Noting that it had become common to 'stage manage' incidents for insurance claims have become common, the Supreme Court recently ordered a Special Investigation Team probe into the 2011 fire at a chemical company, Sayona Colors Pvt Ltd, after finding that its insurance claim was fraudulent.
“Before parting, we deem it appropriate to observe that fraudulent insurance claims involving staged incidents are not uncommon and have serious ramifications on the integrity of the insurance system and public confidence therein”, the Court observed in the order passed on March 17, 2026.
The Court directed the Commissioner of Police, Ahmedabad to constitute the SIT headed by an officer not below the rank of Deputy Commissioner of Police and complete the investigation within three months. The matter has been listed for July 21, 2026.A bench of Justice Ahsanuddin Amanullah and Justice R Mahadevan set aside the order of the National Consumer Disputes Redressal Commission, which had partly allowed the company's claim.
“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 Court held.
The NCDRC had directed United India Insurance Co Ltd to pay Rs. 3.33 Crores with interest at 6% per annum from July 8, 2012, along with Rs. 50,000 as litigation costs.The case arose from a fire on March 25, 2011 at the company's godown. Sayona Colors Pvt Ltd claimed that the fire was caused by a short circuit and sought Rs. 28.20 Crores towards losses.
The insurer disputed the claim and contended that it was based on a deliberate act of sabotage. It pointed out that the company had initially taken a policy for Rs. 15 crore, enhanced it to Rs. 19 crore on March 7, 2011, and also obtained another policy of Rs. 17 crore for the period from November 28, 2010 to November 27, 2011, shortly before the fire. It relied on the surveyor's findings and a report from Truth Labs to contend that the fire was not accidental.
The insurer also questioned the stock claimed to have been stored in the godown at the time of the incident. It claimed that the suppliers shown in the invoices were either non-existent or not engaged in the relevant trade. It further argued that the Gujarat Forensic Science Laboratory report which indicated the presence of ethyl alcohol, an inflammable substance, was unreliable because the samples examined had already been burnt.
The claimant company maintained that the fire occurred accidentally during the insurance period due to a short circuit. It pointed out that the incident was reported to the insurer and the police on the same day and relied on the GFSL report. On the insurer's claim against the goods stocked in the godown, the claimant stated that it had relied on affidavits of suppliers but had not independently verified their credentials.
The Court held that the claim was fraudulent. It opined that the enhancement of insurance coverage and procurement of an additional policy close to the incident raised doubts about the claim.
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