PETITIONER: U.P.STATE ROAD TRANSPORTCORPORATION & ORS. Vs. RESPONDENT: TRILOK CHANDRA & ORS. DATE OF JUDGMENT: 07/05/1996 BENCH: AHMADI A.M. (CJ) BENCH: AHMADI A.M. (CJ) SINGH N.P. (J) MUKHERJEE M.K. (J) CITATION: 1996 SCC (4) 362 JT 1996 (5) 356 1996 SCALE (4)522 ACT: HEADNOTE: JUDGMENT:
THE 7TH DAY OF MAY, 1996
Present:
Hon’ble the Chief Justice
Hon’ble Mr.Justice N.P. Singh
Hon’ble Mr.Justice M.K.Mukherjee
Raju Ramachandran and Ms.S.Ramachandran, Advs. for the
appellants.
R.A.Mishra, Adv. for K.K.Gupta, Adv. for the Respondent Nos.
1-4
M.H.Baig, Sr.Adv,(Mrs.P.S.Shroff) Adv. for S.A.Shroff and
Mukul Mudgal, Advs. with him for the Respondent No.5
J U D G M E N T
The following Judgment of the Court was delivered:
U.P. State Road Transport
Corporation and others
V.
Trilok Chandra & Others
J U D G M E N T
AHMADI,CJI
Special leave granted.
The short question which we are called upon to consider
in this appeal relates to the use of the correct multiplier
for determination of compensation to be awarded to the legal
representatives of a victim of a road accident. The question
arises in the backdrop of the following facts.
Prem Chandra, aged about 26 years, met with a fatal
accident on 1st August, 1977. He was knocked down by an
omnibus bearing Registration No.UTW 1802 belonging to the
U.P. State Road Transport Corporation. His legal
representatives preferred a claim for compensation. Taking
his earning capacity at Rs.300/- per month, it was estimated
that he spent Rs.200/- per month on his family members.
Fixing the life expectancy at 60 years, the Tribunal
deducted 36 years and held that the family was deprived of
his earning for 24 years. The compensation was thus worked
out at Rs.57,600/- (200x12x24). This amount was raised to
Rs.81,600/- as it was realised that the tribunal had wrongly
taken the age of the deceased at 36 instead of 26 years and
had, therefore, committed an error in employing the
multiplier of 24 years purchase factor instead of 34 years
purchase factor. Thus the compensation came to Rs.200x12x34
= 81,600/-. The question then is whether the Tribunal was
right in employing the multiplier of 24 or the High Court
was right in employing the multiplier of 34?
India is one of the countries with the highest number
of road accidents. Motor accidents are every day affairs. A
large number of claims for compensation for injury caused by
road accidents are pending in various Motor Accident Claims
Tribunal. In a fatal accident the dependents of the deceased
are entitled to compensation for the loss suffered by them
on account of the death. The most commonly practised method
of assessing the loss suffered is to calculate the loss for
a year and then to capitalise the amount by a suitable
multiplier. To that is added the loss suffered on account of
loss of expectation of life and the like. The Tribunals and
High Courts have adopted divergent methods to determine the
suitable multiplier. Even this Court has not been uniform;
maybe because the principle on which this method came to be
evolved has been forgotten. It has, therefore, become
necessary to examine the law and to state the correct
principles to be adopted.
The topic of compensation for causing death by
negligent driving came up for serious discussion before this
Court in Gobald Motor Services Limited & Anr. vs. R.M.K.
Veluswami and others AIR 1962 SC 1. The Court referred to
the House of Lords decision in Davies vs. Powell Duffryn
Associated Collieries Ltd. 1942 AC 601 and quoted the
following passage from the judgment:
“The damages are to be based on the
reasonable expectation of pecuniary
benefit or benefit reducible to
money value. In assessing the
damages all circumstances which may
be legitimately pleaded in
diminution of the damages must be
considered.
…..The actual pecuniary loss of
each individual entitled to sue can
only be ascertained by balancing,
on the one hand, the loss to him of
the future pecuniary benefit, and,
on the other any pecuniary
advantage which from whatever
source comes to him by reason of
the death.”
The Court also referred to the judgment by Viscount
Simon in Nance vs. British Columbia Electric Railways
Co.Ltd. 1951 AC 601 in which the same principles were
enunciated for estimating the damages, the method adopted
however differed. Various factors that would enter the
calculation as per Viscount Simon were set out in the
judgment as under:
“………. at first the deceased
man’s expectation of life has to be
estimated having regard to his age,
bodily health and the possibility
of pre-mature determination of his
life by later accidents; secondly,
the amount required for the future
provision of his wife shall be
estimated having regard to the
amounts he used to spend on her
during his lifetime, and other
circumstances; thirdly, the
estimated annual sum is multiplied
by the number of years of the man’s
estimated span of life, and the
said amount must be discounted so
as to arrive at the equivalent in
the form of a lump sum payable on
his death; fourthly, further
deductions must be made for the
benefit accruing to the widow from
the acceleration of her interest in
his estate, and, fifthly, further
amounts have to be deducted for the
possibility of the wife dying
earlier if the husband had lived
the full span of life; and it
should also be taken into account
that these is the possibility of
the widow remarrying much to the
improvement of her financial
position. It would be seen from the
said mode of estimation that many
imponderables enter into the
calculation.”
The same principles were recalled by this Court in the
case of Municipal Corporation of Delhi vs. Subhagwanti &
Ors., AIR 1966 SC 1750. In this case the claim for
compensation arose on account of loss of life caused by the
collapse of the Clock Tower abutting a highway. The Court
referred to both the aforementioned judgments, and extracted
the following passage from the judgment in, the case of
Davies:
“The starting point is the amount
of wages which the deceased was
earning, the ascertainment of which
to some extent may depend upon 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 dictum 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.”
In the case before the Court the deceased was Ram
Prakash aged 30 years. The High Court found it proper to
estimate the amount that the deceased would have spent on
his wife and children in a year and Capitalised that for a
period of 15 years and observed that the Trial Court’s
calculation was not excessive.
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 Service’s
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 capitalized
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
capitalized 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 capitalized
income that might have been spent
on them if the deceased were alive.
Conversely, if they got
compensation under S.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 S.2 of the Act in respect of
compensation for the loss caused to
the estate. To put it differently
if under S.1 they got capitalized
value of Y, under S.2 they could
get only the Capitalized value of
Z, for the capitalised value Y+Z=X
would be the capitalized value of
his entire income.”
The High Court of Gujarat in the case of M/s. Hirji
Virji Transport & Ors. vs. Basiranbibi (1971) 12 Gujarat Law
Reporter 783 referred to all the three judgments of this
Court mentioned above, considered the principle laid down in
Davies and Nance and explained the law to be applied for
ascertaining the damages in such cases. Reference was also
made to the judgment of Lord Reid in Taylor vs. O’Conor
1970(1) All England Reports 365 and the High Court
reiterated Lord Reid’s words which we extract:
“In ordinary cases which do not
involve special factors, as one in
Taylor’s case as regards the
questions of income tax and surtax,
the wealth of experience of Judges
and Counsels would be an adequate
guide to the selection of this
multiplier without any necessity of
any expert evidence, so that on
this method by adopting a common
multiplier the loss of pendency
over a period of years can be
worked out a lump sum to be given
to the dependents.”
The Gujarat High Court also pointed out that the
principles laid down in the case of Davies and that in the
case of Nance led to the same end-results because, although,
as per Viscount Simon the dependency amount is required to
be multiplied by the figure of the expected useful life of
the deceased, the sum has to be discounted because
equivalent amount in lump sum has to be worked out keeping
in view the fact that the sum was to be spread over a period
of years and secondly, allowance had to be made for
uncertainties like the possible pre-mature death of the
dependents or of the deceased had he been alive, remarriage
of the widow, acceleration over other interest of the
estate, etc. The Gujarat High Court expressed the opinion
that if proper discount is done after arriving at the lump
sum equivalent to this dependency, spread over for a period
of years the end-result will be the same as that calculated
by using a proper multiplier to the annual loss. This
multiplier is the year’s purchase factor. Referring to the
decision of Lord Diplock in Mallett vs. McMonagle, 1969 (2)
All England Reports 178 at 191, wherein an annuity table was
worked out, the High Court observed that 12 to 15′ years’
should be the normal multiplier and for the case before the
court the outer multiplier of 15 years purchase would be
proper. The same view in regard to the range for a healthy
young man was expressed by this Court in C.K.S.Iyer vs.
T.K.Nair (AIR 1970 SC 376).
For concluding the analysis it is necessary now to
refer to the judgment of this Court in the case of General
Manager, Kerala State Road Transport, Trivandrum vs. Susamma
Thomas 1994(2) SCC 176. In that case this Court culled out
the basic principles governing the assessment of
compensation emerging from the legal authorities cited above
and reiterated that the multiplier method is the sound
method of assessing compensation. The Court observed :
“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 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 yeild 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.”
The principle was explained and illustrated by a
mathematical example:
“The multiplier represents the
number of Years’ purchase on which
the loss of dependency is
capitalized. 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
capitalize 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 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
dependents, whichever is higher)
goes up.”
It was rightly clarified that there should be no
departure from the multiplier method on the ground that
Section 110-B Motor Vehicles Act, 1939 (corresponding to the
present provision of Section 168 Motor Vehicles Act, 1988)
envisaged payment of ‘just’ compensation since the
multiplier method is the accepted method for determining and
ensuring payment of just compensation and is expected to
bring uniformity and certainty of the awards made all over
the country.
In the facts of that case the Court said that 12 years
was the correct multiplier to be applied for assessing
compensation for the death of the victim of the road
accident who was 39. Further it was observed that in the
absence of evidence it is not unusual to deduct one third of
the gross income towards the personal living expenses of the
deceased. The court further awarded a conventional sum
towards loss of consortium and loss of estate.
We thought it necessary to reiterate the method of
working out ‘just’ compensation 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 my 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 dependents 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.3,500/-. 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 storks out to Rs.3,500/7 =
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 expense 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 Rs.3500-1250 =
Rs.2250 per month. This amount can be taken as the monthly
loss to X’s dependents. The annual dependenny comes to
Rs.2250 X 12 = 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 dependents.
Take the appropriate multiplier to be 15. The compensation
comes to Rs.27,000 X 15 = 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 Rs.10,000/-.
Thus the total comes to Rs.4,05,000+10,000 = Rs.4,15,000/-.
In the method adopted by Viscount Simon in the case of
Nance also, first the annual dependency is worked out and
then multiplied by the estimated useful life of the
deceased. This is generally determined on the basis of
longevity. But then, proper discounting on various factors
having a bearing on the uncertainties of life, such as,
premature death of the deceased or the dependent,
remarriage, accelerated payment and increased earning by
wise and prudent investments, etc., would become necessary.
It was generally felt that discounting on various
imponderables made assessment of compensation rather
complicated and cumbersome and very often as a rough and
ready measure, one-third to one-half of the dependency was
reduced, depending on the lite-span taken. That is the
reason why courts in India as well as England preferred the
Davies’ formula as being simple and more realistic. However,
as observed earlier and as pointed out in Susamma Thomas’
case, usually English courts rarely exceed 16 as the
multiplier. Courts in India too followed the same pattern
till recently when Tribunals/Courts began to use a hybrid
method of using Nance’s method without making deduction for
imponderables.
The situation has now undergone a change with the
enactment of the Motor Vehicles Act, 1988, as amended by
Amendment Act, 54 of 1994. The most important change
introduced by the amendment insofar as it relates to
determination of compensation is the insertion of Sections
163A and 163B in Chapter XI entitled ‘Insurance of Motor
Vehicles against Third Party Risks’. Section 165A begins
with a non-obstante clause and provides for payment of
compensation, as indicated in the Second Schedule, to the
legal representatives of the deceased or injured, as the
case may be. Now if we turn to the Second Schedule, we find
a table fixing the mode of calculation of compensation for
third party accident injury claims arising out of fatal
accidents. The first column gives the age group of the
victims of accident, the second column indicates the
multiplier and the subsequent horizontal figures indicate
the quantum of compensation in thousand payable to tile
heirs of the deceased victim. According to this table the
multiplier varies from 5 to 18 depending on the age group to
which the victim belonged. Thus, under this schedule the
maximum multiplier can be upto 18 and not 16 as was held in
Susamma Thomas’ case.
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 No.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 3000 x 15 = 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. Besides, the
selection of multiplier cannot in all cases be solely
dependent on the age of the deceased. For example, if the
deceased, a bachelor, dies at the age of 45 and his
dependents are his parents, age of the parents would also be
relevant in the choice of the multiplier. But these mistakes
are limited to actual calculations only and not in respect
of other items. What we propose to emphasise is that the
multiplier cannot exceed 18 years’ purchase factor. This is
the improvement over the earlier position that ordinarily it
should not exceed 16. We thought it necessary to state the
correct legal position as Courts and Tribunals are using
higher multiplier as in the present case where the Tribunal
used the multiplier of 24 which the High Court raised to 34,
thereby showing lack of awareness or the background of the
multiplier system on Davies’ case.
We had indicated we would not interfere with the amount
awarded, since in our view, while the multiplier used is
excessive, we are satisfied that a very low multiplicand was
used as the loss of dependency. If we were to correct the
multiplicand and use the correct multiplier, the
compensation would wors out to near about the same figure.
Therefore, while agreeing with the learned Advocate for the
appellant, we are disinclined to interfere with the figure
of compensation. We, therefore, hold that the Tribunal/Court
fell into an error in the choice of the multiplier and allow
the appeal to that extent but we do not, in the
circumstances of the case, interfere with the quantum of
compensation. No order as to costs.
The copy of this Judgment may be sent to all the High
Courts with a direction to circulate it to the
Courts/Tribunals dealing with the Motor Accident
compensation cases.