Holding

Compensation for loss of dependency must be calculated on the basis of the deceased’s actual earnings at the time of death and cannot include salary revisions that became effective only after the accident.

Summary

The Supreme Court examined an appeal by Oriental Insurance Company Ltd. against a compensation award to the heirs of Devjibhai Rathod, an ONGC assistant who died in a 1994 bus accident. The lower tribunals had calculated loss of dependency by incorporating ONGC's pay revisions that took effect from 1997, thereby inflating the deceased's prospective earnings. The Court held that compensation must be based on the deceased's actual earnings at the time of death and that future salary revisions, which were not in force at the date of death, cannot be factored in unless grounded on a clear legal principle. It affirmed the use of the multiplier of 13 appropriate to the deceased’s age and upheld the 8% interest rate awarded by the High Court. Consequently, the appeal was partly allowed, correcting the compensation calculation.

Issues considered

Whether salary revisions of the deceased that were effected after the date of death can be taken into account while determining loss of dependency under s.166 of the Motor Vehicles Act, 1988.
Whether the method of calculating loss of dependency, including the choice of multiplier and consideration of future prospects, was correctly applied by the Tribunal and the High Court.

Legislation cited

Motor Vehicles Act, 1988s. 129, s. 166

Subjects

Motor Vehicles ActCompensationLoss of DependencyPay RevisionMultiplier MethodFuture ProspectsInsurance ClaimRetrospective Salary

Judgment

[2008] 2 S.C.R. 930

A ORIENTAL INSURANCE COMPANY LTD.
v.
JASHUBEN AND ORS.
(Civil Appeal No. 1272 of 2008)
FEBRUARY ~) 2008
B
[S.B. SINHA AND V.S. -SIRPURKAR, JJ.]
~

Motor Vehicles Act, 1988 - s. 166 - Accidents claim -
Determination of compensation - Assistant working in ONGC
c met with accident while traveling in a bus and died - lncidef!t
occurred in 1994 - Determination of compensation by Courts
below by taking into consideration future prospects of the
deceased including pay revision made by ONGC w.e.f. 1'-1-
1997 - Challenge to - Held: Present case is not one where,
as on date of death, salary of deceased was revised with
0
retrospective effect from 1994 - Salary would be revised or ~
not was not known at that point of time - Only because salary
was revised at a later point of time, same by itself would not
have been a factor which could have been taken into
E consideration for determining compensation - Though, further
prospect is not ·out of bound for such consideration, but same
should be founded on some legal principle - What would have
_been income of deceased on date of retirement was not a
relevant factor in light of peculiar facts of this case and, thus,
·, approach of Courts below was incorrect- It was impermissible
F ·in law to take into consideration the effect of revision in scale
of pay w.e.f 1-1-1997.
Passenger traveling in a bus met with an accident
due to rash and negligent driving on the part of the bus
G driver and died. The incident occurred in 1994. Deceased,
at that time, aged 35 years, was working as an Assistant
in the Oil and Natural Gas Commission (ONGC).
In appeal to this Court, the contention of the
insurance company is that while determining
H 930
ORIENTAL INSURANCE ,COMPANY LTD. v. 931
JASHUBEN AND ORS.
...
"""I
...... compensation payable to heirs and LRs of the deceased, A
the Courts below erred in taking into consideration future
prospects of the deceased including pay revision mad.e
by ONGC w.e. f. 1-1-1997.
Partly allowing the appeal, the Court
B
HELD:1.1. The amount of compensation payable to
~ the heirs and legal representatives of a deceased victim
>
of an accident must be a fair and reasonable one. The
estimate of the amount of loss of dependency may be
arrived at by adopting various methods, application of c
structured formula being one of them. Such a formula has
also been provided for in Schedule II appended to the
Motor Vehicles Act, 1988. While determining the amount
of compensation, certain well known principles must be
kept in mind. [Para 11] [937-C, D, E]
D
1.2. The present case is not one where, as on the
~
date of death, the salary of the deceased was revised with
retrospective effect from 1994. Salary would be revised
or not was not known at that part of time. Only because
such salary was revised at a later point of time, the same E
by itself would not have been a factor which could have
been taken into consideration for determining the amount
of compensation.The Tribunal, therefore, committed a
serious illegality in taking into consideration the latter
aspect. [Para 12] [937-E, F]
F
~ 1.3. The amount of compensation indisputably
should be determined having regard to the pecuniary loss
caused to the dependents by reason of the death of the
victim .. It was necessary to consider the earnings of the
deceased at the time of the .accident. Of course, further G
prospect is not out of bound for.such consideration. But
~r.
the same should be founded on some legal principle.
[Para 13] [937-G; 938-A]
1 .. 4. What would have been the income of the
deceased on the date of retirement was not a relevant H
932 SUPREME COURT REPORTS [2008]2 S.C.R.

\

A factor in the light of peculiar facts of this case and, thus,
the approach of the Tribunal and the High Court must be
held to be incorrect. It is impermissible in law to take into
consideration the effect of revision in scale of pay w.e.f.
1.1.1997 or what would have been the scale of pay in 2002.
B [Para 25] [943-D, E] ·
General Manager, Kera/a State Road Transport
Corporation, Trivendrum v. Susamma Thomas (1994) 2 SCC .
176; Sar/a Dixit & Anr. v. Ba1want Yadav & Ors. (1996) 3 SCC
179; Rathi Menon v. Union of India (2001) 3 SCC 714; N.
C Sivammal and Ors. v.. Managing Director, Pandian Roadways
Corporation and Ors. (1985) 1 SCC 18; TN. State Transport
Corporation Ltd. v. S. Rajapriya and Ors. (2005) 6 SCC 236;
New India Assurance Co. Ltd. v. Charlie and Anr. (2005) 1O
SCC 720; New India Assurance Co. Ltd. v. Kalpana (Smt.)
D and Ors. (2007) 3 SCC 538; Bijoy Kumar Dugar v. Bidya Dhar
Dutta & Ors. (2006) 3 SCC 242; U.P State Road Transport
Corporation v. Krishna Bala & Ors. (2006) 6 SCC 249; The
Managing Director, TNSTC v. Sripriya & Ors. (2007) 4 SCALE
222 and National Insurance Company Ltd. v. Indira Srivastava
E & Ors. (2007) 14 SCALE 461 - referred to.
2.1. The loss of dependency should be calculated
on the basis as if the basic pay of the deceased was
=
Rs. 3295/- X 2 Rs. 6,590/-, thereto should be added 18.5%
dearness allowance which comes to s.1219/-, child
F education allowance for two children @ Rs. 240/- X 2 =
=
Rs.480 and child bus fair Rs.160 X 2 Rs.320/- should
have been added which comes to Rs.8,609/-. From the
aforementioned figure, 1/3rd should be deducted. After
deduction, the amount of income comes to Rs.5,738/- per
G month [Rs.8609/- Rs.2871/-] and the amount of
compensation ~hould be determined by adopting the
multiplier of 13, which comes to Rs.8,95, 128/- [Paras 26,
27] [943-E, F, G] ... /

2.2. In the present case, the High Court itself has
H applied the multiplier of 13. No interference .therewith is
,
ORIENTAL INSURANCE COMPANY LTD. v. 933
JASHUBEN AND ORS. [S.B. SINHA, J.]

....
~
~ warranted. Furthermore no interference is warranted with A
the 8% rate of interest applied by the High Court in the
facts and circumstance of the case. [Para 28] [944-A]
CIVILAPPELLATE JURISDICTION: Civil Appeal No. 1272
of.2008.
B
From th~ Judgment and Order dated 22.11.2006 of the
1
~ High Court ot Gujarat at Ahmedabad in First Appeal No. 4586
• of 2006.
Parikaj Seth and Manjeet Chawla for the Appellant.
c
D.G. Karia, Manish T. Karia and Sunil Kumar Verma for
the ~espondents.
The Judgment of the Court was delivered by
S.B. SINHA, J. Leave granted. D
-lo!
1. Appellant is before us aggrieved by and dissatisfied
with a judgment and order dated 22.11.2006 passed by the
Division Bench of the High Court of Gujarat at Ahmedabad in
"\ First Appeal No.4586 of 2006 dismissing the appeal preferred
by him. E
2. Claimants-Respondents herein are heirs and legal
representatives of Davjibhai Kushalbhai Rathod. He, while
travelling in a mini luxury bus as a passenger from Surat to
Mehsana, met with a road accident which took place on
23.6.1994. The accident occurred due to rash and negligent F
driving on the part of the driver of the said mini bus is not
question.
3. The deceased, Devjibhai, at that time, was aged about
35 years. He was working as an Assistant in the Oil and Natural G
Gas Commission. A sum of Rs.12,00,000/- was initially claimed
~ by way of compensation which was subsequently raised. to
25,00,000/-. The Tribunal, as per the ce.rtificate issued by the
Senior Personnel and Administrative Officer, ONGC, noticed
that the deceased had been receiving the following salaries and
H
ORIENTAL INSURANCE COMPANY LTD. v. 935
JASHUBEN AND ORS. [S.8. SINHA, J.]

~ 5. The Tribunal, clubbed the income of the deceased which A

- he might have got at the time of his retirement, i.e., Rs.3,295/- +
Rs.17453/-, totaling a sum of Rs.20, 748/- and divided the same
by figure two to arrive the figure of at Rs.10,374/- per month.
Adopting a multiplier of 16, the amount of compensation was
determined at Rs.13,27 ,872/-. Besides the compensation B
amount, amount of gratuity, conventional amount and funeral
·~ expenses were calculated as follows :
.~

"Rs. 13,27,872/- towards dependency loss

Rs. 10,000/- towards conventional amount c
Rs. 3,000/- towards funeral expenses

Rs. 3.02,468/- towards gratuity
Rs. 16,43 1 340/-"
D
6. Interest on the said amount sum at the rate of 12 per
cent was also·awarded.
7. On an appeal preferred by the appellant thereagainst, a
" Division Bench of the High Court opined that as a revision of
pay had been effected by ONGC from 1.1.1997 and in August E
2002, the employees in the same cadre would have received a
sum of Rs.10,693/- per month with Dearness Allowance at the
rate of 35.5% amounting to Rs.3892/- and other allowances.
The net income of the deceased was found to be at least a sum
~ of Rs.16,000/- so as to enable the Tribunal to come to the F
conclusion that the loss of dependency benefit would come

.
•.
to Rs.16,000/- from January 1997 onwards. The High Court
stated:

"In view of the above settled legal position, we do not find
G
any difficulty in accepting the submission of Mr. Nanavati
' -7 for the original claimants that the Tribunal was justified in
looking at the pay revision of employees of the ONGC for
the purpose of assessing prospective income of the
deceased. The accident in question took place in
H
~

936 SUPREME COURT REPORTS [2008] 2 S.C.R.
I

,...._ ''
A September 1994. The basic pay of the deceased at that
time was Rs.3295/- and with dearness allowance and other
allowances, his total pay-packet was Rs.6,418/-. Even
proceeding on the basis that the deductions made by the
-
'I

·'
. ,,I
employer may be taken into account, basic pay, dearness
B allowance, drill site compensation allowance and house
rent allowance granted to the deceased would almost
come to Rs.5,000/- per month. Within less than three years ~

from the date of the accident, pay revision was made by
•
the ONGC with effect from 1.1.97 and in August 2002,
c basic pay of the employees in the s·ame cadre in which ·
the deceased was working was Rs.10,693/- per month ~
with dearness allowance at the rate of 35.5% being
'
.t
Rs.3892/-; drill site compensatory .allowance and HRA
were also substantially revised and they were 20% and
D 22.5% of the basic pay in August 2002. These four items
aggregated to Rs.19, 184/- per month. Over and above
~
these heads, there were also other allowances like
productivity allowance, conveyance allowance, child
>.
education allowance, child bus welfare allowance, etc.
E making it a total figure of Rs.21,808/-. Even after taking
. into account all deductions including the income tax liability,
the net income available to the deceased and his family
would have been at least Rs.16000/- frqm January 1997 ·
onwards."· '.,.
~
F 8. The Hjgh Court, however, not only adopted the multiplier "f
of 13 instead of 16 to arrive at the conclusion that the loss of
dependency would be about Rs.16,000/-, but also interfered
with the rate of interest to hold that reasonable interest payable 'I
would be 8% per annum. Appellant was directed to deposit the
G said amount with proportionate costs and interest at the rate of
8% per annum from the date of filing of the claim petition till its 'f-
realization.
•

9. Mr. Pankaj Seth, learned counsel appearing on behalf
of the appellant, would submit that the Tribunal as also the High
·-
H
:..--
'
i.

ORIENTAL INSURANCE COMPANY LTD. v. 937
JASHUBEN AND ORS. [S.B. SINHA, J.]

Court committed a serious error in passing the impugned A
judgment in so far as 'they failed to take into consideration that
computation for loss of income should have, in a situation of
J.
this nature, been determined only by doubling the amount of the
salary received by the deceased at the relevant time. Future
prospects, according to the learned coun~el, could not have B
been taken into consideration.
~
• 1 O. Mr. Karia, learned counsel appearing for the
respondent, on the other hand, urged that future prospect
including the revision in the scale of pay should be taken into
consideration for the purpose of determination of the amount of C,
compensation.
11. The amount of compensation payable to the heirs and
legal representatives of a deceased victim of an accident must
be a fair and reasonable one. The estimate of the amount of D
loss of dependency may be arrived at by adopting various
methods, application of structured formula being one of them:
Such a. formula has also been provided for in Schedule II
appended to the Motor Vehicles Act, 1988. While determining
the amount of compensation, certain well known principles must E
be kept in mind.
12. It is not a case where, as on the date of death, the
salary of the deceased was revised with retrospective effect
from 1994. Salary would be revised or not was not known at
that part of time. Only because such salary was revised at a F
later point of time, the same by itself would not have been a
factor which could have been taken into consideration for
determining the amoun.t of compensation: The Tribunal,
therefore, committed a serious illegality in taking into
consideration the latter aspect. G
-~ 13. The amount of compensation indisputably should be
determined having regard to the pecuniary loss caused to the
dependents by reason of the death of the victim. It was necessary
to consider the earnings of the deceased at the time of the
H
938 SUPREME COURT REPORTS (2008] 2 S.C.R.

A accident. Of course, further prospect is not out of bound for such
consideration. But the same should be founded on some legal
;-
principle.
14. In General Manager, Kera/a State Road Transport
B Corporation, Trivendrum v. Susamma Thomas [(1994) 2 SCC
176], this Court held :
"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
c 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 yield the
o 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."
15. The legal principle in this behalf has been laid down in
E the following terms :
"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
F
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.
G
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. The
deceased person in this case had a more or less stable
job. It will not be inappropriate to take a reasonably liberal
H
ORIENTAL INSURANCE COMPANY LTD. v. 939
JASHUBEN AND ORS. [S.8. SINHA, J.]

.... view of the prospects of the future and in estimating the A
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 B

.. ....
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 c
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
capitalise with the appropriate multiplier. In the present D
case we can take about Rs. 1,400/- 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= 2,04,000/- rupees) to which E
is added the usual award for loss of consortium and
loss of the estate each in the conventional sum of
Rs. 15,000/."

This Court in Sar/a Dixit & Anr. v. Ba/want Yadav & Ors.·
,. [(1996) 3 sec 179] opined : F

"The average gross future monthly income could be arrived
at by adding the actual gross income at the time of death,
namely, Rs.1,500/- per month to the maximum which he
would have otherwise got had he not died a premature
G
death, i.e., Rs.3,000/- per month and dividing that figure
-)t by two. Thus, the average gross monthly income spread
over his entire future career, had it been available, would
work out to Rs.4,500/- divided by 2, i.e., Rs.2,200/-.
Rs.2,200/- per month would have been the gross monthly
H
940 SUPREME COURT REPORTS [2008] 2 S.C.R.

A average income available to the family of the deceased J,.._

had he survived as a bread winner." ,,..
16. In Rathi Menon v. Union of India [(2001) 3 SCC 714],
this Court, upon considering the dictionary meaning of
compensation held :
B
"In this context a reference to Section 129 of the Act appears
useful. The Central Governme.nt is empowered by the said
provision to make rules by notification "to carry out the
~ ...
,

purposes of this Chapter". It is evident that one of the
c purposes of this chapter is that the injured victims in railway
accidents and untoward incidents must get compensation.
Though the word "compensation" is not defined in the Act
or in the Rules it is the giving of an equivalent or substitute
of equivalent value. In Black's Law Dictionary ,
D "compensation" is shown as

'equivalent in money for a loss sustained; or ~·
giving back an equivalent in either money which
is but the measure of value, or in actual value
otherwise conferred; or recompense in value
E for some loss, injury or service especially when
it is given by statute.'

It means when you pay the compensation in terms of money
it must represent, on the date of ordering such payment,
the equivalent value."
F
17. In N. Sivamma/ and Ors. v. Managing Director,
Pandian Roadways Corporation and Ors. [(1985) 1 SCC 18],
this Court took into consideration the pay packet of the
deceased.
G
18. We may also notice that in TN. State Transport
Corporation Ltd. v. S. Rajapriya and Ors. [(2005) 6 SCC 236],
this Court held :

"8. The assessment of damages to compensate the
H dependants is beset with difficulties because from the
~
ORIENTAL INSURANCE COMPANY LTD. v. 941
--j JASHUBEN AND ORS. [S.8. SINHA, J.]
.
~

_....
· nature of things, it has to take into account many A
imponderables e.g. the life expectancy of the deceased
...;' and the dependants, the amount that the deceased would
I
have earned during the remainder of his life, the amount
' that he would have contributed to the dependants during

..
.that period, the chances that the deceased may not have 8
lived or the dependants may not live up to the estimated
... remaining period of their life expectancy, the chances that
the deceased might have got better employment or
income or might have lost his employment or income
together. c
9. The manner of arriving at the damages is to ascertain
the net income of the deceased available for the support
of himself and his dependants, and to deduct therefrom
~
such part of his income as the deceased was accustomed
to spend upon himself, as regards both self-maintenance D
~-::

""'--\ and pleasure, and to ascertain what part of his net income
the deceased was accustomed to spend for the benefit of
the dependants. Then that should be capitalised by
multiplying it by a figure representing the proper number
of years' purchase. E
10. Much of the calculation necessarily remains in the
realm of hypothesis "and in that region arithmetic is a
good servant but a bad master" since there are so often
many imponderables. In every case "it is the overall picture
~ that matters", and the court must try to assess as best as F
it can the loss suffered."
19. The same view was reiterated in New India Assurance
Co. Ltd. v. Charlie and Anr. [(2005) 10 SCC 720]. However,
therein although the· words 'net income' has been used but the G

......'
same would ordinarily mean gross income minus the statutory
deductions. We must also notice that the said decision has been
followed in New India Assurance Co. Ltd. v. Kalpana (Smt.)
and Ors. [(2007) 3 SCC 538].
H
t

942 SUPREME COURT REPORTS [2008] 2 S.C.R.

~
)>..
A 20. In Bijoy Kumar Dugar v. Bidya Dhar Dutta & Ors.
[(2006) 3 sec 242], this Court, in a case where the salary of

•
/

the deceased was found to be Rs.3600/- after deduction and
wherein multiplier of 12 was applied where the age of the parents
of the deceased was between 45 and 50 years, held that no
B further enhancement was warranted.
21. In U.P. State Road Transport Corporation v. Krishna
Bala & Ors. [(2006) 6 SCC 249], it was held :
"The multiplier method involves the ascertainment of the
~
..
c 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 11
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 ~
D
interest appropriate to a stable economy, would yield 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 over the period for
which the dependency is expected. to last."
E
22. Therein a multiplier of 13 was adopted in a case where
the age of the deceased was around 36.
23. Almost to the same effect is the decision of this Court ,..._

in The Managing Director, TNSTC v. Sripriya & Ors. [2007 (4)
F SCALE 222]. In that case, a multiplier of 12 was applied in a ~
case where the age of the deceased was 37 years.
24. Even certain allowances payable to the deceased
could have been taken into consideration in the changing social
scenario. In National Insurance Company Ltd. v. Indira
G
Srivastava & Ors. [2007 (14) SCALE 461], it is useful to notice, .
~
this Court observed :
"17. The amounts, therefore, which were required to be
paid to the deceased by his employer by way of perks,
H should be included for computation of his monthly income
•
ORIENTAL INSURANCE COMPANY LTD. v. 943

. JASHUBEN AND ORS. [S.B. SINHA, J.]

as that would have been added to his monthly income by A
way of contribution to the family as contradistinguished to
the ones which were for his benefit. We may, however,
hasten to add that from the said amount of income, the
statutory amount of tax payable thereupon must be
deducted." B
...... Noticing the dictionary meaning of 'income', it was held :
"19. If the dictionary meaning of the word 'income' is taken
to its logical conclusion, it should include those benefits,
either in terms of money or otherwise, which are taken c
into consideration for the purpose of payment of income-
tax or profession tax although some elements thereof may
or may not be taxable or would have been otherwise
taxable but for the exemption conferred thereupon under
the statute."
D
~ 25. We, therefore, are of the opinion that what would have
been the income of the deceased on the date of retirement was
not a relevant factor in the light of peculiar facts of this case
and, thus, the approach of the Tribunal and the High Court must
be held to be incorrect. It is impermissible in law to take into E
.... consideration the effect of revision in scale of pay w.eJ. 1.1.1997
or what would have been the scale of pay in 2002.

26. The loss of dependency, in our opinion, should be
calculated on the basis as if the basic pay of the deceased
~
=
been Rs. 3295/- X 2 Rs. 6,590/-, thereto should be added F
18.5% dearness allowance which comes to Rs.1219/-, child
education allowance for two children @ Rs.240/- X 2 = Rs.480
and child bus fair Rs.160 X 2 =
Rs.320/- should have been
added which comes to Rs.8,609/-.
G
-·')t· 27. From the aforementioned figure 113rd should be
---.t
deducted. After deduction, the amount of income comes to
Rs.5,738/- per month [Rs.8609/- - Rs.2871/-] and the amount
of compensation should be determined by adopting the
multiplier of 13, which comes to Rs.8,95, 128/-
H
944 SUPREME COURT REPORTS [2008] 2 S.C.R.

A 28. fnthe presemcase, the High Court itself has applied
the multipfierof13. We.are of the opinion that no interference
therewith is warranted. Wefurthermore do not intend to interfere
with the rate of interest in the facts and circumstance of the case.

29. The appeal is aHowed in part and to the extent.
8 mentioned hereinbefore. In the facts and circumstances of the
case, there sha11 be ·no order as to costs.

B.B.B. Appeal partly allowed.