K. Ramya & Ors. VERSUS National Insurance Co. Ltd. & Anr

K. Ramya & Ors.  VERSUS National Insurance Co. Ltd. & Anr

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले



REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.7046 OF 2022
[Arising out of Special Leave Petition (C) No. 31931 of 2017]
K. Ramya & Ors. … Appellant(s)
                                             VERSUS
National Insurance Co. Ltd. & Anr. … Respondent(s)
JUDGMENT
Surya Kant, J.
1. Leave Granted.
2. The   present   appeal   is   directed   against   the   judgment   dated
30.06.2017   passed   by   the   High   Court   of   Judicature   at   Madras,
Madurai   Bench   whereby   the   appeal   preferred   by   the   National
Insurance   Co.   Ltd.   (Respondent   No.1;   hereinafter,   “Insurance
Company”)   against   the   award   dated   06.10.2012   passed   by   Motor
Vehicle   Accident   Claims   Tribunal,   Tiruchirappalli   (hereinafter,
“Tribunal”) was allowed and the compensation granted to Apellants
was reduced from Rs. 4,29,37,700/­ to Rs. 57,90,000/­ along with
requisite interest. The factual matrix is succinctly discussed below
before   delving   into   the   issue   of   law   regarding   determination   of
quantum of compensation which requires adjudication before us.
Page | 1
    A.    FACTS
3. S.   Kumareshan   (hereinafter,   “Deceased”)   was   a   resident   of
Tiruchirappalli, Tamil Nadu. On the fateful day, at about 4 PM in the
evening, he was travelling alone in a Lancer Car bearing Registration
No. TN 45 S 9199 and met with an unfortunate accident with an
Ambassador Car bearing Registration No. TN 59 E 9288 along the
stretch of road between Sethathupatti and Soriampattti. The collision
was so powerful that the drivers of both vehicles passed away before
any medical assistance could reach them. The sole survivors of the
collision were occupants of the Ambassador Car, who miraculously
escaped death but were saddled with multiple injuries. 
4. The Deceased was aged above 31 years at the time of death and
was an income tax assessee. He was a businessman who held diverse
interests in arenas such as jewellery, textiles, exports and transport.
Furthermore, he also drew income from his agricultural lands and
leased out real estate. At the time of his demise, he left behind a
widow,   two   minor   children   and   parents   who   were   stated   to   be
dependent on him. It is to be noted that among these dependents, the
father of the Deceased passed away during the proceedings before the
High Court.
Page | 2
5. The   Deceased’s   dependents   filed   a   claim   petition   for   Rs.
7,00,00,000/­ in August 2004, alleging,  inter alia, that he died as a
result   of   the   injuries   suffered   in   the   abovementioned   accident   of
10.06.2004, which occurred due to the rash and negligent driving of
the   Ambassador   Car   which   the   Insurance   Company   had   insured.
Before the Tribunal, the Insurance Company took the stance that the
Deceased was the one who was responsible for the accident and that
the compensation sought by the Deceased was exorbitant. It is worth
noting   that   the   injured   occupants   of   the  Ambassador   Car   who
survived the crash also filed their respective claim petitions.
6. In reaching its verdict, the Tribunal relied upon the statements
of the abovementioned injured occupants to conclude that it was the
driver of the Ambassador Car who was solely responsible for the crash
and   therefore   assigned   liability   for   the   accident   to   him,   which
ultimately was to be borne by the Insurance Company. As a result, the
claim petition of the Deceased’s dependents was allowed partly, and
compensation of Rs 4,29,37,700/­ was granted along with interest at
the rate of 7.5% per annum. The Tribunal relied on the Deceased’s
income   tax   returns   and   other   financial   documents,   which   were
supported by the testimonies of the chartered accountant, auditor,
and wife of the deceased (Appellant No. 1).
Page | 3
7. The aggrieved Insurance Company filed its appeal which was
decided through the impugned judgement dated 30.06.2017. The High
Court although being in total agreement with the Tribunal’s reasoning
in finding that the Ambassador Car driver was solely liable for the
accident, disagreed with the approach of the Tribunal in respect to the
computation of compensation, primarily under the head of ‘loss of
income’.   It   emphasized   that   the   Deceased   before   his   death   had
transferred his interest in some of the partnership firms in favour of
his minor children. Furthermore, it highlighted that almost all of the
Deceased’s income consisted of returns he received on his capital
assests. Even after his death, the same assets were transferred to his
legal heirs who continued to enjoy the benefits derived from them. The
impugned   judgement’s   reasoning   was   hinged   on   the   premise   that
income derived from capital assets cannot be said to be income earned
out of the Deceased’s personal skills as there was no real contribution
by him. Consequently, the High Court concluded that the Deceased’s
dependants  suffered  no  loss of income  and instead computed the
compensation by fixing his salary at Rs 25,000/­ per month on a
notional basis as per his educational qualification. Furthermore, it
also   made   minor   alterations   under   other   conventional   heads   and
accordingly,  the compensation was reduced to  Rs 57,90,000/­ along
with interest of 7.5% per annum.
Page | 4
    B. CONTENTIONS
8. We have heard the learned counsel for parties and perused the
documents   produced   on   record.   It   must   be   noted   that   Learned
counsels for both sides have not disputed the finding concerning the
Insurance   Company’s   liability   to   pay   the   compensation.   The   only
limited   question   that   remains   disputed   before   us   in   the   present
proceedings pertains to concerning the quantum of compensation that
is to be granted to the Appellants.
9. Mr. K. Radhakrishnan, learned senior counsel for the Appellants
contended that – Firstly, High Court via impugned decision has erred
by   computing   the   compensation   on   the   basis   of   notional   income
despite   the   fact   that   the   Appellants   adduced   specific   evidence   to
ascertain the income earned by Deceased. He strongly asserted that
the Tribunal rightly relied on the income tax returns and the audit
reports of the Deceased to compute the amount under the head of
‘loss of income’ and stated that relevant testimonies supported the
same; Secondly, he contended that the Deceased was actively involved
in   running   multiple   businesses   and   even   undertook   specialized
courses   to   achieve   success.   Hence,   the   High   Court   has   unjustly
concluded that the Deceased has earned no income from his personal
skills;  Thirdly,  it   is   argued   that   the   only   deduction   allowed   while
computing an individual’s income is the tax payable by him in terms
Page | 5
of the decision of the Constitution Bench in National Insurance Co.
Ltd. v Pranay Sethi.
1
; Finally, he contended that the computation of
compensation   under   Section   168   of   Motor   Vehicles   Act,   1988
(hereinafter, “The Act”) must be ‘just’ and the same must co­relate to
the standard of ‘fairness, reasonableness and equitability’ as per the
decision in Pranay Sethi.
2
10. On the contrary, learned counsel for the Insurance Company
argued that High Court has rightly reduced the compensation in view
of the fact that the income tax returns and the audit reports highlight
that the Deceased’s income essentially constituted of returns from his
capital assets which have been duly bequeathed to the Deceased’s
dependents. It was argued that loss of income must be equivalent to
only that portion which corresponds to the skill of the deceased, as a
consequence   of   which   there   has   been   no   loss   of   income   to   the
Appellants in the present case. High Court has rightly taken notional
income as the basis of determination of compensation under the head
of ‘loss of income’. The learned counsel has placed substantial reliance
on   the   decision   of   this   court   in  Rani   Gupta   v   United   India
Insurance   Limited3
  to advance the argument that in the case of
accidental death of people in business, the genuine determination for
1 National Insurance Co. Ltd. v Pranay Sethi (2017) 16 SCC 680, para 59.3.
2 ibid, para 55.
3 Rani Gupta v United India Insurance Limited (2009) 13 SCC 498, para 24.
Page | 6
loss of income depends on ascertaining the Deceased’s contribution in
running the business and the same is a factual enquiry which varies
on the facts and circumstances of each case.
    C. ANALYSIS  
    C.1 DETERMINATION OF ‘JUST’ COMPENSATION UNDER A SOCIAL WELFARE
    STATUTE
11. At the outset, it is pertinent to reiterate the concept of ‘just’
compensation under Section 168 of the Act. It is a settled proposition,
now through a catena of decisions4
 including the one rendered by the
Constitution Bench in Pranay Sethi5
that compensation must be fair,
reasonable and equitable. Further, the determination of quantum is a
fact­dependent exercise which must be liberal and not parsimonious.
It must be emphasized that compensation is a more comprehensive
form of pecuniary relief which involves a broad­based approach unlike
damages   as   noted   by  this   court   in  Yadava   Kumar   v   Divisional
Manager,   National   Insurance   Co.   Ltd6
.   The   discussion   in   the
abovementioned cases highlights that  Tribunals under the Act have
4 Helen C. Rebello v Maharashtra State Road Transport Corporation (1999) 1 SCC
90; United India Insurance Co. Ltd. v Patricia Jean Mahajan (2002) 6 SCC 281; New
India Assurance Co. Ltd. v Charlie (2005) 10 SCC 720; National Insurance Co. Ltd. v
Indira Srivastava (2008) 2 SCC 763.
5 Pranay Sethi (n 1), para 55.
6 Yadava Kumar v Divisional Manager, National Insurance Co. Ltd. (2010) 10 SCC
341, para 17.
Page | 7
been granted reasonable flexibility in determining ‘just’ compensation
and are not bound by any rigid arithmetic rules or strict evidentiary
standards to compute loss unlike in the case of damages. Hence, any
interference by the Appellate Courts should ordinarily be allowed only
when the compensation is ‘exorbitant’ or ‘arbitrary’.    
12. Furthermore, Motor Vehicles Act of 1988 is a beneficial and
welfare legislation7
  that seeks to provide compensation as per the
contemporaneous   position   of   an   individual   which   is   essentially
forward­looking.8
  Unlike tortious liability, which is chiefly concerned
with making up for the past and reinstating a claimant to his original
position, the compensation under the Act is concerned with providing
stability and continuity in peoples’ lives in the future.9
  Keeping the
abovementioned principles in the backdrop, we now move on to the
facts at hand.
    C.2   RELIABILITY ON  INCOME  TAX  RETURNS AND  AUDIT  REPORTS TO
    DETERMINE ‘LOSS OF INCOME’ 
13. The   Deceased   in   the   present   case   was   a   businessman   and
during the proceedings before the Tribunal, the Appellants produced
the   relevant   income   tax   returns,   audit   reports   and   other   relevant
7 Ningamma v United India Insurance Co. Ltd. (2009) 13 SCC 710, para 34.
8 Peter Cane, Atiyah’s Accidents, Compensation and the Law (7th edn, Cambridge
University Press 2006) 411­412.
9 ibid.
Page | 8
documents pertaining to the commercial ventures of the Deceased to
prove the loss of income attributable on account of his sudden demise.
The Tribunal relied on the same and computed the income by taking
an average of the income recorded in three prior financial years (FY
2000­2001,   FY   2001­2002   and   FY   2002­2003)   to   determine   the
compensation under the head of ‘loss of income’.
14. In contrast, the High Court set aside the same on the ground
that the income earned was out of capital assets and cannot be said to
have   been   earned   out   of   personal   skills   of   the   deceased.   It
consequently went on to determine the income of the Deceased on a
notional   basis   as   per   his   educational   qualification.   Unfortunately,
such   an   approach,   in   our   opinion,   is   erroneous   in   view   of   the
decisions of this court in Amrit Bhanu Shali v National Insurance
Co. Ltd.10 and Kalpanaraj v Tamil Nadu State Transport Corpn.11
wherein   this   court   has   held   that   documents   such   as   income   tax
returns   and   audit   reports   are   reliable   evidence   to   determine   the
income   of   the   deceased.   Hence,   we   are   obliged   to   modify   the
compensation, especially when neither any additional evidence has
been produced to showcase that the income of the Deceased was
contrary to the amount mentioned in the audit reports nor it is the
10 Amrit Bhanu Shali v National Insurance Co. Ltd. (2012) 11 SCC 738, para 17.
11 Kalpanaraj v Tamil Nadu State Transport Corpn. (2015) 2 SCC 764, para 8.
Page | 9
stand taken by the Insurance Company that the said reports inflated
the income.
15. At this stage, to facilitate our analysis, it would be pertinent to
divide the income as mentioned in the audit reports into two parts –
(a) Income from Business Ventures and other Investments and (b)
Income   from   House   Property   and   Agricultural   Land.   It   should   be
emphasized that these audit reports only showcase amounts which
specifically stem from the shares and interest held by the Deceased in
the businesses and it is not a case wherein the entire turnover of
businesses are depicted as Deceased’s income. Moreover, it deserves
to be clarified that the income under the abovementioned two parts
have been computed at gross  value as  per the  audit reports and
includes the deductions such as interest paid on loans and expenses
incurred by the deceased. 
C.2.1   –   Treatment   of   Income   from   Business   Ventures   and   other
Investments
16. As per the audit report and other documents, the income under
this part was attributable to the amounts earned from the deceased’s
multiple business ventures, which included the partnership firms and
other investments such as shares and bank interests. On perusal of
the documents on record, it is to be noticed that almost all business
Page | 10
ventures were the result of the initiatives taken by the Deceased, and
he   was   actively   involved   in   the   day­to­day   management   of   these
entities. In fact, the testimony of the Deceased’s wife points out that
the   Appellants   had   to   sell   the   buses   which   were   utilized   in   the
transport business because they were not able to take care of the
vehicles on account of the demise of the Deceased and even the export
business was shut down due to the same reason.
17. The mere fact that the Deceased’s share of ownership in these
businesses ventures was transferred to the Deceased’s minor children
just before his death or to the dependents after his death is not a
sufficient   justification   to   conclude   that   the   benefits   of   these
businesses continue to accrue to his dependents. On the contrary, it
has come on record that the Deceased was actively involved in the
day­to­day   administration   of   these   businesses   from   their   stage   of
infancy, had undergone specialized training to administer his business
and that the audit reports neatly delineate Deceased’s share of income
from the businesses. These facts necessitate that the entire amount
from   the   business   ventures   is   treated   as   income.   Similarly,   the
amount earned from the bank interests and remaining investments
must also be included as income. 
Page | 11
18. The Appellants have produced audit reports for the last four
financial   years   which   highlight   the   amounts   under   ‘Income   from
Business Ventures and other Investments’ which is as per follows – (i)
for   FY   2000­2001   is   Rs.   8,95,812/­   (ii)   for   FY   2001­2002   is   Rs.
10,31,091/­ (iii) for FY 2002­ 2003 is Rs. 14,65,060/­ and (iv) for FY
2003­2004 is Rs. 9,79,099/­. The average of these amounts comes up
to Rs. 10,92,765.50/­, which is rounded off to Rs 10,93,000/­ and the
same is awarded to the Appellants as loss of income derived under
‘Income from Business Ventures and other Investments’. 
C.2.2 – Treatment of Income from House Property and Agricultural Land
19. As per the audit reports, the Deceased used to draw all his rental
income from the share he held in a commercial building known as
‘Lakshmi   Complex’   and   the   remaining   income   was   from   his
agricultural lands, which have been bequeathed to his legal heirs on
his death. The audit reports indicate the amounts under the ‘Income
from House Property and Agricultural Land’ as per follows – (i) for FY
2000­2001 is Rs. 6,90,396/­ (ii) for FY 2001­2002 is Rs. 6,47,127/­
(iii) for FY 2002­ 2003 is Rs. 6,14,329/­ and (iv) for FY 2003­2004 is
Rs.   4,78,240/­.   The   average   of   these   amounts   comes   up   to   Rs.
6,07,523/­.
Page | 12
20. At this juncture, we must note the decision in  Shashikala  v
Gangalakshmamma12  whereby   this   court   deducted   the   entire
amount earned as income from house property while determining the
compensation under the Act. The decision in Shashikala13 was a split
decision   because   of   disagreement   between   the   bench   on   whether
future   prospects   are   to   be   considered   for   awarding   compensation
when the deceased is a self­employed person. Accordingly, the matter
was tagged and heard along with Pranay Sethi14
 , wherein this court
had conclusively decided the abovementioned issue regarding future
prospects. After that, the matter was remitted back to a three­judge
bench for redetermination of compensation, wherein this court again
deducted the entire amount earned as income from house property.15
21. Now, the sole issue which remains before this court is whether
the   entire   amount   under   ‘Income   from   House   Property   and
Agricultural Land’ should be deducted or not. In this respect, we are
guided   by   the   observations   of   this   court   in  State   of   Haryana   v
Jasbir Kaur16 wherein it was noted that – 
8. x­x­x­x 
12 Shashikala v Gangalakshmamma (2015) 9 SCC 150.
13 ibid.
14 Pranay Sethi (n 1).
15 Shashikala v Gangalakshmamma  (Civil Appeal No 2836 of 2015, 14 February
2019).
16 State of Haryana v Jasbir Kaur (2003) 7 SCC 484.
Page | 13
The  land  possessed  by the  deceased  still  remains  with  his
legal heirs. There is however a possibility that the claimants
may be required to engage persons to look after agriculture.
Therefore, the normal rule about the deprivation of income
is not strictly applicable to cases where agricultural income
is   the   source.  Attendant   circumstances   have   to   be
considered. 
(Emphasis Applied)
In our opinion, the abovementioned observations, though made in the
context of agricultural land, would also be applicable to rent received
from leased out properties as the loss of dependency arises mainly out
of loss of management capacity or efficiency. As a rule of prudence,
computation of any individual’s managerial skills should lie between
10 to 15 per cent of the total rental income but the acceptable range
can be increased in light of specific circumstances. The appropriate
approach, therefore, is to determine the value of managerial skills
along with any other factual considerations. 
22. In the instant case, documents produced on record indicate two
salient aspects with respect to ‘Lakshmi Complex’, which was the sole
source of rental income for the deceased. The partition deed related to
the land on which the commercial building is situated, highlights that
the building was constructed on account of the joint investment made
by the Deceased and his partners. Furthermore, as per the rental
records, ‘Lakshmi Complex’ was leased out to more than ten different
Page | 14
commercial entities. Hence, keeping in mind that –  first,  the rental
amount which is sought to be deducted partakes the character of
investment;   and  second,  that   the   managerial   skills   required   for
supervising  the   said   building   would   require   sophisticated   contract
management skills and goodwill among the business community, it is
necessary that we determine the value of managerial skills of the
Deceased on the higher side.
23. Accordingly, we deem it appropriate to award Rs 2,50,000/­ as
the amount for the Deceased’s managerial skills. It is clarified that the
said amount would also include the amount for the managerial skills
in respect of the Deceased’s agricultural lands. It is further clarified
that the remaining amount which has been deducted by us includes
the tax which has to be deducted in terms of the decision in Pranay
Sethi17
    D. CONCLUSION   
24. In   light   of   the   above   discussion,   income   of   the   Deceased   is
computed by adding the amount awarded under the two parts ( Rs
10,93,000/­ +  Rs 2,50,000/­), which comes to Rs 13,43,000/­. In
terms of Pranay Sethi18
, forty per cent of the income has to be added
towards future prospects, which would come to Rs 18,80,200/­. After
17 Pranay Sethi (n 1), para 59.3.
18 Pranay Sethi (n 1), para 59.3.
Page | 15
deducting   one­fourth   towards   personal   expenses   as   per  Sarla
Verma19,   the   net   amount   comes   to   Rs   14,10,150/­   per   annum.
Applying the multiplier of 16, the total loss of dependency on account
of the Deceased’s income is calculated at Rs 2,25,62,400/­. We further
grant compensation under the remaining conventional heads as per
the decisions in Pranay Sethi20 and Satinder Kaur21
.
25. Hence, the compensation is determined as per follows ­
Head Amount
1. Loss   of   Income   =   [(Income   +   Future
Prospects   computed   at   40%)   –   1/4th
Deduction   for   Personal   Expense]   x
Multiplier 
Rs 2,25,62,400/­
2. Funeral Expenses  Rs 15,000/­
3. Loss of Estate  Rs 15,000/­
4. Loss of Spousal Consortium Rs 40,000/­
5. Loss of Parental Consortium  (Rs 40,000 x 2) =
Rs 80,000/­
Total compensation (1+2+3+4+5) Rs 2,27,12,400/­
26. We also direct that the interest at the rate of 7.5% per annum
shall be payable on the aforesaid amount from the date of filing the
claim petition till the date of realization. The enhanced amount shall
be paid to the claimants within three months from today. Needless to
19 Sarla Verma v DTC (2009) 6 SCC 121.
20 Pranay Sethi (n 1), para 59.8.
21 United Insurance Company Ltd. v Satinder Kaur (2021) 11 SCC 780, para(s) 33­
37.
Page | 16
say, that the amount already paid or deposited shall be adjusted while
depositing the enhanced compensation awarded by this court. 
27. Hence, the judgment under appeal of the High Court is set aside
and the Appellants are held entitled to enhanced compensation as
determined above. 
28. The   appeal   stands   disposed   of   along   with   any   pending
applications in above terms.
………..………………… J.
(SURYA KANT)
…………………………...J.
(V. RAMASUBRAMANIAN)
NEW DELHI
DATED: 30.09.2022
Page | 17

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