Consumer Protection Act - Dominant Purpose To Be Looked Into To Ascertain Whether Transaction Was Commercial: Supreme Court

While dealing with the issue whether a real estate company that purchased a flat for the personal use of its Director is a "consumer" under Section 2(7) of the Consumer Protection Act, the Supreme Court recently reiterated that deciding the intended use of the purchased goods (personal or commercial) would depend on the facts and circumstances of each case.

"It is the dominant intention of the transaction that is to be looked into to find out if it had any nexus with some kind of profit generation as part of the commercial activities", the Court said.

While referring to the recent decision in M/s Daimler Chrysler India Pvt. Ltd. v. M/s Controls & Switchgear Company Ltd. & Anr., the bench of Justices PS Narasimha and Pankaj Mithal observed,

"...to determine whether the goods purchased by a person (which would include a legal entity like a company) were for commercial purpose or not within the meaning of the Act would depend upon the facts and circumstances of each case. However, ordinarily “commercial purpose” is understood to include manufacturing/industrial activity or business-to-business transactions between commercial entities. The purchase of the goods should have a close and direct nexus with a profit generating activity."

It added: "If it is found that the dominant purpose behind purchasing the goods was for the personal use and consumption of the purchaser and/or the beneficiary, or was otherwise not linked with other commercial activities, the question whether such a purchase was for the purpose of “generating livelihood by means of self employment” need not be looked into."

Factual Background

The respondent, a company doing real estate business, booked a flat for the residential use of one of its directors with the appellant. It paid a booking amount of Rs.51,00,000/- and part consideration of Rs.6,79,97,071/- to the appellant.

Subsequently, a letter of allotment was issued, wherein date of possession was mentioned as 31.12.2018. On 08.03.2017, the appellant advanced the date of allotment to the first quarter of 2017. On the basis of a part occupancy certificate, the respondent was asked to take possession of the allotted flat immediately and directed to pay the balance amount of Rs.28,87,80,526/- within 30 days.

While trying to arrange the finances, the respondent came to know that the flat allotted to it was already reserved/allotted to one Nakul Arya. Subsequently, it declined to take possession and make balance payment. The appellant, in response, cancelled the booking/allotment of the respondent vide Termination Letter dated 31.08.2017.

When the respondent sought refund of the entire amount (Rs.7,16,41,493/-) alongwith interest, the appellant forfeited it. Aggrieved, the respondent approached the National Consumer Disputes Redressal Commission complaining about deficiency in services and adopting of unfair trade practices.

The appellant contested the complaint, alleging that the respondent was not a consumer within the purview of Section 2(7) of the CPA. The NCDRC allowed the complaint holding the respondent to be a "consumer". In context with the allegations of deficiency and unfair trade practice, the NCDRC held that there was deficiency in service on the part of appellant.

The NCDRC issued directions to the appellant to refund the forfeited amount of Rs. 7,16,41,493/- within 2 months, along with delay compensation @ 6% per annum from the date of deposit till refund, failing which interest was payable @ 9% per annum. Challenging this order, the appellant approached the Supreme Court.

Issues

(i) Whether the complaint filed by the respondent was maintainable inasmuch as it was alleged to not be a "consumer" within the meaning of Section 2(7) of the CPA?

(ii) Whether there was any deficiency in service on part of the appellant, or whether it was justified in terminating the allotment of the respondent and forfeiting the deposits?

Court Observations

After going through the material, the Court was of the view that the issue of maintainability arising in the case was no longer res integra.

In this regard, it referred to the decisions in Lilavati Kirtilal Mehta Medical Trust v. Unique Shanti Developers and Others (where the Medical Trust that purchased houses for nurses was held to be a "consumer" and its action in purchasing the houses not held to be a commercial activity) and Crompton Greaves Limited and Others v. Daimler Chrysler India Private Limited (where the services availed for the personal use of the director of the company were not held to be for commercial purposes).

Relying on Daimler Chrysler v. Controls & Switchgear Company (supra), the Court said that the dominant purpose of a transaction had to be looked into to find out if it had any connection with profit generation as part of commercial activities.

On facts of the case, it was noted that according to the respondent, the flat was being purchased for the purpose of residence of one of its Directors and his family and the company was a family owned company.

Since it was the appellant's case that the respondent was not a "consumer", the Court opined, the burden lay on the appellant to show that the respondent was purchasing the flat as part of its real estate business. However, it failed to do so.

"There is no evidence on record to show that the flat so purchased by the respondent was in any way connected with the real estate business rather than for personal use of its Director and his family."

On the issue of deficiency in service and unfair trade practice, the court noted that the issue of double allotment was resolved by a deed of rectification dated 17.03.2018.

Though it was the appellant's explanation that the flats allotted to the respondent and Nakul Arya were different and there was confusion only with regard to the number of the flats allotted, the Court held that the appellant could not have cancelled the allotment in favor of the respondent prior to resolution of the dispute regarding double allotment.

"Since the very cancellation/ termination of the allotment of the respondents in the facts and circumstances of the case is not justified, consequently the forfeiture is also bad in law," the Court said.

Conclusion

The Court agreed with the view taken by the NCDRC on both the issues. Accordingly, the appeal was dismissed. Direction was passed to the appellant to refund Rs. 3,00,00,000/- out of the total amount directed to be refunded within two weeks. The balance was held payable on or before 31st December, 2024.

Case Title: Omkar Realtors and Developers Pvt. Ltd. v. Kushalraj Land Developers Pvt. Ltd. & Anr., Civil Appeal No.858 of 2023

Citation : 2024 LiveLaw (SC) 609

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