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ntPara">Money is seen as a devil by many people. It evokes negative emotions of greed and envy. The need to hoard money can harm the social fabric, when one is willing to fool, harm, or even kill the other for the sake of money. Over the years of formal contractual structures, we have been able to overcome these extreme views about money. It is unthinkable that someone would want to make money off the death of a dear one and seek largesse as compensation. But that seems to be the fear that the Motor Vehicles Act (MVA) has.

The MVA provides the framework for compensation when there is loss of life or limb in accidents involving motor vehicles. The MVA makes it mandatory to insure motor vehicles. When there is an accident and a third party has been affected, claims are made to the Motor Accidents Claim Tribunal. The tribunal awards compensation, which is paid by the insurance company and the owners, as applicable. Typically, these cases can move from one court to the next higher court. Either the claimant thinks they have not been paid enough; or the owner or the insurance company thinks the payment is too high. The families of victims who sometimes are not shy of milking the situation, to insurers arguing that housewives have no monetary value to the family.

The courts are so burdened with the lengthy process, and the award of "just" compensation happens without a modern and valid frame of reference. The principles behind awarding compensation swing wildly between a benevolent welfare view and a bizarre underpayment based on archaic tables. There is a curious case of a man who borrowed his friend’s motorbike and sped on the highway, to be sadly killed by the jutting iron rods from a bullock cart, which stopped unexpectedly. In a case that dragged on for nine long years, where the wife of the deceased sought compensation, the Supreme Court considered several angles.

The arguments ran from the deceased not being a third party, to the vehicle causing the damage not being a motor vehicle, while the claimant argued for loss of life of the sole earning member of the family. The judges accepted most of these arguments and held that a "just" compensation as may be decided by the lower courts, based on facts, be paid. The welfare angle adopted by the courts only increases the number of claims that can be made, while failing to correct fundamental elements of road safety regarding permissible minimum and maximum speed of vehicles on a highway. We are too far from setting such outcomes for our judicial processes.

How is the compensation decided if there is death in an accident involving a vehicle? The primary element is a number called loss of dependency. This represents the amount the deceased might have earned, if not killed in the motor accident. The MVA was modified in 1988 and introduced Section 163A regarding compensation and the Second Schedule was linked to this section in 1994 to provide a table. This is what courts now refer to. This table shows a range of monthly incomes as columns, and a range of age groupings of the deceased as rows. The first column indicates an arbitrary number called the multiplier.

The principle is to arrive at an estimate of the annual income and multiply it by the given multiplier. Recently, Justice Bhanumathi delivered a judgement regarding compensation to be paid to the family of a woman who was killed in a road accident (Jitendra Khimshankar Trivedi & others vs Kasam Daud Kumbhar & others). The case dragged on about the estimated future earning and fair compensation for 14 years as Jayavantiben, the deceased, was a 22-year-old housewife earning some money from embroidery work. The judge observed that, "We often forget that the time spent by women in doing household work as homemakers is the time which they can devote to paid work or to their education," and chided the appellants for lack of sensitiveness. The judge arrived at a monthly income of Rs 3,000, higher than the Rs 900 awarded earlier. She then reduced it by one-third as provided in the second-schedule. This represents the personal expenses of the deceased that will no longer be incurred. She then applied the multiplier of 18 that is in the schedule for a person aged 22 years.

So the loss of dependency was estimated at 2000 x 12 x 18 = Rs 4,32,000. This math drawn from the schedule in the MVA is simply wrong in both concept and principle. This problem of fixing arbitrary numbers as fines, punishment and compensation needs correction as it is not grounded in modern principles of finance. Money has time value, which simply means that a rupee today will erode to become less and less valuable over time. This is why many of the fines are laughable, and compensations cruelly small.

A rupee today can also be gainfully deployed in the financial markets to grow bigger in value over time. Courts award a rate of interest to compensate the time lapse in making the payments, while the case dragged on. These rates have been arbitrarily decided. Even in the judgement in Jayavantiben’s death, the rates have moved form 15% to 12% and finally Justice Bhanumathi has awarded 9%. There are cases that refer to bank lending rates to seek a basis for deciding what is appropriate. In a modern economy there is a free market, which can provide a reference for the fair, verifiable rate of interest that should apply. Based on principles of fairness and equity, the modern society has been able to define several social contracts better.

Our understanding of monetary transactions is today guided by principles of time value of money and market rates for goods, services and money itself. What is appalling is that our courts still do not take the modern approach. Insurance companies approach investors with elaborate computations of human life value. These computations consider time value of money and show the investor how much his future earnings would be worth. They then proceed to sell a large insurance cover. How is it that one set of insurers have a modern finance-based rule for determining the value of human life, and another set of insurers have an arcane method that simply multiplies an arbitrary income with an arbitrary multiplier? Is it so tough to arrive at fair compensations?