Motor Accident Compensation - Future Prospects Must Be Considered In Cases Of Self-Employed & Fixed Salaried Individuals : Supreme Court

In a recent ruling, the Supreme Court disapproved of the High Court's decision to take into account the future prospects while determining motor accident compensation. The High Court had excluded fixed-salary and self-employed earners from such consideration, ignoring the impact of inflation and the natural progression of careers.

The bench comprising Justice Vikram Nath and Justice Prasanna B. Varale, stressed the importance of considering future income potential to ensure equitable compensation under Section 168 of the Motor Vehicles Act, 1988. The Court ruled that both fixed-salary and self-employed individuals possess income growth potential due to inflation and career advancement, and thus, they cannot be deprived of future prospects in their compensation.

“In motor accident claim cases, it is imperative to consider the future aspects of a person's earning potential when determining compensation. Simply focusing on a deceased individual's current income at the time of death disregards the natural progression of a career or the intrinsic motivation to improve one's financial position over time. Both self-employed individuals and those on fixed salaries strive to increase their earnings, adapting to economic changes such as inflation and the cost of living.”, the court said.

The Court dismissed the assumption that individuals in self-employment or fixed-income roles have stagnant earning potential. The Court criticized this perspective as flawed, emphasizing that it disregards the inherent human ambition and effort to achieve income growth for sustenance and progress.

“The view expressed in National Insurance Company Ltd v. Pranay Sethi, rightly emphasizes that failing to account for these dynamics creates a distorted view, where individuals in self-employment or fixed-income roles are presumed to have a stagnant earning potential. This outlook is fundamentally flawed because it negates the drive for income growth, which is inherent to human ambition and sustenance.”, the Court observed.

The Court said that even though there was no proof of periodic income increase in the deceased salary, the compensation awarded to the claimant shall include future prospects.

The court discarded the reasoning that since the income of a fixed-salary employee or a self-employed deceased person remains stagnant, their claimants can't claim future prospects. Instead, a degree test should be applied, accounting for factors like age, career growth, and economic conditions, ensuring fair compensation that reflects the individual's true earning potential over time.

In essence, the drive to improve one's income, regardless of the employment status should be reflected in the compensation calculations for motor accident claims.

“The need to factor in future prospects when determining compensation becomes even clearer and more pressing when considering the basic human drive to sustain and improve one's life. A self-employed individual, just like someone on a fixed salary, strives to increase their income to meet growing expenses and to adapt to changing circumstances. This is particularly important when considering the purchasing power and quality of life, which tend to increase as a person's career progresses. The notion that a self-employed person's income will remain static is flawed, as they, too, make efforts to raise their fees or charges to keep pace with inflation and market demands. For instance, someone working in a government role or another fixed-income job might receive annual salary adjustments or benefits, reflecting a growth trajectory over time. Similarly, a self-employed professional—such as a doctor, lawyer, or small business owner—will often increase fees or expand services to keep pace with rising costs. Recognizing these future prospects ensures a fair and just compensation by aligning with real-world economic dynamics, which Section 168 of the Motor Vehicles Act, 1988 seeks to uphold.”, the court observed.

Accordingly, the appeal was allowed, and the compensation granted by the tribunal was restored.

“In view of the above, the appeals abovementioned are allowed to the extent indicated above. The awards passed by the Tribunal that have been reduced by the High Court stand modified accordingly. The orders of the High Court are set aside and orders of the Tribunal are restored. There shall be no order as to costs.”

Case Title: KAVITA NAGAR & ORS. Versus THE ORIENTAL INSURANCE CO. LTD. (and connected matters)

Citation : 2024 LiveLaw (SC) 894

Click here to read/download the judgment