Not 'Consumer' Without Privity Of Contract : Supreme Court Rejects Flat Seller's Consumer Complaint Against Financier Of Buyer

The Supreme Court on Thursday (March 20) ruled that to qualify as a "consumer" under the Consumer Protection Act, there must be a direct contractual relationship between the parties.

A bench comprising Justices Sudhanshu Dhulia and Ahsanuddin Amanullah held that a party having no privity of contract with the service provider cannot be regarded as a consumer as per the Act.

Brief factual background

The respondent (complainant before the NCDRC) had purchased a flat with a housing loan of Rs.17,64,644/- from the ICICI Bank. One Mubarak Vahid Patel (borrower) expressed interest in buying the said flat for an amount of Rs.32,00,000/-. The borrower and the appellant (Citicorp Finance) entered into a loan agreement for an amount of Rs.23,40,000/- As the flat was already mortgaged with ICICI Bank, the borrower requested the appellant to disburse an amount of Rs.17,80,000/- (Rupees Seventeen Lakhs Eighty Thousand) directly to the respondent's ICICI Bank account, in order to secure the release of the flat.

The respondent filed a consumer complaint in the NCDRC seeking to direct the appellant to pay him the balance sale consideration of Rs.13,20,000/-.  The respondent claimed that there was a tripartite agreement between him, the appellant and the borrower, whereby the appellant was required to deposit the entire sale consideration.

The NCDRC allowed the complaint, directing the appellant-Citicorp Finance to refund Rs. 13,20,000 with interest and pay Rs. 1,00,000 as litigation costs.

Against the NCDRC's ruling, the Appellant appealed to the Supreme Court.

Overturning the NCDRC's ruling, the judgment authored by Justice Amanullah noted he essential transaction of sale was between the complainant-respondent and the borrower who was the buyer of the flat of the complainant-respondent for an agreed consideration of Rs.32,00,000/- (Rupees Thirty-Two Lakhs).

"In the specific factual setting, the respondent, having no privity of contract with the appellant, cannot be termed a 'consumer' under the Act. This alone was sufficient to dismiss the complaint," the Court observed.

"It is clear that the complainant- respondent cannot be said to be a 'consumer' under the Act as it had no privity of contract with the appellant, due regard being had to the totality of the factual matrix," the Court observed.

The Court further noted the loan which was sanctioned by the appellant to the borrower was only for a sum of Rs.23,40,000/-. Therefore, the NCDRC erred in directing the appellant to pay the entire amount of Rs.31,00,000/-.

The purported Tripartite Agreement, relied upon by the complainant-respondent himself, states that the appellant would only pay the foreclosure amount, out of the total loan amount sanctioned to the borrower, to ICICI Bank for or on behalf of the borrower towards foreclosure of respondent's loan facility with it. No further liability to pay any amount directly to the complainant-respondent was even envisaged in the Tripartite Agreement

The Court held that the respondent did not qualify as a "consumer" under the Consumer Protection Act, 1986, as there was no privity of contract between the respondent and the Appellant. The respondent was not a party to the Home Loan Agreement between the Appellant and the buyer.

“we find that the appellant, assuming any liability in this regard existed at all, taking the respondent's case at the highest, could not have been saddled with having to pay more than what was envisaged under the Home Loan Agreement between the borrower and the appellant. In any event, the appellant's liability under the Agreement for sale was restricted only to satisfying the dues of the complainant-respondent with ICICI Bank which sum was in fact quantified at Rs.17,87,763/- (Rupees Seventeen Lakhs Eighty Seven Thousand Seven Hundred Sixty-Three) and, in any view of the matter, could not have exceeded Rs.23,40,000/- (Rupees Twenty-Three Lakhs Forty Thousand). Thus, the NCDRC could not have, under any circumstance, taken a view that the appellant was liable to pay Rs.31,00,000/- (Rupees Thirty-One Lakhs) both to ICICI Bank as well as to the complainant-respondent, who was not a party to the ultimate sanction of the loan by the Home Loan Agreement, which was between the appellant and the borrower.”, the court observed.

Accordingly, the appeal was allowed, and the NCDRC's order was set aside.

Case Title: M/S CITICORP FINANCE (INDIA) LIMITED VERSUS SNEHASIS NANDA

Citation : 2025 LiveLaw (SC) 332

Click here to read/download the judgment

Appearance:

For Petitioner(s) Mr. Ritin Rai, Sr. Adv. Mr. Sanjay Kumar, Adv. Mr. Chanchal Kumar Ganguli, AOR

For Respondent(s) Respondent-in-person