Supreme Court clarifies definition of “consumer” in seed buyback agreements: Nandan Biomatrix Ltd. vs. S. Ambika Devi & Ors. (6 March 2020)

Introduction

Date of the Judgment: 6 March 2020
Citation: [2020] INSC 226
Judges: Mohan M. Shantanagoudar, J., R. Subhash Reddy, J. (authored by Mohan M. Shantanagoudar, J.)

Are small farmers who grow crops under buyback agreements with seed companies considered ‘consumers’ if the company fails to honor the agreement? The Supreme Court of India recently addressed this crucial question in a case involving a seed company and a small landholder. The court clarified the scope of the term “consumer” under the Consumer Protection Act, 1986, particularly in the context of agricultural activities and buyback arrangements. This judgment has significant implications for the rights of farmers in India.

Case Background

In 2003, the complainant, a small landholder, responded to advertisements by Nandan Biomatrix Ltd. (the Appellant), a seed company, regarding the buyback of safed musli, a medicinal crop. On 15 January 2004, she entered into a tripartite agreement with the Appellant and its franchisee, M/s Herbz India. The agreement stipulated that the complainant would purchase 750 kgs of wet musli for sowing from the Appellant at ₹400 per kg. The Appellant was to buy back the produce at a minimum price of ₹1,000 per kg.

The complainant alleged that the Appellant failed to buy back her produce, leading to the destruction of a significant portion of her crop. She filed a consumer complaint alleging negligence and breach of contract.

Timeline

Course of Proceedings

The District Forum dismissed the complaint, stating that the complainant was not a “consumer” under the Consumer Protection Act, 1986. The State Commission overturned this decision, holding that the complainant was indeed a “consumer” and remanded the matter back to the District Forum for a decision on the merits. The National Commission upheld the State Commission’s finding, emphasizing that the agreement involved both the sale of goods and the rendering of services, as the Appellant provided wet musli, technical support, and crop insurance. The National Commission also noted that the complainant was a small landholder cultivating musli for livelihood, not for commercial purposes. The Appellant then appealed to the Supreme Court.

Legal Framework

The core of the dispute revolves around the definition of “consumer” under Section 2(d) of the Consumer Protection Act, 1986. According to Section 2(d) of the Consumer Protection Act, 1986, a consumer is defined as:

“(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 service 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 purposes;
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 explanation to Section 2(d) of the Consumer Protection Act, 1986, added in 1993, clarifies that “commercial purpose” does not include the use of goods or services by a person exclusively for earning a livelihood through self-employment. This explanation is crucial in determining whether a farmer falls under the definition of “consumer”.

Arguments

Appellant’s Arguments:

• The Appellant argued that the Respondent was not a “consumer” as defined under Section 2(d) of the Consumer Protection Act, 1986.
• The tripartite agreement involved the buyback of musli by the Respondent from the Appellant, which, according to the Appellant, amounted to resale, thereby excluding the Respondent from the definition of “consumer”.
• The Appellant contended that the cultivation and sale of musli by the Respondent was for a commercial purpose and not for earning a livelihood, thus excluding the Respondent from the purview of Section 2(d) of the Consumer Protection Act, 1986.

Respondent’s Arguments:

• The Respondent argued that the cultivation of musli was not done on a commercial level but was purely for self-employment to earn a livelihood.
• The Respondent contended that the cultivation was done by a poor agriculturist for eking out a livelihood, and therefore, did not fall within the meaning of “commercial purpose” as per the Explanation to Section 2(d) of the Consumer Protection Act, 1986.

Innovativeness of the argument: The Respondent’s argument was innovative in that it emphasized the self-employment aspect of agriculture, arguing that even if the activity has a commercial element, it should not exclude a farmer from being a “consumer” if the primary purpose is to earn a livelihood.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue for consideration:

1. Whether the Respondent was excluded from the purview of the definition of “consumer” under Section 2(d) of the Consumer Protection Act, 1986, on account of the subject transaction amounting to resale or for being for a commercial purpose.

Treatment of the Issue by the Court

Authorities

Cases Relied Upon by the Court:

• Laxmi Engineering Works v. PSG Industrial Institute, (1995) 3 SCC 583, Supreme Court of India: The Court discussed the meaning of “commercial purpose” and held that a person buying goods for self-employment to earn a livelihood is still a “consumer”.
• National Seeds Corpn. Ltd. v. M. Madhusudan Reddy, (2012) 2 SCC 506, Supreme Court of India: The Court held that an agreement for buyback by a seed company does not exclude a farmer from being a “consumer”.
• Synco Textiles Pvt. Ltd. v. Greaves Cotton and Company Ltd., (1991) 1 CPJ 499, National Consumer Disputes Redressal Commission: The National Commission opined that large-scale commercial activities would be excluded from the purview of the definition of “consumer”.
• Oswal Fine Arts v. HMT, (1991) 1 CPJ 330, National Consumer Disputes Redressal Commission: The National Commission took a view that persons purchasing goods or availing services for carrying on activity on a large scale for the purpose of earning profit would be excluded from the ambit of the definition of “consumer”
• Secretary, Consumer Guidance and Research Society of India v. BPL India Ltd., (1992) 1 CPJ 140 (NC), National Consumer Disputes Redressal Commission: The National Commission took a view that persons purchasing goods or availing services for carrying on activity on a large scale for the purpose of earning profit would be excluded from the ambit of the definition of “consumer”
• Rajeev Metal Works v. Mineral & Metal Trading Corporation of India Ltd., (1996) 9 SCC 422, Supreme Court of India: The Court held that employment of raw materials to produce finished goods for sale amounts to resale or being for a commercial purpose.

Cases Overruled:

• Sakthi Sugars Ltd., Orissa v. Sridhar Sahoo, II (1999) CPJ 4 (NC), National Consumer Disputes Redressal Commission, was overruled: The National Commission had held that a farmer selling his produce to the opposite party was not a “consumer”. The Supreme Court held this view to be incorrect.
• Prithviraj Narayanrao Chavan v. The National Seeds Corporation Ltd., [2012] SCC OnLine NCDRC 7, National Consumer Disputes Redressal Commission, was overruled: The National Commission had held that entering into a buyback transaction would preclude a farmer from taking benefit as a “consumer” under the 1986 Act. The Supreme Court held this view to be incorrect.

Legal Provisions Considered by the Court:

• Section 2(d) of the Consumer Protection Act, 1986: Defines “consumer” and excludes those who obtain goods for resale or commercial purposes. The explanation clarifies that self-employment for livelihood is not a commercial purpose.
• Section 2(f) of the Consumer Protection Act, 1986: Defines “deficiency” in service, which includes any fault, imperfection, shortcoming or inadequacy in the quality, nature and manner of performance which is required to be maintained by or under any law for the time being in force or has been undertaken to be performed by a person in pursuance of a contract or otherwise in relation to any service.

Judgment

How each authority was viewed by the Court?

• Laxmi Engineering Works v. PSG Industrial Institute, (1995) 3 SCC 583*: The Court followed this authority to reiterate that self-employment for livelihood is not a commercial purpose.
• National Seeds Corpn. Ltd. v. M. Madhusudan Reddy, (2012) 2 SCC 506*: The Court followed this authority to hold that a buyback agreement does not exclude a farmer from being a “consumer”.
• Synco Textiles Pvt. Ltd. v. Greaves Cotton and Company Ltd., (1991) 1 CPJ 499*: The Court distinguished this authority, stating that it dealt with large scale commercial activities and not the agricultural sector.
• Oswal Fine Arts v. HMT, (1991) 1 CPJ 330*: The Court mentioned this authority to show the consistent view of the National Commission.
• Secretary, Consumer Guidance and Research Society of India v. BPL India Ltd., (1992) 1 CPJ 140 (NC)*: The Court mentioned this authority to show the consistent view of the National Commission.
• Rajeev Metal Works v. Mineral & Metal Trading Corporation of India Ltd., (1996) 9 SCC 422*: The Court distinguished this authority by stating that it was related to industrial concerns and not agricultural activities.
• Sakthi Sugars Ltd., Orissa v. Sridhar Sahoo, II (1999) CPJ 4 (NC)*: The Court overruled this authority, holding that a farmer selling his produce can still be a “consumer”.
• Prithviraj Narayanrao Chavan v. The National Seeds Corporation Ltd., [2012] SCC OnLine NCDRC 7*: The Court overruled this authority, holding that entering into a buyback transaction would not preclude a farmer from being a “consumer”.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to protect small and marginal farmers who engage in agricultural activities for their livelihood. The Court emphasized that these farmers should not be excluded from the purview of the Consumer Protection Act, 1986, simply because they enter into buyback agreements with seed companies. The Court also considered the socio-economic realities of Indian farmers, who often face financial hardships and depend on agriculture for their survival.

The Court’s reasoning was based on the interpretation of the term “commercial purpose” in the Consumer Protection Act, 1986. The Court held that the explanation to Section 2(d) of the Consumer Protection Act, 1986, which excludes self-employment for livelihood from the definition of “commercial purpose,” should be given a broad and liberal interpretation to include farmers who grow crops under buyback agreements. The Court also emphasized that the purpose of the Consumer Protection Act, 1986, is to provide speedy redressal to consumers, and excluding farmers from its purview would defeat this purpose.

Logical Reasoning:

The Supreme Court considered the argument that the buyback agreement amounted to resale but rejected it. The Court reasoned that the farmer is not reselling the same goods but is using the seeds to grow a new crop. The Court also rejected the argument that the cultivation of musli was for a commercial purpose, emphasizing that the farmer was primarily growing the crop to earn a livelihood. The Court also considered the socio-economic realities of Indian farmers, who often face financial hardships and depend on agriculture for their survival. The Court noted that excluding farmers from the purview of the Consumer Protection Act, 1986, would defeat the purpose of the statute.

The Supreme Court quoted the following from the judgment:

“In matters such as the one on hand, the agriculturist buys the foundation seeds from the seed company, or the company itself reaches out and requests the farmers to generate the seeds so that it may market the same. By accepting such an offer, and after purchasing the foundation seeds from the seed company, the agriculturist, with hard labour and sweat, produces seeds to be marketed by the seed company. Thus, the agriculturist is not reselling any product, but grows his own product by utilizing the foundation seeds.”

“There cannot be any dispute that the agriculturist has to sell his product in the open market or to the seed company, as the case may be, in order to eke out his livelihood. In other words, the agriculturist sustains himself by selling his product. This cannot be termed as resale or activity in furtherance of a “commercial purpose” bringing him out of the purview of the definition of “consumer” under Section 2(d). Rather, it is purely for the purpose of earning his livelihood by means of self-employment.”

“We are alarmed by the growing trend amongst seed companies of engaging in frivolous litigation with farmers, virtually defeating the purpose of speedy redressal envisaged under 1986 Act. In the instant case, the Appellant contested the farmers’ claims before consumer fora on the preliminary point of maintainability right up to this Court, compelling small agriculturists such as the Respondents to spend unnecessarily on litigation in order to secure relief for themselves, amounting to a sum which probably exceeds even the quantum of relief claimed.”

Key Takeaways

• Farmers who grow crops under buyback agreements with seed companies are considered “consumers” under the Consumer Protection Act, 1986, if the purpose is to earn a livelihood through self-employment.
• Buyback agreements do not automatically exclude farmers from the definition of “consumer.”
• Seed companies cannot avoid consumer complaints by arguing that farmers are engaged in commercial activities if the primary purpose is self-employment for earning a livelihood.
• The judgment provides a crucial avenue for farmers to seek speedy redressal of their grievances against seed companies.
• Seed companies should refrain from engaging in frivolous litigation with farmers and should address their grievances in a timely manner.

This judgment has significant implications for the agricultural sector in India. It provides much-needed protection to small and marginal farmers, who are often vulnerable to exploitation by seed companies. The judgment also clarifies the scope of the term “consumer” under the Consumer Protection Act, 1986, in the context of agricultural activities and buyback arrangements.

Directions

The Supreme Court directed the concerned District Forum to hear and decide the complaints within three months from the date of receipt of the judgment. The Court also imposed costs of ₹25,000 on the Appellant, payable to the Respondent in each appeal.

Specific Amendments Analysis

The judgment discusses the 1993 amendment to the Consumer Protection Act, 1986, which added the explanation to Section 2(d), clarifying that “commercial purpose” does not include self-employment for livelihood. The court emphasized that this amendment was clarificatory and should be interpreted liberally to protect farmers.

Development of Law

The ratio decidendi of this case is that farmers who cultivate crops under buyback agreements with seed companies for the purpose of earning a livelihood through self-employment are considered “consumers” under the Consumer Protection Act, 1986. This judgment clarifies the scope of the term “consumer” in the context of agricultural activities and buyback arrangements. It also overrules the previous position of law established in Sakthi Sugars Ltd., Orissa v. Sridhar Sahoo, II (1999) CPJ 4 (NC), and Prithviraj Narayanrao Chavan v. The National Seeds Corporation Ltd., [2012] SCC OnLine NCDRC 7, which had held that farmers selling their produce were not consumers.

Conclusion

The Supreme Court’s judgment in M/S Nandan Biomatrix Ltd. vs. S. Ambika Devi & Ors. is a significant victory for small and marginal farmers in India. The Court has clarified that farmers who grow crops under buyback agreements for their livelihood are considered “consumers” under the Consumer Protection Act, 1986. This decision ensures that farmers have access to speedy redressal mechanisms and are protected from exploitation by seed companies. The judgment underscores the importance of protecting the rights of farmers and promoting sustainable agricultural practices in India.

Category

Parent Category: Consumer Protection Act, 1986

Child Categories:

• Section 2(d), Consumer Protection Act, 1986
• Consumer Rights
• Agricultural Disputes
• Buyback Agreements
• Self-Employment
• Commercial Purpose

FAQ

Q: What is the main issue in the Nandan Biomatrix case?

A: The main issue was whether a farmer who enters into a buyback agreement with a seed company is considered a “consumer” under the Consumer Protection Act, 1986, if the seed company fails to honor the agreement.

Q: What did the Supreme Court decide?

A: The Supreme Court decided that farmers who grow crops under buyback agreements for the purpose of earning a livelihood through self-employment are considered “consumers” under the Consumer Protection Act, 1986.

Q: What is a buyback agreement?

A: A buyback agreement is an arrangement where a seed company agrees to purchase the crops grown by a farmer using the seeds provided by the company.

Q: Does this mean all farmers are considered consumers?

A: No, only those farmers who grow crops for the purpose of earning a livelihood through self-employment are considered “consumers” under the Consumer Protection Act, 1986.

Q: What is the significance of this judgment?

A: This judgment provides crucial protection to small and marginal farmers, allowing them to seek speedy redressal of their grievances against seed companies under the Consumer Protection Act, 1986.

Q: What should seed companies do as a result of this judgment?

A: Seed companies should refrain from engaging in frivolous litigation with farmers and should address their grievances in a timely manner. They should also honor their buyback agreements with farmers.