Manorma Sinha & Anr. v. The Divisional Manager, Oriental Insurance Company Ltd. & Anr.

SLP (C) No. 19878 of 2022

(Pamidighantam Sri Narasimha and Manoj Misra, JJ)

The Supreme Court of India delivered a judgment addressing the correctness of the Patna High Court’s decision to reduce the compensation awarded by the Motor Accident Claims Tribunal (MACT), Muzaffarpur. The appeal, decided by Justice Manoj Misra, revolved around whether the High Court was justified in decreasing the compensation payable to the dependents of a 27-year-old engineer employed with Power Grid Corporation of India who died in a road accident in 2011.

The Tribunal had awarded compensation of Rs. 88,20,454 along with interest at 6% per annum, based on the deceased’s monthly income of Rs. 53,367, which included basic pay, dearness allowance, local allowance, and other allowances. The Tribunal applied a multiplier of 18, deducted 50% towards personal expenses (as the deceased was unmarried), and added 50% towards prospects. It also granted Rs. 1,00,000 each for loss of estate and love and affection, and Rs. 15,000 towards funeral expenses. The Patna High Court, however, substantially reduced the amount to Rs. 38,15,499 by excluding allowances from the salary, applying a flat 30% deduction for income tax, restricting the addition for prospects to 40%, and modifying the conventional heads to Rs. 39,000.

Before the Supreme Court, the appellants argued that the High Court’s approach was erroneous and contrary to the settled principles of determining “just compensation.” They contended that allowances formed part of the deceased’s income and could not be excluded from the computation of loss of dependency. Further, they challenged the arbitrary 30% deduction towards income tax, pointing out that in 2011, income tax was levied progressively, nil up to Rs. 1.6 lakhs, 10% between Rs. 1.6 to 5 lakhs, 20% between Rs. 5 to 8 lakhs, and 30% above Rs. 8 lakhs. Hence, the actual tax payable on the deceased’s income was much lower than what the High Court deducted. The appellants also submitted that since the deceased was a permanent employee in a public sector undertaking, a 50% addition towards prospects, as directed in National Insurance Co. Ltd. v. Pranay Sethi, 2017, should have been applied.

After examining the record and submissions, the Supreme Court first noted that the deceased’s age at the time of the accident was 27 years, which justified the multiplier of 17 as adopted by the High Court, consistent with Sarla Verma v. Delhi Transport Corporation, 2009, and Pranay Sethi (supra). The Court then addressed the issue of allowances, emphasizing that “income” for determining compensation cannot be restricted merely to basic pay. The Court held that allowances and benefits forming part of the employee’s remuneration, whether taxable or not, must be considered, as they contribute to the family’s financial well-being. Accordingly, the High Court erred in excluding allowances, and the Tribunal’s computation of monthly income at Rs. 53,367 was upheld.

As regards income tax deduction, the Court held that while permissible, it must be calculated according to the actual tax slabs applicable in the relevant financial year and not as a fixed percentage. Considering the 2011 slabs, the deceased’s annual income of Rs. 6,40,400 would attract a total tax liability of Rs. 62,080. After deducting this amount, the net annual income came to Rs. 5,78,324. With respect to prospects, the Court held that as the deceased was a permanent employee below 40 years, a 50% addition to income was appropriate, in accordance with paragraph 59.3 of Pranay Sethi.

The Court then recalculated the compensation: after deducting 50% towards personal expenses (since the deceased was unmarried), the annual contribution to the family was Rs. 2,89,162. With a 50% addition for prospects, this became Rs. 4,33,743 per annum. Applying the multiplier of 17, the loss of dependency came to Rs. 73,73,631. Adding Rs. 15,000 for loss of estate, Rs. 40,000 for loss of filial consortium, and Rs. 15,000 for funeral expenses, the total compensation payable amounted to Rs. 74,43,631.

Accordingly, the Supreme Court allowed the appeal, modified the High Court’s order, and directed the Insurance Company to pay the enhanced compensation of Rs. 74,43,631 with interest at 6% per annum from the date of filing the claim petition till realization.