M J Antony: Compensation just got bigger

OUT OF COURT

By adding perks in computing losses, the Supreme Court has hiked the amount of damages in accident claims.

While awarding compensation for death, injury or loss, the courts are normally conservative in calculating the damages. The judicial mindset is modelled on that of the governments which grant a pittance as ex-gratia for victims of negligence of their servants, survivors of riots or mass disasters. Life seems cheap. Perhaps the only law which talks about 'just compensation' is the Motor Vehicles Act. However, when accident-claims tribunals try to be just and grant a fair amount to the heirs, insurance companies invariably protest and take the issue up to the Supreme Court. In a surprise turn, the court has now given a liberal interpretation of the expression 'just compensation' in a recent case, displacing some of its own earlier judgments.

In the judgment, National Insurance Company vs Indira Srivastava, it asserted that the expression, occurring in Section 168 of the Act, "should be assigned a broad meaning." Earlier, the compensation was computed on the net income of the victim, keeping out the perks which private sector companies grant to attract professional talent. In the new twist to the law, the Supreme Court has included them also, while working out the loss to the family due to the death of the bread winner. Since the perks often match or exceed basic salary and dearness allowance, this will enhance the total compensation package.

In this case, a middle-aged executive died in a road accident. His wife moved the tribunal for compensation. It included all the monthly payments made by the employer "" except the conveyance allowance "" to arrive at the annual loss. Multiplying it by the working life expectancy of 13 years, it awarded Rs 20 lakh as damages. Both parties appealed to the Allahabad high court, which largely upheld the tribunal's view.

The insurance company appealed to the Supreme Court, arguing that only the basic pay should be taken into account for determining the ultimate figure. The court rejected this contention, and made some pathbreaking rules for evaluating the damages.

The judgment said: "We cannot lose sight of the fact that private sector companies, in place of introducing a pension scheme, take recourse to the payment of contributory provident fund, gratuity and other perks to attract people who are efficient and hard-working. The different offers made to an officer may be either for the benefit of the employee himself or for the benefit of the entire family. If some facilities are being provided whereby the entire family stands to benefit, the same must be held to be relevant for the purpose of computing the total income."

Applying this principle, the court took into account the PF contribution, LTA, house rent allowance, superannuation benefits, gratuity, medical policy for self and family, and education scholarship for two children in the family while calculating the compensation. Most of these are deferred payments and they are in the nature of savings. This interpretation made a great difference, as the basic salary in this case was only around Rs 5,000 per month, and the insurance company would have got undeserved relief from its liability. The court disallowed only two items "" medical expenses on production of bills and income tax deductions.

Some high courts have already gone ahead of the Supreme Court in this field. The Madras high court, in National Insurance Co vs Padmavathy decided last year, took the present Supreme Court view. The Andhra Pradesh high court, in S Narayanamma vs Telecom Ministry (2002), went many steps further and added housing loan, vehicle loan and festival advance, but excluded phone bills, servants, car maintenance, club fee and newspaper subscriptions. It cited the Supreme Court decision in Concord of India Insurance vs Nirmaladevi (1980), which emphasised that "determination of quantum must be liberal and not niggardly since law values life and limb in a free country in generous scales."

Some Supreme Court decisions which took a contrary stand need not be followed as they did not consider the full import of the expression 'just compensation'. One such decision which took the conservative view was Asha vs United India Insurance. What would constitute just compensation, the judgment said, would depend upon the facts and circumstances of the case. "The basis for considering the entire pay packet is what the dependants have lost due to death. It is in the nature of compensation for future loss towards the family income," the judgment explained. It also ruled that the phrase 'net income' in the present context would ordinarily mean gross income minus the statutory deductions like income tax.

This decision will have a cascading effect on other quasi-judicial bodies determining damages, like the railway claims tribunals, though the phrase 'just compensation' might be absent in other statutes.