Consumer Protection Act 1986 | Commercial Enterprises Can Raise Consumer Disputes In Relation To Goods Or Services Unconnected To Profit Generation : Supreme Court

The issue before the the Supreme Court was - whether the insurance policy taken by the insured amounts to hiring of service for “commercial purpose”, thus excluding them from the ambit of the expression “consumer” under the Act?

The definition of consumer under Section 2(1)(d) of the Act does not include goods purchased or services availed for any commercial purpose.

A Bench comprising Justice Ajay Rastogi and Justice CT Ravikumar reiterated that in order to determine if the insured is a ‘consumer’ or not, what needs to be considered is whether the insurance service has a close and direct nexus with the profit generating activity and whether the dominant intention or dominant purpose for the transaction in relation to which the claim has been raised, was to facilitate some kind of profit generation for the insured. To provide an example, the Bench noted, if a manufacturer is producing a product for which they have to purchase articles, like raw material, then the purchase of the same would be for ‘commercial purpose’. However, if the manufacturer purchases a refrigerator or television or air conditioner for the office it would have no direct nexus to generate profit. Thus it would not be considered to be for a ‘commercial purpose’.

Factual Background

Harsolia Motors had taken out fire insurance for cover of Rs. 75,38,000 and Rakesh Narula And Co. for a cover of Rs. 90 lakhs. During the 2002 Godhra riots, the goods of the insured were damaged due to fire. The National Insurance Co. Ltd. rejected the claim of Harsolia Motors, but accepted that of Rakesh Narula And Co. to the extent of Rs. 54,29,871. Both filed complaints before the Gujarat State Commission Disputes Redressal Commission. The State Commission held that the insured are not covered under the expression ‘consumer’ as defined under Section 2(1)(d) of the Consumer Protection Act, 1986 (Act). It held that the insured running business from the premises to earn profits falls under the purview of the expression “for commercial purpose” and their complaint is not maintainable under the Act. On appeal, the National Consumer Dispute Redressal Commission reversed the finding and held in favour of the insured.

Analysis by the Supreme Court

At the outset, the Court referred to the object and purpose of the Consumer Protection Act, 1986. It noted that it is a social benefit oriented legislation, which encourages adoption of liberal construction in favour of the consumer. The intention of the legislation was to protect consumers and enable them to participate directly in the market economy.

The Court referred to the definitions of ‘consumer’, ‘person’ and ‘service’. It noted that the definition of consumer precludes use by a consumer of goods bought and used by them exclusively for the purpose of earning their livelihood, by means of self-employment; definition of ‘person’ includes a firm and that of ‘service’ includes banking, insurance. Thereafter, the Court referred to a catena of judgments and stated that it may be so that a person who is otherwise engaged in a commercial activity purchases goods/avails service for personal use or consumption, which is not linked to their ordinary profit generating activities or for creation of self-employment. Such a purchase may claim to be a consumer. Particularly, the bench referred to the 2019 judgment Lilavati Kirtilal Mehta Medical Trust v. Unique Shanti Developers and Others which held that provision of hostels for nurses by a hostel won't be a commercial activity within the meaning of the Consumer Protection Act.

The Court observed that what is of utmost importance is the transaction in relation to which the complaint has been filed under the Consumer Protection Act, 1986 claiming to be a ‘consumer’. The Court held that -

“...there is no such exclusion from the definition of the term “consumer” either to a commercial enterprise or to a person who is covered under the expression “person” defined in Section 2(1)(m) of the Act, 1986 merely because it is a commercial enterprise. To the contrary, a firm whether registered or not is a person who can always invoke the jurisdiction of the Act, 1986 provided it falls within the scope and ambit of the expression “consumer” as defined under Section 2(1)(d) of the Act, 1986.”

The Court noted that it needs to be determined whether the goods were purchased for resale or for commercial purpose or whether the services are availed for any commercial purpose. If it is for the above two purposes the insured would not qualify as a ‘consumer’. Applying the principle to the present case, the Court found that the insurance service did not have a direct nexus with the profit generation activity. It clarified that an insurance contract always indemnifies losses and hiring of insurance policy has no element of profit generation. However, it added that the same ought to be examined on a case to case basis and with respect to the transaction in relation to which the claim has been raised. It sent the matter back to the State Commission to adjudicate the complaint of the insured and do so expeditiously, no later than a period of one year.

Case details

National Insurance Co. Ltd. v. Harsolia Motors And Ors.| 2023 LiveLaw SC 313     | Civil Appeal No. 5352-5353/2007| 13th April, 2023| Justice Ajay Rastogi and Justice CT Ravikumar

Consumer Protection Act 1986-The Act, 1986 is a social benefit­ oriented legislation and, therefore, the Court has to adopt a constructive liberal approach while construing the provisions of the Act - The provisions of the Act, 1986 thus have to be construed in favour of the consumer to achieve the purpose of enactment as it is a social benefit ­oriented legislation-Para 21, 24

Consumer Protection Act 1986- there is no such exclusion from the definition of the term “consumer” either to a commercial enterprise or to a person who is covered under the expression “person” defined in Section 2(1)(m) of the Act, 1986 merely because it is a commercial enterprise- Para 36

Consumer Protection Act 1986- Tests to determine if goods or services were purchased or availed for commercial purposes- Two fold tests- (i) whether the goods are purchased for resale or for commercial purpose; or (ii) whether the services are availed for any commercial purpose- If the goods are purchased for resale or for commercial purpose, then such consumer would be excluded from the coverage of the Act, 1986. For example, if a manufacturer who is producing product A, for such production he may be required to purchase articles which may be raw material, then purchase of such articles would be for commercial purpose. As against this, if the same manufacturer purchases a refrigerator, television or air­conditioner for his use at his residence or even for his office has no direct or indirect nexus to generate profits,cannot be held to be for commercial purpose and for afore­stated reason he is qualified to approach the Consumer Forum under the Act, 1986-Similarly, a hospital which hires services of a medical practitioner, it would be a commercial purpose, but if a person avails such services for his ailment, it would be held to be a noncommercial purpose- Para 39

Consumer Protection Act 1986- Section 2(1)(d)- Taking a wide meaning of the words “for any commercial purpose”, it would mean that the goods purchased or services hired should be used in any activity directly intended to generate profit. Profit is the main aim of commercial purpose, but in a case where goods purchased or services hired is an activity, which is not directly intended to generate profit, it would not be a commercial purpose - Para 40

Consumer Protection Act 1986- Whether a commercial enterprise can be held to be a "consumer" in relation to dispute relating to insurance policy availed by it-  Held yes in the facts of the case-hiring of insurance policy is clearly an act for indemnifying a risk of loss/damages and there is no element of profit generation- clarifies that it is not a general rule and depends on the facts of the case- Para 44 to 47

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