Supreme Court clarifies the definition of ‘consumer’ under Consumer Protection Act: Sobha Hibiscus Condominium vs. Managing Director, M/s. Sobha Developers Ltd. & Anr. (2020) INSC 136 (14 February 2020)

Date of the Judgment: 14 February 2020
Citation: (2020) INSC 136
Judges: Mohan M. Shantanagoudar, J., R. Subhash Reddy, J.

Can a condominium association, formed under the Karnataka Apartment Ownership Act, 1972, file a consumer complaint? The Supreme Court of India addressed this critical question, clarifying the scope of who qualifies as a ‘consumer’ or a ‘recognized consumer association’ under the Consumer Protection Act, 1986. This judgment has significant implications for apartment owners and their associations seeking redressal for grievances against builders. The bench comprised Justices Mohan M. Shantanagoudar and R. Subhash Reddy, with the opinion authored by Justice R. Subhash Reddy.

Case Background

The case involves Sobha Hibiscus Condominium, a statutory body formed under the Karnataka Apartment Ownership Act, 1972. This condominium consists of apartment owners in a multi-story building called “Sobha Hibiscus” in Bangalore. The condominium was formed following a declaration by the builder, M/s. Sobha Developers Ltd., as mandated by the 1972 Act. The condominium filed a complaint before the National Consumer Disputes Redressal Commission (NCDRC), claiming certain reliefs. However, the builder raised a preliminary objection, arguing that the condominium was not a ‘consumer’ under the Consumer Protection Act, 1986, and therefore, lacked the locus standi to file the complaint.

Timeline:

Course of Proceedings

The National Consumer Disputes Redressal Commission (NCDRC) rejected the complaint filed by the Sobha Hibiscus Condominium. The NCDRC held that the condominium did not qualify as a ‘consumer’ under Section 2(1)(d) of the Consumer Protection Act, 1986, nor was it a ‘recognized consumer association’ under Section 12(1)(b) of the Act. Aggrieved by this decision, the condominium appealed to the Supreme Court of India.

Legal Framework

The Supreme Court examined the following key legal provisions:

• Section 2(1)(d) of the Consumer Protection Act, 1986: Defines a ‘consumer’ as a person who buys goods or avails services for consideration, but excludes those who do so for commercial purposes. The court quoted the section verbatim:

  “2. Definitions.-(1) In this Act, unless the context otherwise requires,-
  …. …. …. ….
  (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;”

• Section 12(1) of the Consumer Protection Act, 1986: Outlines who can file a complaint. It allows a ‘consumer’ or a ‘recognized consumer association’ to file a complaint. The court noted that a ‘recognized consumer association’ must be a voluntary association registered under the Companies Act, 1956, or any other law in force.
• Section 3(j) of the Karnataka Apartment Ownership Act, 1972: Defines ‘declaration’ as the instrument by which a property is submitted to the provisions of the Act.

  “3. Definitions.-In this Act, unless the context otherwise
  requires.-
  …. …. ….
  (j) ‘Declaration’ means the instrument by which the property
  is submitted to the provisions of this Act, as hereinafter
  provided, and such Declaration as from time to time may be
  lawfully amended:”

• Section 13 of the Karnataka Apartment Ownership Act, 1972: Requires the registration of declarations, deeds of apartments, and floor plans under the Registration Act, 1908.

Arguments

Appellant’s Arguments:

• The appellant argued that the Condominium is an association formed to represent the grievances of its members, who are all flat purchasers in “Sobha Hibiscus.”
• The appellant contended that any association registered under the Companies Act, 1956, or any other law can maintain a complaint under the Consumer Protection Act, 1986.
• The appellant relied on the Full Bench judgment of the NCDRC in Moulivakkam Trust Heights Flats Affected Buyers Association etc. v. M/s. Prime Sristi Housing Pvt. Ltd. & 29 Ors. etc., arguing that a registered association can file a complaint.

Respondent’s Arguments:

• The respondent argued that the Condominium is not a voluntary consumer association as it was formed under the mandatory provisions of the Karnataka Apartment Ownership Act, 1972.
• The respondent contended that the Condominium does not fit the definition of ‘consumer’ under Section 2(1)(d) of the Consumer Protection Act, 1986.
• The respondent submitted that the Condominium was formed as per the declaration made by the opposite party, as required under the 1972 Act, and hence, is not a voluntary association.

Issues Framed by the Supreme Court

The Supreme Court considered the following issue:

1. Whether the appellant-Condominium has the locus standi to file a complaint under the Consumer Protection Act, 1986, as a ‘consumer’ or a ‘recognized consumer association’?

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

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

How each authority was viewed by the Court?

• The court considered the case of Moulivakkam Trust Heights Flats Affected Buyers Association etc. v. M/s. Prime Sristi Housing Pvt. Ltd. & 29 Ors. etc. and held that although the NCDRC had taken a view that even a Residents’ Welfare Association, if registered under a statute will qualify as a consumer association, it must still qualify as a voluntary association.
• The court considered Section 2(1)(d) of the Consumer Protection Act, 1986 and held that the appellant did not fall under the definition of a consumer.
• The court considered Section 12(1)(b) of the Consumer Protection Act, 1986 and held that the appellant was not a voluntary consumer association.
• The court considered Section 3(j) of the Karnataka Apartment Ownership Act, 1972 and held that the appellant was formed under the mandatory provisions of the Act.

What weighed in the mind of the Court?

The Supreme Court emphasized the importance of the term “voluntary” in the context of consumer associations. The court highlighted that an association formed under a mandatory legal provision, such as the Karnataka Apartment Ownership Act, 1972, cannot be considered a voluntary association. The court noted that the Condominium was formed as a result of a declaration made by the builder as required under the 1972 Act, and therefore, it did not meet the criteria of a voluntary consumer association. The court also considered the definitions of “voluntary” from Black’s Law Dictionary and the Oxford Dictionary, emphasizing that a voluntary association must be formed by the free will of its members, without any external compulsion.

The Supreme Court’s decision was based on the following reasons:

• The Condominium was not a ‘consumer’ as defined under Section 2(1)(d) of the Act.
• The Condominium was not a ‘recognized consumer association’ as it was not a voluntary association.
• The Condominium was formed as per the mandatory provisions of the Karnataka Apartment Ownership Act, 1972, and not by the free will of its members.

The court quoted the following from the judgment, In essence, a voluntary consumer association will be a body formed by a group of persons coming together, of their own will and without any pressure or influence from anyone and without being mandated by any other provisions of law.

The court also quoted from the judgment, The appellant association which consists of members of flat owners in a building, which has come into existence pursuant to a declaration which is required to be made compulsorily under the provisions of 1972 Act, cannot be said to be a voluntary association to maintain a complaint under the provisions of the Act.

The court further quoted, By applying the said Explanation, the appellant cannot be said to be a voluntary consumer association so as to maintain a petition. Further, it will not fall within the definition of ‘consumer’ as defined under Section 2(1)(d) of the Act.

There were no dissenting opinions in this case. The bench unanimously agreed on the interpretation of the law.

The implications of this judgment are that apartment owners’ associations formed under mandatory state laws may not be able to directly file consumer complaints. This could lead to individual apartment owners having to pursue their own complaints, potentially increasing the burden on the consumer redressal system.

Key Takeaways

• Condominium associations formed under mandatory state laws cannot be considered ‘consumers’ or ‘recognized consumer associations’ under the Consumer Protection Act, 1986.
• A ‘voluntary consumer association’ must be formed by the free will of its members, without any compulsion or mandate by any other law.
• Individual apartment owners may have to file their own complaints instead of relying on their condominium associations.

Directions

No specific directions were given by the Supreme Court in this judgment.

Development of Law

The ratio decidendi of this case is that a condominium association formed under a mandatory statute is not a ‘voluntary consumer association’ and therefore cannot file a complaint under the Consumer Protection Act, 1986. This clarifies the definition of ‘voluntary consumer association’ and sets a precedent for similar cases. There is no change in the previous positions of law, but the court has clarified the interpretation of the term ‘voluntary’ in the context of consumer associations.

Conclusion

The Supreme Court dismissed the appeal, upholding the NCDRC’s decision. The court clarified that the Sobha Hibiscus Condominium, formed under the mandatory provisions of the Karnataka Apartment Ownership Act, 1972, did not qualify as either a ‘consumer’ or a ‘recognized consumer association’ under the Consumer Protection Act, 1986. This ruling underscores the importance of voluntary formation for consumer associations seeking to represent their members in consumer disputes.