False stock declarations entitled insurer to reject entire fire claim, Supreme Court holds

M/s. Hemkund Duplex and Board Pvt. Ltd. insured its stock, buildings, plant and machinery with New India Assurance Company Ltd. under two fire policies.

A fire broke out on 7 May 2009 in the respondent’s waste-paper yard and allegedly damaged raw material and a tin shed. The respondent claimed approximately ₹7.31 crore.

The insurer appointed a preliminary surveyor, an investigative agency and a final surveyor. Their reports identified substantial discrepancies, including the absence of a clear accidental cause, delayed intimation to the fire brigade, inadequate firefighting efforts, possible prior demolition of the tin shed, inconsistencies in the stock records, and the presence of obsolete or unusable material rather than the claimed raw material.

The insurer repudiated the claim on the ground that the respondent had made false declarations and breached Policy Conditions Nos. 6 and 8.

The National Consumer Disputes Redressal Commission nevertheless directed the insurer to pay ₹2.40 crore, besides compensation and litigation costs.

Whether the insurer was justified in repudiating the respondent’s entire insurance claim on the ground of breach of the policy conditions relating to disclosure, false declarations and fraudulent claims?

Whether the NCDRC was justified in disregarding the surveyors’ and investigator’s reports and independently assessing the respondent’s loss?

Whether the respondent’s inability to establish the precise cause of the fire precluded repudiation of the claim where the evidence indicated possible arson, lack of bona fide firefighting efforts and false declarations?

Section 64UM(2) of the Insurance Act, 1938 requires an insurer to obtain a report from an approved surveyor or loss assessor before admitting or settling a claim above the statutory threshold, although the surveyor’s assessment is not conclusive and may be departed from for valid reasons.

Section 64UM(1-A) requires surveyors to comply with the prescribed code of conduct; arbitrary or whimsical rejection of a surveyor’s report may amount to deficiency in service.

Under Section 2(1)(g) of the Consumer Protection Act, 1986, deficiency includes a fault, shortcoming or inadequacy in the performance of a contractual service.

The Court relied on New India Assurance Co. Ltd. v. Pradeep Kumar, Khatema Fibres Ltd. v. New India Assurance Co. Ltd., Sri Venkateswara Syndicate v. Oriental Insurance Co. Ltd., and United India Insurance Co. Ltd. v. Roshan Lal Oil Mills Ltd. for the principles governing surveyor reports and their evidentiary significance.

It also applied the principle that although the precise cause of a fire may ordinarily be immaterial where no fraud or instigation by the insured is established, a claim may be rejected where the evidence reasonably indicates that the insured instigated the fire or made fraudulent representations.

Under Policy Conditions Nos. 6 and 8, the insured was required to provide complete and truthful particulars and forfeited policy benefits if the claim was fraudulent, supported by false declarations or involved wilful acts or connivance.

The Court found that the three investigative and survey reports consistently identified serious irregularities: the cause of the fire was doubtful; the fire brigade was informed approximately 50 minutes after the fire was detected despite being only 6–7 kilometres away; the respondent’s employees did not make sincere efforts to extinguish the fire; the tin shed showed insufficient fire damage and appeared to have been demolished before the incident; and the burnt material was old, unusable stock, including Hessian bags not supported by the respondent’s purchase records.

The Court further relied on statements of workers and accountants that usable raw material was not stored in the tin shed, contrary to the statements of the respondent’s Vice President and General Manager.

The respondent therefore made false declarations to support its claim, while its books and stock records showed material discrepancies and unexplained abnormal production and yield figures.

Although surveyor reports are not binding, the NCDRC had provided no proper basis for disregarding detailed and mutually consistent reports, and the respondent had not identified any specific statutory or professional deficiency in them.

These facts established breach of Policy Conditions Nos. 6 and 8, making repudiation lawful irrespective of the precise origin of the fire.

Civil Appeal No. 7221 of 2025 was allowed, and the NCDRC’s order dated 19 November 2024 directing payment of ₹2.40 crore, compensation and litigation costs was set aside.

The respondent’s Civil Appeal No. 11416 of 2025 was dismissed.

The insurer was directed to receive back the deposited ₹50 lakh and the suitor’s fund, together with accrued interest.

The parties were directed to bear their own costs.