Setting aside an order of the National Consumer Disputes Redressal Commission (NCDRC), the Supreme Court of India, comprising a Bench of Justice Sanjay Kumar and Justice Sanjeev Sachdeva, has ruled that an insurance company is entirely justified in repudiating a fire insurance claim at the threshold if the insured breaches policy conditions by making false declarations and manipulating stock records. Delivering the judgment, Justice Sanjay Kumar held that the NCDRC erred in ignoring conclusive findings of approved surveyors and an investigative agency which revealed widespread irregularities, suspicious circumstances surrounding the origin of the fire, and fabricated assertions regarding raw materials destroyed in the incident.
Background of the Case
The dispute arose after M/s. Hemkund Duplex and Board Pvt. Ltd. took over a sick industrial unit in 2005 at Najibabad to manufacture paper boards using waste paper, boards, Hessian bags, and paper cuttings as raw material. The factory premises comprised an open yard and three godowns—two pucca godowns and one tin shed. The company insured its stock for Rs. 13 crore and its buildings, plant, and machinery for Rs. 14 crore under two separate fire insurance policies issued by M/s. New India Assurance Company Ltd.
On May 7, 2009, at approximately 1:30 pm, a fire reportedly broke out in the waste paper yard and tin shed inside the factory premises. Supervisor Anil Kumar claimed to have noticed the fire first and informed Gagandeep Singh, the company’s Vice President. While the local fire station was situated merely 6 to 7 kilometers away, fire tenders were alerted only at 2:25 pm—nearly 50 minutes after the fire was first detected—and reached the site at 2:36 pm.
Following the incident, the insured lodged a claim seeking compensation of Rs. 7,31,31,096.78 with 18% per annum interest, though it had initially communicated losses varying between Rs. 15 crore to the media and Rs. 10 crore to Rs. 8.45 crore across earlier representations.
The insurer appointed a preliminary surveyor, R.C. Bajpai, who tentatively assessed the net loss at Rs. 56,46,681/- but flagged serious abnormalities requiring meticulous investigation to rule out deliberate fire and hypothetical loss. Subsequent investigation by Royal Associates and the final survey report by Aditi Consultants Pvt. Ltd. (which assessed net loss at Rs. 46,09,722/-) uncovered that the tin shed contained mostly dead, unusable scrap and old rejected materials lying with cobwebs since before 2005, rather than genuine raw materials. Discrepancies were also noted in the company’s books of accounts, abnormal surges in reported yield, and the fact that the tin shed had been pulled down using a JCB prior to the fire.
Consequently, by a repudiation letter dated June 28, 2010, New India Assurance repudiated the claim citing breach of Policy Condition No. 6 (duty to make true and complete disclosure) and Policy Condition No. 8 (forfeiture of benefits upon making false declarations or fraudulent claims).
Aggrieved, the insured filed Consumer Complaint No. 66 of 2011 before the NCDRC. By its order dated November 19, 2024, the NCDRC concluded that the cause of fire was unknown, placed no onus on the insured to prove its cause or genuineness, brushed aside the survey reports, and directed the insurer to pay Rs. 2,40,00,000/- along with interest, Rs. 3,00,000/- compensation for deficiency in service, and Rs. 1,00,000/- litigation costs. The insurer appealed before the Supreme Court in Civil Appeal No. 7221 of 2025, while the insured cross-appealed in Civil Appeal No. 11416 of 2025 seeking enhancement of compensation.
Arguments of the Parties
The appellant insurer contended that the insured was incurring business losses and manoeuvring its books of accounts to show non-trade speculative profits and abnormally inflated stock levels to secure bank credit limits. The insurer argued that the physical stock on the ground bore no correlation to the claimed book entries, purchase bills mismatched the materials found, and the fire station was informed with a deliberate delay of nearly an hour without any genuine loss-minimization efforts. The insurer maintained that the repudiation was fully justified under Policy Condition Nos. 6 and 8.
On the other hand, the respondent insured argued that the fire was accidental and beyond its control. It submitted an affidavit of a neighbouring farmer, Kailash Chandra, and a police sub-inspector’s report suggesting that burning stubble in an adjoining sugarcane field might have carried a spark via the breeze into the factory yard. The insured asserted that its stock was genuine and maintained that once an accidental fire is established, the exact cause becomes immaterial.
Court’s Analysis and Legal Findings
Examining whether the insurer was justified in repudiating the claim at the threshold, the Supreme Court held that the evidentiary facts weighed heavily against the insured. The Court reviewed the statutory framework under Section 64UM of the Insurance Act, 1938, alongside the definition of deficiency under Section 2(1)(g) of the Consumer Protection Act, 1986.
Referring to New India Assurance Company Limited vs. Pradeep Kumar, the Court reiterated that while a surveyor’s report under Section 64UM(2) is not conclusive or binding, it constitutes the foundation for settling claims. Citing Khatema Fibres Limited vs. New India Assurance Company Limited and another, the Bench reaffirmed that surveyors are bound by a statutory code of conduct under Section 64UM(1-A), and an insurer’s discretion to reject or accept a surveyor’s assessment cannot be arbitrary. Addressing the appointment of surveyors, the Court observed that under Sri Venkateswara Syndicate vs. Oriental Insurance Company Limited and another, appointing a subsequent surveyor requires cogent reasons, which were clearly satisfied here since the preliminary surveyor had expressly advised an in-depth investigation.
The Court placed strong reliance on United India Insurance Co. Ltd. and others vs. Roshan Lal Oil Mills Ltd. and others, observing that the NCDRC had committed a serious error by simply brushing aside detailed survey and investigative reports without the insured establishing any specific statutory deficiency against them.
Addressing the insured’s reliance on decisions such as Canara Bank vs. United India Insurance Company Limited and others, New India Assurance Company Limited and others vs. Mudit Roadways, and Orion Conmerx Private Limited vs. National Insurance Company Limited, the Bench clarified the legal distinction: “In effect, if there is reasonable cause to suspect that the insured may have been the instigator of the fire, the claim put forth by such insured may, on facts, be liable to be denied on that ground.”
The Court noted numerous suspicious circumstances: the fire tenders were informed after a 50-minute delay despite the short distance, factory employees sprinkled water on the roof and ground rather than on the fire, the GI sheets showed no severe heat or smoke patterns consistent with a massive inferno of 15,000 metric tons of paper, and an independent JCB owner as well as local shopkeepers confirmed that the tin shed had been dismantled prior to the fire incident.
Crucially, the Court held that even apart from the possibility of arson, the breach of policy conditions was decisive: “If an insured makes false averments to bolster its claim, contrary to the policy conditions, the insurer would be lawfully entitled to reject such claim on that ground without further ado.”
The Bench highlighted that while company executives claimed prime usable raw material was stocked in the shed, factory supervisors, workers, and accountants consistently confirmed that usable stock was kept only in pucca godowns and that the tin shed contained exclusively unusable, rejected scrap accumulated prior to the 2005 takeover. Coupled with an arbitrary surge in reported yields from 87% to 95% and absent stock movement registers, the assertions made by the insured were held to be false declarations directly violating Policy Condition Nos. 6 and 8.
The Court concluded: “The NCDRC was not justified in brushing aside the findings recorded in the two surveyors’ reports and in holding, without basis, that there was no delay on the part of the respondent in informing the fire station. Similarly, there was no basis for the NCDRC to have given a clean chit to the respondent, whereupon it undertook assessment of the loss allegedly suffered by it and in quantifying the same, far in excess of the quantification by the surveyors.”
Decision
Allowing Civil Appeal No. 7221 of 2025 filed by New India Assurance Company Ltd., the Supreme Court set aside the NCDRC’s order dated November 19, 2024. Consequently, Civil Appeal No. 11416 of 2025 filed by Hemkund Duplex and Board Pvt. Ltd. was dismissed.
The Court directed the Registry to return to the appellant insurer the suitor’s fund amount along with the deposit of Rs. 50,00,000/- and accrued interest thereon. The parties were directed to bear their own costs.
Case Title: M/s. New India Assurance Company Ltd. versus M/s. Hemkund Duplex and Board Pvt. Ltd.
Case No.: Civil Appeal No. 7221 of 2025 with Civil Appeal No. 11416 of 2025
Bench: Justice Sanjay Kumar and Justice Sanjeev Sachdeva
