Case Title: National Insurance Co. Ltd. v. Harsolia Motors And Ors.| 2023 LiveLaw SC 313 | Civil Appeal No. 5352-5353/2007| 13th April, 2023| Justice Ajay Rastogi and Justice CT Ravikumar
Summary
The Supreme Court has ruled that the presence of a consumer enterprise does not automatically exempt an entity from the definition of “consumer” as defined in the Consumer Protection Act of 1986. The court examined whether the insured’s insurance policy constituted “commercial purpose” employment of a service, thereby excluding them from the definition of “consumer” as defined in the Act. The term “consumer” does not encompass services rendered or commodities acquired for a commercial purpose.
The Supreme Court examined the case of Harsolia Motors and Rakesh Narula And Co., who purchased fire insurance for Rs. 75,38,000 and Rs. 90 lakhs respectively. The National Insurance Co. Ltd. accepted the claim of Rakesh Narula And Co. but denied the claim of Harsolia Motors. The State Commission ruled that the insured individuals do not qualify as “consumers” as that term is defined in Section 2(1)(d) of the Consumer Protection Act, 1986. However, the National Consumer Dispute Redressal Commission reversed the decision and ruled in favor of the insured upon appeal.
The Supreme Court emphasized the criticality of the transaction and determined that the term “consumer” does not exclude a commercial enterprise or an individual covered by the expression “person” as defined in Section 2(1)(m) of the Act, 1986, solely on the basis that the enterprise is a commercial enterprise. The court determined that there was no direct connection between the insurance service and the profit-generating activity.
About the case
The Supreme Court recently rendered a significant decision, stating that the presence of a consumer enterprise does not automatically exempt an entity from the definition of “consumer” as defined in the Consumer Protection Act of 1986. Under the provisions of the Act, a commercial enterprise may initiate consumer disputes regarding services or products obtained for non-commercial use. The determination of whether an activity is for a “commercial purpose” requires an examination of whether the products or services in question had a tangible and immediate connection to the activity that generated profits.
The matter that the Supreme Court deliberated was whether the insured’s insurance policy constituted “commercial purpose” employment of a service, thereby excluding them from the definition of “consumer” as defined in the Act. As per Section 2(1)(d) of the Act, the term “consumer” does not encompass services rendered or commodities acquired for a commercial purpose. A bench consisting of Justice CT Ravikumar and Justice Ajay Rastogi reaffirmed that to ascertain whether the insured is a “consumer” or not, it is necessary to examine whether the insurance service is closely and directly linked to the activity that generates profits, and whether the primary intention or purpose of the transaction that gave rise to the claim was to facilitate profit generation for the insured.
As an illustration, the Bench stated that in the case of a manufacturer procuring raw materials or other articles in order to manufacture a product, the purchase would serve a “commercial purpose.” Nevertheless, should the manufacturer procure office appliances such as a refrigerator, television, or air conditioner, it would lack a direct connection to generate revenue. This would therefore not qualify as serving a “commercial purpose.”
A Factual Context Harsolia Motors and Rakesh Narula And Co. had each purchased fire insurance for a sum of Rs. 75,38,000 and Rs. 90 lakhs, respectively. The insured incurred fire damage to their belongings during the Godhra riots of 2002. In the amount of Rs. 54,29,871, The National Insurance Co. Ltd. accepted the claim of Rakesh Narula And Co. but denied the claim of Harsolia Motors. Both parties submitted complaints to the Disputes Redressal Commission of the Gujarat State Commission. According to the ruling of the State Commission, the insured individuals do not qualify as “consumers’ ‘ as that term is defined in Section 2(1)(d) of the Consumer Protection Act, 1986. As a result, the court ruled that the insured’s complaint is not maintainable under the Act, as operating a business from the premises for profit falls within the definition of “for commercial purpose.”
The National Consumer Dispute Redressal Commission reversed the decision and ruled in favor of the insured upon appeal. An examination conducted by the Supreme Court The Court initially made reference to the intent and purpose of the 1986 Consumer Protection Act. Legislation that promotes the adoption of liberal construction in the consumer’s best interest is characterized as social benefit-oriented. By allowing consumers direct participation in the market economy, the legislation sought to safeguard consumers. The Court made reference to the definitions of the terms “person,” “consumer,” and “service.” The report observed that the definition of “consumer” does not encompass self-employed individuals who purchase and utilize commodities for the sole purpose of earning a living; the term “person” is inclusive of businesses; and “service” encompasses banking and insurance.
Following this, the Court cited a series of precedents and stated that it is possible for an individual engaged in a commercial activity to acquire services or goods for personal use or consumption that is unrelated to their routine profit-generating endeavors or the establishment of self-employment. This acquisition qualifies the purchaser as a consumer. Specifically, the bench cited the 2019 ruling in Unique Shanti Developers and Others v. Lilavati Kirtilal Mehta Medical Trust, which stated that a hostel’s provision of dormitories for nurses does not qualify as a commercial activity under the Consumer Protection Act. The Court underscored the criticality of the transaction that is the subject of the complaint lodged under the Consumer Protection Act of 1986 on behalf of the ‘consumer’. The Court determined that the term “consumer” does not exclude a commercial enterprise or an individual covered by the expression “person” as defined in Section 2(1)(m) of the Act, 1986, solely on the basis that the enterprise is a commercial enterprise. On the contrary, a firm, irrespective of its registration status, is an individual who may at any time invoke the jurisdiction of the Act, 1986, so long as it satisfies the criteria and scope of what constitutes a “consumer” as defined in Section 2(1)(d) of the aforementioned Act.
The Court observed that it is necessary to ascertain whether the products were acquired with the intention of resale or for commercial purposes, or whether the services were utilized with the intention of commercial activity. If it is for either of the aforementioned reasons, the insured would not meet the criteria to be considered a “consumer.” The court determined, by applying the principle to the present case, that there was no direct connection between the insurance service and the profit-generating activity. The statement elucidated that losses are perpetually indemnified in insurance contracts, and the procurement of an insurance policy does not involve any profit-generating aspect. However, it was further stated that a case-by-case analysis and consideration of the transaction in question should be applied to the same. In order to promptly and within a maximum of one year, it remanded the case to the State Commission for adjudication of the insured’s complaint.
