Supreme Court: If Goods are Purchased for Resale or for Commercial Purpose; then Such Consumer is Excluded from Consumer Protection Act, 1986

Supreme Court: If Goods are Purchased for Resale or for Commercial Purpose; then Such Consumer is Excluded from Consumer Protection Act, 1986

The Supreme Court has dismissed all three insurer’s appeal in the case of National Insurance Co. Ltd. vs. Harsolia Motors and others, upheld the judgment and order passed by the National Consumer Disputes Redressal Commission. The Court elucidated the test to determine, if goods or services were purchased or availed for commercial purposes comprises of 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.

The Apex Court observed that if the goods are purchased for resale or for commercial purpose, then such consumer would be excluded from the coverage of the Consumer Protection Act, 1986.

The brief background of the case is that an insurance policy was taken out by M/s Harsolia Motors (Respondent) to cover potential damage caused by fire during the Godhra riots. But the insurance company denied the claim of the company.

The company filed a complaint for compensation for the damage caused, but the State Consumer Disputes Redressal Commission (SCDRC) held that the company was not covered under the definition of a “consumer” under the Consumer Protection Act, 1986, as it was running a business earn profits, and the complaint was not maintainable under the provisions of the Act.

However, on appeal, the National Consumer Disputes Redressal Commission (hereinafter referred to as ‘National Commission’) reversed the decision and held that a person who takes an insurance policy to cover an envisaged risk for indemnification of the actual loss suffered is not ordinarily intended to generate profits. The National Commission held that the company was a “consumer” under the Consumer Protection Act, of 1986, and the complaint filed by the company was maintainable and should be examined by the State Commission on its merits.

The judgment of the National Commission was being challenged by the insurance company (appellant) in the present case.

The division judges bench comprising of Justices Ajay Rastogi and C.T. Ravikumar considered the issue as to 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 Court at the outset, while referring to the object and purpose of the Consumer Protection Act, 1986 remarked that it is a social benefit-oriented legislation, which encourages adoption of liberal construction in favor of the consumer. The intention of the legislation was to protect consumers and enable them to participate directly in the market economy.

Thereafter, while referring to the definitions of ‘consumer,’ ‘person’ and ‘service,’ the bench observed 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.

The bench expressed, “the Act has a wide sweep within its ambit to widen such things which otherwise would have been beyond its natural import. The provisions of the Act, 1986 thus have to be construed in favor of the consumer to achieve the purpose of the enactment.”

Subsequently, the bench referred to the case of Lilavati Kirtilal Mehta Medical Trust vs. Unique Shanti Developers and Others, where it was established that a person, whether engaged in commercial activities or not, can claim to be a consumer based on the facts and circumstances of each case.

The Court reckoned, “what is culled out is 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 emphasized 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.

“The fact that the insured is a commercial enterprise is unrelated to the determination of whether the insurance policy shall be counted as a commercial purpose within the purview of Section 2(1)(d) of the Act. The excerpt highlights that a firm, whether registered or not, can invoke the jurisdiction of the Act provided it falls within the scope and ambit of the expression ‘consumer’ as defined under Section 2(1)(d) of the Act,” stated the bench.

After referring to various judgments, the Court while applying the principles in the present case found that the complaint filed by the respondent insured herein had no close or direct nexus with the profit generating activity and the claim of insurance was to indemnify the loss which the respondent insured had suffered and the Commission had rightly held that the respondent was a “consumer” under Section 2(1)(d) of the Act, 1986.

The bench reiterated that, “ordinarily the nature of the insurance contract is always to indemnify the losses. Insurance contracts are contracts of indemnity whereby one undertakes to indemnify another against loss/damage or liability arising from an unknown or contingent event and is applicable only to some contingency or act likely to come in future.”

Thus, the Court concluded that in the present case hiring of insurance policy was clearly an act for indemnifying a risk of loss/damages and there was no element of profit generation.

The bench further appositely highlighted that the two Acts – the Consumer Protection Act of 1986 and the Consumer Protection Act of 2015 – have different scopes and ambit, and different remedial mechanisms.

Latterly, the Court noted that the three civil appeals were related to insurance policies and their coverage under the Consumer Protection Act, of 1986, and the Consumer Protection Act, of 2015.

In the first appeal, the Court found that the insurance coverage was obtained only to cover the loss suffered and not for any profit-generating activity. The second and third appeals were related to insurance policies taken for commercial purposes. Therefore, considering all the facts and circumstances, the Court held that the complainants were not consumers as defined under Section 2(1)(d) of the Consumer Protection Act, 1986.

Accordingly, the Court dismissed the appeals and directed the State Commission to adjudicate the complaints of the respondents on their own merits in accordance with the law.