BORROWER OF A PROJECT LOAN – A CONSUMER?

[DR.MARIAPPAN GOVINDARAJAN]

Commercial purpose

The object of the Consumer Protection Act, 1986 (‘Act’ for short) is to protect the consumers from the unfair trade practices of the business entities and also award compensation for the defects in goods or deficiency of services. 

Section 2(1)(d)(ii) of the Act defines the term ‘consumer’ in relation to services as any person 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 purposes.

The explanation to this section clarifies that ‘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.

There is no straitjacket formula can be laid down for determining whether an activity or transaction is for a commercial purpose and has laid down certain principles which are to be kept in mind.  The question of whether a transaction is for a commercial purpose would depend upon the facts and circumstances of each case. However, 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.

In THE CHIEF MANAGER, CENTRAL BANK OF INDIA & ORS. VERSUS M/S AD BUREAU ADVERTISING PVT. LTD & ANR. AND M/S AD BUREAU ADVERTISING PVT. LTD. VERSUS THE CHIEF MANAGER, CENTRAL BANK OF INDIA & ORS. - 2024 (2) TMI 1529 - SUPREME COURT, the Central Bank of India (‘appellant’ for reference) granted a project loan of Rs.10 crores to the respondent in the present appeal on 28.04.2014.   The purpose of loan is for the preparation of a film.  For the loan the respondent pledged his own property as collateral.  The respondent failed to repay the loan amount.  Therefore, the same was declared as Non-performing Asset (‘NPA’ for short) on 04.02.2015.  The appellant bank issued a demand notice for the payment of outstanding loan.  Even after the notice the respondent did not pay the outstanding loan.  Therefore, the bank a possession notice was issued on 21.05.2015.  The bank also took symbolic possession of the property under the provisions of SARFAESI Act, 2002.

On 19.01.2015 the bank filed an application under Section 19(1) of RDDBFI Act, 1993 before the Debts Recovery Tribunal (‘DRT’ for short), Chennai for the recovery of Rs.4.65 crore.  On 05.12.2016 the DRT allowed the application filed by the appellant bank for the recovery of the loan along with interest @12% till the date of realization along with costs.  The respondent offered to pay Rs.3.56 crore as on time settlement which was accepted by the bank.  The respondent paid the said amount to the bank and also paid Rs.14.43 lakhs towards interest.  ‘No Dues Certificate’ was issued by the bank on 13.01.2017.  The Bank also filed ‘full satisfaction memo’ before the DRT on 20.03.2017.

The Master circular of Reserve Bank of India (‘RBI’ for short) provides that all nationalised banks and financial institutions have to report information regarding borrower accounts which are classified as doubtful and loss accounts with outstanding amount aggregating Rs. 1 Crore and above.  These borrowers are classified and reported as ‘wilful defaulters’ by the respective banks and financial institutions to the RBI, which in turn, consolidates the entire information   reported in the form of a list on a yearly basis.

The appellant bank, though issued a ‘full satisfaction memo’ in correctly report to RBI the respondent as a wilful defaulter with an outstanding amount of Rs.4.17 crore. The grievance of the respondent is that incorrect reporting by the appellant bank not only led to a significant loss of goodwill and reputation, but it also resulted in the respondent No. 1 losing an exclusive advertising tender/license by the Airports Authority of India, which although, was initially awarded to respondent No. 1 but was subsequently cancelled for the reason that a Bank Guarantee was required to be submitted, but the same could not be done, as when the respondent No.1 approached HDFC Bank for issuance of the same, the bank refused to do so upon finding the name of respondent No.1 in the list of wilful defaulters.

Being aggrieved by the action of the appellant bank, the respondent filed a complaint before the National Consumer Disputes Redressal Commission (‘NCDRC’ for short) alleging the deficiency of service by the bank.  The NCDRC partly allowed the complaint on 30.08.2023.  The NCDRC held that the appellant bank was deficient in service and also engaged in unfair trade practice.  NCDRC awarded a compensation of Rs.75 lakhs to the respondent by the bank and the TransUnion CIBIL Limited and Rs.20,000/- towards litigation costs.  The NCDRC further directed the bank that state that it had been wrongly reporting the status respondent No. 1 as a ‘defaulter’ from 31.03.2017 till 30.06.2020.

The appellant bank filed the present appeal before the Supreme Court against the order of NCDRC.  The respondent also filed appeal before the Supreme Court against the order of NCDRC for higher compensation.  The appellant bank submitted the following before the Supreme Court-

• The NCDRC did not consider the arguments of the appellant that the respondent will not come under the definition of ‘consumer’ under the provisions of Consumer Protection Act.
• The services availed by the respondent is only for commercial purposes and as such the NCDRC is not having jurisdiction to entertain the complaint of the respondent.
• It was business to business transaction as opposed to a business to consumer transaction.
• The service was availed by respondent with the ‘dominant intention’ of generating profits and the main purpose behind the loan transaction was to increase/generate additional revenue for the company.

The respondent submitted the following before the Supreme Court-

• The respondent was squarely covered by the Explanation to Section 2 (1) (d) of the Act and that loan was availed by it only for ‘self-use’.

The Supreme Court considered the submissions of the appellant.  The Supreme Court analysed the provisions of Section 2(1)(d)(ii) of the Act.  The Supreme Court observed that a plain reading of the above makes it clear that where a service is availed, for any ‘commercial purpose’ then the person who has availed such a service is not a ‘consumer’ for purposes of the Act.  The explanation to this section provides that when the person uses the goods bought, or avails any service for the sole purpose of earning his livelihood, by means of self-employment, then such a person would not be excluded from the definition of ‘consumer’ under the Act.

The Supreme Court observed that the loan amount of Rs. 10 crores was used by it to engage itself in the postproduction  of a movie titled  ‘Kochadaiiyaan’ and to see to it that the name of respondent No.1 is displayed on the movie title, the posters of the movie as well as the advertisements of the movie.  It was a self-branding exercise, the sole purpose being building a brand name for respondent No.1, in order to earn livelihood and thus, there is no nexus to generation of profits.  The dominant purpose behind brand building itself is to attract more customers and consequently generate profits or increase revenue for the business. 

The Supreme Court was of the opinion that the respondent is not a consumer in terms of Section 2(1)(d)(ii) of the Act.  The Supreme Court allowed the appeal and set aside the order of NCDRC.

Conclusion

The identity of the person making the purchase or the value of the transaction is not conclusive to the question of whether it is for a commercial purpose. 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 or their beneficiary.