The Supreme Court held that the National Consumer Disputes Redressal Commission (NCDRC) has committed a serious miscarriage of justice by brushing aside concurrent surveyor and investigator reports that negated the genuineness of the claim. The Court said that the mere fact that the precise cause of fire cannot be ascertained does not entitle the insured to recovery where there is reasonable cause to suspect instigation or fabrication.
The Court ruled that where an insured makes false averments and breaches Policy Conditions requiring honest disclosure and prohibiting false declarations in support of a claim, the insurer is entitled to reject the claim outright without any further inquiry into quantum. The NCDRC’s failure to consider the concurrent findings of two surveyors and an investigative agency, all of which negated the genuineness of the claim on facts, amounts to a serious miscarriage of justice that vitiates its order.
While an approved surveyor’s report is not the last word and the insurer may depart from it, the discretion to reject or accept such report cannot be exercised arbitrarily. Further, the proposition that the insurer must pay whenever the precise cause of fire cannot be ascertained applies only where there is no allegation or finding that the insured was the instigator of the fire; once reasonable suspicion of instigation arises, the claim stands exposed to denial, added the Court.
The Apex Court also said that statements of factory workers and accountants confirming that only unusable scrap (lying since before the new management took over) was stored in the burnt tin shed directly contradicted the version of the insured’s Vice President and General Manager (Finance), conclusively establishing breach of the policy’s anti-false-declaration condition.
A Two-Judge Bench comprising Justice Sanjay Kumar and Justice Sanjeev Sachdeva noted that the three independent reports, preliminary surveyor, detective agency, and final surveyor, uniformly cast serious doubt on the genuineness of the fire and the claim. The Court observed that the respondent’s loss figures kept changing, the eyewitness Anil Kumar appeared fabricated, no electric connection existed at the yard, smoking was prohibited, the tin shed had been dismantled by a JCB before the fire, and the fire station was informed 50 minutes late without any sincere explanation.
The Court further observed that the fire-minimisation efforts were not bona fide, employees sprinkled water on the roof and ground rather than on the fire, and the branch manager’s request to increase water pressure was resisted for 20 minutes. The statements of workers and accountants confirmed that only unusable scrap was stored in the tin shed, directly contradicting the respondent’s Vice President and General Manager (Finance) who claimed usable raw material was stocked there. The surveyor also found abnormal variations in raw material consumption, no stock register, no stock movement register, arbitrary consumption entries, and an ‘imaginary’ yield, all pointing to inflated book stock.
Briefly, Hemkund Duplex and Board Pvt Ltd. (the respondent) took over a sick paper-board manufacturing unit in 2005 at Najibabad and insured its stock at Rs. 13 crores, and buildings, plant and machinery at Rs. 14 crores, with New India Assurance Company Ltd. (the appellant) under two separate fire policies. On May 07, 2009, a fire broke out in the wastepaper yard inside the factory, damaging raw material and a tin shed. The respondent lodged a claim of Rs. 7.31 crores with 18% interest, after initially projecting losses of Rs. 15 crores to the media and Rs. 10 crores to the insurer.
The appellant appointed a preliminary surveyor (R.C. Bajpai), an investigative agency (Royal Associates), and a final surveyor (Aditi Consultants Pvt Ltd.). All three reports were adverse to the respondent, flagging that the cause of fire was unestablished, the books of accounts were manipulated, the stock was inflated, the tin shed had been broken down by a JCB before the fire, and the fire station was informed nearly an hour late despite being only 6–7 km away. The appellant repudiated the claim, citing breach of policy conditions and non-disclosure and false declaration.
The NCDRC directed the appellant to pay Rs. 2.40 crores with interest, Rs. 3 lakhs compensation for deficiency in service, and Rs. 1 lakh litigation costs, holding that since the cause of fire was unknown, the burden was not on the respondent to prove its genuineness.
