SELF-EMPLOYED CANNOT BE DENIED FUTURE PROSPECTS SAYS THE HONOURABLE SUPREME COURT !!!!
Karma Management Global Consulting Solutions Pvt. Ltd., one of the top 5 labour law consulting firms in the country, has recently hit upon yet another significant milestone in the journey of tying up SUNDEEP PURI ASSOCIATES AND ADVOCATES, where both these Firms have Formally joined hands together to collaborate and create a bigger alliance by upscaling its business on pan India basis and Internationally to give greater reach of its Services together to its hundreds of clients all over.
Sundeep Puri & Associates (SD Puri& Co.) with 55+ years of existence and helmed by Adv Sundeep Puri & Adv Ravi Paranjpe is one of the largest retainer firms in India specializing in “Employment Laws” advising the Corporate Sector. The Firm boasts of some clients being associated for the last 55+ years and the majority for the last 30-40 years. They have extensive experience in counseling Foreign MNCs & Indian MNC Clients having multi-locational Factories &/or offices Pan-India on a daily basis on a wide range of “Employment & Labour” issues, keeping in view the cultural diversity of the workforce such as Acquisitions, Mergers, Consolidations, Reductions in the workforce, Maintaining union-free environment by not undermining the principles of collective bargaining & also preserving operational flexibility in unionized settings, providing tailor-made models for conflict-free, productivity conducive Industrial Environment, as also in respect to Applicability of the various labour laws. They believe in solutions-oriented Practical Advice backed by Law.
On the other hand, Karma Management Global Consulting Solutions Pvt. Ltd. since 2004 is backed by 25 years of prior experience since 1979, operating on an India basis and Internationally in the Americas and EMEA, helmed by Pratik Vaidya, is a leading giant in payroll management, compliance and governance, human resource services, professional Employment staffing, and onboarding, recruitment and talent acquisition, advisory and consultations thereby offering a plethora of services with quick turn-around solutions including in-house flagship AI/ML based tech solutions so as to help organizations of different types and stature to perform better in Human Resource ensuring Risk Management, Compliance and Governance across Environmental, Social and Corporate laws and grow bigger.
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The Hon’ble Supreme Court in the matter Reliance General Insurance Company Ltd. Vs. Shalu Sharma and Ors (SLP (C) No. 23086 of 2016) decided on February 02, 2018, dismissed the petition where the insurer challenged the factored component of 30 percent towards the loss of future prospects initially awarded by Motor Accident Claims Tribunal (MACT) in assessing the compensation.
The insured died in 2013 in an accident and was insured against third party risks by the appellant. The dependents filed a claim for compensation before the MACT. The Tribunal held that the accident was caused due to the negligence of the driver of the offending vehicle. Compensation of Rs. 30,26,810 was awarded together with interest at 9 percent per annum. The Tribunal factored in a component of 30 percent towards the loss of future prospects in assessing the compensation.
The insurer appealed before Delhi High Court against the award of future prospects to the extent of 30 percent. Deceased was 42 years old on the date of the accident. According to the appellant, the increase in his gross total income as shown in the income tax returns for 2010-11, 2011-12 and 2012-13 would not justify the award of future prospects, or at least to that extent. The High Court negatived the submission of the insurer and held that having due regard to the progressive increase in the income of the deceased, the award of future prospects by the Tribunal could not be faulted.
The Hon’ble Court held that an insured either self-employed or on a fixed salary cannot be refused future prospects by the insurer. The grant must be in accordance with the principle laid down by the Constitutional bench in National Insurance Company Limited v Pranay Sethi ((2017) 13 SCALE 12) where Court held, ‘In case the deceased was self-employed or on a fixed salary, an addition of 40% of the established income should be the warrant where the deceased was below the age of 40 years. An addition of 1 (2017) 13 SCALE 12 3 25% where the deceased was between the age of 40 to 50 years… should be regarded as the necessary method of computation. The established income means the income minus the tax component.
The Court modified the award with 25% of future prospects instead of 30% computed by the Tribunal, and an addition of Rs 70,000 was also made in terms of the decision in Pranay Sethi (supra) on account of the conventional heads of loss of estate (Rs15,000), loss of consortium (Rs 40,000) and funeral expenses Rs. 15000. Hence, the total compensation is quantified at Rs 27,66,522 on which the claimants would be entitled to interest @ 9% p.a. from the date of the filing of the claim petition.
Another Judgement of the Chief Justice giving credence to future prospects
The recent judgment, authored by Chief Justice Ramana, came in a petition filed by the children of a 37-year-old self-employed woman who died in a car accident 11 years ago.
The judgment is significant as it recognizes self-employment as gainful employment and calls for an increase in the compensation amount accordingly.
Chief Justice Ramana referred to a Constitution Bench decision in National Insurance versus Pranay Sethi, which had “clearly held that in case the deceased is self-employed and below the age of 40, 40% addition would be made to their income as future prospects”.
“In the present case, the deceased was self-employed and was 37 years old, therefore, warranting the addition of 40% towards future prospects,” Chief Justice Ramana wrote.
The accident occurred on the intervening night of May 18-19, 2010. The vehicle in which the parents of the appellant-children were traveling rammed a truck near Phagwara in Punjab.
The High Court held the victim ineligible for future prospects because she was self-employed. The High Court had also deduced 50% towards the personal expenses of the victim from the compensation.
The apex court however disagreed with the High Court’s conclusions. It said, “deduction towards personal and living expenses for a person such as the deceased who was married with two dependents should only be one-third … Since the High Court deducted 50% it merits interference by this court”.
The Supreme Court then granted a 40% addition towards “future prospects” and deducted only one-third towards personal expenses while determining the total compensation due to the woman’s family.
Rahul Sharma & Anr. vs. National Insurance Company Ltd. & Ors. [Civil Appeal No. 1769 of 2021]
Supreme Court confirmed the grant of future prospects regardless of the victim being self-employed
Brief: In this appeal, the Supreme Court set aside the judgment of the High Court wherein the Court deducted future prospects. The Supreme Court confirmed the grant of 40% future prospects in line with its previous decisions in Sarla Verma and Pranay Sethi.
The Tribunal, while adjudicating the claim, determined the compensation to be Rs. 41,55,235. The Tribunal relied upon the Income Tax Return of the deceased and concluded that her annual income was Rs. 2,55,349. Based on the dictum of this Court in Sarla Verma v. Delhi Transport Corporation, (2009) 6 SCC 121, 50% addition was included towards future prospects and the multiplier was taken to be 15. Since the deceased had two dependents, 1/3rd of the deceased’s income was deducted on account of personal and living expenses. The nonpecuniary compensation was calculated at Rs. 3,25,000. The NIC, being the insurer of the vehicle, was held liable to pay the compensation of Rs. 41,55,235 with an interest of 9% per annum from the date of filing of the claim petition.
Aggrieved, the insurance company preferred an appeal against the award of the MACT before the Delhi High Court, which disposed of the appeal vide the impugned judgment dated 4th September 2017. The High Court, in its common judgment, calculated the pecuniary compensation as Rs. 19,16,000, and the nonpecuniary damages were calculated as Rs.2,50,000, for total compensation of Rs. 21,66,000/, in MAC. APP. 740/2016. While passing the aforesaid impugned order, the High Court deducted 50% of income towards personal and living expenses. The High Court, however, held the deceased ineligible for the grant of future prospects as she was self employed.
Therefore, in light of the above, the compensation as awarded to the Appellants by the High Court is modified to the extent of deduction towards personal and living expenses (determined to be one third (1/3rd)) and 40% addition towards future prospects. The annual income of the deceased (Mrs. Manisha Sharma) was Rs. 2,55,349. After deducting personal and living expenses and adding future prospects, the annual income is determined at Rs. 2,38,326/. The multiplier of 15 is appropriate, considering the age of the deceased. Accordingly, the total loss of dependency is calculated to be Rs. 35,74,890/. We do not find any reason to interfere with any other heads as determined by the High Court.
Hence, the total compensation is determined to be, Rs. 38,24,890/ payable with the interest of 9% per annum from the date of filing of the claim petition till realization, set off against the part compensation already received, if any.
To have the perception that the concerned affected person is likely to remain static and his income to remain stagnant is contrary to the fundamental concept of human attitude which always intends to live with dynamism and move and change with the time.”
Addition of Future Prospects
Third and most importantly, it is unfair on part of the respondent insurer to contest the grant of future prospects considering their submission before the High Court that such compensation ought not to be paid pending the outcome of the Pranay Sethi (supra) 4 See, RK Malik v. Kiran Pal, (2019) 14 SCC 1, 9. Page | 7 references.
Nevertheless, the law on this point is no longer res Integra, and stands crystalized, as is clear from the following extract of the aforecited Constitutional Bench judgment :
“ In case the deceased was self employed or on a fixed salary, an addition of 40% of the established income should be the warrant where the deceased was below the age of 40 years. An addition of 25% where the deceased was between the age of 40 to 50 years and 10% where the deceased was between the age of 50 to 60 years should be regarded as the necessary method of computation. The established income means the income minus the tax component.”
This blog has been collated and compiled by the internal staff of Karma with the knowledge and expertise that they possess, for its monthly newsletter Issue 04 of October 2022 in case of specific or general information or compliance updates for that matter, kindly reach out to the