Dominant Purpose and Nexus with Profit Generation – Not A Consumer!
Whether the insurance policy taken by the commercial enterprises insured amounts to hiring of services for “commercial purpose” are excluded from the purview of the expression “consumer” as defined under Section 2(1)(d) of the Consumer Protection Act, 1986 (“the Act”) or otherwise?
The issue revolves around three pillars, as below;
Section 2(1)(d) defines “consumer”,
Section 2(1)(m) defines “a person” and
Section 2(1)(o) defines “service”,
The aforesaid pillars crystallise the Purpose.
The importance of the Act lies in promoting the welfare of the society by enabling the consumer to participate directly in the market economy. Further scrutiny of various definitions such as“consumer”, “service”, “trader”, “unfair trade practice” indicates that legislature has attempted to widen the ambit and reach of the Act.
Each of these definitions are in two parts, one explanatory and the other inclusive.
The explanatory or the main part itself uses expressions of amplitude indicating clearly its wide sweep within its ambit to widen such things which otherwise would have been beyond its natural import.
BEDROCK OF CONSUMER PROTECTION
The word “consumer” is the fulcrum of the Act. Since the Act hinges on the twin concepts of defect in goods or any deficiency in service, a consumer is one who buys any goods or hires any service.
However, the word “consumer” so defined does not include a person, who, in case of goods obtains such goods for resale or for any commercial purpose, or who, in case of service, avails of such services, for any commercial purpose.
An explanation appended to the above definition states that the expression “commercial purpose” does not
include the use by the buyer of such goods or the person availing such service or services, exclusively for the purpose of earning his livelihood by means of self employment.
The Court observed that it may be a case that a person who is engaged in commercial activities has purchased goods or availed of service for his personal use or consumption or for the personal use of a beneficiary and such purchase is not linked to their ordinary profits generating activities or for creation of self employment, such a person may still claim to be a consumer.
The Court referred certain principles to determine as to Whether the activity or transaction is for a commercial purpose or not as was held in Lilavati Kirtilal Mehta Medical Trust v. Unique Shanti Developers and Others 4 (2020) 2 SCC 265, as under:
“19. To summarise from the above discussion, though a strait jacket formula cannot be adopted in every case, the following broad principles can be culled out for determining whether an activity or transaction is “for a commercial purpose”:
19.1. 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 tobusiness transactions between commercial entities.
19.2. The purchase of the good or service should have a close and direct nexus with a profit generating activity.
19.3. 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 and/or their beneficiary.
19.4. If it is found that the dominant purpose behind purchasing the good or service was for the personal use and consumption of the purchaser and/or their beneficiary, or is 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.”
The conclusion in Lilawati supra was that there is no nexus between the purchase of flats by the appellant Trust and its profit-generating activity as the flats were not occupied for undertaking any medical/diagnostic facilities within the hospital, but for accommodating the nurses employed by the hospital.
Jurisdiction for a Person
The Court held that what is culled out is that there is no such exclusion from the definition of the term “consumer”
either to a commercial enterprise or to a person who is covered under the expression “person” defined in Section 2(1)(m) of the Act merely because it is a commercial enterprise.
The Court also held that to the contrary, a firm whether registered or not is a person who can always invoke the jurisdiction of the Act, 1986 provided it falls within the scope and ambit of the expression “consumer” as defined under Section 2(1)(d) of the Act.
Point of Reference of Nexus
The significant aspects which form the bedrock are as under;
1. whether the insurance service has a close and direct nexus with the profit-generating activity and
2. 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.
Two-Fold Test of Purpose
The Court applied the aforesaid test, and proceeded with Commercial or No Commercial purpose. Hence focussed on the following patterns of commercial purpose:
(i) whether the goods are purchased for resale or for a commercial purpose; or
ii) whether the services are availed for any commercial purpose.
The two fold classification is the commercial purpose and non commercial purpose. If the goods are purchased for resale or for commercial purposes, then such consumers would be excluded from the coverage of the Act.
The Court concluded with determining matrix as below:
a.What needs to be determined is whether the insurance service had a close and direct nexus with the profit-generating
b.Whether the dominant intention or dominant purpose of the transaction was to facilitate some kind of profit generation
for the insured or to the beneficiary.
B.Defined Nature of Insurance
The Court while deciding upon the matrix also defined as to what is the nature of insurance as under:
“We further reiterate that ordinarily the nature of the insurance contract is always to indemnify the losses. Insurance contracts are contracts of indemnity whereby one undertakes to indemnify another against loss/damage
or liability arising from an unknown or contingent event and is applicable only to some contingency or act likely to come in future.
The Court further relied upon the ratio of United India Insurance Company Limited v.Levis Strauss (India)
Private Limited and further held as under:
“53.A contract of insurance is and always continues to be one for indemnity of the defined loss, no more no less. In the case of specific risks, such as those arising from loss due to fire, etc. the insured cannot profit and take advantage by double insurance.Long ago, Brett, LJ in Castellain v. Preston [Castellain v. Preston,(1883) 11 QBD 380] said that : (QBD p. 386)
“….. the contract of insurance … is a contract of indemnity.… and that this contract means that the assured,
in the case of loss … shall be fully indemnified, but shall never be more than fully indemnified.”” (emphasis added)
……..hiring of insurance policy is clearly an act for indemnifying a risk of loss/damages and there is no element of profit generation and still what has been Expressed by this Court is illustrative; it will always be open to examined on the facts of each case, as to the transaction in reference to which the claim has been raised has any close and direct nexus with profit-generating activity.
The Court ultimately rejected the appeal and directed the State Commission to consider the same and decide expeditiously.
The dominance test will be a sine qua non to find out the “commercial purpose” or otherwise. Every claim needs to be screened from the perspective of the purpose for which the goods and/or services are bought or availed.
Where it is established that it has been availed with a view to carrying out the commercial activity with a profit motive, then the buyer would not qualify as a consumer under the Act.
– Team AMLEGALS
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