Multiplier Deciphered

Use of multiplier in computation of compensation in motor accident cases in India

 

 

Compensation in bodily injury and third party property damages in road accident in India under Motor Vehicle Act, 1988 has to be ‘just compensation’. The tribunal under section 168 of Motor Vehicle Act is empowered and enjoined to award ‘just compensation’. This is the only requirement under the Act, but what is ‘just compensation’ has eluded the definition.

 

 

How to arrive at the ‘just compensation’ has evolved over a period of time by applying the various calculation methods adopted in computing the compensation in Fatal Accident cases. Different principles evolved over the time from Davies v Powell Duffryn Associated Collieries Ltd. 1942 AC 601, Nance v British Columbia Electric Railways Co.Ltd. 1951 AC 601, Mallet v McMonagle, 1969 (2) All England Reports 178 at 191 etc.

 

The various principles of awarding compensation under Fatal Accident Act were discussed for the first time in India in Gobald Motor Service Ltd. & Anr. v R. M. K. Veluswami & Others 1962 AIR, 1 1962 SCR (1) 929. It was quoted from House of Lords in Davies v Powell Duffryn Associated Collieries Ltd:

"The general rule which has always prevailed in regard to the assessment of damages under the, Fatal Accidents Acts is well settled, namely, that any benefit accruing to a dependent by reason of the relevant death must be taken into account. Under those Acts the balance of loss and gain to a dependent by the death must be ascertained, the position of each dependent being considered separately."

The same principle was restated with force and clarity by Viscount Simon in Nance v. British Columbia Electric Railway Company Ltd.

Shortly stated, the general principle is that the pecuniary loss can be ascertained only by balancing on the one hand the loss to the claimants of the future pecuniary benefit and on the other any pecuniary advantage which from whatever source comes to them by reason of the death, that is, the balance of loss and gain to a dependent by the death must be ascertained.

It must be noted that claimants have been the focal points for compensation or benefits accrued in such cases.

In another landmark case of General Manager, Kerala S.R.T.C vs Susamma Thomas 1994 AIR 1631, 1994 SCC (2) 176 Court recognized the two methods adopted for determination and for calculation of compensation in fatal accident actions, the first the multiplier mentioned in Davies case' and the second in Nance v. British Columbia Electric Railway Co. Ltd.

“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 yield the multiplicand by way of annual interest popularly called Interest Capitalization. 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 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.

The very first case before the Supreme Court of India where the sole question was the use of correct multiplier in determination of compensation in a claim made by the parents of a bachelor victim in a road accident was U.P. State Road Transport v Trilok Chandra & Others which was decided by a three-judge bench in which it held that multiplier to be based on the age of the parents in bachelor death case.

The second case squarely and solely covering the issue ‘the use of correct multiplier in bachelor death case’ was in two appeals before the Supreme Court in New India Assurance Company Ltd v Smt. Shanti Pathak And Ors, again before a three-judge bench, in which also it was held that the age of the claimants and not the age of the deceased is the relevant factor for multiplier.

In National Insurance Co.Ltd vs Gurumallamma & Anr. the claim petition was filed by the parents under section 163A of Motor Vehicle Act, 1988 in which it as contended that in a proceeding under Section 163A of the Act is required to determine the amount of compensation as specified in the Second Schedule. It is not required to apply the multiplier except in a case of injuries and disabilities. The Division bench of the Supreme Court held:

“In view of the aforementioned finding, we are of the opinion that it is not necessary for us to take into consideration, the decisions cited at the bar suggesting that in a case of death of an unmarried person and wherein the claimants are the parents of the deceased, the age of the deceased shall be irrelevant factor for applying the multiplier specified in the Second Schedule.

 

 

In Radhakrishna and another Vs. Gokul and others, claim petition was filed under section 166 by the parents of the deceased who was 19 years old engineering student. The division bench of the Supreme Court observed as follows:

”We have heard learned counsels for the parties and perused the record. For deciding the question whether the appellants are entitled to higher compensation, it will be useful to notice some of the precedents. In Sarla Verma v. D.T.C. (2009) 6 SCC 121, a two-Judge Bench of this Court took cognizance of the lack of uniformity and consistency in awarding compensation to the victims of accidents caused by motor vehicles, referred to the judgments in U.P.S.R.T.C. v. Trilok Chandra (1996) 4 SCC 362, G.M., Kerala SRTC v. Susamma Thomas (1994) 2 SCC 176 and made the following observations quoting from Sarla Verma:

"Assessment of compensation though involving certain hypothetical considerations, should nevertheless be objective. Justice and justness emanate from equality in treatment, consistency and thoroughness in adjudication, and fairness and uniformity in the decision-making process and the decisions. While it may not be possible to have mathematical precision or identical awards in assessing compensation, same or similar facts should lead to awards in the same range. When the factors/inputs are the same, and the formula/legal principles are the same, consistency and uniformity, and not divergence and freakiness, should be the result of adjudication to arrive at just compensation.

 

It was further observed:

 In Sarla Verma & Ors v. DTC & Anr. 2009 (6) SCC 121, this Court stated:

"The proper method of computation is the multiplier method. Any departure, except in exceptional and extraordinary cases, would introduce inconsistency of principle, lack of uniformity and an element of unpredictability, for the assessment of compensation." Basically only three facts need to be established by the claimants for assessing compensation in the case of death:

(a) age of the deceased;

(b) income of the deceased; and

(c) the number of dependants. The issues to be determined by the Tribunal to arrive at the loss of dependency are:

(i) additions/deductions to be made for arriving at the income;

(ii) the deduction to be made towards the personal living expenses of the deceased; and

(iii) the multiplier to be applied with reference to the age of the deceased.

If these determinants are standardized, there will be uniformity and consistency in the decisions. There will be lesser need for detailed evidence. It will also be easier for the insurance companies to settle accident claims without delay. To have uniformity and consistency, the Tribunals should determine compensation in cases of death, by the following well- settled steps:

Step 1 (Ascertaining the multiplicand) The income of the deceased per annum should be determined. Out of the said income a deduction should be made in regard to the amount which the deceased would have spent on himself by way of personal and living expenses. The balance, which is considered to be the contribution to the dependant family, constitutes the multiplicand.

Step 2 (Ascertaining the multiplier) Having regard to the age of the deceased and period of active career, the appropriate multiplier should be selected. This does not mean ascertaining the number of years he would have lived or worked but for the accident. Having regard to several imponderables in life and economic factors, a table of multipliers with reference to the age has been identified by this Court. The multiplier should be chosen from the said table with reference to the age of the deceased.

Step 3 (Actual calculation) The annual contribution to the family (multiplicand) when multiplied by such multiplier gives the "loss of dependency" to the family. Thereafter, a conventional amount in the range of Rs 5000 to Rs 10,000 may be added as loss of estate. Where the deceased is survived by his widow, another conventional amount in the range of 5000 to 10,000 should be added under the head of loss of consortium. But no amount is to be awarded under the head of pain, suffering or hardship caused to the legal heirs of the deceased. The funeral expenses, cost of transportation of the body (if incurred) and cost of any medical treatment of the deceased before death (if incurred) should also be added."

“Even otherwise, there is also the possibility of his getting married in a short time, in which event the contribution to the parent(s) and siblings is likely to be cut drastically. Further, subject to evidence to the contrary, the father is likely to have his own income and will not be considered as a dependant and the mother alone will be considered as a dependant. In the absence of evidence to the contrary, brothers and sisters will not be considered as dependants, because they will either be independent and earning, or married, or be dependent on the father.

Thus even if the deceased is survived by parents and siblings, only the mother would be considered to be a dependant, and 50% would be treated as the personal and living expenses of the bachelor and 50% as the contribution to the family. However, where the family of the bachelor is large and dependent on the income of the deceased, as in a case where he has a widowed mother and large number of younger non-earning sisters or brothers, his personal and living expenses may be restricted to one-third and contribution to the family will be taken as two- third." Finally, the complex issue relating to application of multiplier was examined and decided in the following words:

We therefore hold that the multiplier to be used should be as mentioned in Column (4) of the table above (prepared by applying Susamma Thomas (1994) 2 SCC 176, Trilok Chandra (1996) 4 SCC 362 and Charlie (2005) 10 SCC 720), which starts with an operative multiplier of 18 (for the age groups of 15 to 20 and 21 to 25 years), reduced by one unit for every five years, that is M-17 for 26 to 30 years, M-16 for 31 to 35 years, M-15 for 36 to 40 years, M-14 for 41 to 45 years, and M-13 for 46 to 50 years, then reduced by two units for every five years, that is, M-11 for 51 to 55 years, M-9 for 56 to 60 years, M-7 for 61 to 65 years and M-5 for 66 to 70 years."

After discussing all the landmark cases noted above the Court came to the conclusion that the issue relating to award of compensation to the parents of the deceased, who was a student was neither dealt with nor decided in Sarla Verma's case.

 

In Ashvinbhai Jayantilal Modi vs Ramkaran Ramchandra Sharma & Anr, division bench considered the age of the parents in a bachelor death case for awarding compensation to the parents relying on Arvind Kumar Mishra v and New India Assurance Company Limited (2010) 10 SCC 254.

 

In Sarla Verma & Ors v. DTC & Anr. 2009 (6) SCC 121, division bench of Supreme Court extracted with favor the principles laid down in Susamma Thomas case:

 

“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 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 consumed-up over the period for which the dependency is expected to last.”

 

On the deviation made by claims tribunals and courts from established principle for arriving at just compensation, Supreme Court in Sarla Verma also quoted the following observation made in Trilok Chandra case:

 

“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 realized 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 above observations qua Susamma Thomas and Trilok Chandra cases clearly indicates that the multiplier methods adopted in these cases are correct one and are based on sound reasoning and logic. Here, we cannot make the selective assumption that in Sarla Verma Court was only referring these two cases for affirming the correctness of multiplier method of calculation for computation of ‘just compensation’ and not the multiplier itself more so when in the para quoted from Susamma Thomas is it clearly mention that… The choice of the multiplier is determined by the age of the deceased (or that of the claimants whichever is higher).

 

Elaborating what is ‘Just compensation’ the Court observed ‘Just Compensation’ is adequate compensation which is fair and equitable, on the facts and circumstances of the case, to make good the loss suffered as a result of the wrong, as far as money can do so, by applying the well settled principles relating to award of compensation. It is not intended to be a bonanza, largesse or source of profit.

 

The Court in para 18 of Sarla Verma observed:

 

In Trilok Chandra, this Court, after reiterating the principles stated in Susamma Thomas, however, held that the operative (maximum) multiplier, should be increased as 18 (instead of 16 indicated in Susamma Thomas), even in cases under section 166 of MV Act, by borrowing the principle underlying section 163A and the Second Schedule. This Court observed:

 

“Section 163-A 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 the 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 up to 18 and not 16 as was held in Susamma Thomas case…..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……What we propose to emphasize 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…”

 

In Reshma Kumari & Ors vs Madan Mohan & Anr. Three-judge bench of Supreme court dealing with the issue of multiplier quoted:

In Trilok Chandra, the maximum multiplier was fixed at 18 but the Court did find several defects in the calculation of compensation and the amount worked out in the Second Schedule. Importantly this Court stated in Trilok Chandra that Tribunals and the Courts cannot go by the ready reckoner; the Schedule can only be used as a guide. This is what this Court said in paras 17 and 18 of the Report:

“17. 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 163-A and 163-B in Chapter XI entitled “Insurance of Motor Vehicles against Third Party Risks”. Section 165-A 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 the 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 up to 18 and not 16 as was held in Susamma Thomas case [(1994) 2 SCC 176].

 

18. …………….Besides, the selection of multiplier cannot in all cases be solely dependant on the age of the deceased. For example, if the deceased, a bachelor, dies at the age of 45 and his dependants are his parents, age of the parents would also be relevant in the choice of the multiplier. .........”.

(Emphasis supplied by us)

 

 

In National Insuramce CO Ltd v Pranay Sethi & Ors.,the Constitution bench discussed in detail Reshma Kumari & Ors vs Madan Mohan & Anr. Case in which Sarla Verma has been quoted with approval many times and quoted from Reshma Kumari:

“After elaborately analyzing what has been stated in Sarla Verma (supra), the three-Judge Bench referred to the language employed in Section 168 of the Act which uses the expression “just”. Elucidating the said term, the Court held that it conveys that the amount so determined is fair, reasonable and equitable by accepted legal standard and not on forensic lottery. The Court observed “just compensation” does not mean “perfect” or “absolute compensation” and the concept of ‘just compensation’ principle requires examination of the particular situation obtaining uniquely in an individual case.

                                                                                                                                                                                                                                                                                                                                                                                                                      

The Court in Pranay Sethi affirmed the view expressed in Sarla Verma under step 2 in para 9 for choosing the multiplier, which was approved in Reshma Kumari.

The Court summarized the conclusions as below, which indicates use of word ‘shall’ & ‘should’ in their findings:

 

“(i) The two-Judge Bench in Santosh Devi 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, a judgment by a coordinate Bench. It is because a coordinate Bench of the same strength cannot take a contrary view than what has been held by another

coordinate Bench.

 

(ii) As Rajesh –vs- Rajbir has not taken note of the decision in Reshma Kumari, which was delivered at earlier point of time, the decision in Rajesh is not a binding precedent.

 

(iii) While determining the income, an addition of 50% 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%, if the age of the deceased was 48 between 40 to 50 years. In case the deceased was between the age of 50 to 60 years, the addition should be 15%. Actual salary should be read as actual salary less tax.

 

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

 

(v) 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 Sarla Verma which we have reproduced hereinbefore.

 

(vi) The selection of multiplier shall be as indicated in the Table in Sarla Verma read with paragraph 42 of that judgment.

 

(vii) The age of the deceased should be the basis for applying the multiplier.

 

(viii) Reasonable figures on 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. The aforesaid amounts should be enhanced at the rate of 10% in every three years.”

 

 

In the aftermath of Pranay Sethi judgment the three-judge bench of the Supreme Court in Ramral Lala Borse & Anr. v New India Assurance Co. Ltd and Shri Nagar Mal & Ors. v The Oriental Insurance Co. Ltd. blindly relying on Sarla Verma and Pranay Sethi have taken the multiplier basing on the age of deceased in bachelor death case where parents were the only claimants oblivious of the fact that bachelor death case was not in issue either in Sarla Verma or Pranay Sethi, resulting into travesty of justice. It is pertinent here to mention that neither Trilok Chandra nor Shanti Pathak was brought to the notice of these benches as well.

 

 

Point of Arguments

 

 

1. The first point of argument on the choice of multiplier is that in two cases of three-judge bench in Trilok Chandra and Shanti Pathak the only and the sole issue was whether multiplier to be adopted based on the age of the victim or the claimant in a bachelor death case and was held that in bachelor death case multiplier to be adopted based on the age of the parents in bachelor death cases.

 

2. In Trilok Chandra case the Court reviewed the whole gamut of cases staring from Davies and Nancies to Susamma and approved the Susamma case in toto except enhancing the highest multiplier from ‘16’ to ’18’ in the light of Schedule II of the Motor Vehicles Act, 1988 which was not there at the time of Susamma Thomas case.

 

3. Sarla Verma and Reshma Kumari which are extensively quoted with approval and affirmed in Pranay Sethi judgment themselves extensively quoted and principles enunciated therein were approved. However, the use of multiplier in bachelor death case was not in issue in either of these judgments. Hence, by referring to these judgments, using the multiplier of victim is not correct. In addition, if at all their Lordships want to deviate from the settled principle of law, i.e.; application of multiplier in bachelor death case, in ideal situation, the matter has to be referred to the larger bench for appropriate appreciation, which is not done. Hence, as per law of judicial precedent, the earlier judgments still prevail, i.e.; application of multiplier in bachelor death to be adopted from the age of the victim or the claimants, whichever is higher.

 

4. Sarla Verma judgment is a division bench judgment; it cannot overrule or supersede a larger bench judgment be it Trilok Chadra or Shanti Pathak judgment as lacks competency in this regard.

 

5. It is also settled principles that rationale of a judgment serves as a binding precedent for lower courts and courts of coordinate bench or lesser bench. It may be noted with profit here that Sarla Verma or Reshma Kumari or even Pranay Sethi was laying down the principles to be followed for awarding compensation in motor accident cases. When there is a judgment on specific issues considered by the courts in some earlier judgments, which were not brought to the notice of courts which lays down the guidelines, we must say these judgments are per incuriam on that specific issues as it was not in the notice of the court. It is a settled principle that per incuriam judgments are not binding more so when the point on which the guidelines were issued was not the fact in issue in that case.

 

6. If we see the judgment writing in Pranay Sethi case, it mostly affirms the principles propounded or adopted in Sarla Verma or Reshma Kumari except that in case of self-employed or non-permanent job new guidelines were issued for future prospect, a new slab was introduced for higher age bracket for both permanent job and self employment and standardization of other heads which was major concern as tribunal and courts are following one judgment or the other on their liking completely eroding the consistency in practice adopted by the courts and tribunals and uniformity in compensation.

 

7. It is to be noted that even after Sarla Verma or Pranay Sethi, more or less deduction, future prospects and multiplier has been considered in a no. of judgments in peculiar facts of the case. Even if you see the wording in Sarla Verma it says that multiplier to be based on the age of the deceased. It has not used the word shall consciously to make room for departure in appropriate cases. And the same has been written in Pranay Sethi judgment while summarizing the conclusion. It must be noted that in conclusion many a place, shall has been used, which is a clear indicator that in appropriate cases the age for appropriate multiplier may be different than the age of the deceased. Please note that ‘shall’ has been used for multiplicand and multiplier and for Conventional heads, Future Prospects and Age the word ‘should’ has been used.

 

8. It is been note that in the aftermath of Pranay Sethi, many judgments from the Supreme Court have been passed by saying that the age of the deceased in bachelor death cases to be considered for applying multiplier relying on Pranay Sethi, which is misplaced and not based on the correct interpretation as neither this specific issue was dealt with in that case nor earlier authoritative and binding judgments of Trilok Chandra and Shanti Pathak was brought to the notice of the court.

 

9. When there is obiter dicta of a larger bench on an issue on which there is a specific ruling of court, judicial propriety demands that specific ruling must prevail over the obiter dicta as the same issue was not before the larger bench.

 

10. Lastly, the judicial propriety and rule of binding precedent warrants that we should distinguish and not follow the Pranay Serthi judgment to consider the age of the deceased in bachelor death cases as the judgment was per incuriam on this point as neither Shanti Pathan nor Trilok Chandra judgment was brought to the notice of the Constitution bench.