A COMPANY ENGAGED IN COMMERCIAL ACTIVITY OF IMPORT/EXPORT – A CONSUMER?

Introduction

The Consumer Protection Act was enacted to protect the interests of the consumers from unfair trade practices. When a complaint is filed before the Consumer Forum, the Forum will consider the complaint and also the reply filed by the trader/services provider. If the Consumer Forum finds that the products in question are defective/deficiency in service, the Consumer Forum may order for compensation and direct them to stop the unfair trade practice.

Service

Section 2(1)(d)(ii) of the Consumer Protection Act, 1986 defines the term ‘consumer’ in terms of ‘service’ as any person who 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.

The explanation to the said section clarifies that the 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.

Person

Section 2(1)(m) defines the term ‘person’ as including-

• a firm whether registered or not;
• a Hindu undivided family;
• a co-operative society;
• every other association of persons whether registered under the Societies Registration  Act, 1860 or not.

Company – status

In KARNATAKA POWER TRANSMISSION CORPN. & ANR. Versus ASHOK IRON WORKS PVT. LTD. - 2009 (2) TMI 745 - Supreme Court, the Supreme Court held that the definition of `person' in Section 2(1)(m) is inclusive and not exhaustive. It does not appear to the Supreme Court to admit of any doubt that company is a person within the meaning of Section 2(1)(d) read with Section 2(1)(m).

Commercial purpose

The Supreme Court considered the issue as to when an activity or transaction of purchase of goods or services availed can be understood as for a commercial purpose, in Lilavati Kirtilal Mehta Medical Trust Versus M/s. Unique Shanti Developers & Ors. - 2019 (11) TMI 1824 - Supreme CourtThe Supreme Court culled out broad principles for consideration.

• Ordinarily, ‘commercial purpose’ is understood to include manufacturing/industrial activity or business-to-business transactions between commercial entities.
• The purchase of the good or service should have a close and direct nexus with a profit-generating activity.
• Whether the dominant intention or dominant purpose for the transaction was to facilitate some kind of profit generation for the purchaser and/or their beneficiary?
• The purchase of the good or service should have a close and direct nexus with a profit-generating activity.
• It has to be seen whether the dominant intention or dominant purpose for the transaction was to facilitate some kind of profit generation for the purchaser and/or their beneficiary.
• If it is found that the dominant purpose behind purchasing the good or service was for the personal use and consumption of the purchaser and/or their beneficiary, or is otherwise not linked to any commercial activity, the question of whether such a purchase was for the purpose of ‘generating livelihood by means of self-employment need not be looked into.

In SUNIL KOHLI & ANR. Versus M/s. PUREARTH INFRASTRUCTURE LTD. - 2019 (10) TMI 1624 - Supreme Court (LB),the Supreme Court held that if purchaser of a property puts it to commercial use to earn his livelihood, by way of self-employment, such a purchaser would be a consumer.

In M/s. Poly Medicure Ltd. Versus M/s. Brillio Technologies Pvt. Ltd. - 2025 (11) TMI 1017 - Supreme Court, the appellant company is engaged in the export and import of medical devices and equipment. The appellant company intended to instal and implement an export/import documentation system at its plant. For this purpose, the appellant bought a software licence from the respondent company. The appellant company paid the cost towards the software to the respondent company. But the software did not work properly. The said defect has not been removed. Therefore, the appellant company filed a complaint before the State Commission alleging the deficiency of service by the respondent company. The appellant sought for the refund of the entire amount spent on licence and additional development cost along with interest @ 18%.

The respondent disputed the complaint and contended that the complaint is not maintainable as the complainant is not a consumer as defined in Section 2 (1) (d) of the 1986 Act. The State Commission dismissed the complaint on the ground that the appellant purchased the software for commercial purposes and therefore would not come under the definition of ‘consumer’ and therefore the complaint is not maintainable.

Being aggrieved against the order of the State Commission, the appellant filed an appeal before the National Commission. The National Commission also dismissed the appeal. Therefore, the Appellant filed the present appeal before the Supreme Court.

The appellant submitted the following before the Supreme Court-

• The software was purchased for self-use.
• The appellant was the end user and had no intention to transfer/ sell it for profit, therefore, it cannot be said that purchase was for commercial purpose;
• The purchase of goods/ services for self-utilization with no intention to directly generate profit from it, would qualify the purchaser of such goods or services as a ‘consumer’ by virtue of Explanation to Section 2(1)(d) of the Act, 1986.
• Since the software was not directly linked to generation of profit, the transaction cannot be considered as one for a commercial purpose so as to disqualify the appellant from being a ‘consumer’.
• Since the appellant had purchased the software for installing and implementing an export/ import documentation system for self-use as an end user thereof, and not for resale or transfer or conversion in any manner, the appellant would qualify as a consumer.
• Therefore, the order of State Commission and National Commission are liable to be quashed.
• If the goods purchased or services availed are for convenience/ comfort or for better management of the business of the company, and the complaint is filed for compensation on account of defective supplies or deficient services, a consumer complaint would be maintainable.

The respondent submitted the following before the Supreme Court-

• the software “Brillio Opti Suite” is admittedly for carrying out professional activities.
• The software is customized to provide support to the appellant in managing its business affairs by performing various functions such as Export Document Set, Clubbing/Spitting SAP Sales Documents, Clubbing of Bill of Exchange, Advance Payment/FIRC, CHA Charges Tracking, Duty Drawback (All Industrial rate), Letter of Credit Management, Container Indents and Tracking, Export Credit Guarantee Corporation (ECGC) Policy Management, Export Packing Credit Handling, FOREX Forward Cover Management.
• The software was used by the appellant to create necessary documents in the course of their export/import business activities, which is having nexus with profit generating activities.
• The Consumer Protection Act, 1986 is meant for resolving the disputes between the business to consumer and not between the business-to-business disputes.

The Supreme Court considered the submissions of the appellant and the respondent. For the purpose of this case the Supreme Court analysed the provisions of Section 2(1)(d) and Section 2(1)(m) of the Consumer Protection Act. The Supreme Court also analysed the judgments relied on by the appellant and the respondent. The Supreme Court was of the view that if the transaction has a nexus with generation of profits, it would be treated as one for a commercial purpose. Whether a transaction has nexus with generation of profits or not is to be determined on the facts of each case by taking into consideration, inter alia, the nature of the goods purchased or services availed

and the purpose for which it is purchased or availed.

In the instant case, not only the complainant is a commercial entity, the purchase of goods/ services. the transaction of purchase of goods/ services (i.e., software) had a nexus with generation of profits and, therefore, qua that transaction the appellant cannot be considered a consumer as defined in Section 2(1)(d) of the Consumer Protection Act.  The Supreme Court held that the State Commission as well as the National Commission have rightly held that the appellant is not a consumer under the provisions of the Consumer Protection Act and therefore dismissed the appeal.