K.K. Usha, J.
The question raised in this Civil Revision Petition concerns the 'just compensation' payable on the basis of annuity principle, when trees in private properties are cut down for the purpose of drawing power lines. About four decades back, this question had come up for consideration by a Bench of this Court in Electricity Board v. Thomas, 1961 KLT 238. The Bench took the view that the method that can be adopted for computing the compensation is the one by which the present value of annuity which would yield a fair return on the amount for a specified period is ascertained. It was also held that the fair return could be fixed at 5% interest per annum. Two decades later, the question again came up for consideration before a Full Bench in K.S.E. Board v. Marthoma Rubber Co. Ltd., 1981 KLT 646. The principle adopted by the Bench in 1961 KLT 238 supra, concerning the mode of determining compensation, was not under challenge before the Full Bench. But, it was contended that the rate of return at 5 % need not be true for all times. Regarding the rate of return, the Full Bench took the view that it would be safe to adopt the return on a fixed deposit for the usual period of 63 months as reasonable anticipated return on a long term basis on a safe and prudent investment. It is this aspect of the judgment of the Full Bench, that is sought to be reconsidered by the petitioners.
2. According to the petitioners, the Full Bench has erred i n equating the rate of fair return with the prevalent Bank interest instead of adopting the "real rate of interest". In support of the above contention, reliance was placed on a decision of the andra Pradesh High Court in Bhagawandas v. Mohd. Arif, AIR 1988 AP 89 where Jagannadha Rao, J. (as he then was) had considered the question elaborately. It has been held therein that the rate of interest to be adopted for determining the compensation is 'real rate of interest' and not the actual or current rate of interest offered by the Banks. The Civil Revision Petition was therefore referred by a learned Single Judge and ultimately, it came up for consideration before a Full Bench. On examining the decision in 1981 KLT 646 supra, Full Bench found that the question whether it is the real rate of interest that should be adopted or the current rate of interest, in order to arrive at the just compensation payable when trees in private properties are cut down for the purpose of drawing power lines was not as such discussed or considered in detail in that decision. Therefore, the Full Bench referred the matter for consideration of a Larger Bench.
3. At the outset, we may observe that no dispute is raised before us by both sides regarding the method to be adopted for arriving at the just compensation payable, namely, the method of determining the present value of an annuity which would yield a fair return for a specific period. The limited area of dispute is regarding the rate of return. The learned counsel for the petitioner contended that the rate of return that should be adopted is the one that can be obtained in a stable economy and not the interest offered by the Bank from time to time, which would vary due to several reasons including the effect of inflation. According to the petitioner, 5% return adopted by 1961 KLT 238 is the real rate of interest which could be obtained in a stable economy. After the judgment of the Full Bench in 1981 KLT 646, the Electricity Board had been uniformly adopting 10% as the rate of return, which, according to the petitioners, resulted in substantial reduction in the quantum of compensation in respect of cutting of fruit bearing trees. In the present case, dispute that remains for consideration is one relating to compensation for cutting down coconut palms.
3A. In order to substantiate his contention, learned counsel made available a statement working out the amount of compensation payable by applying interest at the rate of 10% and 5%. The gross and net yield of coconuts and its price adopted in the statement are not in dispute.
Gross Yield =100 coconuts. Net yield 9/16 x 100 = 56 coconuts.
Prices of coconuts as on date of cutting (1981-82) = Rs. 120 for 100 coconuts.
Value of net yield of coconuts (56 x 120/100= 67.2 20 years purchase price at 5% return per annum as per Parks table. Multiplier =12.46.
Present worth - Amount to be paid 56 x 1.20 x 12.46 = 837.31 (837)
Coconut prices as given in pages 266 and 267 in the "Coconut Statistics" published by the Coconut Development Board (Ministry of Agriculture, Govt. of India, "Kera Bhavan", Cochin 11.
4. The above would show that if 20 years purchase price is taken at 5% return per annum and by applying the multiplier 12.46 as per Parks table, the entire amount of compensation will be depleted by the 12th year. But, if 10% return per annum is taken and if multiplier of 8.51 as per Parks table is applied, by the 8th year, the entire amount will be depleted. In the case of fruit bearing trees like coconut and are canut which have got a life span of more than 70 years, if the entire amount of compensation is to be depleted by the 8th year, the owner of the tree will suffer great prejudice. The higher the percentage of return per annum, lesser will be the present value of the annuity. It is contended by the learned counsel for the revision petitioner that this aspect has not been taken into consideration at all, by the Full Bench in 1981 KLT 646. Therefore, according to the petitioner, the Full Bench decision requires reconsideration.
5. The bone of contention between the parties is whether inflation is an element to be taken into consideration while computing the present purchase value of future annuity. According to the petitioner, if inflation is not taken into consideration, the lump sum paid will not represent an amount as nearly as possible full compensation for the injury which the claimant has suffered. Adoption of real rate of interest or interest obtain able in a stable economy will take care of the effect of inflation. On the other hand, the respondent-Board would contend that the rate of interest that has to be taken into consideration i
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the one offered by the Banks at the relevant period. If a lesser rate of interest is taken into consideration, the claimant will be over-compensated. According to the respondent, inflation is not a component to be taken into consideration while computing the compensation.6. Before we embark on a discussion on the various decisions relied on by both sides, we may point out that both sides have no case that a different annuity method than that is applied to cases where compensation is granted for death or personal injury, should be applied in cases where compensation for cutting of fruit bearing trees is to be paid. As a matter of fact, most of the cases relied on by both sides relate to fixing of compensation for death or personal injury.7. What is meant by annuity method, has been examined by Lord Lloyd of Berwick in Wells v. Wells, (1999) 1 AC 345 in the following manner:"But to simplify the illustration one can take an average annual cost of care of 10,000 Pounds on a life expectancy of 20 years. If one assumes a constant value for money, then if the Court were to award 20 times 10,000/- Pounds it is obvious that the plaintiff would be overcompensated. For the 10,000 Pounds needed to purchase care in the twentieth year should have been earning interest for 19 years. The purpose of the discount is to eliminate this element of overcompensation. The objective is to arrive at a lump sum which by drawing down both interest and capital will provide exactly 10,000 Pounds a year for 20 years, and no more. This is known as the annuity approach. It is a simple enough matter to find the answer by reference to standard tables. The higher the assumed return on capital, net of tax, the lower the lump sum. If one assumes a net return of 5%, the discounted figure would be 124,600 Pounds instead of 200,000 Pounds. If one assumes a net return of 3%, the figure would be 148,800 Pounds."8. In Kerala State Electricity Board & Ors. v. Varghese Thomas & Ors., 1961 KLT 238, Division Bench considered different methods for assessing the compensation for destroying fruit bearing standing trees while drawing the electric line. The Bench took the view that the rule of capitalisation prevalent in Travancore area in early time sat 8 and 1/3 years' purchase, based as it is on 12% interest, cannot be followed at this distance of time. It was then observed that "having regard to the condition of the money market and the value of the security afforded by investment on land, which, as is generally held, is inferior to what are called gilt-edged securities, we venture to think that a rate of interest at 5% p.a. may be considered to be reasonable and fair from all points of view". Then the Court proceeded to consider the rule of capitalisation adopting the number of years the tree was expected to bear fruits as the multiplier. It was then observed that the choice of multiplier in the above manner is not valid, for, it gives the owner of the tree immediately and in a lump, without any deduction, what represents the usufruct for the entire period during which the trees would have borne fruit, which he cannot justly claim. Then the Bench proceeded to find that the only principle that can be accepted is to ascertain the value of annuity which represents a fair return on the amount at 5% p.a. While adopting 5% return, the Court made reference to the rate of interest sanctioned by the provisions of Kerala Agricultural Debt Relief Act, 1958, (Act 31 of 1958) as 5%. It was then noted that this idea had been recognised in a very early enactment, Malabar Compensation for Tenants' Improvements Act, 1899 (Madras Act 1 of 1900).9. In order to find out the multiplier, it was held that Parks table would be helpful. It was then observed that the productive life of various categories of fruit bearing trees, as a matter of common knowledge and experience, though subject to variations depending on local conditions, can be estimated, as also the age of a particular tree at the time of its destruction. The concept of 'real interest rate is not seen discussed in the above judgment, even though the principle is applied. It is observed by Lord Diplockin Cookson v. Knowles, (1979) AC 556, "in times of stable currency, the multipliers that were used by judges... were appropriate to interest rates of 4% to5% whether the judges using them were conscious of this or not".10. Now, we will consider what is meant by 'real rate of interest' and its relevance in computation of compensation. Prof. Paul A. Samuelson defines 'real interest rate' as the "money interest rate" minus "the percentage price rise". Thus, if the money rate is 9% and the annual price rise is 7%, then the true real rate of interest is 9 - 7 = 2%. (See Economics, by Paul A. Samuelson, 11 th Edn. (International Student Edition) Page 566).11. Before we go to 1981 KLT 646 (FB) supra, we may refer to another decision of Subramonian Potti, J. (as he then was) rendered earlier to the Full Bench decision. In Kerala State Electricity Board v. Williams, 1981 KLT 95, the learned judge considered the question of computation of compensation for fruit bearing trees which are felled for the purpose of drawing electric line. It was observed that the principle to be followed is not one of capitalisation, for allowance would have to be made for accelerated payment. According to learned judge, compensation payable ought not to be the capitalised value, but only the present value of annuity at fair current rate of interest which represents the annual net yield (emphasis supplied). It is to be noted that reference was not to 'fair rate of interest' but to 'fair current rate'. After referring to different rates of interest offered by Nationalised Banks, debentures, Unit Trust etc., learned judge proceeded to observe as follows:"I am mentioning these facts here to show that what was stated by a Division Bench of this Court in 1961 is not to be taken as law for all time. That was said by this Court in the context of the then situation in the money market and the concept of reasonable return to an investor. Twenty years is a long period. The last ten years, particularly, have been years which saw unprecedented inflation. In the earlier decision, this Court did not purport to lay down any rule of rate of return for all time nor could it do so. The mistake committed by the Court below was in assuming that it did."Thereafter, the learned judge quoted the following passage from 1973 KLT 573 (Rarukutty & Ors. v. Special Tahsildar & Land Acquisition Officer, Kozhikode):"All told it will be unreasonable to expect a prudent investor to sink his money in purchase of properties with buildings unless he is assured of an appreciable increase in the income return, from what he could safely obtain by depositing his money with a Nationalised Bank and earn, say 7% as yearly interest. I am only indicating that the ancient concept of return on gilt-edged securities as the basis for capitalisation may no longer be appropriate."It was then observed that the reference to 7% was made because, at that time, interest return on a fixed deposit for 5 years was around 7% which has later undergone a further enhancement to 10%. Thereafter, learned judge entered the following finding:"In short, for the purpose of capitalisation or for the purpose of determining the return on an annuity the rate to be determined depends upon the current rate of return on a safe and sound investment. Such current rate is certainly not 5%, it is much more. The Electricity Board has adopted 10% by way of such return, but the Court below chose to fix it at 5 % applying the decision in Kerala State Electricity Board & Ors. v. Varghese Thomas & Ors., 1961 KLT 238. That is evidently wrong".The above would make it clear that the learned judge did not refer to or apply real interest rate in order to ascertain the quantum of compensation. This was the same principle that was followed in 1981 KLT 646 also.12. In paragraph 6 of the above judgment, the Bench has considered the principle to be enunciated for computing the compensation. The non-acceptability of capitalisation method and the fairness of the annuity method had been explained as follows:"If we capitalise the income for the number of years during which the tree is expected to yield in future at the prevalent rate of interest the capitalised value will represent not only the return for these years, but in addition the capital that would remain in tact at the end of the period. To put the same idea in a different way, it would represent such recurring return for all time and not for the limited period during whichalone the tree would have continued to yield income. Therefore, that would not be just equivalent of the compensation. If 5% return would be a reasonable return and the trees would normally be expected to yield, say for 25 years more what is paid as compensation must yield the annual return at 5% which would be equivalent of what the owner of the trees would have obtained had these trees continued to stand in the property for 25 years but since the trees would cease to yield income at the end of 25 years the amount paid as compensation must exhaust itself by the end of that period. In other words, it will be as if the amount of income is received only for a period of 25 years. In that event, the determination should be as if an annuity for 25 years is provided for. What amount invested today will yield annuity for a specified period will have to be computed. The present value of recurring payments for a specified number of years will have to be worked out. It will be easy to work it out on the basis of the valuation tables provided in the Appendix in "Parks on Valuations Land and Houses". The present value of Re.1 per annum at specified rates of interest return for a specified number of years could be easily found from the table. That would serve as the basis for determining what such value will be applying the multiplier representing the specified number of years."The above would clearly show that the view taken by the Bench on the method of computing compensation is in consonance with the view taken in 1961 KLT 238 supra. Reference was made by the Bench to the observations in 1961 KLT 238 that a rate of interest at 5% per annum may be considered to be reasonable and fair, from all points of view.Then the Bench proceeded to observe:"That the reasonable interest rate does not continue to be 5% cannot be a matter on which there is scope for controversy. The last decade saw unprecedented inflation in this country.The interest rates on loans advanced by Banks have been steadily on the increase. The interest rates on fixed deposits have also been steadily increasing over the last 10 years. While the Full Bench of this Court noticed 7% as the ruling rate on Fixed Deposits in 1973 it has risen upto 10% today and it is apparently receiving further attention. Any prudent man expects to receive a return not less than what he would receive on a deposit for a term of 5 years or so in a Nationalised Bank."Thereafter, reference was made to the rate of interest on term deposit for a term above 5 years which was 10% from 22.7.1974,9% from 1.8.1978 and 10% from 13.9.1979. Finally, the Bench observed that it will be safe to adopt the return on a fixed deposit for usual period of 63 months as reasonable anticipated return on along term basis on a safe and prudent investment. The Bench adopted the rates shown in the table referred above as interest rates for the respective years as reasonable rates. According to the learned judges, it is neither 5 % as contended by the claimants nor 10% in all cases as contended by the Board. The rate of interest on term deposit for a period of 63 months prevalent on the date when compensation becomes due will be the relevant date.13. The above would clearly show that the Bench had totally ignored the effect of inflation and proceeded to accept the Bank interest rate as the fair return. The question whether the effect of inflation has to be taken into consideration while quantifying the damages for death and personal injury had been a mooted issue for a long time in the English Courts. There was difference of opinion between the judges on this issue. But, even in those cases where the view taken was that the effect of future inflation cannot be taken into consideration, it has been observed that a lower rate of interest obtainable in a steady economy should be adopted and if it is so done, the effect of inflation will be automatically taken care of.14. Lord Diplock in his famous judgment in Mallett v. Mc Monagle, (1970) AC 166 applied the formula of real rate of interest for conversion of future loss to the present value. It was a case of a widow who put forward a claim for damages under the Fatal Accidents Acts on the death of her husband at the age of 25 years in 1964 as a result of an accident caused by the negligence of the respondents. Lord Diplock took the view that the only practicable course for Courts to adopt in assessing damage awarded under the Fatal Accidents Acts is to leave out of account the risk of future inflation, on the one hand, and the high interest rates which reflect the fear of it and capital appreciation of property and equities which are the consequence of it on the other hand. In estimating the amount of the annual dependency in the future, had the deceased not been killed, money should be treated as retaining its value at the date of the judgment, and in calculating the present value of annual payments which would have been received in future years, interest rates appropriate to times of stable currency such as 4 per cent to 5 per cent should be adopted. It was then observed that the number of years that a dependency would have endured has to be estimated. It would be the number of years between the date of deceased's death and that at which he would have reached normal retiring age. But, this period has to be reduced to some extent taking into consideration the chance of his not having lived until the retiring age or the chance of his getting disabled from gainful occupation due to the reason of illness or injury. There is also the chance of the widow dying before the deceased reaching the normal retirement age or even her remarriage. It was then held that having regard to the uncertainties to be taken into account, 16 would appear to represent a reasonable maximum number of years purchase where the deceased died in his twenties.15. In Taylor v. O'Connor,(191 )SC 115, lord Reid was of the view that inflation is a relevant consideration. It was observed:"To take any account of future inflation will no doubt cause complications and make estimates even more uncertain. No doubt, we should not assume the worst but it would, I think, be quite unrealistic to refuse to take it into account at all."Lord Pearson also has expressed the view that element of inflation could affect the lump sum payment method which was explained in the judgment with the help of the chart. The relevant portions of the observations are as follows:"The fund of damages is not expected to be preserved intact, ft is expected to be used up gradually over the relevant period -15 or 18 years in this case- so as to be exhausted by the end of the period. It is not difficult, though somewhat laborious, to work out without expert assistance how long a given fund will last with a given rate of net interest and a given sum of money to be provided in each year. I will give the first few lines of such a calculation in order to show the method:It must be recognised that the calculations which I have made as useful arithmetical exercises are not entirely realistic, having elements of artificiality. First, it has to be assumed that the full sum of 3,750 Pounds is taken out of the damages fund in each year. The second elementof artificiality is the assumption that the monetary value of the fund will not be changed except by the annual withdrawals from capital, and that the annual sum of money to be provided will not have to exceed 3,750 Pounds. In fact there will presumably be capital appreciation of securities while they are still held in the fund, and on the other side there will be a need for a greater annual sum than 3750 Pounds to offset the increase in the cost of living. Whether these two effects of continuing inflation will balance each other one cannot say. But at any rate this seems to be the right way to allow for inflation, that is, by assuming a relatively low net income because the fund is assumed to hold a fair proportion of low-yielding growth stocks. In spite of the elements of artificiality the arithmetical exercise suggested above has considerable utility.It has often been suggested that the sum to be awarded as damages should be equal to the cost of purchasing an annuity of the relevant amount for the relevant period. This is no doubt a convenient and useful check, but I think it is not on quite the right basis and therefore, not wholly reliable. An annuity would give the widow no protection against inflation. She would only have a fixed lump sum per annum however much inflation there might be. As an annuity is not the article she requires, the price of it is not the correct measure of the sum she should receive. The cost of an annuity must tend to be low, because the whole risk, which is a virtual certainty, of continuing inflation is placed on the purchaser".16. In Cookson v. Knowles, (1979) AC 556, the question again came up for consideration. Lord Diplock observed that even in periods of inflation, much higher than those contemplated at the time of Mallett, the greater part of its effect upon the real value of damages recovered in respect of future annual loss would be counteracted by a compensating increase in interest rates. The likelihood of continuing inflation after the date of trial should not affect either the figure for the dependency or the multiplier used. 'Inflation is taken care of in a rough and ready way by the higher rates of interest obtainable as one of the consequences of it and no other practical basis of calculation has been suggested that is capable of dealing with so conjectural a factor with greater precision'.17. Lord Fraser of Tullybelton agreed with the view taken by Lord Diplock. While considering the issue of inflation, it was observed that to allow for inflation in future, no increase can be granted. It was further observed:"The measure of the proper award to a widow (who is generally the main dependant and to whom alone I refer, brevitat is causa) is a sum which, prudently invested, would provide her with an annuity equal in amount to the support that she has probably lost through the death of her husband, during the period that she would probably have been supported by him. The assumed annuity will be made up partly of income on the principal sum awarded, and partly of capital obtained by gradual encroachment on the principal. The income element will be at its largest at the beginning of the period and will tend to decline, while the capital element will tend to increase until the principal is exhausted. The multipliers which are generally adopted in practice are based on the assumption (rarely mentioned and perhaps rarely appreciated) that the principal sum of damages will earn interest at about 4 or 5 per cent, which are rates that would be appropriate in a time of stable currency, as my noble and learned friend Lord Diplock pointed out in (1970) AC 166.""At the date of the trial in this case (May 1976), it was possible to obtain interest at a rate of approximately 14 % in gilt edged securities, and so long as inflation continues at its present rate of approximately 10 per cent, experience suggests that the interest element in the widow's assumed annuity will be appreciably higher than the 4 or 5 per cent on which the multiplier is based. What she loses by inflation will thus be roughly equivalent to what she gains by the high rate of interest, provided she is not liable for a higher rate of income tax. In that sense, it is possible to obtain a large measure of protection against inflation by prudent investment, although the theory that protection was to be had by investment in equities is now largely exploded. I have referred to the "assumed" annuity because, of course, the widow may not choose to apply her award in the way I have mentioned; it is for her to decide and she may invest it so as to make a profit or she may squander it. But, defendant's liability should be calculated on the basis of an assumed annuity. In the normal class of case, such as the present, where the widow's annuity would be of an amount which would attract income tax either at a low rate or not at all, I respectfully agree with the statement of my noble and learned friend in Mallet v. McMonagle (1970) AC 166,176c that the Courts in assessing damages under the Fatal Accidents Acts should leave out of account the "risk of further inflation, on the other hand, and the high interest rates which reflect the fear of it and capital appreciation of property and equities which are the consequences of it, on the other hand" The fact is that, as was demonstrated from tables shown to us, inflation and the high rates of interest to which it gives rise is automatically taken into account by the use of multipliers based on rates of interest related to a stable currency. It would therefore be wrong for the Court to increase the award of damages by attempting to make a further specific allowance for future inflation."18. In Lim Poh Chew v. Camplen and Islington Area Health Authority, (1980) AC 174, Lord Scarman expressed the view that it is now settled that the risk of inflation should not in general be brought into account in the assessment. The better course in great majority of cases is to disregard it. Three reasons he gave for coming to the conclusion are, the uncertainties surrounding the future of the inflation, availability of investment policy to counter it and the impropriety of affording the victims more protection than to others living on capital. To attempt to protect them against inflation would be to put them into a privileged position at the expense of the tortfeasor and so to impose upon him an excessive burden, which might go far beyond compensation for loss. Learned counsel for the respondent in the present case, placed heavy reliance on this observation of Lord Scarman and contended that the inflation cannot be taken as a component at all while calculating the rate of return. We will presently come to a very recent decision of House of Lords, where the above observation of Lord Scarman was considered.19. In Wells v. Wells (1999) 1 AC 345, House of Lords were considering appeals arising from the judgments of Court of Appeal in three cases. In this decision, there is an elaborate consideration on the purpose of an award of damages in tort, calculation of the lump sum amount and the fair rate of return on the investment of the amount of damages.20. Damages Act, 1996 which came into force on 24th July, 1996 in United Kingdom is a statute to make new provisions in relation to damages for personal injury, including injury resulting in death. Elaborate provisions are made under the statute regarding the manner in which compensation has to be computed and paid. S.1 which deals with the assumed rate of return on investment, reads as follows:1. (1) In determining the return to be expected from the investment of a sum awarded as damages for future pecuniary loss in an action for personal injury the Court shall, subject to and in accordance with rules of Court made for the purpose of this Section, take into account such rate of return (if any ) as may from time to time be prescribed by an order made by the Lord Chancellor.(2) Sub-s.(1) above shall not however prevent the Court taking a different rate of return into account if any party to the proceedings show that it is more appropriate in the case in question.(3) An order under sub-s.(1) above may prescribe different rates of return for different classes of case.(4) Before making an order under sub-s.(1) above the Lord Chancellor shall consult the Government Actuary and the Treasury, and any order under that sub-section shall be made by statutory instrument subject to annulment in pursuance of a resolution of either House of Parliament(5) In the application of this section to Scotland for references to the Lord Chancellor there shall be substituted references to the Secretary of State".Even though the Section came into force on 24th September, 1996, Lord Chancellor has not exercised his power under S.1. It is known that Lord Chancellor intends to consult as widely as possible before exercising the power and the consultation paper would be issued before the end of the year.21. While considering the advantages of Index-Linked Government Stock (ILGS), Lord Lloyd of Benwick quoted with approval the view expressed by Sir Michael Ogden Q.C. (who was the Chairman of the Working Party) in the Second Edition (1994) of Actional Tables with explanatory notes for use of Personal Injury and Fatal Accidents Cases. The relevant portion is as follows:"However, there are now available index-limited government stocks and it is accordingly no longer necessary to speculate about either the future rates of inflation or the real rate of return obtainable on an investment. The redemption value and dividends of these stocks are adjusted from time to time so as to maintain the real value of the stock in the face of inflation. The current rates of interest on such stocks are published daily in the 'Financial Times' and hitherto have fallen into the range of about 2.5 percent to 4.5 per cent (gross).""The return on such index-linked government stocks is the most accurate reflection of the real rate of interest available to plaintiffs seeking the prudent investment of awards,"22. Reference is also made to the Law Commission Report No. 224 (1994), which accepted the majorityview:"....that a practice of discounting by reference to returns on I.L.G.S. would be preferable to the present arbitrary presumption. The 4 to 5 per cent discount which emerged from the rase law was established at a time when I.L.G.S. did not exist. I.L.G.S. show constitute the best evidence of the real return on any investment where the risk element is minimal because they take account of inflation, rather than attempt to predict it as conventional investment do".23. Lord Steyn posed the question before the House in the following manner:"It has, for many years, been settled practice, endorsed by decisions of the House of Lords, that the lump sum to be awarded in a personal injury action for the present value of a plaintiffs future losses of earnings, and the present cost of his future expenses, ought to be determined by using in the calculations a discount rate of 4 to 5 per cent. The rationale was that there was no other practicable basis of calculation that is capable of dealing with so conjectural a factor as inflation with greater precision. The question before the House is whether this practice should now be modified in changed economic circumstances by adopting a discount figure assessed by reference to index-linked government securities, the suggested figure being 3%."Ultimately, Lord Steyn took the following view:"While acknowledging an element of arbitrariness in any figure, I am content to adopt about 3% as the best present net figure. For my part, I would derive that rate from the net average return of index-linked government securities over the past three years. While this figure of about 3% should not be regarded as immutable. I would suggest that only a marked change in economic circumstances should entitle any party to reopen the debate in advance of a decision by the Lord Chancellor. The effect of the decision of the House on the discount rate together with the availability of the Ogden Tables, should be to eliminate the need in future to call actuaries, accountants and economists in each cases."24. Thus, after referring to various decisions on the topic and different points of view expressed there, House of Lords came to the conclusion that the purpose of an award of damages in tort was to make good to the injured plaintiff, so far as money could do so, the loss that he had suffered as a result of the wrong done to him; that in awarding damages in the form of a lump sum the Court had to calculate as best it could the sum that would be adequate, by drawing down both capital and income, to provide periodical sums equal to the plaintiffs estimated loss over the period during which that loss was likely to continue; that the injured plaintiff was not in the same position as an ordinary prudent investor and was entitled to the greater security and certainty achieved by investment in index-linked government securities, in respect of which the current net discount rate was 3 per cent; and that 3% should also be the guideline rate for general use until the Lord Chancellor specified a new rate under S.1 of the Damages Act, 1996.25. In Todorovic & Ann v. Waller, (1981) 150 CLR 402, the High Court of Australia has taken the view that the present value of the future loss ought to be quantified by adopting a discountrate of 3% in all cases, subject to any relevant statutory provision. No further allowance should be made for inflation, for future changes in rates of wages or prices, or for tax upon income from investment of the sum a warded.26. The effect of change in cost of living on quantum of damages for personal injuries is described in American Jurisprudence, 2nd Edition, Vol. 22, Page 125 as follows:"The rule is now well settled that a Court, in determining whether an award of damages per personal injuries is proper, can consider the changes in the cost of living or, in its alternative expression, in the purchasing power of money. The Court can also take account of future prospects of inflation or deflation, in fixing personal injury damages. The basis of this rule is that compensation means compensation in money, and the value of money lies not in its intrinsic worth but in what it will buy. Thus, reviewing Courts state that changes in the value of money are considered in determining whether a particular award of damages is excessive or inadequate.27. The only Indian decision in which a study in depth has been made to arrive at the real rate of interest in Indian conditions is the only rendered by Jagannadha Rao, J. (as he then was) in Bhagwandas v. Mohd. Arif, AIR 1988 AP 89. In the reference order of the Division Bench in the present case, Varghese Kalliath, J. observes that the approach in the above judgment is comparable to the approach of the great Judge Mr. Justice Louis D. Brande is of the American Supreme Court, about whom Chief Justice Hughes said: "...that he was "the master of both microscope and telescope"".The reference order takes note of the grand style in which the decision gives a very innovative and scientific exposure of the principles of law relating to computation of present value of future earnings. We are in total agreement with the view expressed by Kalliath, J. The above decision was rendered under the Motor Vehicles Act and the question considered was computation of compensation to be paid to an in juredin a motor vehicle accident. As mentioned earlier, it is not argued before us that a different principle should apply in cases like the present one. Jagannadha Rao, J. has referred to large number of decisions of England, Australia, Canada, United States of America, Switzerland and Netherlands on the question of real rate of interest. His Lordship has referred to the views expressed by jurists and economists. Reference has been made to Munkman, David Kemp and Mr. J.H. Prevett of England. Jurists were also consulted. Prof. John Fleming is one among them. Learned Judge has quoted Prof. John Fleming saying:"The real (or opportunity) cost of money is relatively stable but the actual cost is increased by the inflation element. This is commonly called the 'Fisher Effect' after Irving Fisher, the father of the modern interest theory. After pointing out that current rates, if used, will be unduly prejudicial to the plaintiff, he describes the Diplock approach as having the 'widest' following, at least, in Commonwealth Countries and refers to Feldman's case (1975-524 F 2d 384 (2nd Circuit) in U.S.A. as following the same approach."28. An earnest attempt has been made by the learned judge to arrive at the real rate of interest in India during the relevant period. In paragraph 42 of the judgment, it is observed as follows:"The literature on the subject to which I have already referred shows that mainly this rate is between 3% to 5%. That real rate is the constant difference, valid for the past and future as well, between the current returns on income and property and the rate of future inflation. That is what is known as the Fisher's effect. No doubt, the correct real rate for our purposes has some day to be settled by the highest Court, namely, the Supreme Court of India, in the same manner as has been done by the Superior Courts in other countries. But, some beginning has to be made by somebody and I wish to make a humble attempt in this direction".29. Even though the decision in AIR 1988 AP 89 supra as such was not subject matter of consideration by the Supreme Court, we find there is an indirect acceptance of the principles laid down therein in an order passed by the Apex Court on 15th December, 1993 in Smt. Lata Wadhwa & Ors. v. State of Bihar & Ors., Writ Petition No. 232 of 1991. Petitioners therein sought compensation for the death of their family members who died in a devastating fire which engulfed the 'Pandals' put up in connection with celebration of the 150th birth anniversary of the founder of Tata Iron & Steel Company. Large number of employees, retired employees and members of their family were invited for the function. About 60ofthem died and 113 injured. Petitioners, on their behalf, as also on behalf of those who affected, prayed for compensation and for other reliefs. At the time of hearing of the matter, it was agreed by all parties that compensation could be paid to the legal heirs of deceased persons as also to the injured persons as assessed by an arbitrator. The matter was therefore left for arbitration by Justice Y. V. Chandrachud, former Chief Justice of Supreme Court of India. It was then observed by the Supreme Court that parties have agreed that while determining the compensation payable to them, the principles applicable for determination of compensation in motor vehicle accident may be followed. They had also agreed upon the principles indicated by the Andhra Pradesh High Court in its decision in A.P.S.R. T. C. v. Satiya Khatoon, 1985 ACJ 212. It is further observed by the Supreme Court that the principles adumbrated in the above judgment have been further elaborated and explained in the subsequent judgments of the Andhra Pradesh High Court in Bhagwandas v. Mohd. Arif,1987 ACJ 1052 and A.P.S.R.T.C. v. G. Ramaniya,1988 AC J 223. The said decisions inter alia deal with the principles to be adopted in determining the compensation where children of tender age the as also the principles applicable in the case of death of older persons. It can therefore be taken that indirectly, the Apex Court has approved the principles laid down in Bhagwandas v. Mohd. Arif.30. A Bench of this Court had occasion to consider the effect of inflation in fixing the amount of compensation in Kerala State Electricity Board v. Kamalakshy Amma,1986 KLT 1124. Thomas, J. (as he then was), after referring to Cookson v. Knowles and also the position of law in the United States observed as follows."In working out the compensation, the Court or Tribunal has wide discretion in the matter and in so doing, and in awarding a "fair and just" compensation, or a "reasonable" one, it may take into consideration the prevailing purchasing power of rupee in order to see that the awards must keep pace with the growing inflation. This is one of the factors to be borne in mind to enable the Tribunal or Court, to be just, real and reasonable in all the circumstances of the case."The same view had been taken by the Delhi High Court in Jaitnal Singh v. Jawala Devi, AIR 1976 Delhi 127. It was observed that, "in assessing damages in fatal accident cases, compensation should be calculated so as to allow for the increasing cost in a depreciating currency.... and a judge cannot shut his eyes to the inflationary trend and the fact that the rupee has considerably gone down in value".31. In Delhi Transport Corporation v. Kumari Lalitha, (1983 ACJ 253), a Bench of the Delhi High Court rejected the contention raised by the claimants' counsel to take into consideration the element of inflation also in the matter of computing the total compensation without referring to its own earlier decision AIR 1976 Delhi 127. The Court was of the view that nothing could be provided to set off the effect of inflation. Reliance was placed on the observation of Lord Scarman in Lym Poh Choo and it was held that future inflation should be totally disregarded. With great respect to the learned judges of the Delhi High Court, we may observe that both in Cookson v. Knowles and Lym Poh Choo, it was not the interest offered by the Bank during the relevant period that was taken into consideration but only the real rate of interest. The earlier judgment was rendered by one of the two judges who are parties to the later judgment. Relying on the observation of Lord Reid in Taylor v. O'Connor, the learned judge in the earlier case took the view that inflation is an element to be taken into consideration while computing the compensation.32. In K.S.R.T.C. v. Susamma Thomas, 1994 (1) KLT 67, the Supreme Court while considering the method of choosing multiplier in assessing compensation in the case of death occurring in motor accidents had occasion to refer to the rate of interest which should go into the assessment It was observed as follows:"The choice of the multiplier is determined by the age of the deceased (or that of the claimants whichever is higher) and by the calculation as to what capital sum, if invested at a rate of interest appropriate to a stable economy, would yield the multiplicand by way of annual interest. In ascertaining this, regard should also be had to the fact that ultimately the capital sum should also be consumed up over the period for which the dependency is expected to last."Reference was then made to the Mallett'scase. The following statement in Halsbury's Laws of England in Vol. 34 in para. 98 on the multiplier was quoted with approval by the Supreme Court:"The calculation depends on selecting an assumed rate of interest. In practice, about 4 or 5 per cent is selected, and inflation is disregarded. It is assumed that the return on fixed interest bearing securities is so much higher than 4 to 5% that rough and ready allowance for inflation is thereby made. The multiplier may be increased where the plaintiff is a high tax payer. The multiplicand is based on the rate of wages at the date of trial. No interest is allowed on the total figure".33. It is again observed in paragraph 3 that the multiplier is determined by two factors, namely, the rate of interest appropriate to a stable economy and the age of the deceased or of the claimant whichever is higher. The reference to interest appropriate to a stable economy would clearly show that what is to be taken into consideration is not the prevailing bank interest but the real rate of interest which, as mentioned earlier, has an inbuilt mechanism to set off the effect of inflation. Once such real rate of interest or interest appropriate to stable economy is taken into consideration for the purpose of finding out the multiplier, then there is no question of making further provision for inflation.34. The later decision of the Supreme Court on the same issue, namely, U.P. State Road Transport Corporation v. Trilok Chandra, 1996 (4) SCC 362 no deviation was made from the above mentioned principle. Mallett's case was again referred in this decision also. The only advancement made from Susamma Thomas's case is that the multiplier can go to a maximum of 18 years' purchase factor instead of 16. This view was taken on the basis of the principle applied in working out compensation in the Schedule to the Motor Vehicles Act, 1988, after amendment by Act 54 of 1994.35. All the authorities referred and discussed above are cases relating to assessment of compensation for death or personal injury. But as mentioned earlier, there is no dispute between the parties before us that the same principle should not apply in the case of computating damages for cutting and removing fruit bearing trees. We are also of the view that on principle, there can be no difference. 'Damages are pecuniary compensation, obtainable by success in an action for a wrong which is either a tort or a breach of contract, the compensation being in the form of a lump sum which is awarded unconditionally', (Mcgregor on Damages, 13th Edition, Page 3). Actions claiming money which are based upon statutes which have created a tort are actions for damages which would come within the above definition. The provisions contained under S.10 of the Indian Telegraph Act which permit the authorities to cut down trees standing in private properties for the purpose of drawing power line and impose an obligation to pay full compensation to those persons who had thereby sustained damages would come within the above mentioned category. The object of an award of damages is to give the plaintiff compensation for the damage, loss or injury he has suffered. Lord Blackburn in Livingstone v. Rawyards Coal Co., (1880) 5 AC 25 defined the measure of damages as that sum of money which will put the party who has been injured, or who has suffered in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation or repartition." The above being the scope of assessment of the quantum of damages, according to us, there can be no difference between the case of a claim for damages for cutting down the fruit bearing trees and those for the personal injuries.36. In T. Giri. Thimmaiah v. Karnataka Electricity Board, AIR 1999 Karnataka 32, al earned judge of the Karnataka High Court had occasion to consider the very same question, namely, assessment of compensation on cutting trees. The learned judge took the view that compensation has to be determined in accordance with judicial principles of employment of appropriate methods of valuation, so that person who is deprived of property is fully indemnified against the loss. AIR 1961 Kerala237 (1961 KLT238) was quoted with approval. It was then observed that' so far as coconut trees or are canut trees are concerned, they ha veto be valued at 20 times or at least 15 times of the annual yield'. The Court had referred to the evidence adduced in the case relating to the life span of the coconut trees which is between 85 years to 100 years. Since the evidence on the income from the trees was not sufficient, the matter was remanded to the District Judge for fresh consideration, but with a direction that in case of coconut and tamarind trees, multiplier of something in between 15 to 20 may be applied.37. We do not find any merit in the contention that the rats of return adopted in 1981 KLT 646 was approved by a later Full Bench in 1996 (1) KLT 432 (Kerala State Electricity Board v. T.T.P. Kayyur). The question that came up for consideration of the above Full Bench was entirely different. In Kerala State Electricity Board v. Cheriyan Varghese,1989 (1) KLT 451, a Bench of this Court took the view that apart from the compensation for the damage done by cutting of trees the owner of the land is further entitled to compensation for any diminution in value of land that he has suffered for the reason of the drawal of overhead power line across his land. The diminution in value is to be determined with reference to the market value of the land without trees before and after the drawal of the lines. This decision was sought to be reconsidered by the Board before the Full Bench. It was contended that once compensation is fixed on the basis of the yield from the trees which were cut and removed, the owners of land are no longer entitled to further compensation for diminution in value of land. Full Bench did not agree with this contention in full. It was held that apart from the compensation for the damage done to the trees, there can be other damage to the land for which compensation can be claimed. It was also held that by applying the annuity method, no compensation is paid for land being made unfit for growing trees after the life span of the existing coconut trees and other trees in view of the tower or posts erected and electric line drawn on the land. The loss which the owner would suffer is the loss arising out of non-utilisation of the land as an agricultural property. It was also held that the claimants have a duty to mitigate the damage by resorting to any other cultivation which is reasonably possible in the land covered by electric line and which can be carried on economically. It is true that during the discussion, reference was made to 1981 KLT 646 and 10% return rate fixed in that decision. Electricity Board had granted compensation in that case by adopting the return rate at 10% based on 1981 KLT 646. No contention was raised before the Full Bench by the claimant that adoption of 10% will deny full compensation and therefore it has to be modified. 38. In C.R.P. 832/93, a learned Single Judge of this Court directed the matter to be considered afresh in the light of the decision of this Court in 1996 (1) KLT 432. It is pointed out by the learned counsel for the respondent that the rate of interest allowed by the Court was found just and proper. The claimant had taken up the matter by Special Leave before the Supreme Court. The Special Leave Petition was dismissed. Therefore, the contention raised is that the 10% return rate fixed in 1981 KLT 646 should be taken as affirmed by the Supreme Court. We are not able to accept this contention also. On going through the order of this Court in C.R.P. 832/93 and that of the Supreme Court in K.G. Padmanabha Prubhii v. Kerala State Electricity Board & Ors., (1997) 6 SCC 505, we are not able to find that the question regarding the correctness of the rate of return fixed in 1981 KLT 646 was ever raised or argued before this Court or before the Supreme Court.39. In the 8th edition (1989) of Damages for Personal Injuries and Death, by John Munkman, after referring to decisions of the House of Lords to which we have already made reference in this order, it is stated as follows:"Some support for a low rate of interest- which would mean a higher number of years' purchase- is to be found in the fact that in the 19th century, when money was stable, the rate of interest allowed in the Chancery Division was commonly 3%: 5% was thought high, if not penal. The High Court of Australia has also recommended a 3% rate: Todorovic v. Waller (1981) 56 aljr 59. Lord Diplock may therefore, have been mistaken in believing that 4 to 5% was the average return in times of stable money. On the other hand, index-linked securities form only a tiny part of the market, their prices vary constantly, and the retail prices index itself is not a perfect measure of inflation. There is much to be said for an established guideline unless it is clearly wrong, and i f properly applied 41/2% seems to produce an adequate award".How future inflationary trend has to be taken into consideration while assessing the quantum of damages has been dealt with in the following manner by Kemp & Kemp, the Quantum of Damages In Personal Injury And Fatal Accidental Claims, Fourth Edition (1975):"The law at present regards general evidence as to future inflationary trends and monetary calculations designed to take account of such trends as inadmissible.The present practice is generally to adopt what we term "the Diplock approach". This applies both to personal injury claims and to claims under the Fatal Accidents Acts. It involves assuming that the damages awarded will be invested with a view to capital appreciation and that such investment will be unlikely to produce, on current trends, more than 4% to 5% gross income per annum. That means that in most cases the net income after tax from such investment will be between 31/2 per cent and 41/2 per cent. It follows that, when discounting total future net losses to allow for the receipt of a lump sum, the discount rate should likewise be between 31/2 per cent and 41/2 per cent."40. In this connection, we may refer to the provisions regarding commutation of pension in the case of Central Government employees. R.8 of the Central Civil Services (Commutation of Pension) Rules, 1981 provides that lump sum payable to an applicant shall be calculated in accordance with the table of the values prescribed from time to time and applicable to the applicant on the date on which the commutation becomes absolute. When we refer to the table showing commutation value for a pension of Rs.1 per annum, it can be seen that the table is based on a rate of interest of 4.75 % per annum. This table which came into effect from 1st March, 1971 is continued in effect even now.41. Reference was made by learned counsel for the respondents to State of Haryana v. Guru Char an Singh, 1995 Supp. 2 SCC 637 and few other decisions rendered by the Supreme Court under the provisions of the Land Acquisition Act and it was contended that the multiplier under no circumstances should be more than 8 years in case of fruit bearing trees. 1995 Supp. 2 SCC 637 was a case where the land acquisition authorities calculated the amount of compensation by separately awarding compensation to the land as well as to the fruit bearing trees. The Court viewed that this method was incorrect.42. The earlier decisions on this issue would show that the capitalised value of agricultural land was arrived at by applying a certain multiplier, taking into consideration the return that is expected from agricultural land. According to us, the capitalisation method that is adopted to find out the compensation that has to be paid for acquisition of agricultural land cannot be applied in the present case where the present purchase price of the income during reasonable expected life of the trees has to be assessed on annuity principle basis. This aspect has been clearly explained in 1961 KLT238also. It is to be noted that in land acquisition cases, apart from the land value assessed, as mentioned above, additional amounts are being paid as compensation as provided under S.23(1 a) and 23(2). No such payments are made when there was only destruction of the trees. This is also another reason for us to take the view that the principles evolved in land acquisition cases cannot be made applicable in the present case.43. In the light of the above discussion, we hold that inflation is a relevant factor to be taken into account while computing compensation for destruction of trees for the purpose of drawing power lines. We are also of the view that if interest rate in a stable economy is applied, the effect of inflation will be automatically taken care of. After considering the rival contentions, raised in this case and the authorities on the subject, we have come to the conclusion that a wrong principle has been applied by the Full Bench in 1981 KLT 646 for arriving at the rate of return. Instead of taking the real rate of interest, the Full Bench has applied the prevalent rate of interest. To that extent, we overrule 1981 KLT 646.44. Next, we have to consider what should be the rate of return to be applied in this case. As mentioned earlier, regarding the rate of return, the only contention raised by the petitioners is that it should be 5 % as held in 1961 KLT 238 and not the higher rate as ordered in 1981 KLT 646. Even though reliance was placed by the petitioners on AIR 1988 AP 89 in support of their contention that the principle applied in 1981 KLT 646 was not correct, it is not contended by the petitioners before us that in their case, the rate of return as assessed by Jagannadha Rao, J. in AIR 1988 AP 89 should be applied. The dispute in this case arose when trees standing in petitioners' property were cut down on 9.9.1980. The respondents have not made available before us any material to show that the real rate of interest in 1980 was something different from 5%. Their only contention based on 1981 KLT 646 is that what is relevant is the prevalent rate of interest which was 10%. This contention we have already rejected, as such rate does not take into account the factor of inflation. Under these circumstances, we hold that the rate of interest to be applied in the present case is 5%. We hasten to add that we should not be understood as having laid down 5% as the real rate of interest for subsequent period. The rate of interest applicable in India has been held as 4% by Jagannadha Rao, J. in AIR 1988 AP 89.11 years have lapsed after the above judgment. Whether it should be the same rate of return that has to be applied for the period before and after the above judgment or whether a higher or lower rate, is a matter to be decided in appropriate cases where relevant data is available. Till such time, the Board will adopt 5% as rate of return. But, we make it clear that cases finally concluded by decisions of the Court will not be reopened.45. Now, coming to the facts of the case, there was a dispute between the parties as to the estimated yielding age of coconut trees. Learned District Judge, after referring to the evidence in the case and also earlier decisions of this Court, came to the conclusion tat the reasonable yielding age of coconut trees which were cut down from the property belonging to the petitioners should be 70 years. Regarding the rate of return, even though the learned District Judge was impressed by the arguments put forward by counsel for the petitioners, he could not accept the same in view of the decision of this Court in 1981 KLT 646. Therefore, learned judge found that compensation awarded by the respondent was not proper and valid only for the reason that it was not assessed taking into account the yielding age of the coconut trees as 70 years. Parties were therefore directed to file fresh valuation statements on 10.8.1984. Pursuant thereto, a valuation statement has been filed only by the petitioners. On the basis of the fresh valuation statement, learned judge found that petitioners s were entitled to an enhanced compensation of Rs. 338.35 with interest at 6% p.a. from the date of cutting of the trees.46. Since we have held that the rate of return to be applied is 5%, the quantum of compensation due to the petitioners has to be recomputed on that basis. The case is remanded to the District Court, Tellicherry only for the purpose of recomputing the compensation due to the petitioners on the basis of the fresh valuation statement submitted on 10.8.1984 by applying 5% rate of return. The Civil Revision Petition stands allowed as above. There will be no order as to costs.
"2000 (1) KLT 542 (FB)" == "2000 (2) ILR(Ker) 1" == "2000 AIR (Ker) 215"