2023 (4) TMI 1455 - SC - Indian Laws

Insurance Buyer Treated as Consumer Under Section 2(1)(d); Commercial Purpose Test Focuses on Profit Nexus

SC held that the complaint under the Consumer Protection Act, 1986 was maintainable as the respondent-insured qualified as a 'consumer' under Section ... Maintainability of the complaint filed at the instance of the respondent under the Consumer Protection Act, 1986 - respondent (insured) was a consumer as defined under Section 2(1)(d) of the Act, 1986 or not - whether the insurance service has a close and direct nexus with the profit generating activity and 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? HELD THAT:- In Lilavati Kirtilal Mehta Medical Trust [2019 (11) TMI 1824 - SUPREME COURT], this Court observed that there is no nexus between the purchase of flats by the appellant Trust and its profit generating activity as the flats were not occupied for undertaking any medical/diagnostic facilities within the hospital, but for accommodating the nurses employed by the hospital. In the given circumstances, it has nothing to do with earing of profits in providing facilities to the nurses and held that the Trust is a 'consumer' under Section 2(1)(d) of the Act, 1986 for the transaction under consideration. Thus, what is important is the transaction in reference to which the claim has been filed under the Act, 1986 by a person who claims himself to be a 'consumer' covered under Section 2(1)(d) of the Act, 1986, such exposition of law on the subject has been further reiterated by this Court recently in Shrikant G. Mantri v. Punjab National Bank [2022 (2) TMI 1522 - SUPREME COURT] and after the analysis on the subject and taking note of the judgment of this Court in Lilavati Kirtilal Mehta Medical Trust (supra), of which reference has been made, examined the case on the facts in question and recorded a finding that the transaction in question would fall within the definition of the term 'consumer' or 'services' for the purpose of invoking jurisdiction under the Act, 1986. Thus, what is culled out is that there is no such exclusion from the definition of the term 'consumer' either to a commercial enterprise or to a person who is covered under the expression 'person' defined in Section 2(1)(m) of the Act, 1986 merely because it is a commercial enterprise. To the contrary, a firm whether registered or not is a person who can always invoke the jurisdiction of the Act, 1986 provided it falls within the scope and ambit of the expression 'consumer' as defined under Section 2(1)(d) of the Act, 1986. Applying the above principles to the present case, what needs to be determined is whether the insurance service has a close and direct nexus with the profit generating activity and 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 fact that the insured is a commercial enterprise is unrelated to the determination of whether the insurance policy shall be counted as a commercial purpose within the purview of Section 2(1)(d) of the Act. Thus, what is finally culled out is that each case has to be examined on its own facts and circumstances and what is to be examined is whether any activity or transaction is for commercial purpose to generate profits and there cannot be a straight-jacket formula which can be adopted and every case has to be examined on the broad principles which have been laid down by this Court, of which detailed discussion has been made. Thus, it can be concluded that in the instant case hiring of insurance policy is clearly an act for indemnifying a risk of loss/damages and there is no element of profit generation and still what has been expressed by this Court is illustrative; it will always open to be examined on the facts of each case, as to the transaction in reference to which the claim has been raised has any close and direct nexus with profit generating activity. The appeals are without substance and accordingly dismissed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether availing insurance services by commercial enterprises constitutes hiring of services 'for any commercial purpose' so as to exclude them from the definition of 'consumer' under Section 2(1)(d) of the Consumer Protection Act, 1986. 1.2 Whether the mere status of a commercial enterprise disentitles it from invoking the remedial jurisdiction under the Consumer Protection Act, 1986. 1.3 How the expression 'for any commercial purpose' in Section 2(1)(d) is to be interpreted in light of prior Supreme Court precedents and the 1993 amendment. 1.4 Whether recognition of insurance disputes under the Consumer Protection Act, 1986 renders the Commercial Courts Act, 2015 nugatory or creates an impermissible overlap of remedies. 1.5 Whether, on the facts of the individual appeals, the respective complainants qualify as 'consumers' and their complaints are maintainable before consumer fora. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 2 - Status of commercial enterprises and insurance services under Section 2(1)(d) of the 1986 Act Legal framework 2.1 The Court examined Sections 2(1)(d) (consumer), 2(1)(m) (person) and 2(1)(o) (service) of the Consumer Protection Act, 1986. A 'consumer' excludes, in case of goods, a person who obtains such goods for resale or for any commercial purpose, and in case of services, a person who avails such services for any commercial purpose. 'Service' expressly includes insurance. 'Person' includes firms, HUFs, co-operative societies and every association of persons without size-based distinction. 2.2 The Court referred to and applied the ratio in Lucknow Development Authority v. M.K. Gupta, Laxmi Engineering Works v. P.S.G. Industrial Institute, Lilavati Kirtilal Mehta Medical Trust v. Unique Shanti Developers, Shrikant G. Mantri v. Punjab National Bank, Karnataka Power Transmission Corporation v. Ashok Iron Works (on the breadth of 'person') and other illustrative decisions on 'commercial purpose'. Interpretation and reasoning 2.3 The Act, 1986 is a social benefit-oriented legislation to protect consumers, requiring a liberal and constructive interpretation in favour of consumers, so long as it does not do violence to statutory language. 2.4 The expression 'for any commercial purpose' is not defined in the Act and, per Laxmi Engineering Works and Lilavati Kirtilal Mehta Medical Trust, must be understood in its ordinary sense: activities having profit as the main aim, typically manufacturing, industrial or business-to-business transactions where the goods or services have a close and direct nexus with profit-generating activities. 2.5 The Court reiterated that: (i) 'commercial purpose' is always a question of fact; (ii) the dominant purpose of the transaction is determinative; (iii) the status or size of the buyer/service-user or the value of the transaction is not conclusive; and (iv) the focus must be on whether the goods/services are integrally linked to profit generation. 2.6 Section 2(1)(m) being inclusive, and read with the General Clauses Act definition of 'person', makes clear that companies, firms and other juristic persons are 'persons' who can be 'consumers' if their particular transaction satisfies Section 2(1)(d). There is no categorical exclusion of commercial enterprises as a class. 2.7 The Court distinguished between: (a) transactions for commercial purpose (e.g. raw material purchased for manufacturing, equipment used as the core revenue-generating asset, hospital hiring doctors for fee-based services), and (b) transactions of a commercial entity that are ancillary or protective, or for personal/employee benefit, with no direct nexus to profit generation (e.g. office air-conditioner, staff quarters, hostel for nurses, dispatch of documents or risk-cover to indemnify loss). 2.8 On this approach, a commercial entity can be a consumer where it avails a service not directly and dominantly intended to generate profits. The decisive test is the nature and purpose of the specific transaction, not the business character of the party. Conclusions 2.9 A commercial enterprise is not per se excluded from the definition of 'consumer'. It can invoke the Consumer Protection Act, 1986 for a given transaction if that transaction does not amount to hiring or availing of services 'for any commercial purpose' in the sense of having a close and direct nexus with profit generation. 2.10 Insurance services, though often purchased by commercial entities, are not automatically for 'commercial purpose'. Whether the insured is a 'consumer' depends on whether the insurance service is primarily intended to indemnify a risk or to facilitate profit generation. Issue 3 - Meaning and scope of 'for any commercial purpose' as applied to insurance contracts and analogous transactions Legal framework and precedents 3.1 The Court relied on: (i) Lucknow Development Authority (broad, inclusive definitions and consumer protection purpose); (ii) Laxmi Engineering Works (meaning of 'commercial purpose', effect of 1993 explanation, and self-employment exception); (iii) Lilavati Kirtilal Mehta Medical Trust (dominant purpose test, broad principles to determine 'commercial purpose'); and (iv) illustrative decisions such as Kalpavruksha Charitable Trust, Rajeev Metal Works, and cases involving diagnostic clinics, bankers' indemnity policies, and EPBX systems. Interpretation and reasoning 3.2 The Court restated the broad principles for determining 'commercial purpose': (a) It is fact-specific; ordinarily it covers manufacturing/industrial activities and business-to-business transactions. (b) There must be a close and direct nexus between the goods/service and a profit-generating activity. (c) The dominant intention or dominant purpose of the transaction must be to facilitate profit generation for the purchaser/beneficiary. (d) Where the dominant purpose is personal use/consumption or otherwise not linked to profit generation, the self-employment/livelihood exception need not be invoked. 3.3 Applying these principles, the Court differentiated examples where the transaction is for commercial purpose (e.g. CT scan purchased by a trust charging patients, raw materials for manufacturing, diagnostic clinic purchasing X-ray equipment for fee-based services) from those where it is not (e.g. refrigerator/AC for office use, purchase of flats for nurses' accommodation, EPBX system without direct profit linkage). 3.4 For insurance, the Court emphasised that the inherent nature of an insurance contract is indemnificatory. It is a contract to indemnify defined loss occurring upon a contingency, not a vehicle to generate profit. Citing United India Insurance Co. Ltd. v. Levis Strauss (India) Pvt. Ltd., the Court reiterated that insured cannot profit from insurance; indemnity is 'no more, no less' than the actual loss. 3.5 Hence, hiring an insurance policy is normally an act of risk management/indemnification rather than a profit-making transaction. Even when taken by commercial enterprises, the policy is to cover uninvited risks (fire, theft, riot, etc.); if no loss occurs, no benefit is received. This distinguishes such policies from instruments whose use is itself aimed at direct revenue generation. Conclusions 3.6 'For any commercial purpose' in Section 2(1)(d) covers transactions where goods/services are used in an activity directly intended to generate profit; profit must be the dominant aim. 3.7 Insurance contracts of the type in question, taken to indemnify against risks such as fire, theft, riots and similar perils, ordinarily have no direct nexus with profit generation and are not, by their nature, for 'commercial purpose'. Policyholders under such contracts qualify as 'consumers' if other statutory conditions are met. Issue 4 - Alleged conflict with Commercial Courts Act, 2015 Legal framework 4.1 The appellant argued that Section 2(1)(c)(xx) of the Commercial Courts Act, 2015 treats insurance and reinsurance disputes as commercial disputes, and that permitting such disputes under the Consumer Protection Act, 1986 would render the Commercial Courts Act nugatory. Interpretation and reasoning 4.2 The Court noted that Section 3 of the Consumer Protection Act, 1986 provides that the remedies under that Act are 'in addition to and not in derogation of' other laws. The Consumer Protection Act and the Commercial Courts Act operate in different spheres, provide different remedial mechanisms and do not internally conflict. 4.3 Recognition of insurance-related consumer disputes under the Consumer Protection Act does not exclude or extinguish the jurisdiction of commercial courts for appropriate commercial suits; it merely preserves a distinct, summary, consumer-centric remedy where statutory requirements of 'consumer' and 'service' are satisfied. Conclusions 4.4 Allowing insurance claims by qualifying consumers under the Consumer Protection Act, 1986 does not render the Commercial Courts Act, 2015 nugatory. Both statutes coexist, addressing different remedial tracks and policy objectives. Issue 5 - Application of principles to the individual appeals A. Insurance claim arising from riot/fire damage - commercial vehicle dealer & related commercial entities Reasoning 5.1 The insured commercial entities obtained fire insurance policies covering office/showroom/garage premises and stock. Loss occurred due to fire during riots. Claims were raised for indemnification of damage; part claim was repudiated in one case, partly allowed in another. 5.2 The insurance policies were not taken as instruments to generate profit but to indemnify against accidental loss. The occurrence or non-occurrence of the insured peril alone determined whether any payment under the policy would arise; no direct profit stream was created by taking the policy itself. 5.3 Applying the dominant purpose and direct nexus tests, the Court held that the insurance service had no close and direct nexus with the profit-generating activity of selling vehicles; it was merely a protective cover to guard against contingent loss. Conclusions 5.4 The insured commercial entities are 'consumers' under Section 2(1)(d) in relation to these insurance policies. The complaints are maintainable. The appeals by the insurers are dismissed and the complaints are to be adjudicated on merits by the State Commission within the stipulated time. B. Insurance claim arising from theft of jewellery - jewellery business Reasoning 5.5 The insured, engaged in jewellery business, obtained an insurance policy covering risk of ornaments in business. Upon theft from the showroom, the claim for indemnification was repudiated. The State Commission held the insured not to be a consumer; the National Commission reversed, applying Harsolia-type reasoning. 5.6 The Court applied the same principles: the insurance policy was taken to cover risk of loss (theft, natural calamity) and had no direct nexus to profit generation from the jewellery business. The policy operated exclusively as a risk cover. Conclusions 5.7 The insured jewellery business is a 'consumer' in respect of this transaction. The appeal of the insurer fails, and the complaint is restored to the State Commission for adjudication on merits within the specified timeframe. C. Fire insurance claim by a garment manufacturer/wholesaler Reasoning 5.8 The respondent, engaged in garments in wholesale, obtained a standard fire and peril policy for its factory. Loss occurred due to fire. After survey and partial processing, the insurer objected to maintainability on the ground that the respondent was engaged in commercial activity. 5.9 Relying on the reasoning in Harsolia Motors, the Court held that the insurance cover to indemnify loss occasioned by fire does not bear a close and direct nexus to profit generation; it is a protective measure against contingent loss. Conclusions 5.10 The garment enterprise is a 'consumer' in relation to the insurance transaction. The insurer's appeal is dismissed and the complaint is restored to the State Commission for decision on merits, with directions regarding the invested amount to follow the State Commission's orders. D. Loss of export documents in transit - exporter using banking/courier services Reasoning 5.11 An exporter engaged a bank for dispatching export documents to a foreign buyer's bank; the bank, in turn, engaged the appellant and a courier. The documents were lost in transit. The complaint was dismissed at first instance on the ground that the exporter was not a consumer. 5.12 The National Commission, and the Court affirming it, held that the dispatch of export documents is a service for effectuating an already existing commercial transaction but is not per se a profit-generating activity. The actual profit flows from the sale of goods, not from the act of dispatching documents. 5.13 The service in question thus lacked a direct nexus with profit generation in the sense contemplated under 'for any commercial purpose'; it was facilitative rather than profit-making in itself. Conclusions 5.14 The exporter qualifies as a 'consumer' regarding the banking/courier services. The appeal is dismissed and the complaint is restored to the State Commission for adjudication on merits within the prescribed period. E. Ex parte consumer order against insurer - no separate 'commercial purpose' challenge Reasoning 5.15 In another matter concerning an insurance claim where an ex parte order had been passed by the Consumer Forum and upheld in appeal/revision, the insurer challenged the orders. No independent reasoning was advanced by the Court on 'commercial purpose'; the matter was decided on the existing record. Conclusions 5.16 The Court found no reason to interfere with the impugned orders of the consumer fora. The appeal was dismissed, and the ex parte award in favour of the insured stands.