Supreme Court clarifies “Commercial Purpose” under Consumer Protection Act in Car Purchase Cases (9 July 2024)

Introduction

Date of the Judgment: 9 July 2024
Citation: 2024 INSC 496
Judges: Bela M. Trivedi, J. and Pankaj Mithal, J.
Can a company that buys a car for its director’s use be considered a “consumer” under the Consumer Protection Act? This question was at the heart of a recent Supreme Court judgment. The court examined whether such a purchase qualifies as being for a “commercial purpose,” which would exclude the company from the Act’s protection. The Supreme Court bench, comprising Justices Bela M. Trivedi and Pankaj Mithal, delivered the judgment.

Case Background

The appeals before the Supreme Court arose from disputes over car purchases by companies for their directors. In one case, M/s Controls and Switchgear Company Ltd. purchased two cars, one of which was for the use of its director. The company filed a complaint with the National Consumer Disputes Redressal Commission (NCDRC) alleging defects in the car. In another case, CG Power and Industrial Solutions Ltd. purchased a car for its Managing Director, who suffered severe injuries in an accident when the car’s airbags failed to deploy. Both cases raised the issue of whether these purchases were for “commercial purposes,” thus excluding the companies from the definition of ‘consumer’ under the Consumer Protection Act, 1986.

Timeline

Course of Proceedings

The National Commission initially ruled in favor of M/s Controls and Switchgear Company Ltd., ordering the car manufacturer to replace the defective car or refund the purchase price. However, this decision conflicted with another ruling by a two-member bench of the National Commission in the case of *General Motors Pvt. Ltd. Vs. G.S. Fertilizers Pvt. Ltd.*, which held that a vehicle purchased by a company for its Managing Director would be for a commercial purpose. This conflict led to a referral to a three-member bench, which ultimately held that a car purchased for the personal use of directors does not constitute a commercial purpose. The matter then reached the Supreme Court through appeals by the car manufacturers.

Legal Framework

The core of the dispute revolves around the interpretation of Section 2(1)(d) of the Consumer Protection Act, 1986 (now re-enacted as the Consumer Protection Act, 2019), which defines a “consumer.” The definition excludes individuals who obtain goods for resale or for any “commercial purpose.” The Act does not define “commercial purpose,” but the Supreme Court has interpreted it in several cases.

Section 2(1)(d) of the Consumer Protection Act, 1986 states:

“2(1)(d) “consumer” means any person who, —
(i) buys any goods for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any user of such goods other than the person who buys such goods for consideration paid or promised or partly paid or partly promised, or under any system of deferred payment when such use is made with the approval of such person, but does not include a person who obtains such goods for resale or for any commercial purpose; or
(ii)….
Explanation .—For the purposes of this clause, “commercial purpose” does not include use by a person of goods bought and used by him and services availed by him exclusively for the purposes of earning his livelihood by means of self -employment;”

Arguments

Appellants’ Arguments:

• The appellants argued that the purchase of a car by a company for the use of its directors should be considered a “commercial purpose.” They contended that such purchases are not for self-employment to earn a livelihood, but rather for business-related activities.
• They argued that if a car is purchased for personal use of the director, it should carry a requisite form attested by a Chartered Accountant along with the Income Tax returns of the concerned Director, and since such document was not produced, it should be presumed that the car was purchased for commercial purpose.
• In the case of the Mercedes Benz car, the appellants argued that the complainants did not provide expert evidence to prove the defect in the airbags. They also stated that the airbags were not designed to deploy in the specific circumstances of the accident.

Respondents’ Arguments:

• The respondents argued that cars purchased for the personal use of directors, even if part of their employment perquisites, are not for “commercial purposes.” They contended that the dominant purpose was personal use, not profit generation for the company.
• They asserted that the car purchased by M/s Controls and Switchgear Company Ltd. was for the personal use of its Whole-time Director and his family.
• In the case of the Mercedes Benz car, the respondents argued that the car was promoted as having comprehensive safety features, including airbags, and the failure of the airbags to deploy constituted a deficiency in service and an unfair trade practice.
• They contended that the appellants had misrepresented that their car was the safest place on the road and that the provision of airbags was an additional safety measure not only for the front passengers but also for the rear passengers.

Submissions Table:

Issues Framed by the Supreme Court

The Supreme Court framed the following key issue:

1. Whether the purchase of a vehicle/good by a Company for the use/personal use of its directors would amount to purchase for “commercial purpose” within the meaning of Section 2(1)(d) of the Consumer Protection Act, 1986?

Treatment of the Issue by the Court

Authorities

Cases Relied Upon:

• Laxmi Engineering Works vs. P.S.G Industrial Institute, (1995) 3 SCC 583 – Supreme Court of India: The court reiterated that whether a purchase is for a “commercial purpose” is a question of fact to be decided based on the circumstances of each case.
• Lilavati Kirtilal Mehta Medical Trust vs. Unique Shanti Developers and Others, (2020) 2 SCC 265 – Supreme Court of India: The court laid down broad principles for determining whether a transaction is for a “commercial purpose,” emphasizing the dominant intention behind the purchase.
• Shrikant G. Mantri vs. Punjab National Bank, (2022) 5 SCC 42 – Supreme Court of India: The court reiterated that the dominant intention or purpose of the transaction is crucial in determining if it is for a commercial purpose.
• National Insurance Company Limited vs. Harsolia Motors and Others, (2023) 8 SCC 362 – Supreme Court of India: The court emphasized the principle laid down in Lilavati Kirtilal Mehta Medical Trust case that the dominant intention is to be seen while determining whether the object purchased is being used for commercial purpose or not.
• Rohit Chaudhary and Another vs. Vipul Limited, (2024) 1 SCC 8 – Supreme Court of India: The court reiterated that if the dominant purpose of purchasing goods or services is for a profit motive, the purchaser would not fall within the definition of “consumer.”

Legal Provisions Considered:

• Section 2(1)(d) of the Consumer Protection Act, 1986 (now re-enacted as the Consumer Protection Act, 2019): This section defines “consumer” and excludes those who purchase goods for resale or commercial purposes.
• Section 2(1)(f) of the Consumer Protection Act, 1986: This section defines “defect” as a fault, imperfection, or shortcoming in the quality or standard of goods.
• Section 2(1)(r) of the Consumer Protection Act, 1986: This section defines “unfair trade practice” as a trade practice that adopts any unfair or deceptive method to promote the sale of goods.

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The court relied on Laxmi Engineering Works vs. P.S.G Industrial Institute [ (1995) 3 SCC 583 ]* to emphasize that the determination of “commercial purpose” is fact-dependent.
• The court applied the principles from Lilavati Kirtilal Mehta Medical Trust vs. Unique Shanti Developers and Others [ (2020) 2 SCC 265 ]* to determine that the dominant intention behind the purchase was for the personal use of the directors, not for commercial gain.
• The court cited Shrikant G. Mantri vs. Punjab National Bank [ (2022) 5 SCC 42 ]* to reiterate that the dominant intention or purpose of the transaction is crucial in determining if it is for a commercial purpose.
• The court used National Insurance Company Limited vs. Harsolia Motors and Others [ (2023) 8 SCC 362 ]* to emphasize the principle laid down in Lilavati Kirtilal Mehta Medical Trust case that the dominant intention is to be seen while determining whether the object purchased is being used for commercial purpose or not.
• The court referred to Rohit Chaudhary and Another vs. Vipul Limited [ (2024) 1 SCC 8 ]* to reiterate that if the dominant purpose of purchasing goods or services is for a profit motive, the purchaser would not fall within the definition of “consumer.”
• The court interpreted Section 2(1)(d) of the Consumer Protection Act, 1986* to define “consumer” and exclude those who purchase goods for resale or commercial purposes.
• The court used Section 2(1)(f) of the Consumer Protection Act, 1986* to define “defect” as a fault, imperfection, or shortcoming in the quality or standard of goods.
• The court referred to Section 2(1)(r) of the Consumer Protection Act, 1986* to define “unfair trade practice” as a trade practice that adopts any unfair or deceptive method to promote the sale of goods.

What weighed in the mind of the Court?

The Supreme Court’s decision was influenced by the following factors:

• The court emphasized the dominant purpose behind the purchase of the cars. If the primary intention was for the personal use of the directors, it would not be considered a commercial purpose.
• The court considered the lack of clear information in the owner’s manual regarding the conditions for airbag deployment.
• The court took note of the misrepresentation of the safety features of the car by the appellants.
• The court also considered the reports of the Local Commissioners regarding the heating issue in the car, and the fact that the appellants had indirectly admitted to the defect in the car.

Fact:Law Ratio

Logical Reasoning:

The court rejected alternative interpretations that would classify the purchase as commercial, emphasizing that the personal use of the directors was the dominant purpose. The court also rejected the arguments of the appellants that there was no defect in the car, or that the airbags were not meant to be deployed in the specific circumstances of the accident.

The court held that the purchase of the car by the company for the personal use of its directors would not amount to purchase for “commercial purpose” under the Consumer Protection Act. The court also held that the appellants had indulged in unfair trade practices by misrepresenting the safety features of the car. The court also held that the car purchased by M/s Controls and Switchgear Company Ltd. had a defect as the heating issue persisted despite the rectification measures.

“The purchase of the good or service should have a close and direct nexus with a profit -generating activity.”

“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 self -employment” need not be looked into.”

“Incomplete disclosure or non-disclosure of the complete details with regard to the functioning of the airbags at the time of promotion of the car, has rightly been considered by the National Commission as the “unfair trade practice” on the part of the appellants.”

Key Takeaways

• The purchase of a vehicle by a company for the personal use of its directors does not automatically qualify as a “commercial purpose” under the Consumer Protection Act.
• The dominant intention behind the purchase is crucial in determining whether it is for a commercial purpose.
• Car manufacturers must provide complete and accurate information about the safety features of their vehicles, including the conditions for airbag deployment.
• Misrepresentation of safety features can be considered an “unfair trade practice” under the Consumer Protection Act.
• The onus to prove that the goods were purchased for “commercial purpose” is on the seller and not on the complainant.

Directions

The Supreme Court gave the following directions:

• In the case of M/s Controls and Switchgear Company Ltd., the court allowed the respondent to retain the car and directed the appellant to refund Rs. 36,00,000/- as compensation within three months.
• In the case of CG Power and Industrial Solutions Ltd., the court dismissed all the appeals and upheld the order of the National Commission.

Specific Amendments Analysis

There were no specific amendments discussed in this judgment.

Development of Law

The ratio decidendi of this case is that the purchase of a vehicle by a company for the personal use of its directors does not automatically qualify as a “commercial purpose” under the Consumer Protection Act. The court clarified that the dominant intention behind the purchase is crucial in determining whether it is for a commercial purpose. This decision reinforces the principle that the Consumer Protection Act is intended to protect consumers, including companies when their purchases are not for the purpose of generating profit.

Conclusion

The Supreme Court’s judgment clarifies that a car purchase by a company for its directors’ personal use is not a “commercial purpose” under the Consumer Protection Act, thus allowing the company to seek remedies as a consumer. The court also held that the car manufacturers had indulged in unfair trade practices by misrepresenting the safety features of the car. This ruling emphasizes the importance of transparency and fairness in consumer transactions, particularly in the context of high-value purchases.