Motor Vehicle Act, 1988 – SC issues guidelines on Assessment of Compensation

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November 1, 2017

SC issues Guidelines on Assessment of Compensation under MV Act 1988

National Insurance Company Ltd. v. Pranay Sethi

Date of Judgment: October 31, 2017

In a noteworthy judgment passed yesterday, Five-Judge Constitution Bench of the Supreme Court has issued guidelines for computation of compensation under the Motor Vehicle Act, 1988. In the case, the Supreme Court Bench headed by Chief Justice Dipak Misra was hearing a reference made to the Bench in the case of National Insurance Company Ltd. v. Pushpa & Ors.[1], in view of divergence of opinion of the Supreme Court in the cases of Reshma Kumari & Ors. v. Madan Mohan and Rajesh and Others v. Rajbir Singh and Others with reference to Sections 163A and 166 of the Motor Vehicles Act, 1988 (the Act) and the methodology of computation of future prospects.

Also See: Motor Vehicles Accident Compensation under the MV Act

Core Issue– Where a person was self-employed or on a fixed salary without provision of annual increment etc., what should be the addition as regards the future prospects?

The Supreme Court in the case has given a detailed analysis of the precedents which have earlier dealt with a similar issue. The Court made a specific reference to the case of Sarla Verma & Ors vs Delhi Transport Corp. & Anr. In the said case, the Court recapitulated the relevant principles relating to assessment of compensation in case of death. In this case the Court had also remarked that lack of uniformity and consistency in awarding the compensation has been a matter of grave concern and that when different Tribunals calculate compensation differently on the same facts, the claimant, the litigant and the common man are bound to be confused, perplexed and bewildered.

Compensation under MV Act 1988

Guidelines Issued by the Supreme Court

In view of precedents and divergence of opinion with reference to the issue, the Supreme Court in this case ruled on the following legal propositions for calculating compensation under the Motor Vehicle Act, 1988.

  1. Addition of future prospects to determine the multiplicand– The determination of income while computing compensation has to include future prospects so that the method will come within the ambit and sweep of just compensation as postulated under Section 168of the Act.

While determining the income, an addition of 50% of actual salary to the income of the deceased towards future prospects, where the deceased had a permanent job and was below the age of 40 years, should be made. The addition should be 30%, if the age of the deceased was between 40 to 50 years. In case the deceased was between the age of 50 to 60 years, the addition should be 15%. Actual salary should be read as actual salary less tax.

In case the deceased was self-employed or on a fixed salary, an addition of 40% of the established income should be the warrant where the deceased was below the age of 40 years. An addition of 25% where the deceased was between the age of 40 to 50 years and 10% where the deceased was between the age of 50 to 60 years should be regarded as the necessary method of computation. The established income means the income minus the tax component.

  1. Deduction towards personal and living expenses:

 

Where the deceased was married– the deduction towards personal and living expenses of the deceased, should be one-third (1/3rd) where the number of dependent family members is 2 to 3, one-fourth (1/4th) where the number of dependent family members is 4 to 6, and one-fifth (1/5th) where the number of dependent family members exceeds six.

 

Where the deceased was a bachelor and the claimants are the parents, the deduction follows a different principle. In regard to bachelors, normally, 50% is deducted as personal and living expenses, because it is assumed that a bachelor would tend to spend more on himself. Further, subject to evidence to the contrary, the father is likely to have his own income and will not be considered as a dependent and the mother alone will be considered as a dependent. In the absence of evidence to the contrary, brothers and sisters will not be considered as dependents, because they will either be independent and earning, or married, or be dependent on the father.

 

  1. The selection of multiplier shall be as indicated in the Table in Sarla Verma case.
  2. The age of the deceased should be the basis for applying the multiplier.
  3. Reasonable figures on conventional heads, namely, loss of estate, loss of consortium and funeral expenses should be Rs. 15,000/-, Rs. 40,000/- and Rs. 15,000/- respectively. The aforesaid amounts should be enhanced at the rate of 10% in every three years.

Also See: Accident Claims – How to get compensation under Motor Vehicles Act

Motor Vehicle Act, 1988 is a crucial legislation and the assessment of compensation in death cases and claimants who are entitled to compensation has been a highly deliberated issue for the Judiciary. The Five-Judge Constitution Bench’s order and guidelines issued in the instant case puts to rest the debatable issue and mitigates the possibility of any apprehension with respect to the Law. The guidelines issued by the Supreme Court will also aid the Motor Vehicle Tribunal in ascertaining the compensation and avoiding any misinterpretation in this regard.

 

 Also See: MACT – Motor Accident Claims Tribunal – FAQ

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