Computing ‘Future Prospects’

Source: The Hitavada      Date: 06 Nov 2017 11:30:00


According to the larger bench, the seminal issue is the fixation of future prospects in cases of deceased, who is self-employed or on a fixed salary. In this case, the court has carved out an exception permitting the claimants to bring materials on record to get the benefit of addition of future prospects.

A 5-JUDGE Bench of the Supreme Court led by the Chief Justice Dipak Misra and beside him, consisting of Justice A.K. Sikri, Justice A.M. Khanwilkar, Justice Dr. D.Y. Chandrachud and Justice Ashok Bhushan have issued an 8-point Guideline, while answering a Reference on October 31, 2017, relating to reconciling differing views on the issue of computation of “future prospects” in accident compensation cases arising in a bunch of 23 special leave petitions and 5 civil appeals including National Insurance Company Ltd. V. Pranay Sethi and Others.


Taking cognisance of difference in opinion between its two decisions – Reshma Kumari and Others v. Madan Mohan and Another –(2013) 9 SCC 65 and Rajesh and Others v. Rajbir Singh and Others – (2013) 9 SCC 54 -both 3- Judge Bench decisions, a two-Judge bench of the court, in the case – National Insurance Company Ltd. V. Pushpa and Others – (2015) 9 SCC 166 thought it appropriate to refer the matter to a larger bench for an authoritative pronouncement, and that is how the issue was placed before this 5-Judge bench.


The decision of the Supreme Court in the case – Sarla Verma and Others v. Delhi Transport Corporation and Another – (2009) 6 SCC 422 is the axis of the controversy, wherein the two –Judge bench made a sanguine endeavour to simplify the determination of claims by specifying certain parameters.


According to this larger bench, the seminal issue is the fixation of future prospects in cases of deceased, who is self-employed or on a fixed salary. In Sarla Verma’s decision, the court has carved out an exception permitting the claimants to bring materials on record to get the benefit of addition of future prospects. It has not,per se, allowed any future prospects in respect of the said category. The court has stated that its thinking is that when it accepts the principle of standardization, there is really no rationale not to apply the said principle to the self-employed or a person who is on a fixed salary. To follow the doctrine of actual income at the time of death and not to add any amount with regard to future prospects to the income for the purpose of determination of multiplicand would be unjust.


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 168 of the Motor Vehicles Act.


In case of a deceased who had held a permanent job with inbuilt grant of annual increment, there is an acceptable certainty. But to state that the legal representatives of a deceased who was on a fixed salary would not be entitled to the benefit of future prospects for the purpose of computation of compensation would be inapposite. It is because the criterion of distinction between the two in that event would be certainty on one hand and staticness on the other.


One may perceive that the comparative measure is certainty on the one hand and uncertainty on the other but such a perception is fallacious. It is because the price rise does affect a self-employed person; and that apart there is always an incessant effort to enhance one’s income for sustenance. The purchasing capacity of a salaried person on permanent job when increases because of grant of increments and pay revision or for some other change in service conditions, there is always a competing attitude in the private sector to enhance the salary to get better efficiency from the employees.


Though there can be some degree of difference as regards the percentage that is meant for or applied to in respect of the Legal Representatives who claim on behalf of the deceased who had a permanent job than a person who is self-employed or on a fixed salary. But not to apply the principle of standardization on the foundation of perceived lack of certainty would tantamount to remaining oblivious to the marrows of ground reality. And, therefore, degree –test is imperative.


Unless the degree –test is applied and left to the parties to adduce evidence to establish, it would be unfair and inequitable. The degree-test has to have the inbuilt concept of percentage. Taking into consideration the cumulative factors, an addition of 40 pc of the established income of the deceased towards future prospects and where the deceased was below 40 years, an addition of 25 pc where the deceased was between the age of 40 to 50 years would be reasonable.


In the decision of Sarla Verma, the court ‘s verdict was that there should be no addition where the age of the deceased is more than 50 years. The same view was upheld in Reshma Kumari’s decision. To lay down as a thumb rule that there will be no addition after 50 years’ age, will be an unacceptable concept. There should be an addition of 15 pc if the deceased is between the age of 50 to 60 years and there should be no addition thereafter.


Similarly, in case of self-employed or person on fixed salary, the addition should be 10 pc between the age of 50 to 60 years. This yardstick has been fixed to have consistency in the approach of the tribunals and the courts. Against the backdrop of this analysis, the Supreme Court has summarised its conclusions in answer to the Reference stating that :


  1. The two- judge Bench in the case of Santosh Devi v. National Insurance Company Ltd. And Others – (2012) 6 SCC 421 should have been well advised to refer the matter to a larger bench as it was taking a different view than what has been stated in Sarla Verma’s decision of a co-ordinate Bench. It is because a coordinate Bench of same strength cannot take a contrary view than what has been held by another co-ordinate Bench.

  2. 2. As the decision in the case-Rajesh and Others v. Rajbir Singh and Others (2013) 9 SCC 54 has not taken note of the decision in Reshma Kumari’s case, which was delivered at earlier point of time, the decision in the case of Rajesh is not a binding precedent.

  3. 3. While determining the income, an addition of 50 pc 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 pc, 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 pc. Actual salary should be read as actual salary less tax.

  4. 4. In case the deceased was self-employed or on a fixed salary, an addition of 40 pc of the established income should be the warrant where the deceased was below the age of 40 years. An addition of 25 pc where the deceased was between the age of 40 to 50 years and 10 pc 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.

  5. 5. For determination of the multiplicand, the deduction for personal and living expenses, the tribunals and the courts shall be guided by paragraphs 30 to 32 of judgement of Sarla Verma’s case.

  6. 6. The selection of multiplier shall be as indicated in the Table in Sarla Verma decision read with paragraph 42 of that judgement.

  7. 7. The age of the deceased should be the basis for applying the multiplier.

  8. 8. Reasonable figures under 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. These amounts should be enhanced at the rate of 10 pc in every three years. After answering the Reference in these terms, the Supreme Court has directed that these cases be placed before the appropriate Bench for consideration and decision.