“There Has Been An Increase In Inflation:" J&K High Court Emphasises Revising 'Notional Income' Under Second Schedule Of Motor Vehicles Act

A bench of Justice Sanjay Dhar has observed that the notional income of ₹15,000, fixed in 1994, fails to reflect current economic realities and must be reassessed to ensure fair and just compensation for victims of road accidents.

The court reasoned,

“The income of a non-earning person, as specified in the Second Schedule, was taken by the Legislature keeping in mind the factors that were prevailing at the relevant time. With the passage of time, there has been increase in inflation and devaluation of the rupee with the increase in cost of living… as such, while considering the notional income of a non-earning person after 20 years of incorporation of Second Schedule, upward revision of the same is required to be considered for arriving at the figure of just compensation”

The appeal arose from a road accident that occurred in 2014 when an Alto car driven negligently, fatally struck an 18-year-old student, Mst. Nageena, who was the daughter of the claimant, Lateef Ahmad Kohli. The claimant filed a petition before the Motor Accidents Claims Tribunal, Pulwama, seeking compensation of ₹20 lakhs.

The Tribunal awarded ₹11,16,000 in favor of the claimant, directing the appellant, National Insurance Company Ltd., to pay the amount. This order was contested by the insurance company, leading to the present appeal.

The insurance company argued that the offending vehicle, though matching the chassis number, had discrepancies in its engine number as compared to the insurance policy, thereby challenging its liability. It further argued that the deceased's notional income, being a non-earning individual, should be fixed at ₹15,000 per annum, as per the Second Schedule of the Motor Vehicles Act.

The appellant further submitted that the compensation awarded for non-pecuniary damages was excessive and not aligned with the Supreme Court's guidelines in National Insurance Co. Ltd. v. Pranay Sethi & Ors.

Justice Dhar rejected the insurance company's plea regarding the engine number discrepancy, terming it a clerical error, as the unique chassis number matched across documents. The Court emphasized that the insurance company, having not disputed the vehicle's insurance in its initial pleadings, could not raise such an objection at the appellate stage.

“Obviously, no issue in this regard was framed by the Tribunal and, therefore, no evidence was led by the claimant on this aspect of the matter. Therefore, at the appellate stage, the appellant-insurance company cannot take the plea that the vehicle in question was not insured”, the court remarked.

Addressing the issue of notional income, Justice Dhar stressed that the ₹15,000 figure set in 1994 under the Second Schedule no longer aligns with contemporary economic conditions. He highlighted the significant increase in inflation and cost of living over two decades stating that the income of a non-earning person, as specified in the Second Schedule, was taken by the Legislature keeping in mind the factors that were prevailing at the relevant time.

With the passage of time, there has been an increase in inflation and devaluation of the rupee with the increase in cost of living, the bench underscored.

In view of this reasoning the court upheld the Tribunal's reliance on the cost inflation index to revise the notional income of the deceased to ₹47,000 per annum.

However the Court referred to National Insurance Co. Ltd. v. Pranay Sethi & Ors. (2017), where the Supreme Court laid down guidelines for determining non-pecuniary compensation. Applying these principles, Justice Dhar reduced the Tribunal's award under non-pecuniary heads to ₹40,000 for loss of filial consortium, ₹15,000 for loss of estate, and ₹15,000 for funeral expenses.

While partially allowing the appeal, the Court revised the total compensation to ₹6,28,000, with interest at 6% per annum from the date of the claim petition. The revised amount was ordered to be disbursed to the claimant, with any surplus to be refunded to the appellant.

Case Title: National Insurance Company Vs Lateef Ahmad Kohli & Ors

Citation: 2024 LiveLaw (JKL) 347

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