Computing Just Compensation

In one line

Income, plus future prospects, less the deceased's own living expenses, multiplied by a multiplier fixed by age, plus fixed sums for loss of estate, consortium and funeral expenses.

The Act says only that the compensation must be "just", section 168(1). Everything else in this chapter is judge-made, and it is judge-made for a reason a student should be able to state: the Second Schedule, which once supplied a statutory table, was omitted with effect from 1 April 2022, and long before that the Supreme Court had found that Tribunals were reaching wildly different figures on similar facts.

The formula

Step 1. Take the actual income of the deceased, less income tax. Step 2. Add a percentage for future prospects, fixed by age and by the nature of the employment. Step 3. Deduct the personal and living expenses of the deceased, as a fraction fixed by the number of dependants. Step 4. What remains is the multiplicand, the annual loss of dependency. Step 5. Multiply by the multiplier for the age of the deceased. Step 6. Add the conventional heads: loss of estate, loss of consortium, funeral expenses.

Step 2: future prospects

Facts. Sarla Verma v. Delhi Transport Corporation, (2009) 6 SCC 121, decided on 15 April 2009. The dependants of a man killed in a motor accident; the Tribunal and the High Court differed on income, deduction and multiplier, and the Court took the occasion to standardise all three.

Held. The starting point is actual income less income tax. As a rule of thumb, fifty per cent of the actual salary is added for future prospects where the deceased had a permanent job and was below forty; thirty per cent where the age was forty to fifty; and nothing where the age was above fifty.

Facts. National Insurance Co. Ltd v. Pranay Sethi, (2017) 16 SCC 680, decided on 31 October 2017. A Constitution Bench of five judges, constituted to settle a conflict on whether future prospects could be added for a deceased who was self-employed or on a fixed salary, and on the figures under the conventional heads.

Held. The table below, and the conventional-head figures set out further down.

"Actual salary" means actual salary less tax; "established income" means income minus the tax component.

Pranay Sethi did two things at once. It extended future prospects to the self-employed and the fixed-salary earner, who had earlier been denied them altogether, and it filled the gap above fifty that Sarla Verma had left at nothing.