Court’s Decision
The Supreme Court examined whether courts must moderate or directly adopt the foreign income of an accident victim while computing future prospects compensation under the Motor Vehicles Act. After surveying conflicting judicial precedents, the Court held that two diverging lines of judgments exist regarding foreign salaries and deductions. Observing that the legal framework lacks uniformity, the Court referred the issue to a Larger Bench for authoritative resolution.
The appeal was entertained, and the Court directed the Hon’ble Chief Justice of India to constitute a Larger Bench to settle the principles governing compensation where a deceased Indian national was working abroad.
Facts
Supreme Court’s Role in Ensuring Compensation Clarity
The deceased, a 27-year-old Indian national employed in the United States as a Systems Analyst at a technology company, had an annual salary of USD 47,050 (₹21,17,250). He died in a motor accident in 2009. His parents, two brothers, and one sister filed a claim petition seeking compensation for loss of dependency and other statutory heads.
The Tribunal accepted the gross annual salary and after applying 40% deduction towards personal expenses, applied a multiplier of 5 and minor amounts under conventional heads. Yet, even after computing ₹63,61,750, the Tribunal restricted compensation to ₹63,00,000, the amount claimed.
The claimants appealed. The High Court drastically reduced the annual income to ₹7,00,000, holding that only one-third of foreign salary should be considered because the deceased was a contractual employee abroad. It applied 40% future prospects, deducted 50% personal expenses (as the deceased was unmarried), applied a multiplier of 17, and granted a compensation of ₹83,63,000. The reduction of income and double deduction became central issues before the Supreme Court.
Issues
- Whether foreign income should be taken at face value or moderated when computing compensation in Indian accident cases.
- Whether double deduction—first reducing foreign salary and then applying personal expenses deduction—is legally permissible.
- Whether existing precedents on foreign income compensation present conflicting legal standards necessitating reference to a Larger Bench.
Petitioner’s Arguments
The claimants argued that well-established precedents, including decisions of three-judge benches, mandate that foreign income must be taken as earned, converted into Indian currency, and only standard deductions as per Pranay Sethi and Sarla Verma may be applied. They contended that the High Court wrongly applied double deduction: first reducing the assessed income to one-third of actual salary and then again cutting 50% for personal expenses, which is contrary to settled law.
They relied on several judgments such as Shyam Prasad Nagalla, New India Assurance v. Ashish Ravindra Kulkarni, United India Insurance v. Satinder Kaur, Jiju Kuruvila, and others, where courts accepted foreign salaries without arbitrary moderation. They urged the Court to restore principles of uniformity, asserting that the High Court’s approach effectively punished Indians working abroad and distorted the purpose of the Motor Vehicles Act.
Respondent’s Arguments
The respondents defended the High Court’s method by relying on judgments where foreign income was moderated due to differing cost-of-living standards, non-transferability of savings, and the uncertain tenure of employment abroad. They cited Chanderi Devi v. Jaspal Singh and Oriental Insurance v. Deo Patodi, where courts substantially reduced foreign income before applying standard deductions.
They argued that adopting foreign salary without moderation leads to inflated awards and an inequitable burden on insurers. The respondents maintained that high foreign wages cannot automatically be treated as earning capacity in India and that the High Court had correctly relied on past cases supporting moderation.
Analysis of the Law
The Court carefully reviewed the principles laid down in the Constitution Bench ruling of Pranay Sethi, which standardised:
- Deduction percentages
- Selection of multiplier
- Future prospects
- Conventional heads
However, Pranay Sethi did not consider the issue of foreign income assessment. Thus, lower courts have applied varying standards, some adopting foreign salaries at face value, others applying reductions based on lifestyle, expenditure abroad, or remittance patterns.
The Court identified that without clear guidelines, the assessment becomes subjective. Since foreign employment is now common among Indian professionals, inconsistency harms both families of victims and insurers. Therefore, the doctrine of just compensation under the Motor Vehicles Act required an authoritative clarification by a Larger Bench.
Precedent Analysis
The Court grouped past decisions into two conflicting categories:
Category 1: Full Foreign Income Accepted
Cases where foreign earnings were fully adopted, and only standard deductions were applied:
- Shyam Prasad Nagalla
- Kulwinder Kaur
- New India Assurance v. Ashish Ravindra Kulkarni
- United India Insurance v. Satinder Kaur
- Ramla
- Balram Prasad v. Kunal Saha
- Jiju Kuruvila
Category 2: Foreign Income Moderated
Cases where courts substantially reduced foreign salaries before computation:
- Chanderi Devi v. Jaspal Singh
- Oriental Insurance v. Deo Patodi
The Court noted that both lines of judgments are reasoned, but the inconsistency is too significant to continue without a doctrinal settlement.
Court’s Reasoning
The Supreme Court observed:
- A single, unified formula is required for consistency across the country.
- Migration of Indian workers abroad is now widespread; hence uniform rules are essential.
- Determining when and how foreign income should be moderated involves complex factors such as cost of living, nature of employment, remittances, dependent residence, and savings behaviour.
- Judicial uncertainty leads to unpredictable compensation awards, defeating the purpose of just compensation.
Given this context, only a Larger Bench can comprehensively evaluate and establish binding principles.
Conclusion
The Court referred the entire issue of assessment of foreign income in motor accident compensation to a Larger Bench. It held that only such an authoritative pronouncement can ensure nationwide uniformity and judicial consistency.
The appeal was disposed of with a direction to place papers before the Hon’ble Chief Justice of India to set up a Larger Bench.
Implications
- Future compensation cases involving Indians working abroad will depend on the forthcoming Larger Bench ruling.
- The judgment signals that current compensation jurisprudence is unsettled on foreign income.
- Once clarified, it will impact thousands of cases involving NRIs, expatriates, and IT professionals abroad.
- Courts will gain a structured framework eliminating arbitrary deductions.
