Consumer VOICE

  Join Us Donate Now

Consumer Protection Act Amendment of 2002: Disputes on deals with commercial purposes

Every law has a loophole. The Consumer Protection Act, too, had one until 2002 and several business entities tried taking undue advantage of several rules that were to favour consumers and not businesses. Until the amendment of 2002, consumers forums were having a tough time establishing if a company filing a case against another company was actually eligible to do the same - in other words, if a commercial entity could be established as a consumer and granted compensation, or if the product or service bought for commercial purpose qualified to be heard in consumer forums. Realising that such cases involving two commercial entities were disrupting the forums and their essential time and purpose, an amendment to Consumer Protection Act, 1986, was made in 2000.

After the amendment, all doors of consumer forums for commercial units were closed. All businesses
were barred from going to consumer forums for their redressal until a little relaxation came with an explanation
on an appeal in 2004.

A Redefined Consumer and Relaxation for Businesses on Certain Grounds

In 2004, the National Commission clarified a number of doubts on the issue of definition of 'consumer' in its elaborate judgement pronounced by Justice MB Shah, who heard two appeals - Harsolia Motors versus National Insurance Company and Diwakar Goiram Porkhayat versus National Insurance Company (pronounced same judgement in the case of Tractor House versus National Insurance Company).

Referring to two cases - Laxmi Engineering Works versus PSG Institute case of 1995 and New Delhi Municipal Corporation versus Sohan Lal, Justice Shah defined and distinguished between commerce and commercial purpose vis-à-vis personal consumption. The basic question for adjudication was whether an insurance policy taken by commercial units could be held to be hiring of services for commercial purpose and thereby excluded from the purview of Consumer Protection Act. The words for explanation before the Commission were commercial purpose, commerce, services, and mainly services of insurance hired/ taken/availed by the insurer. The crux of the whole discussion in this order is explained below:

  1. Taking insurance policy by an individual is a service under the Act.
  2. Taking insurance policy by a commercial unit running its business is a service as far as it is limited to indemnification of the actual loss suffered by the insurer under the Act, but cannot be considered as service if the receiving entity is registered/licensed for doing business of insurance.

For coming to this conclusion, the Commission further explained as to how in one situation services hired or
availed is a service for commercial purpose and in another situation it is not, by giving reference to an earlier case
of Laxmi Engineering Works Ltd in 1995. The following examples help to simplify the matter:

  • If a typewriter is used for typing by a person for himself, it is not for commercial purpose. If a typewriter is
    purchased and is being used for providing typing services to others for profit or loss by a commercial unit, it is defined as commercial purpose.
  • Similarly, a car driven as taxi by employees of a commercial unit for providing transport services qualifies as commercial purpose, but a car used by an officer of the unit for his own use is not commercial purpose.

Another Case to Note

A similar issue had come up before the National Commission due to varied interpretations in two cases. There
was an apparent conflict in the decisions rendered by National Commission in two cases: a) Controls and Switchgear Company and Others versus Daimler Chrysler India and T & T Motors, and b) General Motors
versus GS Fertilizers. Both cases were rendered by benches comprising two members.
In the first case, Controls and Switchgear Company filed a complaint alleging defects in two Mercedes Benz cars purchased by the company for the use of its directors. The complaint was resisted inter- alia on the ground that the cars were purchased for commercial purpose. Rejecting the contention, the Commission inter- alia had held as under:

''The cars are purchased for the use of the directors and are not to be used for any activity directly connected
with commercial purpose of earning profit. Cars are not used for hire, but are for the personal use of its directors. Hence, it cannot be said that the complainant company has purchased the cars for commercial purpose."
An appeal against the above-referred decision is pending before the Supreme Court.

In the second case, the complainant alleged defect in a car purchased by the complainant company for use of its
managing director. The concerned State Commission resisted inter-alia on the ground that purchase of the
vehicle for the use of the managing director of the company amounted to purchase for commercial purpose.
Accepting the said contention, this Commission inter-alia held as under:

"We agree with  'appellants' contention that this clearly amounts to its purchase for a 'commercial purpose'."
since the Managing Director of a private limited company would obviously not use this vehicle for self- employment to earn his livelihood but for 'commercial purposes' as a perk of his office."

The above two judgements led to a controversy and these two conflicting cases went under discussion before a
larger bench comprising three judges Justice DK Jain, president; Justice VK Jain; and Justice BC Gupta. The
bench clarified the concept of 'commercial purpose' referring to the Supreme Court judgements:

"As observed by the Supreme Court in Laxmi Engineering Works, it is not the value of the goods but the
purpose for which the goods are bought or put to use, which is relevant to decide whether the goods were obtained for a commercial purpose or not. The same would be the position where services are hired or availed by a company. If the business activities of a company cannot be conveniently undertaken without the goods purchased or the services hired or availed by a company, such purchase or hiring/availing, as the case may be, would be for a commercial purpose, because the objective behind such purchase of goods or hiring or availing of the services would be to enable the company to earn profits by undertaking and advancing its business activities."

Three Categories to Know

The goods and services made available by a company to its directors or employees can be classified into the
following three broad categories:

  • One category is of goods and services that are obtained for and made available to the directors or employees of a company and are used by them only amenities available to the directors and employees of the company as a part of the incentive offered to them by the company, or as remuneration for the work that they are expected to perform for the company

  • The next category is of goods and services made available to the directors or employees of the company and used by them primarily for their personal purposes but incidentally also for the purposes of the company-for instance, a car used mainly for outings, recreations, personal commuting, etc., of the directors and employees or their families, but also for visiting the factory and offices of the company or attending business meetings. This also does for their personal purposes, unconnected with the business of the company -for instance, the cars used by the directors and employees of the company for their shopping trips, outings, recreations, etc., or for commuting to and from not amount to commercial purpose


  • The last category is of goods and services made available by a company to its directors and employees primarily for the purposes of the company, and used by them mainly for the purposes of the company but incidentally the office of the company.
    Another example can be the also for their personal purposes - for instance, a vehicle purchased air conditioners and furniture provided at the residence of the directors and employees of the company, or the telephone or broadband got installed by the company at their residence. This does not amount to commercial purpose because the purpose is to make certain facilities and for being used as a staff car or a delivery van but sometimes also used for the personal purposes of the directors or employees, unrelated to the business of the company. Such a vehicle is used for commercial purpose because of direct relation with the business.

Legal Helpdesk

Divya Patwal


Leave a Reply

Your email address will not be published. Required fields are marked *

Translate »