SC orders SIT probe into ‘fraudulent’ insurance claim by Ahmedabad chemical firm

Noting that fraudulent insurance claims involving staged incidents have serious ramifications on the integrity of the insurance system and public confidence in it, the Supreme Court has ordered an SIT probe into a 2011 fire at an Ahmedabad-based chemical company after finding that its insurance claim was fraudulent.

A bench led by Justice A Amanullah said, “The conduct of the respondent reinforces the inference of fraud. There was a delay in furnishing samples and subsequent reliance on fabricated analytical reports, indicating a clear attempt to mislead the investigation.”

“Thus, the forensic report concludes that the fire was the result of deliberate human intervention, with a strong likelihood of it being engineered for unlawful gain,” said the Bench, which also included Justice R Mahadevan.

“In view of the categorical finding of fraud committed in relation to the insurance claim by the respondent, we direct 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,” the bench ordered on March 17.

“The Commissioner of Police, Ahmedabad, shall ensure full logistical and institutional support to the SIT and shall remain responsible for compliance with these directions,” it said, directing the SIT to submit a report to it in a sealed cover. It posted the matter for further hearing on April 27 at 2 pm.

“A copy of this order shall be communicated to the Commissioner of Police, Ahmedabad, forthwith,” it ordered.

The order came on a petition filed by United India Insurance Company Ltd challenging a December 4, 2023, order of the National Consumer Disputes Redressal Commission (NCDRC) directing it to pay Rs 3,33,63,642, along with an interest of six percent from July 8, 2012, within six weeks to Sayona Colors Pvt Ltd, failing which, the rate of interest would stand enhanced to nine per cent.

Allowing the insurance company’s appeal, the top court set aside the NCDRC’s order.

“The claim of the respondent stands repudiated. The appellant-insurance company is absolved of any liability arising out of the said claim,” the bench said, directing its registry to refund the amount deposited by the appellant insurance company along with accrued interest within two weeks.

Holding that an insurance contract cannot be used as an instrument of unjust enrichment, the bench said, “In view thereof, we have no hesitation in holding that the respondent is not entitled to any amount under the policy, and the claim deserves to be rejected in toto.”

The top court said, “It is a settled principle that fraud vitiates all solemn acts, and no person can be permitted to take advantage of his own wrong.”

Noting that fraud vitiates all judicial acts, whether in rem or in personam and that fraud vitiates all judicial acts, whether in rem (against a thing) or in personam (against a person), the bench said, “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.”

The bench sought to emphasise that, “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.”