Commercial Purchases: Conundrum under Consumer Protection Laws

Introduction: Commercial Enterprise and Its Commercial Purpose

The Consumer Protection Act, 1986 (“Act”), and the amended Consumer Protection Act, 2019 (“New Act”), are the go-to sources of reference for consumer disputes and conflicts. The Section 2(1)(d) of the Act and Section 2(7) of the New Act both define who “is” and “is not” a “consumer”. Both Acts state that a customer is any person who purchases goods or avails services for any consideration; however, any person purchasing goods or availing services for resale or any commercial purpose[1] to make profit/gain is not a consumer. An explanation to the provisions clarifies that despite buying goods or availing services a person would still be classified as a consumer (under both the Acts) if these goods or services constitute a source of livelihood by means of self-employment.

In many transaction scenarios, businesses or corporations appear to make commercial transactions for benefit or for profit. Hence, it becomes imperative to understand if a commercial entity should be classified as a consumer under the Act and, if so, under what circumstances. The Act does not provide a specific definition to “commercial purpose”, but in a catena of cases, the Supreme Court laid down multiple tests, which it has used to interpret the term “commercial purpose”.

In Laxmi Engineering Works v PSG Industrial Institute (Laxmi Engineering)[2],the Supreme Court held that the interpretation of the definition of “commercial purpose” under the consumer law framework must be case-specific and depend entirely on the details presented in each individual case regarding the goods bought and services availed. The Apex Court also observed that a person purchasing goods to conduct any large-scale activity with the intent of extracting profit would not be categorised as a “consumer” under the Act. The Apex Court also reiterated the afore-said position in Paramount Digital Colour Lab v AGFA India (P) Ltd. (“Paramount”).[3] Recently, in the Lilavati Kirtilal Mehta Medical Trust v Unique Shanti Developers and Others (“Lilavati”)[4] caseon the purchase of flats by the Lilavati Kirtilal Mehta Medical Trust, the Apex Court ruled on whether such a transaction could be excluded from the ambit of “consumer” under Section 2(1)(d) of the Act.[5] The Apex Court stated that the term “consumer” under the Act applies to any person engaged in commercial activities who has purchased goods or availed services for personal use or consumption or for use by a beneficiary and which cannot be linked to their regular profit-generation activities.

Test for determining the commercial purpose

In Paramount,the Court observed that the definition of “commercial purpose” should be decided on fact-to-fact basis; however, in Lilavati (supra), it laid down further guidance by specifying two main tests besides a few others. The two primary tests were:

  1. close and direct nexus; and
  2. dominant intention or purpose.

The Apex Court held that a person is not a “consumer” under the Act if, firstly, their purchase of the good or service is closely and directly linked with a profit-generating activity and, secondly, if the transaction’s dominant intention or dominant purpose is not personal use/consumption but instead to facilitate some kind of profit generation for the purchaser and/or their beneficiary.

Similarly, National Insurance Co. Ltd v Harsolia Motors and Ors,[6] was related to the rejection of insurance claims by a commercial entity engaged in the business of sale of vehicles. The insured party had claimed insurance for destroyed goods due to riots. Here the Apex Court had to decide whether the Respondent’s (commercial enterprise) insurance policy was tantamount to hiring services for “commercial purpose”, thereby excluding the Respondent from the purview of the term “consumer” under the Act. As per the Apex Court, the insured would not qualify as a “consumer” under the Act if the goods purchased or services availed were for commercial purpose, thereby revealing a direct nexus to profit-generation and the dominant intention of facilitation of profit. The Apex Court while applying the above-said principles to the present case, held that since the Respondent’s insurance cover did not imply any direct nexus with any profit-generation activity, therefore, the Respondent fell within the purview of “consumer” under the Act. The Court also clarified that an insurance contract always indemnifies losses and that availing an insurance policy has no element of profit generation. However, it emphasised that courts should examine these on a case-to-case basis and with regard to the particular transaction against which the claim was raised.

In Annapurna B. Uppin & Ors v Malsiddappa & Anr,[7] the Supreme Court recently held that commercial disputes cannot be decided in summary proceedings under the Consumer Protection Act 1986; however, it has categorically observed that the transaction in this case was of a commercial nature and, thus, would not fall under the definition of “consumer” within the ambit of the Act.This also fortifies that while it is imperative to decide on a case-to-case basis, it is also important to determine if the goods were purchased or services were availed for a commercial purpose (i.e., can be directly linked to profit-generation and has the dominant intention of facilitating profit) before classifying a party/person as a “consumer” under the consumer protection framework.

Bifurcating Self-Employment from Commercial Purpose

Since, the consumer protection law excludes self-employment from a purchase made for commercial purpose, thus, there have always been contentions raised around what constitutes self-employment.

In Laxmi Engineering (supra),the Appellant, who was engaged in the business of manufacturing of machine parts on a large scale, had placed an order with the Respondent for the supply of a machine. The said supply, as per the Appellant, was not only delayed but was also defective. However, the Supreme Court rejected the Appellant’s consumer complaint stating that the intent of the purchase was to generate profit and not merely for livelihood. The Apex Court also stated that what matters  is not the value of the goods but the purpose of the purchase.

On the contrary, the National Consumer Disputes Redressal Commission (“NCDRC”) in Rohit Chaudhary Anr. v Vipul Ltd.[8], recently rejected an appeal pertaining to the purchase of a commercial space, stating that the Appellant was primarily engaged in the dealership business while dabbling in some real estate business. The Appellant had entered into an agreement with the Respondent for a commercial space; however, upon the Respondent’s failure to deliver the commercial space, the Appellant sought relief under the consumer protection framework. As per the NCDRC, the Appellant had acquired the commercial space for the purpose of earning profit and not for earning a livelihood by self-employment. However, the Supreme Court overturned the said decision of NCDRC and held that considering the commercial space was for the Appellant’s office, it’s purpose was for self-employment, i.e., to run its business and earn livelihood. The Appellant’s mere engagement in a certain business related to real estate was not enough to establish the commercial purpose behind the purchase of the said property. Thus, the Appellant had locus under Consumer Protection Act, 2019.

Conclusion

The cases and the analyses suggest the absence of a definitive statutory framework to decide the locus of commercial enterprises as consumers under the consumer protection laws. However, through various principles and tests  the Supreme Court has tried to provide guidance by interpreting the  term ‘commercial purpose’, so as to when a person who has purchased goods or availed services for commercial purposes can fall under the definition of a ‘consumer’.

In this regard, the Apex Court has predominantly iterated two tests of direct nexus and dominant intention as sine qua non, to decide the locus of a consumer under the framework of the consumer protection law. The Court has also used the same two tests in cases related to purchase of goods or availing of services for self-employment and bifurcated these transactions from the general commercial purpose transactions. However, a grey area still prevails over such issues since majority of the cases have been decided on fact-to-fact basis by the Courts and Consumer Forums.


[1] The Consumer Protection Act 1986, S. 2(1)(d); and the Consumer Protection Act 2019, S. 2(7);

[2] (1995) 3 SCC 583

[3] (2018) 14 SCC 81

[4] (2020) 2 SCC 265

[5] The definition of consumer under the Consumer Protection Act 1986 was similar to the one provided under the Consumer Protection Act 2019.

[6] 2023 8 SCC 362

[7] 2024 SCC OnLine SC 504

[8]  (2024) 1 SCC 8