied in a case of disability in non fatal accident.

Consideration for payment of compensation in the case of death in a ‘no

fault liability’ case vis-à-vis the amount of compensation payable in a case

of permanent total disability and permanent partial disability in terms of the

Second Schedule is to be applied by different norms. Whereas in the case of

fatal accident the amount specified in the Second Schedule depending upon

the age and income of the deceased is required to be paid wherefor the

multiplier is not to be applied at all but in a case involving permanent total

disability or permanent partial disability the amount of compensation

payable is required to be arrived at by multiplying the annual loss of income

by the multiplier applicable to the age of the injured as on the date of

determining the compensation and in the case of permanent partial

disablement such percentage of compensation which would have been

payable in the case of permanent total disablement as specified under item

(a) of the Second Schedule.

37

42.The Parliament in its wisdom thought to provide for a higher amount

of compensation in case of permanent total disablement and proportionate

amount of compensation in case of permanent partial disablement depending

upon the percentage of disability.

43.Thus, prima facie, it appears that the multiplier mentioned in the

Second Schedule, although in a given case, may be taken to be a guide but

the same is not decisive. To our mind, although a probable amount of

compensation as specified in the Second Schedule in the event the age of

victim is 17 or 20 years and his annual income is Rs.40,000/-, his heirs/ legal

representatives is to receive a sum of Rs.7,60,000/-, however, if an

application for grant of compensation is filed in terms of Section 166 of the

1988 Act that much amount may not be paid, although in the former case

the amount of compensation is to be determined on the basis of ‘no fault

liability’ and in the later on ‘fault liability’ In the aforementioned situation

the Courts, we opine, are required to lay down certain principles.

44.We are not unmindful of the Statement of Objects and Reasons to Act

54 of 1994 for introducing Section 163-A so as to provide for a new

38

predetermined formula for payment of compensation to road accident

victims on the basis of age/income, which is more liberal and rational. That

may be so, but it defies logic as to why in a similar situation, the injured

claimant or his heirs/legal representatives, in the case of death, on proof of

negligence on the part of the driver of a motor vehicle would get a lesser

amount than the one specified in the Second Schedule. The Courts, in our

opinion, should also bear that factor in mind.

45.Having regard to divergence of opinion and this aspect of the matter

having not been considered in the earlier decisions, particularly in the

absence of any clarification from the Parliament despite the

recommendations made by this Court in Trilok Chandra (supra), the issue, in

our opinion, shall be decided by a Larger Bench. It is directed accordingly.

46.The Registry is directed to place the matter before the Hon’ble Chief

Justice of India for appropriate orders for constituting a Larger Bench.

………………………..J.

[S.B. Sinha]

39

………………………..J.

[Cyriac Joseph]

New Delhi

July 23, 2009

40