In a significant ruling, the Supreme Court of India has held that a borrower availing a project loan for commercial purposes does not fall within the definition of ‘consumer’ under the Consumer Protection Act, 1986. The verdict came in the case of Chief Manager, Central Bank of India & Ors. vs. M/s Ad Bureau Advertising Pvt. Ltd. & Anr. [Civil Appeal No. 7438 of 2023] and its connected appeal [Diary No. 20192 of 2024].
The Supreme Court Bench, comprising Justice Sudhanshu Dhulia and Justice Prashant Kumar Mishra, set aside the ruling of the National Consumer Disputes Redressal Commission (NCDRC) that had directed the Central Bank of India to compensate the advertising firm for wrongful reporting to Credit Information Bureau (India) Limited (CIBIL), thereby allegedly damaging its reputation and business prospects.
Background of the Case
The dispute arose when M/s Ad Bureau Advertising Pvt. Ltd., engaged in branding, consulting, and advertising, availed a project loan of Rs. 10 crores from the Central Bank of India in 2014 for the post-production of a movie titled Kochadaiiyaan. The loan was secured against a property owned by the company’s Chairman and Managing Director.
However, due to defaults in repayment, the bank classified the loan account as a Non-Performing Asset (NPA) on February 4, 2015. Despite attempts to recover dues through legal mechanisms under the SARFAESI Act, 2002, and the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI Act), the company failed to clear its outstanding payments.
Later, the parties reached a One-Time Settlement (OTS) of Rs. 3.56 crores, which was fully paid by M/s Ad Bureau Advertising Pvt. Ltd. Despite this, the firm was reportedly marked as a defaulter in CIBIL records, which led to the loss of a business opportunity—a lucrative advertising contract from the Airports Authority of India (AAI). The firm then approached the NCDRC, alleging deficiency in service and seeking compensation for reputational and financial losses.
Key Legal Issues
The primary question before the Supreme Court was whether a borrower of a project loan, utilized for business expansion and revenue generation, could be considered a ‘consumer’ under the Consumer Protection Act, 1986. The relevant statutory provision in question was Section 2(1)(d)(ii) of the Act, which excludes individuals availing services for “commercial purposes” from the definition of ‘consumer,’ except in cases where the service is availed exclusively for livelihood through self-employment.
The Central Bank of India, represented by its Chief Manager and other officials, contended that the loan was taken for a commercial activity—post-production of a movie—and hence, the advertising firm did not qualify as a ‘consumer’ under the Act. The bank relied on precedent cases, including National Insurance Co. Ltd. vs. Harsolia Motors (2023) 8 SCC 362 and Lilavati Kirtilal Mehta Medical Trust vs. Unique Shanti Developers (2020) 2 SCC 265, which emphasized that transactions aimed at profit generation fall outside the purview of the Consumer Protection Act.
Supreme Court’s Ruling
The Supreme Court ruled in favour of the Central Bank of India, observing that the dominant purpose behind obtaining the loan was business expansion and profit-making, rather than self-employment or livelihood sustenance. The Court made the following key observations:
“A bald averment that the company engaged in post-production of a movie solely for brand-building does not alter the fundamental nature of the transaction. The availing of a credit facility from a bank remains a business-to-business transaction, undertaken for a commercial purpose.”
The judgment further emphasized that:
“What is to be seen is whether the dominant intention or purpose behind the transaction was to facilitate profit generation. The transaction in this case had a direct nexus with a commercial activity, and therefore, the complainant cannot be regarded as a ‘consumer’.”
Accordingly, the Court allowed the appeal, quashing the NCDRC’s order dated August 30, 2023, and ruling that M/s Ad Bureau Advertising Pvt. Ltd. was not entitled to claim compensation under the Consumer Protection Act. However, the Court clarified that this decision was limited to the issue of jurisdiction and that the advertising firm could seek alternative remedies through appropriate legal forums.
