28 February 2025 Civil Appeals >> Civil & Consumer Law   |   Consumer Complaints >> Civil & Consumer Law  

In a significant ruling that clarifies the scope of the Consumer Protection Act, 1986, the Supreme Court of India has held that borrowers of project loans for commercial purposes do not fall within the definition of "consumer" under the Act. This judgment arose from a dispute between Central Bank of India and M/s Ad Bureau Pvt. Ltd., a company engaged in branding and advertising, concerning a project loan availed for film post-production.

The Case Background:

M/s Ad Bureau Pvt. Ltd. had obtained a project loan of Rs. 10 crores from Central Bank of India in 2014 for the post-production of a film. The company defaulted on the loan, leading to its classification as a Non-Performing Asset (NPA). Subsequently, a one-time settlement was reached, and a "No-Dues Certificate" was issued. However, the bank later reported the company as a "wilful defaulter" to the Reserve Bank of India (RBI), allegedly causing significant financial and reputational damage to M/s Ad Bureau.

Aggrieved by this, M/s Ad Bureau filed a consumer complaint before the National Consumer Disputes Redressal Commission (NCDRC), which ruled in its favor, holding the bank liable for deficiency in service and unfair trade practices. The NCDRC awarded compensation of Rs. 75,00,000 to the company.

Supreme Court's Analysis and Ruling:

Central Bank of India challenged the NCDRC's order, arguing that M/s Ad Bureau, being a borrower of a project loan for commercial purposes, did not fall within the definition of "consumer" under Section 2(1)(d)(ii) of the Consumer Protection Act.

The Supreme Court examined the legal framework, particularly the definition of "consumer" and the exclusion of services availed for "commercial purposes." The Court emphasized that while the identity of the person or the value of the transaction is not conclusive, the "dominant intention" or "dominant purpose" of the transaction is crucial.

The Court rejected M/s Ad Bureau's argument that the loan was for "self-use" and brand-building, stating that the dominant purpose was to generate profits from the film's post-production. It relied on precedents, including Lilavati Kirtilal Mehta Medical Trust vs. Unique Shanti Developers, Shrikant G. Mantri vs. Punjab National Bank, and National Insurance Company Limited vs. Harsolia Motors & Ors., which established that commercial purpose includes transactions with a close nexus to profit-generating activities.

The Court concluded that the loan transaction between Central Bank of India and M/s Ad Bureau was a "business-to-business" transaction for a commercial purpose, thereby excluding M/s Ad Bureau from the definition of "consumer."

Key Principles Reiterated:

• Commercial Purpose Exclusion: The Court reiterated that services availed for commercial purposes do not fall under the Consumer Protection Act.
• Dominant Intention Test: The "dominant intention" or "dominant purpose" of the transaction is the determining factor in assessing whether it is for a commercial purpose.
• Profit Generation Nexus: Transactions with a close and direct nexus to profit-generating activities are considered commercial purposes.
• Business-to-Business Transactions: Purely business-to-business transactions generally fall outside the purview of the Consumer Protection Act.

Implications and Clarifications:

The Supreme Court's ruling clarifies the boundaries of "consumer" under the Act, particularly concerning project loans and commercial transactions. It emphasizes the need to assess the dominant purpose of such transactions.

The Court, however, clarified that its decision was limited to the maintainability of the consumer complaint and did not express any opinion on the merits of the dispute. It also stated that its judgment would not preclude M/s Ad Bureau from pursuing other legal remedies.

The Second Appeal:

In a related appeal filed by M/s Ad Bureau challenging the quantum of compensation awarded by the NCDRC, the Supreme Court dismissed the appeal, finding no scope for interference.

This judgment provides a significant precedent for financial institutions and businesses, delineating the scope of consumer protection in commercial loan transactions.

Consumer Protection Act, 1986