Warranty On Commercial Purchases Does Not Make It A Consumer Transaction: NCDRC

Brief Facts of the Case

The complainant, a private limited company involved in the excavation business, purchased a Hydraulic Excavator from Telco Construction Equipment Company for Rs 44 lakhs, including 4% VAT. The excavator was commissioned shortly after the purchase. Within two days, the complainant reported operational problems, which were addressed under the one-year or 2000-hour warranty. Later, the Excavation company replaced the excavator's engine with a new one that worked satisfactorily, although other parts continued to have issues. Alleging manufacturing defects, the complainant issued a legal notice seeking a replacement excavator and/or compensation for the losses. Subsequently, the complainant filed a consumer complaint in the State Commission of Rajasthan seeking a refund of Rs 44 lakhs, along with Rs 22,30,000 in compensation and Rs 1 lakh for litigation expenses. The complaint was partly allowed,wherein the Commission directed the company to pay Rs. 15 lakhs towards repair charges, Rs. 10 lakhs towards mental distress and Rs. 20,000 towards litigation costs. This order made the Company file a First Appeal before the National Commission.

Contentions of the Opposite Party

The Company challenged the State Commission's order on several grounds. It was argued that the State Commission erred by not considering that the excavator was purchased for commercial purposes; hence, the complainant was not a 'consumer' under the Act solely because the Company provided a warranty. The State Consumer Commission wrongly concluded that the complainant was a 'consumer' under Section 2(1)(d) of the Act, despite the 2003 amendment that excluded commercial purposes from the definition of 'consumer.' The State Commission failed to recognize that the Respondent did not present any substantial evidence of manufacturing defects or service deficiencies, apart from replacing parts worth Rs 15 lakhs. It was further argued that the State Commission erroneously relied on the unsubstantiated statements of the complainant and ignored remarks on various job cards by service engineers. Furthermore, the State Commission did not appreciate that the excavator had not been operated according to the operation manual and procedures, violating the warranty terms and conditions. Additionally, the company contended that there was no deficiency in service on their part, as the job cards showed that the Company provided services as required.

Observations by the Commission

The Commission observed that the State Commission's order was flawed because the complainant was not a 'consumer' under Section 2(1)(d) of the Consumer Protection Act, 1986, as amended in 2003, which excluded goods and services used for a 'commercial purpose.' Since the consumer complaint was filed after the amendment came into force, the Commission noted that the complaint was not maintainable under the Act, and the State Commission had committed a jurisdictional error in entertaining it. The Commission also considered the argument that the fact that the excavator required frequent repairs during the warranty period did not establish an inherent manufacturing defect warranting a replacement or refund. The complainant's counsel had relied on the judgment in M/s Pressweld Engineers vs. Jayaram Reddy & Anr., to argue that the complainant was covered under the Act as a consumer, even though the excavator was acquired for commercial purposes. The Commission identified the primary issue as whether the complainant qualified as a 'consumer' under the Act or was excluded because the excavator was used for a commercial purpose. The State Commission's order stated that based on rulings such as Meera and Co. Ltd vs. Chinar Syntex Ltd., a complainant who purchased a machine with a warranty for commercial use fell under the definition of 'consumer.' However, the Commission referred to Section 2(1)(d) of the Consumer Protection Act, 1986, as amended in 2003, which excluded individuals who obtained goods for any commercial purpose. In this case, the excavator was purchased by the complainant, a private limited company, for commercial use, thus excluding it from the Act's purview. Additionally, the Commission observed that the complainant did not fulfill the requirement under Section 13(1)(c) of the Act to provide an expert opinion from an appropriate laboratory to support the claim of deficiency. Therefore, the Commission concluded that the claims of manufacturing defect and service deficiency against the company could not be sustained. The commission found merits in the appeal by the company and overturned the State Commission's order.

Case Title: Telco Construction Equipment Co. Ltd Vs. Stone International Pvt. Ltd. & Ors

Case Number: F.A. No. 396/2011