Supreme Court Clarifies “Consumer” Definition for Self-Employment: Paramount Digital Color Lab vs. Agfa India (2018)

Date of the Judgment: 15 February 2018

Citation: [Non-Reportable] Civil Appeal Nos. 2109-2110 of 2018, arising out of SLP (Civil) Nos. 23104-23105 of 2015

Judges: Kurian Joseph, J., Mohan M. Shantanagoudar, J.

Can unemployed graduates who start a business for self-employment be considered “consumers” under the Consumer Protection Act? The Supreme Court of India addressed this question in a recent case, clarifying the scope of the term “consumer” when goods are purchased for the purpose of earning a livelihood through self-employment. The court held that individuals who purchase goods for self-employment are indeed consumers, even if they employ others to assist in their business. This judgment has significant implications for small business owners and entrepreneurs.

Case Background

In 2004, the appellants, who were unemployed graduates, decided to start a photography business in partnership to earn a livelihood. They contacted Agfa India Pvt. Ltd. (respondent No. 1) to inquire about the “Agfa Minilab D-Lab.1 Allrounder” machine. The representatives of Agfa India, including respondent Nos. 2 and 4, highlighted the machine’s features, assuring its quality and reliability. Impressed by these assurances, the appellants borrowed a loan from Union Bank of India on 12 July 2004 and placed an order for the machine, paying Rs. 62,00,000 in advance on 5 August 2004.

However, the machine did not perform as promised. It had various technical, mechanical, and software issues, including grain in the prints. Despite numerous complaints and visits by engineers, the machine never functioned to the expected standard. The engineers admitted on 30 November 2004 that the pre-loaded software was still under development and a new software was expected in January 2005. The appellants requested a replacement, but the respondents did not comply. The warranty expired on 5 August 2005, with the defects unresolved.

On 1 December 2005, the appellants were informed that the Consumer Imaging Division had been transferred to “Agfa Photo India Pvt. Ltd.” and that the division was facing insolvency. They were also asked to make advance payments for chemicals, despite having already paid the full cost of the machine. The appellants were also not informed about the need for a license key (password) for the machine. Consequently, on 12 April 2006, the appellants issued a notice to the respondents seeking compensation for their losses. While some respondents replied, they did not provide a satisfactory explanation. The appellants then approached the State Consumer Disputes Redressal Commission, U.P. at Lucknow.

Timeline

Course of Proceedings

The State Consumer Disputes Redressal Commission, U.P. at Lucknow, allowed the complaint in part on 21 February 2011, holding respondent Nos. 2 and 4 responsible for unfair trade practice and directing them to pay compensation. Aggrieved by this, the appellants filed First Appeal No. 194 of 2011 before the National Consumer Disputes Redressal Commission, arguing that all respondents should be held liable. Simultaneously, respondent Nos. 2 and 4 also filed First Appeal No. 222 of 2011, contending that the appellants were not “consumers” under the Consumer Protection Act, 1986.

The National Commission, on 9 February 2015, dismissed the appellants’ appeal and allowed the respondents’ appeal, concluding that the appellants did not fall under the definition of “consumer.” The National Commission did not delve into the merits of the case, focusing solely on the maintainability of the complaint. The Supreme Court then heard the matter in appeal.

Legal Framework

The core of this case revolves around the definition of “consumer” under Section 2(1)(d) of the Consumer Protection Act, 1986. The Act defines a “consumer” as someone who buys goods for consideration, but excludes those who obtain goods for resale or any commercial purpose. However, the explanation to Section 2(1)(d) provides an exception, stating that “commercial purpose” does not include the use of goods bought and used by a person exclusively for earning a livelihood through self-employment.

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) hires or avails of any services 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 beneficiary of such services other than the person who hires or avails of the services for consideration paid or promised, or partly paid and partly promised, or under any system of deferred payment, when such services are availed of with the approval of the first mentioned person but does not include a person who avails of such services for any commercial purpose;
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.”

The Supreme Court interpreted this provision to mean that if a person purchases goods for self-employment, they are considered a “consumer” and are protected under the Act. This interpretation aligns with the Act’s objective of protecting individuals from unfair trade practices, especially those who rely on their own efforts for their livelihood.

Arguments

Appellants’ Submissions:

• The appellants argued that they purchased the machine exclusively for self-employment to earn their livelihood.
• They contended that they were unemployed graduates who started a photography business with the intention of supporting themselves and their families.
• They emphasized that the machine was not purchased for large-scale commercial activity, but for their personal use in a small venture.
• They stated that the defects in the machine caused them significant financial losses and mental distress.
• They argued that the respondents had misrepresented the quality and performance of the machine.
• The appellants relied on the explanation to Section 2(1)(d) of the Consumer Protection Act, 1986, which states that “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.

Respondents’ Submissions:

• The respondents argued that the appellants did not fall under the definition of “consumer” as they had purchased the machine for a commercial purpose.
• They contended that the appellants were not using the machine personally, but rather with the help of operators and helpers, indicating a commercial venture.
• They argued that the appellants were not using the machine exclusively for self-employment.
• They claimed that the appellants did not provide sufficient evidence to prove that they were consumers under the Act.

Analysis of Arguments:

The appellants’ argument centered on the fact that their purchase was for self-employment, thus bringing them within the ambit of the “consumer” definition. They highlighted the fact that they were unemployed and had taken a loan to start their business, indicating that the machine was crucial for their livelihood. The respondents, on the other hand, focused on the term “commercial purpose,” arguing that the involvement of operators and helpers meant that the appellants were engaged in a commercial activity and not self-employment.

The innovativeness of the argument lies in the appellants’ reliance on the explanation to Section 2(1)(d) of the Act, which specifically carves out an exception for self-employment. This argument challenged the traditional interpretation of “commercial purpose” and sought to protect small entrepreneurs who rely on their own efforts to earn a living.

Issues Framed by the Supreme Court

The primary issue before the Supreme Court was:

1. Whether the appellants are “consumers” as envisaged under Section 2(1)(d) of the Consumer Protection Act, 1986.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

• Madan Kumar Singh (Dead) v. District Magistrate, Sultanpur and Ors., (2009) 9 SCC 79 – The Supreme Court referred to this case to support its view that a person who buys goods for self-employment is a consumer. In this case, the court held that the purchase of a truck for self-employment was covered by the explanation to Section 2(1)(d) of the Act, even if a driver was employed to run the truck.
• Section 2(1)(d) of the Consumer Protection Act, 1986 – The Court analyzed this section and its explanation to determine the scope of the term “consumer.”

Judgment

How each authority was viewed by the Court?

• The Supreme Court followed the ratio of Madan Kumar Singh (Dead) v. District Magistrate, Sultanpur and Ors., (2009) 9 SCC 79* , which held that the purchase of a truck for self-employment was covered by the explanation to Section 2(1)(d) of the Act, even if a driver was employed to run the truck.
• The Supreme Court interpreted Section 2(1)(d) of the Consumer Protection Act, 1986 to mean that if a person purchases goods for self-employment, they are considered a “consumer” and are protected under the Act.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the fact that the appellants were unemployed graduates who had taken a loan to start a small business for self-employment. The Court emphasized that the machine was essential for their livelihood and that they had not purchased it for large-scale commercial activity. The Court also noted that the respondents had not denied the appellants’ claims and that the machine had not performed as promised.

The Court’s reasoning was based on a purposive interpretation of the Consumer Protection Act, 1986, aimed at protecting individuals who rely on their own efforts to earn a living. The Court also considered the fact that the appellants had suffered significant financial losses due to the defective machine. The Court also observed that the appellants had not planned to start their business of photography till they planned to purchase the machine in question.

Logical Reasoning:

The Court rejected the argument that the appellants were not consumers because they used operators and helpers. The Court reasoned that the appellants’ use of such assistance did not negate the fact that the machine was primarily used for their self-employment. The court noted that the machine was not used in a large-scale profit-making activity, but for the appellants’ small venture to make a livelihood. The court observed that the appellants had obtained a loan with the promise to pay interest to respondent No. 5 bank for purchasing the machine.

The Supreme Court emphasized that each case should be judged based on its specific facts and circumstances. The Court also noted that there was nothing on record to show that the appellants wanted to use the machine for purposes other than self-employment. The Court also noted that respondent No. 4, who is a contesting party, did not choose to file a counter affidavit before the State Commission, meaning that he did not deny any of the claims made by the appellants.

The Court stated that “Self-employment” necessarily includes earning for self. Without earning generally there cannot be “self-employment”.

The Court also stated that “The material needs to be seen in its entirety and not in isolation.”

The Court also stated that “Since there is nothing on record to show that they wanted the machine to be installed for a commercial purpose and not exclusively for the purposes of earning their livelihood by means of self-employment, the National Commission was not justified in concluding that the appellants have utilised the services of an operator or a helper to run a commercial venture.”

There were no minority opinions in this case.

Key Takeaways

• Individuals who purchase goods for self-employment are considered “consumers” under the Consumer Protection Act, 1986.
• The involvement of operators or helpers in a self-employment venture does not negate the status of the purchaser as a “consumer.”
• The Consumer Protection Act, 1986, aims to protect individuals who rely on their own efforts to earn a living.
• The definition of “commercial purpose” under the Act does not include the use of goods for self-employment.
• The Court’s decision provides relief to small business owners and entrepreneurs who face unfair trade practices.

Directions

The Supreme Court set aside the judgment of the National Commission and restored the judgment of the State Commission, with the clarification that respondent Nos. 2 to 4 are jointly and severally liable to make good the loss, as directed by the State Commission.

Development of Law

The ratio decidendi of the case is that a person who buys goods for self-employment is a “consumer” under the Consumer Protection Act, 1986, and the involvement of operators or helpers in a self-employment venture does not negate the status of the purchaser as a “consumer.” This judgment clarifies the scope of the term “consumer” and protects small business owners and entrepreneurs who rely on their own efforts to earn a living. This is a reinforcement of the previous position of law as laid down in Madan Kumar Singh (Dead) v. District Magistrate, Sultanpur and Ors., (2009) 9 SCC 79.

Conclusion

The Supreme Court’s judgment in M/s. Paramount Digital Color Lab vs. Agfa India Pvt. Ltd. clarifies that individuals who purchase goods for self-employment are “consumers” under the Consumer Protection Act, 1986. This decision protects small business owners and entrepreneurs from unfair trade practices and ensures that they are not excluded from the purview of consumer protection laws. The judgment emphasizes that the Act aims to protect those who rely on their own efforts to earn a livelihood, even if they employ others to assist them.