TORT 084 Computing Compensation in a Death Claim Sarla Verma and Pranay Sethi — Law of Torts Notes for Judiciary

Computing Compensation in a Death Claim: Sarla Verma, Pranay Sethi, the Multiplier Method and the Conventional Heads

A dependency claim is computed by multiplying a multiplicand, the annual loss of dependency, by a multiplier fixed by reference to age, and adding the conventional heads. The method was standardised in Sarla Verma v. Delhi Transport Corporation and settled by a Constitution Bench of five judges in National Insurance Co. Ltd. v. Pranay Sethi. The object is uniformity: two tribunals applying the law to the same facts should arrive at the same figure, and the wide variation that preceded these decisions was itself an injustice.

The four steps, the conventional heads, why Pranay Sethi was needed, and the recurring points

1. The Four Steps

The step	What is done
1. Establish the income	Actual salary less tax for a salaried person. For the self employed, the income proved, or a notional income where none is proved. The income at the date of death, and not at the date of the award
2. Add future prospects	A percentage addition to the established income, fixed by Pranay Sethi according to the nature of the employment and the age of the deceased
3. Deduct personal and living expenses	A fraction of the income representing what the deceased would have spent on himself, fixed by Sarla Verma according to the number of dependants
4. Apply the multiplier	A figure fixed by Sarla Verma according to the age of the deceased, representing the number of years' purchase

2. Future Prospects: Pranay Sethi

📖 National Insurance Co. Ltd. v. Pranay Sethi, (2017) 16 SCC 680, decided 31 October 2017

Facts A reference to a Constitution Bench of five judges arising from a conflict between earlier decisions on whether, and at what rate, an addition for future prospects should be made to the income of a deceased who was self employed or on a fixed salary, and on the sums payable under the conventional heads.

Held The Court laid down binding guidelines on both questions.

Ratio Where the deceased had a permanent job and was below the age of 40, an addition of 50% of actual salary should be made towards future prospects; 30% if he was between 40 and 50; and 15% if he was between 50 and 60. Actual salary means actual salary less tax. Where the deceased was self employed or on a fixed salary, an addition of 40% of the established income should be made where he was below 40; 25% where he was between 40 and 50; and 10% where he was between 50 and 60. The reasonable figures on the conventional heads of loss of estate, loss of consortium and funeral expenses should be Rs 15,000, Rs 40,000 and Rs 15,000 respectively, and these amounts should be enhanced at the rate of 10% in every three years.

Age of the deceased	Permanent job	Self employed or fixed salary
Below 40 years	50%	40%
40 to 50 years	30%	25%
50 to 60 years	15%	10%
Above 60 years	No addition	No addition

Sarla Verma had allowed future prospects only to a deceased with a permanent job, and only below the age of 50, on the footing that the prospects of a self employed person were speculative.
That excluded the great majority of Indian earners. The Constitution Bench held that a self employed person's income also rises with experience and with inflation, and that to treat his prospects as nil was unrealistic, and extended the addition to him at a lower rate.
The purpose of the standardisation is predictability, which serves the claimant as much as the insurer: a computation that can be performed in advance can be settled without litigation.

3. Deduction for Personal and Living Expenses: Sarla Verma

The family	The deduction
2 to 3 dependent family members	One third of the income
4 to 6 dependent family members	One fourth of the income
More than 6 dependent family members	One fifth of the income
A bachelor	Fifty per cent. Where a large dependent family relied wholly on him, as a widowed mother and non earning siblings, the deduction may be reduced to one third

The logic is that the larger the family, the smaller the share the deceased would have spent on himself, and therefore the larger the loss to the dependants.
The rule is not mechanical. In United India Insurance Co. Ltd. v. Satinder Kaur, decided 30 June 2020, a fifty per cent deduction was upheld where the deceased lived and worked abroad at a high cost of living, notwithstanding that he had a wife and three children.
Only dependent family members are counted, and not every relative.

4. The Multiplier

Age of the deceased	Multiplier	Age of the deceased	Multiplier
15 to 25 years	18	46 to 50 years	13
26 to 30 years	17	51 to 55 years	11
31 to 35 years	16	56 to 60 years	9
36 to 40 years	15	61 to 65 years	7
41 to 45 years	14	66 to 70 years	5

The multiplier is taken from the age of the deceased, and not from the age of the claimant, save where the claimant is older and the dependency correspondingly shorter, as with elderly parents.
It is a years' purchase figure and not the number of years the deceased would have worked, since it builds in a discount for the accelerated receipt of a lump sum and for the uncertainties of life.
The table is to be applied and not departed from, save in exceptional circumstances that must be recorded.

5. The Conventional Heads

The head	The figure fixed in 2017	What it covers
Loss of estate	Rs 15,000	What the deceased's estate has lost by his death
Loss of consortium	Rs 40,000	Payable to each claimant entitled to it: Satinder Kaur
Funeral expenses	Rs 15,000	The cost of the funeral and the connected ceremonies

These amounts are to be enhanced at the rate of ten per cent every three years. A practitioner must therefore compute the escalation from 2017 rather than quote the bare figures in the judgment, and the sums applied by a tribunal today are materially higher.
Loss of consortium is payable to each claimant entitled to it, so a widow and three children receive four awards under that head and not one: United India Insurance Co. Ltd. v. Satinder Kaur.
Loss of love and affection is not a separate head, being comprehended within loss of consortium, and awarding both duplicates the compensation.

6. Points That Recur in Practice

Tax is deducted before the computation begins, actual salary meaning actual salary less tax.
A notional income is assigned where none is proved, so that a claim is not defeated by the deceased's having worked in the informal economy.
A homemaker's services are valued and are not treated as nil. The measure is what it would cost to replace the services she rendered.
Interest runs from the date of the claim petition, at the rate the Tribunal fixes.
Amounts already received under section 164 are adjusted against the final award.
Where the deceased was a minor or a student, there is no established income, and the award rests on a notional income together with the conventional heads and filial consortium.

⚠ Why the courts standardised what used to be a matter of discretion

Before Sarla Verma the computation of a dependency claim was substantially discretionary, and the consequence was that two families who had suffered identical losses could receive awards differing by a factor of three, depending on which tribunal heard the claim. That is not a technical problem but a substantive injustice, and it had a second effect that is easy to miss: because nobody could predict the outcome, nothing settled, and every claim went to trial and then to appeal, so that families waited years for money they needed at once. The standardisation in Sarla Verma and Pranay Sethi was directed at both problems. Its virtue is not that the formula produces the perfectly right figure in every case, which no formula could, but that it produces the same figure on the same facts, which allows a claim to be valued in advance and settled without litigation. That is why the Supreme Court has repeatedly discouraged departures from the table.

7. The Position Stated Shortly

1. A dependency claim is the multiplicand multiplied by the multiplier, plus the conventional heads.

2. The income is the actual salary less tax, or the income proved, or a notional income where none is proved.

3. Pranay Sethi allows future prospects of 50%, 30% and 15% for a deceased with a permanent job aged below 40, 40 to 50, and 50 to 60.

4. For a self employed person or one on a fixed salary the corresponding figures are 40%, 25% and 10%.

5. Sarla Verma fixes the deduction for personal expenses at one third for two to three dependants, one fourth for four to six, and one fifth for more than six.

6. A bachelor's deduction is fifty per cent, reducible to one third where a large family depended wholly on him.

7. The multiplier runs from 18 for a deceased aged 15 to 25 down to 5 for one aged 66 to 70, and is taken from the age of the deceased.

8. The conventional heads were fixed at Rs 15,000 for loss of estate, Rs 40,000 for loss of consortium and Rs 15,000 for funeral expenses, enhanced by ten per cent every three years.

9. Loss of consortium is payable to each claimant entitled to it, and loss of love and affection is not a separate head: Satinder Kaur.

10. A homemaker's services are valued, interest runs from the date of the petition, and amounts paid under section 164 are adjusted against the final award.