When does trading in shares become a commercial purpose

In VAMAN NAGESH UPASKAR vs INDIA INFOLINE LTD., complaint was originally filed by the Applicants before the District Forum alleging trading in shares without consent by the Respondent 3 following which was allowed by the forum. On appeal filed by the Respondent 1, the State Commission  allowed the appeal and dismissed the complaint solely on the ground that the complainants were not consumers within the meaning of the Consumer Protection Act. Respondent No. 3 was an employee of Respondent No. 1.

The NCDRC on appeal being filed before it, referred to the three-Members Bench of this Commission recently in CC No. 349 of 2017 - Springdale Core Consultants Pvt. Ltd. Vs. Pioneer Urban Land and Infrastructure Ltd. where on the question of  whether a transaction is for a commercial purpose while referring to decisions such as Laxmi Engineering Works Vs. P.S. G. Industrial Institute, II (1995) CPJ I (SC), Cheema Engineering Services V. Rajan Singh VI (1998) SLT 20, Kalpavruksha Chairtable Trust V. Toshniwal Brothers (Bombay) Pvt. Ltd., III (1999) CPJ 26 (SC)  Synco Textiles Pvt. Ltd. Vs. Greaves Cotton & Company Ltd. (1991) 1 CPJ 499, and Paramount Digital Colour Lab.Vs. Agfa India Private Ltd., III (2018) CPJ 12 (SC), held that it is true that the aforementioned decisions were rendered in the context of deciding whether the goods or services availed of in the facts of those cases were for a commercial purpose or exclusively for the purpose of self-employment.  This does not mean, however, that in every case a negative test has to be adopted wherein any activity that does not fall within the ambit of ‘earning livelihood by means of self-employment’ would necessarily be for a commercial purpose. To summarize from the above discussion, though a strait-jacket formula cannot be adopted in every case, the following broad principles can be culled out for determining whether an activity or transaction is ‘for a commercial purpose it 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. In Laxmi Engineering Works Vs. P.S.G. Industrial Institute (1995) 3 SCC 583 , the Hon’ble Supreme Court, while interpreting the expression ‘consumer’ inter-alia observed that where a person purchases goods ‘with a view to using such goods for carrying on any activity on a large scale for the purpose of earning profit’ he will not be a ‘consumer’ within the meaning of Section 2(d(i) of the Act. With a view to obviate any confusion – the expression “Large scale” is not a very precise expression – Parliament stepped in and added the explanation to Section 2(d)(i) by Ordinance / Amendment Act, 1993. The explanation excludes certain purposes from the purview of the expression “commercial purpose” – a case of exception to an exception. Let us elaborate : a person who buys a typewriter or a car and uses them for his personal use is certainly a consumer but a person who buys a typewriter or a car for typing others’ work for consideration or for plying the car as a taxi can be said to be using the typewriter / car for a commercial purpose. The explanation however clarifies that in certain situation, purchase of goods for ‘commercial purpose’ would not yet take the purchaser out of the definition of expression ‘consumer’. If the commercial use is by the purchaser himself for the purpose of earning his livelihood by means of self-employment, such purchaser of goods is yet a ‘consumer’.

In the present case, there is no evidence of the complainants trading in the shares on a large scale. They are stated  to be in service though in the account opening form, they had claimed to be in business. That, however, would be insignificant,  the material aspect being the scale of the trading if any, carried out by them in the shares. There is no evidence or even allegation of the complainants carrying out large scale trading in stocks and shares. If a person engaged in a business or profession other than regular trading in shares, open a Demat Account and occasionally carries out trading in shares, it cannot be said that the services of the broker were hired or availed by him for a commercial purpose, the scale of such trading by a casual investor being very low. Such a person cannot be said to be in the business of buying and selling shares on a regular basis. Therefore, there can be no hesitation in holding that the complainants were consumers within the meaning of Section 2(1)(d) of the C.P. Act.

Though respondent No.1 has alleged a private agreement between  the complainant and  respondent No.3, there is no evidence of any such private agreement. NCDRC that respondent No.3 having caused loss to the complainant by unauthorized trading in his Demat Account, he is responsible to compensate the complainant for the loss suffered by them. Being the employer of respondent No.3 and being the broker with whom the Demat Account was opened, respondent No.1 is equally liable to compensate the complainants.