Supreme Court Defines ‘Commercial Purpose’ Under Consumer Protection Act: Lilavati Kirtilal Mehta Medical Trust vs. Unique Shanti Developers (2019)

Introduction

Date of the Judgment: 14 November 2019

Citation: 2019 INSC 1113

Judges: Justice Mohan M. Shantanagoudar and Justice Ajay Rastogi

Can a medical trust that provides housing to its nurses be considered a ‘consumer’ under the Consumer Protection Act, 1986? The Supreme Court of India addressed this question in a recent case, clarifying the scope of ‘commercial purpose’ and its implications for consumer rights. This judgment is crucial for understanding the boundaries of consumer protection, particularly for organizations providing services to their employees. The core issue was whether the purchase of flats by the Lilavati Kirtilal Mehta Medical Trust to provide hostel facilities to its nurses qualifies as a ‘commercial purpose’, thereby excluding the trust from the definition of ‘consumer’ under the Act. The bench was composed of Justice Mohan M. Shantanagoudar and Justice Ajay Rastogi.

Case Background

The Lilavati Kirtilal Mehta Medical Trust (Appellant) purchased 29 flats in the ‘Madhuvan’ building, developed by M/S Unique Shanti Developers (Respondent No. 1), in Thane, Maharashtra. These flats were intended to provide hostel facilities for nurses employed by the Lilavati Hospital, which is run by the Appellant trust. The agreements to sell were executed on 25 November 1995 and registered on 16 March 1996. The Appellant paid the full consideration for the flats, and the architect issued a completion certificate on 17 February 1997. The flats were used as a hostel until 2002. However, within 2-3 years of completion, the building’s structure allegedly became dilapidated due to poor construction quality, leading the Appellant to vacate the flats in 2002. Since 2004, the flats have remained unused.

In 2014, an interim Board of Trustees was constituted for the Appellant trust by the Supreme Court due to a separate dispute over the trust’s control. This interim board commissioned a structural report in September 2015, which concluded that the cost of repairs would exceed the cost of reconstruction. The Appellant also alleged that Respondent No. 1 fraudulently obtained the occupation certificate from the local municipal corporation. Consequently, the Appellant filed a consumer complaint before the National Consumer Disputes Redressal Commission (National Commission) in 2016, seeking compensation of ₹7,65,95,400 for losses, reconstruction costs, and future losses, along with ₹5,00,000 in damages.

Timeline

Course of Proceedings

Initially, the National Commission dismissed the consumer complaint on 1 March 2016, citing that it was barred by limitation under Section 24A of the Consumer Protection Act, 1986. The Commission noted that the cause of action arose in 2004 when the flats became unused, while the complaint was filed in 2016, exceeding the two-year limitation period. The Commission also stated that the pending litigation regarding the trust’s board of trustees was not a sufficient reason to explain the delay.

Subsequently, the National Commission reviewed its order in Review Application No. 76 of 2016. It acknowledged an error in its initial order, where it had incorrectly stated that ‘conveyance deeds’ were registered, instead of ‘agreements to sell’. However, despite recalling the initial order, the National Commission again dismissed the complaint. This time, the dismissal was based on the finding that the Appellant trust did not qualify as a ‘consumer’ under Section 2(1)(d) of the Consumer Protection Act, 1986. The Commission reasoned that providing hostel facilities to nurses was directly connected to the commercial purpose of running the hospital, thus excluding the trust from the definition of ‘consumer’. The Supreme Court then heard the appeal against this order.

Legal Framework

The core of this case revolves around the interpretation of Section 2(1)(d) of the Consumer Protection Act, 1986, which defines a ‘consumer’. The section reads:

“(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 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 clause was added to Section 2(1)(d) by way of Ordinance No. 24 of 1993, later replaced by Amendment Act No. 50 of 1993, with effect from 18 June 1993. Additionally, Amendment Act No. 50 of 1993 included ‘housing construction’ within the definition of ‘service’ under Section 2(o) of the Consumer Protection Act, 1986. The case hinges on whether the Appellant’s purchase of flats falls under the exclusion for ‘commercial purpose’.

Arguments

The Appellant, Lilavati Kirtilal Mehta Medical Trust, argued that the dominant purpose behind purchasing the flats was to provide housing to its nurses, not to further the commercial operations of the hospital. They contended that the flats were not directly linked to the hospital’s profit-making activities and relied on the Supreme Court’s decisions in Laxmi Engineering Works v. P.S.G. Industrial Institute, (1995) 3 SCC 583 and Paramount Digital Colour Lab v. Agfa India Private Limited, (2018) 14 SCC 81, which emphasized the need to consider the dominant purpose of a purchase to determine whether it was for a commercial purpose.

The Respondents, M/S Unique Shanti Developers, argued that the Explanation to Section 2(1)(d) of the Consumer Protection Act, 1986, excludes only those goods and services availed “exclusively for the purpose of earning livelihood by self-employment” from the ambit of ‘commercial purpose’. They contended that providing hostel facilities to nurses indirectly benefits the hospital by increasing their efficiency, thus linking the flats to the hospital’s commercial activities. They relied on the Supreme Court’s decisions in Laxmi Engineering (supra), Cheema Engineering Services v. Rajan Singh, (1997) 1 SCC 131, and Kalpavruksha Charitable Trust v. Toshniwal Brothers (Bombay) Pvt. Ltd., (2000) 1 SCC 512, to support their argument that the flats were used for a commercial purpose.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue for consideration:

• Whether the purchase of flats for the purpose of providing accommodation to nurses employed by the Appellant trust’s hospital qualifies as a ‘purchase of services for a commercial purpose’; and consequently whether the Appellant is excluded from the definition of ‘consumer’ under Section 2(1)(d) of the Consumer Protection Act, 1986?

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

The Supreme Court considered the following authorities:

On the meaning of ‘commercial purpose’

• Laxmi Engineering Works v. P.S.G. Industrial Institute, (1995) 3 SCC 583, Supreme Court of India: The Court elucidated the meaning of ‘commercial purpose’, stating that it denotes “pertaining to commerce” and is connected with activities having profit as the main aim. The Court emphasized that the purpose to which the goods are put is more important than their value.
• Synco Textiles Pvt. Ltd. v. Greaves Cotton and Company Limited, (1991) 1 CPJ 499, National Commission: The National Commission stated that ‘commercial purpose’ includes all cases where goods are purchased for use in any activity directly intended to generate profit. It also stated that there should be a close nexus between the purchase and the large-scale activity carried on for earning profit.
• Paramount Digital Colour Lab v. Agfa India Private Limited, (2018) 14 SCC 81, Supreme Court of India: The Court re-emphasized the importance of a ‘close nexus’ between the purpose for which a good or service is availed and a large-scale profit activity to classify a transaction as commercial.

On the interpretation of ‘consumer’ under Section 2(1)(d)

• Spring Meadows Hospital v. Harjol Ahluwalia through K.S. Ahluwalia, I (1998) CPJ 1 (SC), Supreme Court of India: The Court held that a person who hires a service for a beneficiary can also be included in the definition of ‘consumer’ under Section 2(1)(d)(ii).

Authorities distinguished by the Court

• Cheema Engineering Services v. Rajan Singh, (1997) 1 SCC 131, Supreme Court of India: This case was cited by the respondents, but not discussed in detail by the court.
• Kalpavruksha Charitable Trust v. Toshniwal Brothers (Bombay) Pvt. Ltd., (2000) 1 SCC 512, Supreme Court of India: The Court distinguished this case, stating that it involved the purchase of CT scan machines by a diagnostic center, which had a direct nexus with its commercial activities, unlike the present case.

Judgment

The Supreme Court analyzed the submissions made by both the parties and the authorities cited by them. The court held that the purchase of flats by the Appellant trust for providing hostel facilities to hospital nurses does not qualify as meant for a ‘commercial purpose’.

The Court also analyzed how each authority was viewed:

• Laxmi Engineering Works v. P.S.G. Industrial Institute, (1995) 3 SCC 583* was used to define “commercial purpose” and to emphasize that the dominant intention behind the transaction must be considered.
• Synco Textiles Pvt. Ltd. v. Greaves Cotton and Company Limited, (1991) 1 CPJ 499* was used to interpret ‘commercial purpose’ prior to the insertion of the Explanation clause to Section 2(1)(d) of the 1986 Act.
• Paramount Digital Colour Lab v. Agfa India Private Limited, (2018) 14 SCC 81* was used to emphasize the importance of a close nexus between the purpose for which the good or service is availed of and a large-scale profit activity.
• Spring Meadows Hospital v. Harjol Ahluwalia through K.S. Ahluwalia, I (1998) CPJ 1 (SC)* was used to extend the definition of ‘consumer’ to include those who hire services for a beneficiary.
• Cheema Engineering Services v. Rajan Singh, (1997) 1 SCC 131* was cited by the respondents but not discussed in detail by the court.
• Kalpavruksha Charitable Trust v. Toshniwal Brothers (Bombay) Pvt. Ltd., (2000) 1 SCC 512* was distinguished by the Court as it involved a direct nexus between the purchase and commercial activity.

What weighed in the mind of the Court?

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

• Dominant Purpose: The Court emphasized that the dominant purpose of the purchase was to provide housing for nurses, not to generate profit. This was a key factor in determining that the transaction was not for a ‘commercial purpose.’
• Lack of Direct Nexus: The Court found no direct link between the purchase of flats and the hospital’s profit-generating activities. The flats were provided without rent, and the trust was not engaged in buying and selling flats.
• Welfare of Employees: The Court highlighted the importance of employers providing welfare measures for their employees, viewing it as a social obligation rather than a purely commercial activity.
• Clarificatory Nature of Explanation Clause: The Court clarified that the Explanation clause to Section 2(1)(d) of the Consumer Protection Act, 1986, is only clarificatory and does not change the definition of ‘consumer’.
• Socialist Economy: The Court noted that India is a socialist economy, wherein employers are obligated to make provisions for the welfare of their employees.

Fact:Law Ratio

The Court’s reasoning was a combination of factual analysis (examining the specific circumstances of the purchase) and legal interpretation (applying the provisions of the Consumer Protection Act, 1986). The factual analysis focused on the lack of direct commercial nexus and the welfare aspect, while the legal interpretation clarified the meaning of ‘commercial purpose’ and the role of the Explanation clause.

Key Takeaways

• The Supreme Court clarified that the term ‘commercial purpose’ under Section 2(1)(d) of the Consumer Protection Act, 1986, should be interpreted based on the facts and circumstances of each case.
• The dominant purpose of the transaction is crucial in determining whether it is for a ‘commercial purpose’. If the dominant purpose is not to generate profit, the transaction may not be considered commercial.
• The Court emphasized that the Explanation clause to Section 2(1)(d) of the Consumer Protection Act, 1986, is only clarificatory in nature and does not change the definition of ‘consumer’.
• The provision of welfare measures by employers for their employees is not necessarily a ‘commercial purpose’ even if it indirectly benefits the employer.
• The Court held that a medical trust providing hostel facilities to its nurses is a ‘consumer’ under the Consumer Protection Act, 1986, and is eligible to file a consumer complaint.
• The Court remanded the matter back to the National Commission for consideration in accordance with law.

Directions

The Supreme Court set aside the impugned judgment of the National Commission and restored the matter before the National Commission. The Court directed the parties to record their evidence before the National Commission, and requested the National Commission to hear the matter on merits and decide the same expeditiously.

Specific Amendments Analysis

There is no specific analysis on amendments in the judgment.

Development of Law

The ratio decidendi of this case is that the purchase of goods or services by an employer for the welfare of its employees does not automatically qualify as a ‘commercial purpose’ under Section 2(1)(d) of the Consumer Protection Act, 1986. The Court emphasized the importance of the dominant purpose test and the lack of a direct nexus between the purchase and profit-generating activities. This judgment clarifies the scope of ‘consumer’ under the Act and protects the rights of organizations that provide welfare measures to their employees.

This judgment does not change the previous position of law, but it clarifies the interpretation of ‘commercial purpose’ by emphasizing the need to look at the dominant purpose of the transaction and the lack of a direct nexus with profit-generating activities.

Conclusion

In conclusion, the Supreme Court’s judgment in Lilavati Kirtilal Mehta Medical Trust vs. M/S Unique Shanti Developers & Ors. clarifies the definition of ‘commercial purpose’ under the Consumer Protection Act, 1986. The Court held that the Appellant trust, which purchased flats to provide hostel facilities for its nurses, is a ‘consumer’ under the Act. The Court emphasized that the dominant purpose of the transaction and the lack of a direct nexus with profit-generating activities are crucial factors in determining whether a purchase is for a ‘commercial purpose’. The matter was remanded to the National Commission for a decision on merits. This judgment provides important guidance on the scope of consumer protection for organizations that provide welfare measures to their employees.