On 13th April 2023, the Supreme Court Bench consisting of Justice Ajay Rastogi and Justice CT Ravikumar in the case of National Insurance Co. Ltd. vs Harsolia Motors And Others[1]held that The Consumer Protection Act of 1986 does not exempt an enterprise from the meaning of "consumer" solely because it is a consumer enterprise. Any non-commercially purchased products or services may be the subject of a consumer dispute under the Act by a commercial enterprise. Whether something is considered to be done for a "commercial purpose" depends on whether the items or services are directly related to the activity that generates profits.
Issue in Hand:
Section 2(1)(d) of the Consumer Protection Act excludes goods or services that are procured for commercial purposes when defining a consumer.
In the present case, the issue was whether the insurance policy purchased by the insured could be considered a hiring of a service for "commercial purpose," thus excluding them from the Act's definition of a "consumer."
Facts of the Case:
Two enterprises namely, Harsolia Motors and Rakesh Narula and Co. had purchased a fire insurance policy worth Rupees 90,00,000 and Rupees 75,38,000 respectively. The valuables of the insured were burned during the Godhra riots in 2002. Rakesh Narula And Co.'s claim for Rs. 54,29,871 was approved by National Insurance Co. Ltd., whereas Harsolia Motors' claim was denied. The Gujarat State Commission Disputes Redressal Commission received complaints from both parties. According to the State Commission, the insured are not considered consumers as they are enterprises and enterprise is not considered to be a 'consumer' as defined in Section 2(1)(d) of the Consumer Protection Act of 1986.
Given that the insured was using the property to operate a business for profit, which is covered by the definition of "for commercial purposes," it was determined that the complaint could not be upheld under the Act.
The National Consumer Dispute Redressal Commission reversed the judgment and ruled in favour of the insured, after hearing the appeal. The National Commission held that a person who purchases an insurance policy to cover the anticipated risk does not do so for a commercial purpose. It was decided that the respondent (insured) was a consumer as defined by Section 2(1)(d) of the Act, 1986, and that the complaint filed at his request was maintainable and should be subjected to a merits review by the State Commission. The policy is only for indemnification of an actual loss and is not intended to generate profits.
Judgment:
The Supreme Court held that hiring an insurance policy is clearly an act for indemnifying a risk of loss or damages and there is no element of profit generation. The bench disagreed with the argument put forward on behalf of the appellant that, if insurance claims are subject to the 1986 Act, then almost all insurance-related issues will fall under its scope, thus nullifying the 2015 Act. Both of these Acts have different purposes, stipulations, and remedies, operate in distinct fields, and have no internal relationships. The older Act would not render the latter Act ineffective.
The Supreme Court ordered that the complaint be sent back to the State Commission to re-evaluate and decide on itwithin a year’s time. The State Commission was asked todetermine
The NCDRC orders were subsequently set aside by the Supreme Court and the Appellant-Insurer's appeal was denied.
Analysis:
The two factors that need to be considered in order to determine whether the insured is a "consumer" or not, are whether the insurance service has a close and direct nexus with the profit-generating activity and whether the transaction in relation to which the claim has been raised had the dominant intention or purpose of facilitating some kind of profit generation for the insured.
While analysing the definition of ‘Consumer’, the Supreme Court stated that a person or a corporation engaging in commercial operations, whether or not it is registered, is not excluded from the definition of "consumer" under the Consumer Protection Act of 1986. The court further stated that each case's facts and circumstances will determine whether a transaction is for a commercial purpose, but typically, "commercial purpose" is understood to include manufacturing/industrial activity or business-to-business transactions between commercial entities. An activity that generates profits should be directly and closely related to the purchase of the commodity or service. The buyer's name or the transaction's worth do not always answer the issue of whether it was made for a business purpose.
The issue of whether such a purchase was made for the purpose of "generating livelihood by means of self-employment" need not be investigated if it is determined that the primary reason for buying the good or service was for the purchaser's and/or beneficiary's personal use and consumption or is otherwise unrelated to any commercial activity. According to the court, a company, whether or not it is registered, is a person who may always invoke the Act of 1986's jurisdiction if it fits within the parameters and ambit of the term "consumer" as defined by Section 2(1)(d) of the Act of 1986.
The question of whether the insurance policy counts as a commercial purpose under Section 2(1)(d) of the Act is independent of whether the insured is a commercial entity. According to the court, the Act only applies to consumers who buy things or use services for non-commercial reasons; it does not apply to those who buy goods or use services for resale or for any other type of business.
The word "commercial purpose" extends to any conduct that is specifically designed to make money. The court further emphasised that there cannot be a rigid formula to assess whether a transaction is for business or non-commercial objectives; rather, each case must be evaluated in light of its unique facts and circumstances. The bench made a specific reference to the 2019 case of Lilavati Kirtilal Mehta Medical Trust v. Unique Shanti Developers and Others[1],wherein it was held that providing dorms for nurses by a hostel is not considered to be engaging in a commercial activity under the definition of the Consumer Protection Act.
The court in this case determined that the respondent insured's use of the insurance service had no close or direct connection to the activity that generated profits; rather, the insurance was used to compensate the insured for a loss; as a result, the respondent qualified as a "consumer" under the Act.
The SC evaluated whether an insurance claim may be taken into account under the Consumer Protection Act, 1986, and concluded that the claim would not be covered by the Act if the insurance service had a close and direct relationship with the profit-generating business. However, the court determined that there was no element of profit in this case and that hiring the insurance policy was clearly done to mitigate risk of loss or damage.
The court also determined that the Consumer Protection Act of 1986 and the Consumer Protection Act 2015 were in entirely separate domains and that as a result, the older Act would not render the latter Act ineffective. The court rejected the appeals as being devoid of merit and ordered the State Commission to decide the respondents' case on the merits in line with the law and within a year.
[1](2020) 2 SCC 265
[1]Civil Appeal No(S).5352-5353 Of 2007; April 13, 2023
