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Supreme Court: Investments with returns in the form of interest are “commercial” transactions and outside the purview of the Consumer Protection Laws

In the recent decision of Annapurna B. Uppin & Ors. v. Malsiddappa & Anr.[1] the Supreme Court of India (“Supreme Court”) held that investments such as those by which the complainant derives benefit in the form of interest is outside the summary jurisdiction of the Consumer Protection Act, 1986 (“CP Act”).

Brief Facts

1. This judgement has been delivered in the background of a consumer complaint filed by respondent no.1 (“Complainant”) who had invested INR 5,00,000 (Indian Rupees five lakh) in the partnership firm which was repayable after 120 (one hundred twenty) months with interest @ 18% p.a. The appellants (opposite parties) are the legal heirs of the Managing Partner of the firm.
2. The Complainant stated before the District Forum (DCDRF, Dharwad, Karnataka) (“District Forum”) that he had sought premature release of the invested amount but was asked to wait till maturity. However, even upon maturity, the Complainant did not receive the amount. Aggrieved, he filed a consumer complaint alleging deficiency of service and claiming recovery of the invested amount. The Appellants, inter alia, objected to the Complainant being a “consumer” under the Consumer Protection Act, 1986.
3. The District Forum allowed the complaint directing repayment of the invested amount of INR 5,00,000 (Indian Rupees five lakh), with simple interest of 18% for the 120 (one hundred twenty) months, along with interest till realization, compensation, and costs. Despite 2 (two) rounds of remand from the State Commission, the District Forum allowed the complaint on the same terms.
4. The State Commission finally also dismissed the appeal against the decision of the District Forum. The NCDRC also dismissed the revision petition filed before it. Aggrieved, the appellant (opposite parties) filed the civil appeal before the Supreme Court.

Issue

Whether commercial transactions (investments) are under the purview of the CP Act.

Findings and Rationale

The Supreme Court allowed the civil appeal and set aside the judgements of the District Forum, the State Commission, and the National Commission. The Supreme Court held that the complaint was not maintainable on the basis that:

1. The investment by the Complainant was for deriving benefit by getting an interest on the investment (at the rate of 18 % per annum). Therefore, it would be an investment for profit/gain.
2. It was a commercial transaction and therefore, it was outside the purview of the CP Act. Hence, the complaint was not maintainable.
3. Commercial disputes cannot be decided in a summary proceeding under the CP Act but the appropriate remedy for recovery of the said amount, if any, would be before the Civil Court.

As an aside, the Supreme Court also decided the complainant’s contention regarding the liability of the legal heirs in dealing with assets and liabilities of the partnership firm. The Supreme Court reiterated that the legal heirs of a deceased partner (in a partnership firm) not becoming liable for the liabilities of the partnership upon the partner’s death.

Conclusion

The bar on consideration of commercial transactions under the CP Act is inherent to the legislation. However, Courts have had to work around the nuance of whether a purchase or investment is for one’s own use (or livelihood) or for a commercial purpose attributing profit motive, as only the latter is outside the purview of the CP Act. Even though the Consumer Protection (Amendment) Act 1993 (and now, the Consumer Protection Act, 2019) introduced an explanation for what constitutes “commercial purpose”[2], Courts have held to conclude whether a complainant is a “consumer” there is no strait-jacket formula to decide if the use is commercial in nature. It would depend on the facts and circumstances of each case[3] by an evaluation of the evidence tendered by the parties[4].

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[1] SLP (C) No.11757 of 2022, Supreme Court

[2] Section 2(7) Explanation (a), CP Act, 2019: The expression “commercial purpose” does not include use by a person of goods bought and used by him exclusively for the purpose of earning his livelihood, by means of self-employment.

[3] Lilavati Kirtilal Mehta Medical Trust v. Unique Shanti Developers & Ors., (2020) 2 SCC265

[4] Rohit Chaudhary & Anr. v. M/s Vipul Ltd., (2024) 1 SCC 8

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Supreme Court recognizes company as a person capable of sustaining action under the Consumer Protection Act, 1986

The Hon’ble Supreme Court of India (“Supreme Court”) in M/s Kozyflex Mattresses Private Limited v. SBI General Insurance Company and Anr.[1] has clarified that a company would be considered a ‘person’ under the Consumer Protection Act, 1986 (“1986 Act”) and can file a complaint for deficiency of services under the 1986 Act.

Brief Facts

Kozyflex Mattresses Private Limited (“Kozyflex”) purchased a ‘Standard Fire and Special Perils’ insurance policy from SBI General Insurance Company (“SBI Insurance”). 2 (two) weeks after the purchase of the policy, a massive fire incident took place at Kozyflex’s factory. The next day Kozyflex intimated SBI Insurance of the incident, and eventually submitted an insurance claim of INR 34,000,000 (Indian Rupees three crores forty lakhs) (“Claim”). SBI Insurance appointed investigators to independently assess and verify the claim. Basis the results of these assessments and verification, the investigators prepared a preliminary report and a final report (collectively, “the Reports”). Relying on the Reports, the Claim was repudiated on the ground that it was fraudulent and exaggerated. The Reports were not provided to Kozyflex. Aggrieved by the repudiation of the Claim, Kozyflex filed a complaint before the National Consumer Disputes Redressal Commission (“National Commission”) under the 1986 Act, claiming deficiency in service by SBI Insurance (“Complaint”). On dismissal of the Complaint by the National Commission, Kozyflex approached the Supreme Court in appeal seeking remand of the Complaint to the National Commission for reconsideration on merits after giving Kozyflex an opportunity to rebut the findings in the Reports (“Appeal”).

Submissions before the Supreme Court

Before the Supreme Court, Kozyflex contended inter alia that despite clarifying all the queries by the SBI Insurance appointed investigators, Kozyflex was never provided with the Reports, which were produced directly before the National Commission. Hence, Kozyflex was never given a chance to rebut the findings in the Reports.

On the other hand, SBI Insurance raised preliminary objections to the Appeal inter alia on the ground that the word ‘company’ is not covered by the definition of ‘person’ under the 1986 Act. Therefore, Kozyflex being a company is not entitled to file a complaint under the 1986 Act.

The Supreme Court, after considering the submissions made by the parties, rejected the preliminary objections raised by SBI Insurance.

The Supreme Court held that the definition of ‘person’ provided in the 1986 Act is an inclusive and not an exhaustive definition. The 1986 Act being a beneficial legislation, a liberal interpretation must be given to its provisions to ensure that the legislative intent is not watered down. Further, the Supreme Court stated that the very fact that the definition of ‘person’ under the Consumer Protection Act, 2019 (“2019 Act”) was amended to include a body corporate, is by itself indicative of the legislature realising the incongruity of the definition of ‘person’ under the 1986 Act with the purpose sought to be achieved by the statute.

Ultimately, the Supreme Court remanded the matter back to the National Commission for reconsideration on merits after Kozyflex is given an opportunity to rebut the findings of the Reports.

JSA Analysis

The 1986 Act defines a ‘consumer’ to be any ‘person’ who buys, hires, or avails of any goods or services for a consideration provided that such goods or services are not bought, hired, or availed for any commercial purpose.

The definition of a ‘person’ as provided under the 1986 Act is as follows:

“ ‘person’ includes,–

1. a firm whether registered or not;
2. a Hindu undivided family;
3. a co-operative society;
4. every other association of persons whether registered under the Societies Registration Act, 1860 (21 of 1860) or not;”

The 1986 Act evidently makes no explicit mention of ‘company’ or ‘body corporate’ in its definition of ‘person’ – an exclusion that has now been remedied under the 2019 Act. This difference between the 1986 Act and the 2019 Act has led to a series of decisions by the National Commission, disallowing actions brought by companies before it.[2]

As a result, companies were forced to approach civil courts for redressal of their grievances, despite such grievances being inherently in the nature of consumer disputes arising out of deficiency in services. Companies were thus precluded from enjoying the benefits of the fast-tracked summary procedure provided for the adjudication of such disputes. Parallelly, the civil courts, already under strain from immense pendency, were further burdened with the adjudication of disputes which should have been adjudicated by the consumer dispute redressal forums.

While admittedly a company or a body corporate does not find mention in the definition of person under the 1986 Act, it is a settled law that a company is to be considered a legal person, with an identity separate and distinct from its participants or decisionmakers. Therefore, dismissing actions merely on the basis that companies are not included in the definition of person under the 1986 Act, was a pedantic approach completely at odds with the legislative intent behind the statute.

The Supreme Court’s decision in Kozyflex (supra) has put a decisive quietus to this issue. In Kozyflex (supra), the Supreme Court appears to have adopted a purposive approach in analysing this issue, and correctly identified that the definition of ‘person’ is inclusive and not exhaustive in nature. While doing so, it has delivered a progressive decision which is in sync with the objects sought to be achieved by the 1986 Act. This decision will ensure that a complainant being a ‘company’ will in and of itself, not be a reason to prevent it from initiating an action under the 1986 Act.

This decision is cognizant of the changing nature of business transactions in India and in our opinion, will benefit both companies (who can now bring actions both under the 1986 Act and the 2019 Act), as well as civil courts (who can now devote their attention to cases of inherently commercial nature which have been battling for attention).

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Divyam Agarwal Partner

Chirag Basu Associate

Mayank Ratnaparkhe Associate

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[1] Civil Appeal No. 7966 of 2022

[2] See Shika Birla v. DLF Retailers Developers Ltd., National Consumer Disputes Redressal Commission CC/183/2012; Satish Kumar Gajanand Gupta v. M/s Srushti Sangam Enterprises (India) Ltd., National Consumer Disputes Redressal Commission CC/296/2011; and Shivom Projects Private Limited v. Toyota Kirloskar Motor Pvt. Ltd., National Consumer Disputes Redressal Commission CC/229/2014.

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Supreme Court reiterates the ‘dominant purpose’ test to hold that if goods are purchased for a profit motive, the purchaser will not be a consumer

The Supreme Court of India (“Supreme Court”) in the case of Rohit Chaudhary & Anr. V. M/s. Vipul Ltd.,[1] has upheld the ‘dominant purpose’ test and held that if the dominant purpose for purchasing the goods or services is for a profit motive and this fact is evident from the record, such purchaser will not fall within the definition of the term ‘Consumer’.

Brief Facts

1. The appellants acquired shares in Vipul World Commercial’s commercial unit from the original allottees. It was agreed between the parties that the appellants will pay INR 18,07,100 (Indian Rupees eighteen lakh seven thousand and one hundred) to the original allottees and INR 34,27,050 (Indian Rupees thirty four lakh twenty seven thousand and fifty) to the respondent, as and when demanded. The appellants paid the agreed sum to the original allottees and communicated this to the respondent.
2. Subsequently, the respondent raised its demand on the appellants. The appellants duly paid the amount demanded by the respondent. The respondent also issued receipt and allotment letter to the appellants. In the course of time and after certain intervening exchanges (not relevant to the discussion herein), the respondent forwarded a buyer’s agreement to the appellants, requiring the latter to sign and return the same. The respondent agreed to deliver possession of the office unit to the appellants within 24 (twenty four) months of the execution of the buyer’s agreement.
3. The sale consideration for the commercial unit was INR 51,51,415 (Indian Rupees fifty one lakh fifty one thousand four hundred and fifteen). Out of this amount, the appellants paid to the respondent INR 50,28,122 (Indian Rupees fifty lakh twenty eight thousand one hundred and twenty two), which was also acknowledged by the respondent. A further amount of INR 2,47,148 (Indian Rupees two lakh forty seven thousand one hundred and eight) was to be paid by the appellants to the respondent from the date of possession notice (which was not issued by the respondent).
4. After the lapse of 24 (twenty four) months and on account of non-intimation of delivery of possession of the office unit, the appellants first issued a legal notice to the respondent and then approached the National Consumer Disputes Redressal Commission (“NCDRC”). Before the NCDRC, the appellants prayed for the refund of the amounts paid by them along with interest at the rate of 18% per annum and a sum of INR 50,00,000 (Indian Rupees fifty lakhs) towards mental agony.
5. The NCDRC dismissed the appellants’ complaint vide an order dated May 11, 2015 on the ground that it was not maintainable since the appellants were not found to be ‘Consumers’ within the definition contained in Section 2 (1)(d) of the Consumer Protection Act, 1986 (“CPA 1986”). The basis of the dismissal of the complaint by NCDRC was two-fold – first, that the appellants were already carrying on business for the purpose of earning livelihood and therefore, it could not be said that the commercial unit was being purchased for earning livelihood through self-employment. Second, the purchase of the commercial unit was for earning profits and not for earning livelihood through self-employment.
6. Aggrieved by NCDRC’s Order dated May 11, 2015 dismissing the appellants’ complaint, the appellants preferred an appeal before the Supreme Court.

Issue

Whether the appellants are consumers as defined in Section 2 (1)(d) of the CPA 1986?

Decisions and Observations of the Supreme Court

1. In deciding this issue, the Supreme Court noted the definition of the term ‘Consumer’ as contained in Section 2(1)(d) of the CPA 1986. It also noted discussions concerning this definition in earlier precedents of the apex court as well as the dictionary meaning of the term ‘commercial purpose’ (since this has not been defined in the CPA 1986).
2. In particular, the Supreme Court noted the landmark decision in Laxmi Engineering Works v. P.S.G. Industrial Institute[2], wherein, after an extensive discussion by way of reference to various examples, it was held that:
   • whether the purpose for which a person has bought goods is a ‘commercial purpose’ as contained in the definition of the term ‘Consumer’ has to be decided on the facts and circumstances of each case;
   • a person who has purchased goods and uses it for the purpose of earning his livelihood through self-employment, will be covered by the definition of the term ‘Consumer’.
3. Since the term ‘commercial purpose’ has not been defined in the CPA 1986, the Supreme Court relied on its dictionary meaning. ‘Commercial purpose’ was held to mean “‘connected’ with or engaged in commerce; mercantile; having profit as the main aim”. The Supreme Court also took note of the explanation to Section 2(1)(d) of CPA 1986[3]. Going by the plain dictionary meaning of the term ‘commercial purpose’, the Supreme Court held that the intention of the Parliament was to exclude any person who buys goods for the purpose of such goods being used in any activity engaged on a large scale for the purpose of earning profit.
4. With reference to the decision in Lilavati Kirtilal Mehta Medical Trust v. Unique Shanti Developers[4], the Supreme Court reiterated the principle that there cannot be any straight-jacket formula for determining whether a particular activity or transaction is for a commercial purpose; it will have to be based on the facts and circumstances of each case. Therefore, if the dominant purpose for purchasing goods or services is for a profit motive and this fact is ascertainable from the records, then the purchaser will not fall within the definition of ‘Consumer’. Therefore, the averments in the complaint have to be examined to see whether the goods have been purchased by the purchaser for earning their livelihood through self-employment; if yes, then the complaint cannot be dismissed at the outset.
5. Applying the aforesaid principles to the facts of the present case, the Supreme Court held that the complaint filed by the appellants indicated that the appellants were in search of office space “for their self-employment and to run their business and earn their livelihood”. The Supreme Court also noted that the appellants have nowhere stated that they proposed to purchase the office space for the purpose of either selling off the same at a higher price in the future. Therefore, the commercial unit purchased by the Appellants could be for the purpose of earning their livelihood, opening an office for dealing in the existing business, or potentially to use the premises as a corporate, branch or head office for their existing business. Such possibilities are backed by the averment contained in the complaint to the effect that the commercial unit was for the appellants’ self-employment.
6. Therefore, the Supreme Court found the appellants’ complaint to be maintainable and the conclusion arrived at in the Order dated May 11, 2015 by the NCDRC to be unsupported. However, since the disputes between the parties dated back to the year 2006 and the appellants had repudiated the contract, instead of remitting the matter back to the NCDRC to decide, the Supreme Court allowed the claim of the appellants pertaining to the refund of the amounts paid (although at a reduced rate of interest – 12% as against the rate of 18% claimed in the complaint by the appellants).

Conclusion

1. In coming to its conclusion, the Supreme Court took note that there cannot be any defined formula with mathematical precision to examine on facts whether a complainant is falling within the definition of the term ‘Consumer’. Each case has to be examined on its own facts and circumstances. This view is in keeping with a long line of precedents of the apex court. While each of these decisions agrees with the view that no single straight-jacket formula can be developed, some judicial precedents have developed tests other than the ‘dominant purpose’ test. For instance, in another recent case, the apex court relied on the ‘close and direct nexus’ test along with the ‘dominant purpose’ test to arrive at the conclusion that the act of taking out policy of insurance did not have a close and direct nexus with the profit generating activity and therefore, the insured will qualify as a ‘consumer’[5].
2. The decision in the present case was rendered under the CPA 1986. Noticeably, the definition of the term ‘Consumer’ under the Consumer Protection Act, 2019[6] (“CPA 2019”) is akin to that under the CPA 1986. Even the CPA 2019 does not define the term ‘commercial purpose’.
3. While the facts in the present case were fairly simple, it will be interesting to see:
   • how the courts apply these tests in a more complex factual matrix, one where there is no clear delineation of the purpose for which the goods purchased were being used; and
   • how this test is applied in cases where consumer complaints are filed by corporations using goods in the course of their business or other profit generating activity.

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[1] Civil Appeal No. 5858 of 2015 decided on September 6, 2023 decided by Justice S. Ravindra Bhat and Justice Aravind Kumar.

[2] (1995) 3 SCC 583

[3] The explanation added to Section 2(1)(d) of CPA 1986 reads as follows – “Explanation – For the purposes of this clause, “commercial purpose” does not include use by a person of goods bought and used by him and services availed by him exclusively for the purposes of earning his livelihood by means of self-employment”.

[4] (2020) 2 SCC 265

[5] National Insurance Co. Ltd. v. Harsolia Motors and Others, 2023 SCC Online SC 409.

[6] See Section 2(7) of the Consumer Protection Act, 2019.