The Supreme Court, by its order dated March 17, 2026, directed a Special Investigation Team (SIT) probe into a fire incident at Sayona Colors Pvt Ltd in 2011, after concluding that the insurance claim arising from the incident was fraudulent.
A bench comprising Justice Ahsanuddin Amanullah and Justice R Mahadevan passed the order while setting aside a decision of the National Consumer Disputes Redressal Commission (NCDRC), which had partly allowed the claim.
Court orders SIT probe
The Court directed the Commissioner of Police, Ahmedabad to constitute an SIT headed by an officer not below the rank of Deputy Commissioner of Police. It further directed that the investigation be completed within three months. The matter has been listed for July 21, 2026.
The Court observed that fraudulent insurance claims involving staged incidents are not uncommon and have serious implications for the integrity of the insurance system and public confidence.
No relief permissible in cases involving fraud
Setting aside the NCDRC’s order, the Court held that once fraud is established, no relief can be granted.
It observed:
“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 had earlier directed United India Insurance Co Ltd to pay ₹3.33 crore with interest at 6% per annum from July 8, 2012, along with ₹50,000 towards litigation costs.
Background of the dispute
The case arose from a fire that occurred on March 25, 2011 at the claimant company’s godown. Sayona Colors Pvt Ltd attributed the fire to a short circuit and claimed ₹28.20 crore towards losses.
The insurer, United India Insurance Co Ltd, contested the claim, alleging that the incident resulted from a deliberate act of sabotage. It pointed out that the company had initially obtained insurance coverage of ₹15 crore, enhanced it to ₹19 crore on March 7, 2011, and also secured another policy of ₹17 crore for the period from November 28, 2010 to November 27, 2011, shortly before the incident.
Findings on cause of fire and supporting evidence
The insurer relied on the surveyor’s report and findings of Truth Labs to argue that the fire was not accidental. The Truth Labs report detected hydrocarbon residues consistent with kerosene at the seat of the fire, while no such traces appeared in other areas. The Court also noted that forensic examination of electrical systems revealed no evidence of short circuit or electrical malfunction.
The insurer further questioned the stock claimed to have been present at the godown. It submitted that the suppliers named in the invoices were either non-existent or not engaged in the relevant trade. It also challenged the Gujarat Forensic Science Laboratory (GFSL) report, which indicated the presence of ethyl alcohol, on the ground that the samples examined had already been burnt.
On the other hand, the claimant company maintained that the fire occurred during the policy period due to a short circuit. It stated that it had promptly informed the insurer and the police on the same day and relied on the GFSL report. With respect to the stock, the claimant submitted that it had relied on affidavits of suppliers but had not independently verified their credentials.
Court finds fabrication and manipulation
The Court examined the material on record and found several inconsistencies. It noted that the surveyor’s report highlighted discrepancies between the VAT returns filed by the claimant’s suppliers and those available with the Commercial Taxes Department.
The Court further recorded that the suppliers named in the invoices were either non-existent or unrelated to the transactions claimed, and that the invoices themselves were fabricated.
It also highlighted delays in furnishing samples and reliance on fabricated analytical reports, indicating an attempt to mislead the investigation.
The Court found that the claimant failed to rebut these findings and that the material pointed to manipulation of accounts and violation of policy conditions.
Conclusion of the Court
On an overall assessment, the Court held that the fire was a deliberate act of arson carried out for unlawful gain. It reiterated that fraud vitiates all proceedings and that no person can benefit from wrongful conduct.
The Court accordingly set aside the NCDRC order, rejected the claim in its entirety, absolved the insurer of liability, and directed initiation of a criminal investigation through the SIT.
Case Title: United India Insurance Co. Ltd. v. Sayona Colors Pvt. Ltd.
Case Number: Civil Appeal No. 6100 of 2024
Appearances: Mr. A.K. De and Ms. Ananya De, Advocates, for the insurance company.
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