In New India Assurance Co. Ltd. vs. Sunita Sharma & Others [Civil Appeal @ SLP (C) No. 9515 of 2020], the Supreme Court clarified that compensation payable under the Motor Vehicles Act, 1988 must exclude the component of financial assistance equivalent to “pay and other allowances” received by the dependents of a deceased government employee under the Haryana Compassionate Assistance to the Dependents of Deceased Government Employees Rules, 2006. The Court set aside the judgment of the High Court which had deducted only 50% of the amount received under the 2006 Rules.
Background of the Case:
The appeal arose out of a motor accident compensation claim wherein the High Court, while awarding compensation under the Motor Vehicles Act, deducted only 50% of the ex-gratia financial assistance received by the claimants under the 2006 Rules. The Insurance Company challenged this approach, arguing that the High Court failed to follow the binding precedent laid down by the Supreme Court in Reliance General Insurance Co. Ltd. v. Shashi Sharma, (2016) 9 SCC 627.
Arguments of the Appellant:
The Insurance Company argued that the High Court ignored the clear dictum of the Supreme Court in Shashi Sharma, and instead relied on a conflicting decision of the same High Court in Kamla Devi v. Sahib Singh & Others, decided on 30.11.2017. It was submitted that this contradicted the law laid down by the apex court and was a violation of Article 141 of the Constitution of India.
Reliance was also placed on National Insurance Co. Ltd. v. Birender & Others, 2020 SCC Online SC 28, wherein the Supreme Court reiterated the exclusion of financial assistance received under the 2006 Rules when determining compensation under the MV Act.
Court’s Observations and Findings:
The Bench comprising Justices Sudhanshu Dhulia and K. Vinod Chandran allowed the appeal and clarified the legal position by quoting from Shashi Sharma:
“The harmonious approach for determining a just compensation payable under the Act of 1988, therefore, is to exclude the amount received or receivable by the dependents of the deceased Government employee under the Rules of 2006 towards the head financial assistance equivalent to ‘pay and other allowances’ that was last drawn by the deceased Government employee in the normal course.”
The Court further clarified that:
- This exclusion applies only to the “pay and allowances” component under Rule 5(1) of the 2006 Rules.
- It does not cover compensation towards “loss of future escalation of income” or other benefits such as pension, provident fund, life insurance, etc., which remain unaffected and are not deductible.
In Birender, the Supreme Court had similarly directed that if financial assistance under the 2006 Rules was received, the equivalent amount must be deducted from the compensation awarded under the MV Act, including interest.
Decision:
The Supreme Court set aside the High Court’s decision to deduct only 50% of the amount received under the 2006 Rules and reiterated that such compensation must be entirely excluded from the MV Act compensation. However, it directed that if the amount had already been paid to the claimants, no recovery shall be made.
The Court also recorded its disapproval of the High Court’s failure to follow binding precedent, observing:
“We are surprised that the High Court despite noticing a judgment of this Court, in the impugned judgment, failed to follow the dictum and followed a contrary judgment of the High Court itself; which is per se in violation of Article 141 of the Constitution of India.”
All pending applications were disposed of accordingly.
