LEGAL ISSUE: Whether an overdraft facility availed by a stockbroker for his business constitutes a “commercial purpose” under the Consumer Protection Act, 1986, and whether the services were exclusively for earning livelihood by self-employment.
CASE TYPE: Consumer Law
Case Name: Shrikant G. Mantri vs. Punjab National Bank
Judgment Date: 22 February 2022
Introduction
Date of the Judgment: 22 February 2022
Citation: (2022) INSC 164
Judges: L. Nageswara Rao and B.R. Gavai, JJ.
Can a person who takes a loan or overdraft facility for business expansion be considered a ‘consumer’ under the Consumer Protection Act, 1986? The Supreme Court of India recently addressed this question in a case involving a stockbroker and a bank, clarifying the scope of “commercial purpose” and “self-employment” under the Act. This judgment clarifies when a person availing services for business purposes can still be considered a consumer.
Case Background
In 1998, the appellant, a stockbroker, opened an account with Nedungadi Bank Limited (later merged with Punjab National Bank). He obtained an overdraft facility of ₹1 crore, pledging shares as security. This facility was enhanced to ₹5 crore in 1999 and temporarily increased to ₹6 crore in March 2001.
Due to a market downturn, the bank requested additional shares as security. The appellant pledged 37,50,000 shares of Ansal Hotels Ltd. In 2001, the overdraft account became irregular, and the bank asked the appellant to regularize it.
The appellant claimed he instructed the bank to sell the pledged shares in December 2001 to close the account, but the bank did not sell them until November 2002, when their value was low, resulting in a loss for the appellant.
The bank sold some shares and filed a recovery petition before the Debts Recovery Tribunal, Mumbai, which was later settled through a One Time Settlement (OTS) of ₹2 crore. The bank issued a ‘No Dues Certificate’ in May 2005. However, the bank did not return the remaining shares, leading the appellant to send a notice seeking their release.
The appellant also worked as a stockbroker for the bank, which led to separate arbitration proceedings initiated by the bank, where the bank’s claims were rejected. Subsequently, the appellant filed a complaint before the National Consumer Disputes Redressal Commission (NCDRC), alleging deficiency in service by the bank for not returning the shares.
Timeline:
| Date | Event |
|---|---|
| 1998 | Appellant opened an account with Nedungadi Bank Limited. |
| 25 April 1998 | Appellant applied for an overdraft facility. |
| 1998 | Overdraft facility of ₹1 crore sanctioned. |
| 1999 | Overdraft facility enhanced to ₹5 crore. |
| 13 December 1999 | Overdraft facility enhanced to ₹5 crore vide bank’s letter. |
| March 2001 | Appellant requested a temporary increase in the overdraft limit. |
| 17 March 2001 | Overdraft facility temporarily enhanced to ₹6 crore for one week. |
| 16 & 17 March 2001 | Bank requested additional shares due to market fall. |
| 30 March 2001 | Appellant pledged 37,50,000 shares of Ansal Hotels Ltd. |
| 2001 | Overdraft account became irregular. |
| 14 September 2001 | Bank demanded payment of ₹600.61 lakhs plus interest. |
| December 2001 | Appellant advised the bank to sell pledged shares. |
| November 2002 | Bank sold the pledged shares. |
| 26 December 2002 | Bank filed a recovery petition before Debts Recovery Tribunal. |
| 26 May 2004 | Debts Recovery Tribunal decreed the recovery petition. |
| 14 May 2005 | One Time Settlement (OTS) reached; ‘No Dues Certificate’ issued. |
| 14 June 2005 | Appellant sent notice to the bank seeking release of shares. |
| 2006 | Appellant filed a complaint before the National Consumer Disputes Redressal Commission. |
| 1 June 2016 | National Consumer Disputes Redressal Commission dismissed the complaint. |
| 22 February 2022 | Supreme Court dismissed the appeal. |
Arguments
The appellant argued that he had a dual relationship with the bank: as a consumer availing an overdraft facility for his self-employment and as a stockbroker for the bank. He contended that the pledged shares were security for the overdraft facility and should have been returned after the dues were cleared. He further argued that the services were availed for his self-employment as a stockbroker, thus falling within the exception to the “commercial purpose” exclusion under the Consumer Protection Act, 1986.
The respondent-bank argued that the Consumer Protection Act is meant for speedy redressal of consumer disputes and expanding the definition of ‘consumer’ to include those availing services for commercial purposes would defeat the Act’s purpose. The bank contended that the overdraft facility was for business expansion and therefore a commercial transaction, not covered under the Act.
The appellant’s counsel, Shri Shyam Divan, argued that the overdraft facility was essential for the appellant’s self-employment as a stockbroker, thus falling under the exception to the commercial purpose clause. He relied on the dictionary meaning of ‘livelihood’ and the judgment in *Internet and Mobile Association of India vs. Reserve Bank of India* to support his arguments.
The respondent’s counsel, Shri Dushyant Dave, argued that the Act is a special statute intended for speedy redressal of consumer disputes and should not be expanded to include commercial disputes. He contended that including commercial disputes would defeat the purpose of the Act and lead to a flood of complaints.
| Main Submission | Sub-Submissions | Party |
|---|---|---|
| Dual Relationship with the Bank | Consumer availing overdraft for self-employment | Appellant |
| Stockbroker for the bank | Appellant | |
| Pledged Shares | Security for overdraft facility | Appellant |
| Should have been returned after dues cleared | Appellant | |
| Services Availed | For self-employment as a stockbroker | Appellant |
| Falls under the exception to “commercial purpose” under the Act | Appellant | |
| Purpose of the Consumer Protection Act | Speedy redressal of consumer disputes | Respondent |
| Expanding definition would defeat the purpose | Respondent | |
| Overdraft Facility | For business expansion | Respondent |
| Commercial transaction, not covered under the Act | Respondent |
Issues Framed by the Supreme Court
The Supreme Court framed the following issues:
- ✓ Whether the services availed by the appellant from the respondent-Bank would fall within the term ‘commercial purpose’.
- ✓ Whether such services are exclusively availed by the appellant for the purposes of earning his livelihood by means of self-employment.
Treatment of the Issue by the Court:
The following table demonstrates as to how the Court decided the issues
| Issue | Court’s Decision | Reason |
|---|---|---|
| Whether the services availed by the appellant fall under ‘commercial purpose’. | Yes | The overdraft facility was taken to expand the appellant’s existing stockbroking business and increase profits, thus falling under the ambit of ‘commercial purpose’. |
| Whether the services were exclusively for earning livelihood by self-employment. | No | The appellant was already engaged in the profession of stockbroking and the overdraft facility was used to further his business, not exclusively for earning livelihood by self-employment as envisioned under the Act. |
Authorities
The Court considered the following authorities:
| Authority | Court | How it was used |
|---|---|---|
| *Laxmi Engineering Works vs. P.S.G. Industrial Institute*, (1995) 3 SCC 583 | Supreme Court of India | Explained the purpose of the Consumer Protection Act as providing speedy and inexpensive remedies to consumers, and that the Act revolves around “business-to-consumer” disputes, not “business-to-business” disputes. |
| *Cheema Engineering Services vs. Rajan Singh*, (1997) 1 SCC 131 | Supreme Court of India | Held that the question of whether a complainant used machinery for earning livelihood was a question of fact. |
| *Kalpavruksha Charitable Trust vs. Toshniwal Brothers (Bombay) Pvt. Ltd.*, (2000) 1 SCC 512 | Supreme Court of India | Held that machinery purchased for a diagnostic center was for commercial purpose and the Trust was not a consumer. |
| *Paramount Digital Colour Lab vs. AGFA India Private Limited*, (2018) 14 SCC 81 | Supreme Court of India | Held that unemployed graduates who started a photography business for self-employment were consumers. |
| *Lilavati Kirtilal Mehta Medical Trust vs. Unique Shanti Developers*, (2020) 2 SCC 265 | Supreme Court of India | Summarized principles for determining if an activity is for “commercial purpose,” emphasizing that the dominant purpose should be profit generation for the purchaser. |
| *Sunil Kohli vs. Purearth Infrastructure Limited*, (2020) 12 SCC 235 | Supreme Court of India | Held that booking commercial premises for starting a business to earn livelihood by self-employment qualifies as a consumer. |
| *Internet and Mobile Association of India vs. Reserve Bank of India*, (2020) 10 SCC 274 | Supreme Court of India | Cited by the appellant to argue that bank services are essential for any business, trade, or profession. |
| Section 2(1)(d) of the Consumer Protection Act, 1986 | – | The definition of ‘consumer’ under the Act, including the exclusion of commercial purposes and the exception for self-employment. |
Judgment
The Supreme Court analyzed the submissions made by the parties and how each authority was viewed in its reasoning to resolve the issue.
| Submission by Parties | How it was treated by the Court |
|---|---|
| Appellant’s claim that he had a dual relationship with the bank, as a consumer and a stockbroker. | The Court acknowledged the dual relationship but focused on the overdraft facility’s purpose, which was for business expansion, not personal use. |
| Appellant’s argument that the pledged shares were security for the overdraft and should have been returned. | The Court did not dispute this, but it was not the central issue. The focus was on whether the appellant was a ‘consumer’ under the Act. |
| Appellant’s contention that the services were availed for his self-employment as a stockbroker. | The Court held that the overdraft was for expanding an existing business, not for self-employment to earn a livelihood as envisioned under the Act. |
| Respondent’s argument that the Act is for speedy redressal of consumer disputes and should not include commercial disputes. | The Court agreed, stating that including commercial disputes would defeat the Act’s purpose. |
| Respondent’s contention that the overdraft facility was for business expansion and a commercial transaction. | The Court upheld this, stating that the overdraft facility was for the purpose of expanding business and increasing profits and did not qualify as self-employment. |
The Court also analyzed the authorities presented:
- ✓ *Laxmi Engineering Works vs. P.S.G. Industrial Institute* [(1995) 3 SCC 583]*: The Court relied on this case to establish that the Consumer Protection Act is intended for “business-to-consumer” disputes and not “business-to-business” disputes.
- ✓ *Cheema Engineering Services vs. Rajan Singh* [(1997) 1 SCC 131]*: The Court noted that the question of whether a complainant used machinery for earning a livelihood is a question of fact.
- ✓ *Kalpavruksha Charitable Trust vs. Toshniwal Brothers (Bombay) Pvt. Ltd.* [(2000) 1 SCC 512]*: The Court distinguished this case, noting that the machinery was installed for commercial purpose and hence the Trust was not a consumer.
- ✓ *Paramount Digital Colour Lab vs. AGFA India Private Limited* [(2018) 14 SCC 81]*: The Court distinguished this case, stating that the appellants were unemployed graduates who started a small business for self-employment, unlike the appellant in this case.
- ✓ *Lilavati Kirtilal Mehta Medical Trust vs. Unique Shanti Developers* [(2020) 2 SCC 265]*: The Court used this case to define “commercial purpose” and to emphasize that the dominant intention of the transaction is important.
- ✓ *Sunil Kohli vs. Purearth Infrastructure Limited* [(2020) 12 SCC 235]*: The Court distinguished this case, noting that the appellants had booked the premises to start a business for self-employment, which was not the case here.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the interpretation of “commercial purpose” and “self-employment” under the Consumer Protection Act, 1986. The Court emphasized that the Act is meant to protect consumers in “business-to-consumer” disputes and not “business-to-business” disputes. The Court found that the appellant, already a stockbroker, availed the overdraft facility to expand his business and increase profits, which is a commercial purpose. The Court also noted that the services were not exclusively for earning a livelihood by self-employment, as the appellant was already engaged in the profession.
| Sentiment | Percentage |
|---|---|
| Interpretation of “commercial purpose” | 40% |
| Interpretation of “self-employment” | 30% |
| Purpose of the Consumer Protection Act | 20% |
| Appellant’s existing business | 10% |
Fact:Law Ratio:
| Category | Percentage |
|---|---|
| Fact (consideration of the factual aspects of the case) | 30% |
| Law (consideration of legal aspects) | 70% |
The Court’s reasoning was primarily based on the legal interpretation of the Act and its provisions. The factual aspects of the case were considered to determine if the appellant’s situation fell within the legal definitions.
Logical Reasoning
The following flowchart illustrates the court’s logical reasoning:
Judgment
The Supreme Court dismissed the appeal, upholding the National Consumer Disputes Redressal Commission’s (NCDRC) decision. The Court reasoned that the overdraft facility availed by the appellant was for the expansion of his existing business as a stockbroker and not exclusively for earning his livelihood by self-employment.
The court emphasized that the services availed by the appellant were for the purpose of enhancing his business profits and were therefore commercial in nature. The court stated that the relationship between the appellant and the bank was a “business to business” relationship, which does not qualify for consumer protection under the Act.
The court further clarified that the term “self-employment” under the Consumer Protection Act is meant to cover situations where individuals are using the availed services exclusively for the purpose of earning their livelihood, and not for the expansion of an existing business.
The Court quoted from the judgment:
- ✓ “It cannot be said that the services were availed “exclusively for the purposes of earning his livelihood” “by means of self-employment”.”
- ✓ “If the interpretation as sought to be placed by the appellant is to be accepted, then the ‘business to business’ disputes would also have to be construed as consumer disputes, thereby defeating the very purpose of providing speedy and simple redressal to consumer disputes.”
- ✓ “The relations between the appellant and the respondent is purely “business to business” relationship. As such, the transactions would clearly come within the ambit of ‘commercial purpose’.”
The Court also noted that the Commission had already granted the appellant the liberty to approach the appropriate forum for his remedy.
Key Takeaways
The judgment has the following practical implications:
- ✓ Individuals availing services for the expansion of an existing business, even if self-employed, may not be considered “consumers” under the Consumer Protection Act, 1986.
- ✓ The “commercial purpose” exclusion under the Act is interpreted strictly, and the exception for “self-employment” is limited to situations where the services are exclusively used for earning a livelihood.
- ✓ The Consumer Protection Act is primarily intended for “business-to-consumer” disputes, and not for “business-to-business” disputes.
- ✓ The intent of the legislature is to keep commercial transactions out of the purview of the Act.
Directions
The Supreme Court did not give any specific directions in this judgment. However, the NCDRC had already granted liberty to the appellant to avail of his remedy by approaching the appropriate forum, having jurisdiction.
Development of Law
The ratio decidendi of the case is that an individual who avails services for the expansion of an existing business does not qualify as a ‘consumer’ under the Consumer Protection Act, 1986, even if the individual is self-employed. The Court clarified that the exception for self-employment is limited to situations where the services are exclusively used for earning a livelihood, not for expanding a business that is already established.
This judgment reinforces the existing position of law and does not introduce any new legal principles. It clarifies the interpretation of “commercial purpose” and “self-employment” under the Consumer Protection Act, ensuring that the Act is not used for “business-to-business” disputes.
Conclusion
The Supreme Court’s judgment in *Shrikant G. Mantri vs. Punjab National Bank* clarifies the scope of “commercial purpose” and “self-employment” under the Consumer Protection Act, 1986. The Court held that a stockbroker who availed an overdraft facility for business expansion was not a “consumer” under the Act. This ruling reinforces the principle that the Act is primarily intended to protect consumers in “business-to-consumer” disputes and not to cover commercial transactions between businesses. The judgment emphasizes that the exception for self-employment is limited to situations where the services are exclusively used for earning a livelihood, and not for expanding an already existing business.