Supreme Court Refers Expat Income Issue in Motor Accident Compensation to Larger Bench

October 31, 2025

The Supreme Court of India has referred a significant legal question to a larger bench—how should the income of Indians working abroad be assessed for calculating compensation in road accident cases within India?

This development comes amid conflicting judicial precedents on whether to calculate compensation based on the deceased’s full foreign income or to adjust it in line with Indian cost-of-living standards.

Background of the Case: The Death of Hari Shankar Brahma

The matter arose from an appeal filed by the family of Hari Shankar Brahma, a 27-year-old system analyst employed with Nihaki Systems Inc., New Jersey (USA), who tragically died in a road accident in India in 2009.

At the time of his death, he earned $47,050 per year (around ₹21 lakh). His parents and siblings sought compensation before the Motor Accident Claims Tribunal (MACT) under the Motor Vehicles Act, 1988.

The Tribunal calculated compensation based on his US income with standard deductions, awarding ₹63 lakh. However, the Gauhati High Court reduced this amount, treating him as a contractual foreign worker and considering only one-third of his overseas salary as the basis for computation.

After applying future prospects and personal expense deductions, the High Court increased the total to ₹83.63 lakh, leading to a further appeal to the Supreme Court.

Motor Accident Claims Tribunal’s Calculation Method

The Motor Accident Claims Tribunal (MACT) calculates compensation in motor accident cases primarily using a multiplier system based on the Sarla Verma formula, derived from judicial precedents.

The general computation method is:

Compensation = (Annual Income – Personal Expenses) × Multiplier + Conventional Heads

Here’s how it works in practical terms:

Establish the deceased’s annual income (from salary, profession, or business).
Deduct personal living expenses, typically 50% for bachelors and one-third for married individuals.
Apply the appropriate multiplier based on the age of the deceased (as per Sarla Verma v. Delhi Transport Corporation, (2009) 6 SCC 121).
Add standard amounts for loss of consortium, funeral expenses, and loss of estate.

In this case, the MACT considered Hari Shankar’s US salary as the base income, applied standard deductions, and multiplied by the appropriate factor for his age group to arrive at ₹63 lakh in compensation.

The Sarla Verma Formula: Foundation of Compensation Assessment

The Sarla Verma v. Delhi Transport Corporation (2009) decision standardized the method of calculating compensation under the Motor Vehicles Act, 1988, to ensure uniformity across tribunals and high courts.

Key Highlights of the Formula:

Multiplier Selection: Based on the age of the deceased, determined from actuarial principles (e.g., multiplier 18 for age 26-30).
Future Prospects: Addition of 40% of income if the deceased was below 40 and in permanent employment (National Insurance Co. Ltd. v. Pranay Sethi, (2017) 16 SCC 680).
Personal Expenses Deduction:
- 50% if unmarried
- 33% if married with dependents
Standard Conventional Heads: ₹70,000 (as updated by Pranay Sethi judgment).

The Sarla Verma and Pranay Sethi rulings together form the core framework of motor accident compensation jurisprudence in India.

Conflicting Judicial Views on Expat Income

The Supreme Court observed that there are two divergent judicial opinions on how to assess income earned abroad:

Full Foreign Salary Method:
Courts in this view hold that the entire foreign income should be considered, subject to standard deductions, since it reflects the deceased’s actual earning capacity.
Adjusted Foreign Income Method:
Other benches have held that the income must be moderated to match the Indian standard of living, accounting for cost-of-living differences and remittance patterns.

Because these conflicting interpretations affect fairness and predictability, the Supreme Court decided to refer the issue to a larger bench for authoritative resolution.

Statutory Provisions Involved

1. Motor Vehicles Act, 1988

Section 166: Permits victims or their dependents to file a claim for compensation arising from motor accidents.
Section 168: Empowers the Tribunal to determine a “just compensation.”
Section 173: Provides for an appeal to the High Court and, subsequently, to the Supreme Court.

2. Constitutional Provisions

Article 14: Ensures equality before law; compensation awards must not be arbitrary.
Article 21: Guarantees the right to life and personal liberty, which courts have interpreted to include the right to fair compensation for wrongful death.

Relevant Judicial Precedents

Sarla Verma v. Delhi Transport Corporation (2009) 6 SCC 121
Established the standardized formula for computing compensation.
National Insurance Co. Ltd. v. Pranay Sethi (2017) 16 SCC 680
Clarified inclusion of future prospects and updated conventional compensation heads.
Reshma Kumari v. Madan Mohan (2013) 9 SCC 65
Reaffirmed the multiplier method and consistency across tribunals.
Sunil Sharma v. Bachitar Singh (2011) 11 SCC 425
Applied full foreign income for compensation calculation, emphasizing actual earning capacity.
Santosh Devi v. National Insurance Co. Ltd. (2012) 6 SCC 421
Expanded the concept of future prospects beyond government employees to self-employed individuals.
United India Insurance Co. Ltd. v. Patricia Jean Mahajan (2002) 6 SCC 281
Advocated moderation of foreign income for fair comparison with Indian standards.

Supreme Court’s Observation: Need for Uniformity

The bench of Justices Rajesh Bindal and Manmohan noted that with globalization and a surge in overseas employment, particularly in IT and specialized professions, the absence of uniform criteria for calculating compensation leads to arbitrary awards.

The Court stated:

“A uniform principle is necessary to ensure fairness both to dependants of victims and to insurers.”

The case has been referred to the Chief Justice of India to constitute a larger bench for final adjudication on the methodology to be followed henceforth.

Conclusion: Towards Consistency in Cross-Border Compensation Law

The referral marks a critical moment in India’s evolving compensation law.
With millions of Indian professionals working abroad, the larger bench’s forthcoming decision will determine whether compensation is calculated on actual foreign earnings or an adjusted Indian equivalent.

This ruling will not only affect expat families seeking justice but will also shape the future of transnational liability and insurance jurisprudence in India.