NCDRC Cannot Brush Aside Surveyor Reports In Fire Insurance Claims Without Identifying Specific Deficiency: Supreme Court

Setting aside an award of ₹2.40 crore in favour of a paper-board manufacturer, the Court upheld New India Assurance Company Limited’s repudiation of the fire-insurance claim after finding that the insured had made false declarations and breached the policy conditions.

The Court was hearing cross-appeals against an NCDRC order directing the insurance company to pay ₹2.40 crore with interest, ₹3 lakh as compensation for deficiency in service and ₹1 lakh towards litigation costs. While the insurer challenged the award, the insured sought enhancement based on its claim exceeding ₹7.31 crore.

A Bench of Justice Sanjay Kumar and Justice Sanjeev Sachdeva observed: “Pertinently, we find that the respondent acknowledged receipt of the reports of the two surveyors and the investigating agency in its Consumer Complaint No. 66 of 2011 but, except for baldly stating that the surveyors and the investigator gave negative reports and asserting its innocence in the context of the maintenance of the stock taking and books of accounts, the respondent did not point out any specific deficiency on the part of the surveyors, in terms of the statutory requirement. Despite the same, the NCDRC simply brushed aside both the surveyors’ reports, wherein the genuineness of the respondent’s claims was negated on facts.”

The Bench added: “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.”

Advocate Salil Paul appeared for the insurer. Senior Advocate Sridhar Potaraju represented the respondents.

Background

The insured company had taken over a sick industrial unit engaged in manufacturing paper boards. It held separate fire-insurance policies covering stock for ₹13 crore and buildings, plant and machinery for ₹14 crore.

A fire reportedly broke out in the waste-paper yard and caused damage to raw material and a tin shed. The insured informed the insurer on the same day and subsequently lodged a claim.

The preliminary surveyor tentatively assessed the loss to stock and building at approximately ₹56.46 lakh but recommended a detailed investigation to rule out a deliberate fire and hypothetical loss. An investigative agency thereafter raised doubts concerning the cause of the fire, the nature of the material stored in the shed and the delay in informing the fire station.

The final surveyor assessed the net loss to stock at approximately ₹34.59 lakh and the damage to the shed at approximately ₹11.50 lakh, aggregating to about ₹46.09 lakh. However, it concluded that the insured had manipulated its books of accounts to inflate the claim and had presented unusable or obsolete material as usable raw material.

The insurer repudiated the claim, citing doubtful circumstances surrounding the fire, unreliable stock records, manipulation of accounts and violation of the policy conditions concerning full disclosure and false declarations.

The NCDRC found no reason to doubt the claim. It held that the insured was not required to establish the precise cause of the fire, assessed the alleged loss independently and awarded ₹2.40 crore with interest, compensation and costs.

Court’s Observations

The Court noted that Section 64-UM of the Insurance Act, 1938, required an insurer to obtain a report from a licensed surveyor or loss assessor before admitting or settling a claim above the prescribed value.

Referring to New India Assurance Company Limited v. Pradeep Kumar (2009), the Court clarified that a surveyor’s report is neither sacrosanct nor conclusive. It may form the foundation for settling an insurance claim but does not bind either the insurer or the insured.

The Court observed: “It was observed that an approved surveyor's report may be the foundation for settlement of a claim by an insurer in respect of the loss suffered by an insured but such report is neither binding upon the insurer nor the insured. This was in keeping with the proviso to Section 64UM(2) above.”

In Khatema Fibres Limited v. New India Assurance Company Limited (2023), the Court had held that surveyors must comply with the prescribed code of conduct. Their failure to do so may constitute deficiency in service, while an insurer cannot arbitrarily or whimsically reject their reports.

The Court also referred to Sri Venkateswara Syndicate v. Oriental Insurance Company Limited (2009), which held that an insurer may appoint a second surveyor only for satisfactory and cogent reasons. In the present case, the preliminary surveyor had himself recommended further investigation because of the abnormalities detected.

Relying on United India Insurance Company Limited v. Roshan Lal Oil Mills Limited (2000), the Court reiterated that ignoring a detailed statutory survey report underlying repudiation of a claim could cause a serious miscarriage of justice and vitiate the NCDRC’s decision.

The Court considered New India Assurance Company Limited v. Mudit Roadways (2024), Canara Bank v. United India Insurance Company Limited (2020) and Orion Conmerx Private Limited v. National Insurance Company Limited (2026).

Those decisions recognised that the precise cause of a fire may be immaterial where the insured did not cause it and there is no allegation or finding of fraud. The position would differ where the material reasonably indicated that the insured might have instigated the fire.

The Court explained: “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 insured relied on a police report and an affidavit suggesting that sparks from burning crop residue in a neighbouring sugarcane field might have entered the factory. However, the Court noted that there was no evidence concerning the distance between the field and the factory, while photographs showed only a small patch of burnt grass surrounded by green grass.

The surveyors and investigator recorded that the fire station was informed approximately 50 minutes after the fire was detected, although it was located only six or seven kilometres from the factory. Once informed, the fire engine reached the premises within 11 minutes.

The Court noted the absence of an explanation for not sending an employee by vehicle or two-wheeler to alert the fire station. It also considered the finding that factory employees sprinkled water on the roof or surrounding ground rather than directing it at the fire.

The Court observed: “These are important factors that weigh against the respondent in the context of the fire being a genuine one and sincere efforts being made to fight the fire. Had it been so, these delaying tactics would not have been adopted. The damage to the tin sheets or rather, the lack of it, and the lack of damage to the main structure of the tin shed also speak of the nature of the fire and its extent.”

The Court further noted that the fire was concentrated around Hessian bags whose purchase as raw material was not reflected in the accounts. The material appeared old and bore cobwebs. The insured had also failed to explain why such quantities were stored in the shed.

An owner of the JCB used at the factory stated that the machine had been sent to demolish the shed before the fire, contradicting the insured’s claim that the JCB was called afterward to lift the damaged sheets and facilitate firefighting.

Policy Condition No. 6 required the insured to make full disclosure and produce records, invoices, books and other information concerning the claim, its origin and the extent of the loss. Policy Condition No. 8 provided for forfeiture of policy benefits where a claim was fraudulent, supported by a false declaration or founded on fraudulent means.

The Court found that management representatives claimed that usable raw material had been stored in the tin shed. In contrast, the workers, supervisors and accountants stated that raw material was routinely stored in two permanent godowns and that only segregated, unusable waste had accumulated in the tin shed over several years.

The Court held: “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 surveyor also found that the tax audit report disclosed no stock register, no stock-movement register was available, consumption entries were arbitrary and the reported yield was imaginary. The physical stock did not correspond with the stock shown in the books or the purchase bills produced to support the claim.

The Court concluded that usable raw material had been falsely represented as having been stored and destroyed in the tin shed. It found that Policy Conditions Nos. 6 and 8 had been breached and that the insurer was justified in repudiating the claim.

Conclusion

The Supreme Court allowed New India Assurance Company Limited’s appeal and set aside the NCDRC order awarding ₹2.40 crore with interest, compensation and costs. The insured company’s appeal seeking higher compensation was dismissed.

The Registry was directed to return to the insurer the suitor’s fund amount and the deposited sum of ₹50 lakh, together with accrued interest, in accordance with the prescribed procedure. The parties were directed to bear their own costs.

Cause Title: M/s New India Assurance Company Limited v. M/s Hemkund Duplex and Board Private Limited (Neutral Citation: 2026 INSC 1023)

Appearances

Appellant: Advocates Salil Paul, Manjeet Chawla, AOR, Sahil Paul, Jyoti, Harmeet Singh Phillip, Sandeep Dayal and Raghav Nagar

Respondents: Senior Advocate Sridhar Potaraju, with Advocates K.P. Sundar Rao, Kumar Abhishek, Nischal Kumar Neeraj, AOR, Chandan Kumar Mandal, Anamika Mishra, Yashika Sharma, Jaslene Ahluwalia, Shakti Narayanan, Lakshmi, Avadhesh Kumar Dubey, Akanchha Jhunjhunwala, Shafiq Khan, Shagir Khan, Anjani Suri, Reema Roy, Neelima Bagoria, Amod Kumar Mishra, Farah Naaz, Shalen Bhardwaj, Virender Singh and Nimish Chib

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