Road Accident| Loss of Earning Capacity, Not Disability Percentage, Decides Compensation: Supreme Court

Holding that the impact of a permanent disability on a person's livelihood is more important than the percentage of medical disability, the Supreme Court has ruled that compensation in motor accident cases must be determined by assessing the claimant's actual loss of earning capacity in relation to his or her occupation.

A Bench of Justices Ujjal Bhuyan and N V Anjaria made the observation while enhancing the compensation of Shankar Dutt, a carpenter (the appellant), who lost his right leg below the knee in a road accident in 2004 after his motorcycle was hit by a jeep driven rashly and negligently.

Court increased the compensation from Rs 11.51 lakh to Rs 35.95 lakh, holding that the appellant had suffered 100% functional disability as a carpenter, despite his medical disability being assessed at 70%.

Court emphasised that the percentage of medical disability does not necessarily correspond to the percentage of functional or economic loss, especially where the injury prevents a person from continuing their skilled occupation.

Earlier, the Motor Accident Claims Tribunal (MACT)-cum-Additional District Judge, Kotdwar, Pauri Garhwal had awarded him Rs 4,77,823 with 4% annual interest from the date of filing of the claim petition. The Uttarakhand High Court later enhanced the compensation to Rs 11,51,423 with 6% annual interest.

Seeking further enhancement, the appellant argued that after the amputation of his right leg, he was completely unable to continue his work as a carpenter and his movement had become severely restricted.

Loss of earning capacity is the key test

The Supreme Court reiterated that the primary yardstick for determining compensation in permanent disability cases is the loss of earning capacity.

It observed that when an injured person is permanently disabled, the impact is not confined to the physical injury alone. The disability affects the person's ability to earn both immediately and throughout the rest of their working life.

"The quantum of compensation must correspond to the loss of earning capacity. In other words, the loss of earning capacity is an important yardstick and it is an acid test which would guide the assessment of compensation," the Bench said.

Court further held that the claimant's socio-economic background and surrounding circumstances can also be considered while assessing the loss of earning capacity.

It said future loss of earnings should be quantified by applying the standard multiplier method used for determining loss of dependency.

Functional disability depends on the claimant's occupation

Explaining the concept of functional disability, the Bench said what matters is not merely the percentage of disability assessed by a doctor, but the actual impact of the injury on the person's ability to perform his occupation.

"The functional aspect of the disability arising out of injury has correlation with the age of the injured, his occupation, engagement in work or avocation, the adverse effect on the earning capacity of the injured," Court observed.

The Bench noted that the appellant was a carpenter, an artisan engaged in skilled work requiring expertise and dexterity.

"A carpenter is an artisan... The carpenter is thus a skilled worker, who works to bring into existence various items of wood by his expertise and dexterity," Court said.

It held that while assessing his notional income, the fact that he was a skilled worker could not be ignored.

Court also found that the appellant's claim that he earned Rs 8,000-10,000 per month had remained largely unchallenged. It held that the high court had erred in restricting his monthly income to Rs 5,000, observing that skilled work ordinarily commands higher earnings.

Although the appellant's medical disability was certified at 70%, the Bench held that the injury had rendered him completely incapable of carrying on his profession as a carpenter.

"The disability of the appellant has to be appreciated and assessed in the context of the occupation of the appellant... The functional disability of the appellant claimant has to be taken properly and reasonably at 100%," the Bench held.

Court, however, agreed with the high court's application of a multiplier of 15, noting that the appellant was 38 years old at the time of the accident.

Compensation must also cover prosthetic limb costs

The Supreme Court also recognised that compensation should include the recurring expenses required for maintaining a prosthetic limb.

The Bench observed that an artificial leg is not a permanent attachment and requires periodic replacement and maintenance throughout the victim's lifetime.

"A victim who suffers amputation of a limb is entitled to reasonable pecuniary compensation for the recurring costs of prosthetic limb replacement and maintenance," Court held.

It added that while the loss of a limb can never truly be compensated, financial assistance towards the purchase, replacement and repair of an artificial limb forms an integral part of just and fair compensation.

Accordingly, Court awarded Rs 10 lakh towards the lifetime cost and maintenance of the appellant's prosthetic leg.

Earlier Supreme Court rulings relied upon

The Bench relied on its earlier decisions in Jagdish v. Mohan and others (2018) and Laxman alias Laxman Mourya v. Divisional Manager, Oriental Insurance Co. Ltd. (2011), which held that compensation in disability cases must account for pain and suffering, medical expenses, present and future loss of income, inability to lead a normal life and loss of amenities.

It also referred to Neeta v. Divisional Manager, Maharashtra SRTC (2018) and Karamjit Singh v. Amandeep Singh (2024) while recognising carpentry as a skilled profession.

Holding that the appellant was entitled to substantially higher compensation, the Supreme Court directed payment of Rs 35,95,923 with 6% annual interest from the date of filing of the claim petition until actual payment.

Case Title: Shankar Dutt Vs United India Insurance Co Ltd And Others

Bench: Ujjal Bhuyan and N V Anjaria

Date of Judgment: June 24, 2026