Institute of Legal and Management Studies

The Supreme Court has referred to a larger Bench the question of how to assess compensation in motor accident cases where the deceased was employed in a foreign country, in view of divergent judicial precedents on whether income earned abroad should be moderated before applying standard deductions and multipliers.

A Bench comprising Justice Rajesh Bindal and Justice Manmohan passed this order while hearing an appeal filed by Tharunoju Eshwaramma and others, the family members of one Hari Shankar Brahma, who died in a road accident in 2009 at the age of 27 while working as a System Analyst with Nihaki Systems Inc., New Jersey, USA, earning an annual salary of USD 47,050 (₹21,17,250).

Background

The Motor Accident Claims Tribunal had computed the compensation at ₹63,00,000, taking the deceased's actual annual income and applying a 40% deduction towards personal expenses with a multiplier of 5. However, the Telangana High Court reduced the assessed income to ₹7,00,000 per annum, approximately one-third of the deceased's foreign salary, on the reasoning that he was a contractual worker. Applying a 50% deduction for personal expenses and a multiplier of 17, the High Court enhanced the total compensation to ₹83,63,000.

The appellants challenged the High Court's approach, arguing that it amounted to applying a double deduction, first by drastically reducing the foreign income, and then again by applying a 50% deduction for personal expenses.

Divergent Judicial Approaches

The Supreme Court noted that there were two conflicting lines of decisions on the issue of how to treat foreign income in motor accident claims.

One line of cases, such as Shyam Prasad Nagalla v. APSRTC (2025), Kulwinder Kaur v. Parshant Sharma (2025), New India Assurance Co. Ltd. v. Ashish Kulkarni (2024) 11 SCC 641, United India Insurance Company limited vs Satinder Kaur (2021), Ramla and Others vs National Insurance Company Limited and Others, (2019) 2 SCC 192, Balram Prasad v. Kunal Saha (2014), and Jiju Kuruvila (2013), took the view that foreign income should be accepted as it is, and normal deductions for personal expenses and multipliers under Pranay Sethi judgment should be applied without additional moderation.

The other line, represented by Chanderi Devi v. Jaspal Singh (2015) and Oriental Insurance Co. Ltd. v. Deo Patodi (2009), held that income earned abroad should be moderated to reflect Indian living standards before computing compensation, and then standard deductions should be applied.

Larger Bench Reference

Observing that the issue had “wide ramifications” given the growing number of Indians working overseas, especially in the IT sector, the Bench stated that “there being divergent views on the application of double deduction, the issue deserves to be resolved by a larger Bench.”

The Court also highlighted the need for clarity on whether moderation of foreign income is justified considering factors like the cost of living abroad, remittances to family in India, and whether dependents resided with the deceased overseas or in India.

"Considering the fact that with the change in situation and level of earning in the last decades, lot of I.T. graduates/professionals and other Indians are going abroad for better career opportunities and there being divergent views on application of double deduction, in a case where the income is earned in a foreign country, in our view, the issue deserves to be resolved by a larger Bench.

In case the final opinion expressed by a larger Bench is in the direction that moderation of the income earned in a foreign country is required for the purpose of assessment of compensation under the Motor Vehicles Act, 1988, considering the standard and cost of living in different countries and the status/life style of the deceased, guidance will also be required as to the application of any formula for applying a deduction or the manner in which the moderation should be made. Another relevant factor may be the remittance made by the deceased to the family in India. In case the deceased was married, whether the family was living with him/her in foreign country or in India."

Accordingly, the Bench directed that the papers be placed before the Chief Justice of India for constituting a larger Bench to settle the issue.

Case Title: Tharunoju Eshwaramma & Ors. v. K. Ram Reddy & Anr.

Citation: 2025 LiveLaw (SC) 1053

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