Redefining ‘Person’ Under the Consumer Protection Act, 1986: Supreme Court’s New Take on Long Standing Corporate Claims
INTRODUCTION
The Apex Court ruled in a landmark decision that the corporate entities/companies would not be prohibited from registering a consumer complaint under the Consumer Protection Act of 1986 (‘1986 Act’) and would instead be considered as a “person.”
Setting aside the order of the National Consumer Disputes Redressal Commission, the division bench of the Apex Court in case of M/S Kozyflex Mattresses Private Limited v. SBI General Insurance Corporation and Another (“Kozyflex”) noted that while the term “person” does not expressly encompass a corporate entity, the meaning of “person” in the statute of 1986 is broad and covers a corporate entity/company as a person qualified to submit a claim for insurance.
Although the ruling expands the 1986 Act’s application, it also presents several issues with respect to the retrospective assessment of legislative intent and the varied judicial interpretation of the Act’s definition of commercial purpose.
CURRENT POSITION OF LAW
I. Legal Framework
The purpose of consumer protection legislation is to defend customers’ rights and preserve their best interests in the unlikely event that the products or services they receive are defective. While the definition of “person” under the Consumer Protection Act 2019 (“2019 Act”) includes corporations and companies, the 1986 Act does not expressly include companies within the definition of person. The question of whether companies or corporations can maintain a complaint under the 1986 Act has been a contentious one. The conundrum has significantly impacted the maintainability of pending claims by companies under the 1986 Act. The pertinent issue has been whether companies can be considered as “consumers” under the 1986 Act.
Section 2(1)(d) of the Act defines who “is” and “is not” a “consumer”. According to the Act, a customer is someone who buys products or uses services for compensation; on the other hand, a consumer is not someone who buys products or uses services for reselling or any other type of business activity where profit is the goal. An explanation of the sub-section makes clear that even if someone purchases products or uses services, they would still be considered consumers if they support themselves through self-employment.
II. Judicial interpretation
Although the phrase “commercial purpose” is not defined specifically in the Act, the Apex Court has defined many standards in a number of decisions that it has used to the interpretation of the term. The court settled the contentions regarding the same in the recent case of Rohit Chaudhary and Anr v. Vipul Limited (“Rohit”), The court decided that complaints should not be quickly dropped where it is claimed that the products were bought in order to support a living. The meaning would vary depending on the specific facts and circumstances of each case, and there isn’t a mathematically precise formula that can be used to examine claims of non-suitability for complaints that don’t fit the definition of “consumer” as specified in Section 2(1)(d).
In the matter of Shrikant G. Mantri v. Punjab National Bank (“Shrikant”), the court observed that ordinarily, “Commercial Purpose” would include manufacturing/industrial activity or B2B transactions between commercial entities. Moreover, such purchases of goods and services must have a close nexus with profit-generating activities. The court also ruled that the identity of the purchaser or value of the transaction is not sufficient to determine whether it is for commercial purposes, rather dominant intention or purpose for the transaction should be looked into.
Finally, the ruling of the SC in National Insurance Company Limited v. Harsolia Motors and Ors (“National Insurance”) is also relevant for two reasons. First, the case reiterates the ruling of the SC in Shrikant while merely imbibing the disjunctive test and failing to consider the conjunctive test. Second, the case bears close factual relevance to Kozyflex which dealt with the hiring of an insurance policy by a company. The court in National Insurance concluded that although insurance policies purchased by companies are primarily to indemnify a future risk and ordinarily bear no nexus to profit generation, a case-to-case analysis of each claim has to be made by the court to determine whether there is a close and direct nexus with any profit-generating activity.
CRITICAL ANALYSIS
The ruling in Kozyflex relates to an insurance claim for loss caused by fire to the premises of the insured appellant (Kozyflex) which was rejected by SBI General Insurance Company on grounds of fraudulent and exaggerated documents. The court in this matter dealt majorly with two issues; (i) the first issue of whether the company was covered within the definition of “person” under the 1986 Act, and (ii) whether the insurance policy transaction was entered into for a commercial purpose. With respect to the first issue, the court went on to include “company” within the four corners of the definition of “person”. The court adopted a liberal interpretation based on the reasoning that the Act of 1986 is beneficial legislation and the definition is inclusive and not exhaustive. Moreover, the court observed that the inclusion of companies within the definition of person in the 2019 Act is a mere rectification of anomaly by the legislature and thus, retrospectively held that the term person always has included a company within its ambit even under the 1986 Act. On the second issue of whether the claim was filed for a commercial purpose, the court differentiated the factual situation from Shrikanth and held that the purpose of the fire and special perils insurance in the present case was only to indemnify the loss suffered and nothing else.
I. Way Forward
The decision expands the 1986 Act’s application but brings up numerous concerns about its consequences. The judicial stance on what constitutes a commercial purpose shows inconsistencies across rulings. In the Shrikanth case, both the disjunctive and conjunctive tests are used to determine commercial purposes. Conversely, the court in National Insurance concludes its analysis by noting the absence of a direct connection between the service used and any profit-making activity of the company, without mentioning the self-employment exception. Moreover, in Kozyflex, the court does not reference or acknowledge the tests from National Insurance and Shrikanth. The notion of a commercial purpose is seriously affected by this imprecise interpretation of Section 2(1)(d).
Firstly, a careful examination of the subsection and its explanation highlights the real-world difficulties in including corporations in the scope of a consumer. For instance, the court should take into account the self-employment exemption (using the Shrikanth test) if there is a clear and convincing connection demonstrated between the service utilised and the business’s profit-generating operations. Determining what constitutes self-employment for a corporation with several shareholders and intricate structures is a difficulty. Furthermore, it’s not always evident at an organization whose livelihood needs to be taken into account. As a result, per provisions of the Act, the conjunctive test is useless for assessing corporations as consumers.
Secondly, the Kozyflex judgment does not conduct a fact-based analysis to determine whether the insurance product or service utilized and the business’s money-making operations are related. Contrary to the rulings in National Insurance and Shrikanth, which call for a thorough, case-specific examination to ascertain whether the conduct is considered for a commercial purpose, the court alternatively presumes that every coverage purchased by a company is only for restitution needs and hardly for earning a profit. Other ambiguities are also introduced by this, such as the widespread belief that business-to-business transactions are intrinsically commercial. The court needs to make it clear whether a stringent or broad interpretation of this phrase is appropriate. Any insurance service that an organization obtains will always be seen as being for commercial purposes if it were to be read strictly.
Concluding Remarks
Therefore, due to the practical challenges of interpreting the provision (Section 2(1)(d)) to encompass companies and the inconsistent and unclear application of the rule by the Supreme Court, the court should adhere to a literal interpretation of the provision. It is a well-established principle of statutory interpretation that courts must consistently choose a literal reading of the statute more than a liberal interpretation when there is any doubt as to its meaning. This would be against the established principle of lex prospicit non-respicit of statutory interpretation if the legislative intent from the 2019 Act were to be retrospectively assigned.
Even yet, including companies under the ambit of consumers points in the direction of a stronger consumer protection law. By defending companies, particularly small ones, against unjust commercial practices and granting them the ability to file a complaint about problems like faulty products and services. However, the same cannot be achieved by cutting corners and bypassing the established legal procedures.
This article is authored by Mr. Yash Sharma, a 5th-year student at NLU Odisha.
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