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Assessing Loss of Future Income- M.R. Krishna Murthi v. New India Assurance Co. Ltd

[THIS POST IS THE 1st RUNNER-UP OF THE 1ST CASE NOTE COMPETITION, HELD IN JUNE 2020 BY LEGAL ARMOR]

FACTS

M.R. Krishna’s entire left leg was crushed in an accident; he had to undergo three surgeries during his treatment; suffered 40% permanent disability and remains vulnerable to the risk of another fracture.


He filed an application before Motor Accidents Claims Tribunal (MACT) which fixed loss of future income at 2000/- per month (p.m.) to assess compensation. In appeal and review before the High Court (HC), loss of future income remained unchanged.

He assailed the main judgment and order passed in Review petition before the Supreme Court in Appeal.


REASONING

The principles for Assessing Loss of Future Income (paragraph 23 of the judgment) are summarised:

“Where a victim of the accident is a student undergoing a certain course, future earning depends on career prospect and the likelihood of that person earning in future;

Where a victim is a student studying in school, future career depends on family background, interest/choice for a career, facilities and circumstances. If the chosen field is employment, future earning depends on salary/allowances for that employment; and if the career is a specific profession future earning depends on factors which make success more likely;

Part-time earnings or job-offer received by a victim are also relevant factors; and

After determining the likely earning, the impact of injuries on functional disability is to be considered to ascertain loss of future income. Death results in zero earning.”


Threefold-Reasoning for Reforms: Mediation prior to adversarial adjudication to ensure Access to Justice; Mechanism for speedy disposal of cases before MACT; Schemes to ensure receipt of compensation in safe hands.


JUDGMENT

Applying the principles which it had laid down, the court accepted the contention:

“To assess future earnings in light of appellant’s family background; the institution in which he is getting an education; potential to adopt the desired career; and career prospects.”

Accordingly, loss of future income was fixed at 5000/- (p.m.) instead of 2000/- p.m. decided by MACT and the HC.


Further, the court accepted the reformative pleas and issued directions to the Government- for establishing MAMA (if feasible) by amending Motor Vehicles Act (MV Act); framing schemes for receipt of compensation and annuity certificates, and sensitizing officers and insurance companies involved in the implementation of the procedures.


In the interregnum:

NALSA would establish Motor Accident Mediation Cell (MAMC) and implement Modified Claims Tribunal Agreed Procedure (MCTA Procedure) as per order (November 6, 2017) of Jai Prakash case;

Pan-India implementation of Motor Accident Claims Annuity Deposit Scheme (MACAD Scheme).


ANALYSIS & CONCLUSION

Part-I:

Legal Impact

Developing the law laid down in Sarla, the Apex court in Pranay settled the law for assessing loss of future income of deceased who had a permanent job; or was self-employed or with fixed income.

However, both judgments did not lay down the law to assess the loss of future income of a claimant who:

(i) was (student) undergoing a course;

(ii) was studying in school;

(iii) made part-time earnings or would have received a job offer.

Compensation was awarded on case-by-case analysis but there was no settled law/rule for assessing compensation of these categories. This Landmark Judgment Settles the Law for assessing compensation of the aforestated three categories which were not addressed in Sarla and Pranay.


Part-II:

Aspects of Compensation-

Firstly, Sarla and Pranay laid down “Standardised Rules” for assessing loss of future income to avoid inconsistent results on a similar set of facts.

Secondly,

“Section 168 of the MV act requires that Just Compensation is guided by liberal approach, reasonableness, fair and equitable principles and such determination is done on the basis of material brought on record in ‘each case’ and cannot be in arithmetical exactitude.”

However, simply allowing case-by-case analysis would give the adjudicating body unfettered discretion which could lead to inconsistent results by tribunals and courts on similar facts and circumstances. So, there must be ‘guiding principles/factors’ in case-by-case analysis to avoid inconsistency.

This judgment Strikes a Balance between the aforestated two aspects as it enumerated the factors to consider (paragraph 23) in the case-by-case analysis.


Part-III:

The law in Raj Kumar states:

“Compensation under the head of loss of future earnings depends upon the impact of such permanent disability on earning capacity, and the percentage of permanent disability should not be mechanically applied as the percentage loss of earning capacity.”

If future income is 6000/- p.m. and permanent disability is 30%, it cannot simply be assessed that 6000 x 30% = 1800/-p.m. is the loss of earning capacity.

MACT and the HC erred by determining income at 5000/- p.m. and mechanically applying the 40% permanent disability i.e., loss of future income was assessed as 5000 x 40% = 2000 p.m.

The court Correctly Applied the Law laid down in Raj Kumar by considering the facts brought to its notice and examining the impact of such disability on earning capacity, thereby fixing future income at 5000/- p.m.


Reformative Impact

Low costs and time-limit in mediation through MAMA would cause people to take up cases for settlement and ensure that Access to Justice is not thwarted at the threshold. In the interregnum, MAMC would be an alternative to MAMA. As a positive indication, some MAMCs have been established.

Implementing MCTA Procedure for Fast-Track Disposal would persuade people to take up cases for adjudication before tribunals.

Pan-India implementation of Compensation Related Schemes is expected to decrease insurance sector costs and prove to be more beneficial to the receivers.

ABOUT THE AUTHORS:

Aniket Pandey and Palak Maheshwari are studying Law at the Maharashtra National Law University, Nagpur.

Disclaimer by Legal Armor:

We at Legal Armor do not endorse the Authors' views and are in no way responsible for the said views. We are just publishing the Write-ups as blogs with just light editing, and are in no way responsible for any legal claims.

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