Whether The Purchase Of A Car By A Company For Its Director’s Use Constituted A “Commercial Purpose,” Which Would Exclude It From Consumer Protection Laws.

Summary:

[1]The recent ruling by a Bench of the Hon’ble Supreme Court of Hon’ble Mrs. Justice Bela M Trivedi and Hon’ble Mr. Justice Pankaj Mithal referred to an issue dealing with whether the purchase of a car by a company for its director’s use constituted a “commercial purpose” which would exclude it from the protection under the Consumer Protection Laws in India. The Hon’ble court held that the purchase of the goods 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. In this case, the Hon’ble Court found no evidence that the car was used for commercial purposes. The car was used by the whole-time director and his family for personal purposes, and there was no nexus with any profit-generating activity of the Respondent Company, the Hon’ble Court noted.

Facts:

In the first case, the Respondent had purchased two Mercedes cars for use by its executive directors. One car developed heating issues, particularly in the centre hump area. Despite multiple attempts at rectification by the company, the problem persisted. In the first case the National Consumer Disputes Redressal Commission (NCDRC) ruled in favour of the complainant, directing Mercedes to replace the car or refund half the purchase price of INR. 1,15,72,280/- (One Crore, Fifteen Lakh, Seventy-Two Thousand, Two Hundred, Eighty Only).  Mercedes appealed this decision before the Hon’ble Supreme Court.

In the second case, the dispute arose from a serious accident involving a Mercedes E-Class car purchased by CG Power for its Managing Director. In a head-on collision, the car’s airbags failed to deploy, resulting in severe injuries to the director. The NCDRC awarded Rs. 5 lakhs for deficiency in service due to non-deployment of airbags and another Rs. 5 lakhs for unfair trade practices. Mercedes appealed this decision, while CG Power filed a cross-appeal seeking higher compensation.

Issues:

Whether any purchase by the company primarily for the “commercial purpose” would exclude it from the consumer protection laws within the meaning of Section 2(1)(d) of the Consumer Protection Act, 1986 (now re-enacted as Consumer Protection Act, 2019)?

Judgement:

In the first case, the Three-Member Bench at the NCDRC had held that “If a car or any other goods are obtained or any services are hired or availed by the company for the use/personal use of its directors or employees, such transaction does not amount to purchase of goods or hiring or availing of services for a commercial purpose. Irrespective of whether the goods or services are used solely for the personal purposes of the directors or employees of the company or they are used primarily for the use of the directors or employees of the company and incidentally for the purposes of the company”.

In the Appeal the Hon’ble Supreme Court held that 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 goods was for the personal use and consumption of the purchaser and/or their beneficiary, or was 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.

Similarly in the second case, the NCDRC awarded Rs. 5 lakhs for deficiency in service due to non-deployment of airbags and another Rs. 5 lakhs for unfair trade practices. Mercedes appealed this decision, while CG Power filed a cross-appeal seeking higher compensation. The Commission considered this omission alongside allegations that Mercedes Benz had marketed the vehicle as exceptionally safe, including comprehensive airbag protection, without disclosing vital deployment conditions. The Commission concluded that Mercedes Benz’s failure to disclose the limited conditions under which airbags would function, despite marketing them as a substantial safety feature, constituted an unfair trade practice under Section 2(1)(r) of the Consumer Protection Act, 1986. The Supreme Court upheld the NCDRC’s decision and dismissed the appeals. “Incomplete disclosure or non-disclosure of the complete details with regard to the functioning of the airbags at the time of promotion of the car, has rightly been considered by the National Commission as the “unfair trade practice” on the part of the appellants”, the Hon’ble Court held.

Analysis:

The Hon’ble Court while deciding the case relied upon the observation made by the NCDRC and upheld that purchase is for commercial purposes depends on the facts and circumstances of each case. It was reiterated that to determine whether the goods purchased by a person (which would include a legal entity like a company) were for a commercial purpose or not, within the definition of a “consumer” as contemplated in Section 2(1)(d) of the said Act, would depend upon facts and circumstances of each case. The purchase of the goods 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.

[1]  https://webapi.sci.gov.in/supremecourt/2007/30163/30163_2007_14_1501_53543_Judgement_09-Jul-2024.pdf

BEFORE THE HON’BLE SUPREME COURT

M/S Daimler Chrysler India Pvt. Ltd. v. M/S Controls & Switchgear Company Ltd. & Anr. And Mercedes Benz India Pvt. Ltd. & Anr. v. CG Power and Industrial Solutions Ltd. & Ors.

CIVIL APPEAL NO. 353 OF 2008, C.A. NO. 19536-19537 OF 2017, C.A. NO. 2633 OF 2018

Judgement dated 9th July, 2024