Average Income Of Previous Years No Basis For Compensation: Jharkhand HC Upholds Reliance On Deceased's Last Earned Salary In Accident Case

The Jharkhand High Court, in its judgment delivered in a Miscellaneous Appeal, held that the average income of previous financial years cannot be the basis for computing compensation in motor accident claims.

Justice Subhash Chand observed, “The deceased was a Professor in Baldeo Sahu Degree College, Lohardaga, and was Head of Department of Philosophy. He was getting the salary along with other allowances just before the accident, in which, the death was caused. The basis of income would be the financial year of 2013-14; the average income of previous financial years cannot be the basis for computation of the amount of compensation.”

The case arose from a motor vehicle accident in February, 2014, in which one Arun Kumar, the deceased, succumbed to injuries after a collision with a truck. The Motor Accident Claims Tribunal (MACT), Ranchi, awarded compensation of ₹74,64,773 to Kumar's family based on his gross annual income for the financial year 2013–2014. The Oriental Insurance Company Ltd., which insured the offending truck, challenged the award, arguing that the average income of three preceding financial years should have been used for computing compensation.

The High Court dismissed this argument, emphasizing the importance of the deceased's income at the time of death. The Court also addressed other issues raised in the appeal, including the deduction for personal expenses.

The Court upheld the Tribunal's application of a one-fourth deduction, quoting from the Supreme Court's judgment in Smt. Sarla Verma and Ors vs Delhi Transport Corporation and Anr., which provides, “the deduction towards personal and living expenses of the deceased, should be one-third (1/3rd) where the number of dependent family members is 2 to 3, one-fourth (1/4th) where the number of dependant family members is 4 to 6.”

Additionally, the court modified the interest rate awarded by the Tribunal from 9% to 7.5% per annum, citing the Supreme Court's decision in National Insurance Company Vs. Mannat Johal. The Court noted, “So far as the interest on the compensation amount is concerned, which the learned Tribunal has awarded 9% interest, that 9% interest is not tenable it could have been 7.5% per annum.”

The High Court affirmed that the dependents entitled to compensation included Kumar's widow, two sons, and his mother. On this, the court stated, “from the evidence on record, the deceased after his death left his widow, two sons and mother, who left his four dependents upon him after his death.”

Accordingly, the appeal was partly allowed and the impugned award passed by the MACT was modified only to the extent of interest payable on the amount of compensation as awarded by the Tribunal from 9% to 7.5% per annum.

Case Title: The Oriental Insurance Co. Ltd. vs Smt. Sharda Devi and ors

LL Citation: 2025 LiveLaw (Jha) 2

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