Quantification Of Loss Can’t Override Requirement Of Genuine Claim; Insurance Contract Not Instrument Of Unjust Enrichment: Supreme Court

Absolving the Insurance Company of its liability, the Apex Court ordered an investigation into the matter by a Special Investigation Team (SIT) headed by an officer not below the rank of Deputy Commissioner of Police.

The Appeal before the Apex Court was filed by an Insurance Company against the order of the National Consumer Disputes Redressal Commission, partly allowing a complaint and asking the company to pay a sum of over Rs 3 crore.

The Division Bench of Justice Ahsanuddin Amanullah and Justice R. Mahadevan stated, “Applying the aforesaid principles, we are of the considered view that once it is established that the claim itself is founded on fraud, the entire edifice of the claim collapses and no relief can be granted. Quantification of loss cannot override the foundational requirement of a genuine and bona fide claim.”

“There is no concept of partial or equitable relief in cases tainted by fraud. Courts and adjudicatory fora cannot grant compensation merely because some loss is shown to have occurred, when the claim itself is vitiated by fraudulent conduct. An insurance contract cannot be used as an instrument of unjust enrichment. The NCDRC therefore, fell into error in awarding Rs.3,33,63,642/- (Rupees Three Crores Thirty Three Lakhs Sixty Three Thousand Six Hundred and Forty two) towards the alleged loss sustained by the respondent”, it added.

Advocate Pramit Saxena represented the Petitioner, while Advocate Prashant represented the Respondent.

Arguments

It was the appellant’s case that the claim of the respondent was fraudulent, being founded on a deliberate act of sabotage, resulting in a fire in the respondent’s godown. It was contended that the respondent claimed that the fire incident occurred due to a short circuit, pursuant to which a claim of Rs 28,20,65,797 was raised for the alleged loss. It was also submitted that the fire incident occurred shortly after the respondent took the insurance policies, which raised serious doubt regarding the bona fides of the claim.

It was the respondent’s case that during the subsistence of the insurance coverage, an accidental fire occurred in 2011 in the respondent’s godown due to a short circuit. The incident was duly intimated to the appellant on the same day and was also recorded with the local police.

Reasoning

On a perusal of the facts of the case, the Bench noticed that the case involved a fraudulent insurance claim. The respondent enhanced the insurance coverage and procured an additional policy in proximity to the incident, which raised serious doubts about the bona fides of the claim.

As per the Bench, the presence of kerosene, a known fire accelerant, at the seat of the fire indicated that it was introduced externally to initiate the fire, thereby ruling out an accidental cause and pointing toward deliberate arson for gain. “Further, forensic examination of the electrical infrastructure such as power supply wires, switchboards, and lighting systems, revealed no evidence of short circuit or electrical malfunction. The absence of overheating, annealing, or bead formation in the wiring conclusively negates an electrical cause”, it added.

The Bench also found that the respondent’s conduct reinforced the inference of fraud, as there was a delay in furnishing samples and subsequent reliance on fabricated analytical reports indicated a clear attempt to mislead the investigation. It was mentioned in the forensic report that the fire was the result of deliberate human intervention, with a strong likelihood of it being engineered for unlawful gain. “The investigation further discloses manipulation of accounts and records with a view to inflate the claim. Both the forensic and Surveyor reports unequivocally establish violation of policy conditions, warranting repudiation”, it added.

The Bench was of the view that the NCDRC’s approach in allowing the claim was legally unsustainable, as it disregarded the overwhelming evidence of fraud and deliberate misconduct on the part of the respondent. Reiterating that fraud vitiates all solemn acts, the Bench held that the respondent was not entitled to any amount under the policy.

Thus, allowing the appeal, the Bench set aside the impugned award of the NCDRC, ordered that the appellant-Insurance company would be absolved of any liability arising out of the said claim and further directed the refund of the amount deposited by the appellant before the Registry. The Bench concluded the matter by directing the Commissioner of Police, Ahmedabad, to constitute a Special Investigation Team (SIT) headed by an officer not below the rank of Deputy Commissioner of Police, to conduct a comprehensive investigation into the incident, including the persons involved in the alleged fraud.

Cause Title: United India Insurance Co. Ltd. v. Sayona Colors Pvt. Ltd. (Neutral Citation: 2026 INSC 287)

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