In a significant move that could impact thousands of motor accident compensation claims across India, the Supreme Court has expressed serious doubts over the retrospective application of the 10% triennial escalation for "conventional heads."
A bench comprising Justices Ahsanuddin Amanullah and K. Vinod Chandran referred the matter to a Larger Bench, observing that the escalation should logically apply only to accidents occurring after the 2017 landmark judgment in National Insurance Co. Ltd. v. Pranay Sethi.
The Court emphasized a crucial principle: Escalation in compensation cannot be determined by the date on which a case is finally decided by a court or tribunal.
The controversy stems from the 2017 Constitution Bench decision in Pranay Sethi. In that case, the Supreme Court standardized compensation under three "conventional heads":
- Loss of Estate: ₹15,000
- Loss of Consortium: ₹40,000
- Funeral Expenses: ₹15,000
Crucially, the Constitution Bench had directed that these amounts should be enhanced by 10% every three years.
In the current case (Hasina Yasmin & Ors vs National Insurance Co Ltd), the accident occurred back in 1998. The claimants argued that they were entitled to the enhanced rates because their case was being decided now (in 2025). They relied on a recent decision in Rojalini Nayak v. Ajit Sahoo, where a different bench had allowed such escalations based on the date of the final order.
The Insurance Company strongly opposed this, arguing that the 10% hike was meant to account for future inflation after 2017. They contended that for an accident that occurred in 1998, the compensation should be assessed as per the values prevalent then, or at most the base values of 2017, but certainly not with the 10% periodic additions.
Agreeing with the insurer's logic, the bench noted:
"The Constitution Bench provided for enhancement over time based on factors such as changes in the price index, reduction in bank interest rates, and escalation of costs... the standard amounts fixed by the Constitution Bench were reasonable as of 2017."
The bench observed that if the first 10% increase was to apply after three years, it would only apply from 2020 onwards. Therefore, claims arising from accidents that occurred before 2020 should logically not be eligible for this specific escalation.
The Court found it difficult to accept an interpretation where the amount of compensation changes depending on how long a case drags on in court.
“The escalation cannot depend upon the date of the order by which the claim petition is finally disposed of... we find it difficult to accept an interpretation under which an accident that occurred in 2010 would receive a 10% increase if decided in 2020, and another 10% increase if decided in 2023,” the bench remarked.
The Court pointed out that many accidents from 1998 had already been decided before 2017. If the "date of order" rule were followed, it would create an unfair disparity where two families of victims from the same year receive vastly different amounts simply because one case was decided later than the other.
The bench clarified that compensation under conventional heads must be assessed as on the date of the accident. If there is a delay in payment—as is often the case in Indian litigation—the "loss of purchasing power" is supposed to be covered by interest, not by applying a future inflationary formula retroactively.
While referring the legal question to a Larger Bench, the Supreme Court provided immediate relief to the petitioners. The claimants (a widow and two children) were awarded:
- Loss of Estate: ₹15,000
- Funeral Expenses: ₹15,000
- Loss of Consortium: ₹1,20,000 (₹40,000 each for the wife and two children, including 'filial consortium' as per the Magma General Insurance precedent).
The total amount under conventional heads was enhanced to ₹1.5 Lakh, with a revised interest rate of 8% per annum from the date of filing the claim in 1998. This payment is subject to the final outcome of the reference to the Larger Bench.
This reference is vital for the insurance industry and claimants alike. If the Larger Bench agrees with Justices Amanullah and Vinod Chandran, it will mean that the 10% triennial hike is prospective (applying only to new accidents). If it follows the Rojalini Nayak view, it could significantly increase the payout burdens for insurance companies in thousands of pending "old" cases.
The Registry has been directed to place the matter before the Chief Justice of India for appropriate orders regarding the constitution of the Larger Bench.
Case Title: Hasina Yasmin & Ors Vs National Insurance Co Ltd & Anr Order Date: December 17, 2025 Neutral Citation: 2025 INSC 1501