Commercial entities are not automatically barred from the consumer forum

Cause Title : National Insurance Co. Ltd. vs Harsolia Motors And Others, Civil Appeal No(S).5352­5353 Of 2007, Supreme Court

Date of Judgment/Order : 13/4/23

Corum : Ajay Rastogi & C.T. Ravikumar, JJ

Citied: 

1. Laxmi Engineering Works vs. P.S.G. Industrial Institute, (1995) 3 SCC 583
2. Madan Kumar Singh (Dead) Through LR. v. District Magistrate, Sultanpur and Others, (2009) 9 SCC 79
3. Lucknow Development Authority v. M.K. Gupta, (1994) 1 SCC 243
4. Lilavati Kirtilal Mehta Medical Trust v. Unique Shanti Developers and Others, (2020) 2 SCC 265
5. Paramount Digital Colour Lab and Others v. AGFA India Private Limited and Others, (2018) 14 SCC 81
6. Shrikant G. Mantri v. Punjab National Bank, (2022) 5 SCC 42
7. Karnataka Power Transmission Corporation and Another v. Ashok Iron Works Private Limited, (2009) 3 SCC 240
8. Kalpavruksha Charitable Trust v. Toshniwal Brothers (Bombay) Pvt. Ltd. and Another,  (2000) 1 SCC 512
9. Rajeev Metal Works and Others v. Mineral & Metal Trading Corporation of India Ltd.,  (1996) 9 SCC 422
10. United India Insurance Company Limited v. Levis Strauss (India) Private Limited, 

Background

The Respondent is a business entities who took fire insurance policy from the insurer. Subsequently, his office space and goods therein were burned down during riots. The insurance company however rejected the respondent's claim who then complained before the State Commission.

The primary objection of the Appellant was that the insured is a business entity who had taken the insurance policy to serve a commercial purpose and therefore falls under the Commercial Courts Act, 2015 and not under the Consumer Protection Act, 1986. 

The Respondent argued that the bar in the Consumer Protection Act was related to "commercial purpose" and not applicable here as purchase of insurance policy cover is a contract of indemnification of particular risk and not a contract of doing or not doing something to earn profit/loss out of such act.

The State forum had held that the respondent was a commercial enterprise and not covered under the Consumer Act. This order was reversed by the National Forum. Hence this appeal.

Judgment

On the said matter, the Supreme Court observed that :-

• 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.
• 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 question of whether a transaction is for a commercial purpose would depend upon the facts and circumstances of each case. However, ordinarily, “commercial purpose” is understood to include manufacturing/industrial activity or business­to­business transactions between commercial entities.
• The purchase of the good or service should have a close and direct nexus with a profit­ generating activity.
• The identity of the person making the purchase or the value of the transaction is not conclusive to the question of whether it is for a commercial purpose. It has to be seen whether the dominant intention or dominant purpose for the transaction was to facilitate some kind of profit generation for the purchaser and/or their beneficiary.
• If it is found that the dominant purpose behind purchasing the good or service was for the personal use and consumption of the purchaser and/or their beneficiary, or is otherwise not linked to any commercial activity, the question of whether such a purchase was for the purpose of “generating livelihood by means of self­employment” need not be looked into.”
• Applying the aforesaid test, two things are culled out; (i) whether the goods are purchased for resale or for commercial purpose; or (ii) whether the services are availed for any commercial purpose. The two­fold classification is commercial purpose and non­commercial 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.
• A contract of insurance is and always continues to be one for indemnity of the defined loss, no more no less.

In the instant case, the court held that hiring of insurance policy is clearly an act for indemnifying a risk of loss/damages and there is no element of profit generation.