The Supreme Court of India has ruled that the mere act of leasing out a residential flat does not automatically categorize the transaction as being for a “commercial purpose” under the Consumer Protection Act, 1986. The Court set aside an order by the National Consumer Disputes Redressal Commission (NCDRC) which had dismissed a complaint on the ground that the complainants were not ‘consumers’ because they had rented out the subject property.
The Division Bench comprising Justice Prashant Kumar Mishra and Justice N.V. Anjaria, in the case of Vinit Bahri and Another vs. M/S MGF Developers Ltd. and Another, held that the burden lies on the service provider to prove that the “dominant purpose” behind the purchase was profit generation.
Background of the Case
The appellants, Vinit Bahri and another, booked a residential flat in a group housing project, ‘The Villas’ in Gurgaon, developed by the respondents, M/s MGF Developers Ltd., in March 2005. A Flat Buyer’s Agreement was executed on June 12, 2006, which stipulated that possession would be handed over within 36 months, subject to a grace period of 90 days.
The appellants alleged that the developer unilaterally changed the layout plan of ‘Tower-C’ and delayed possession. While the due date expired in September 2009, the appellants eventually took possession on January 8, 2015, under protest. Following possession, the flat was leased to a tenant, Shri Sunil Raman, in March 2015.
On January 10, 2017, the appellants filed a consumer complaint before the NCDRC alleging deficiency in service and unfair trade practice. They sought 18% interest on the amount paid, compensation for mental agony, and refunds for excess charges.
In response, the respondents argued that the appellants had purchased the flat for commercial purposes, evidenced by the fact that it was let out immediately after possession. They contended that the appellants, therefore, did not fall under the definition of ‘consumer’. The NCDRC accepted this submission and dismissed the complaint on May 11, 2023.
Arguments
Before the Supreme Court, the counsel for the appellants argued that the residential unit was purchased purely for personal usage, specifically “to live closer to their parents.” They relied on the judgments in IREO Private Ltd. vs. Aloke Anand and Others and Synco Textiles Pvt. Ltd. vs. Greaves Cotton and Company Ltd. to support their claim that they remained consumers despite leasing the property.
Per contra, the learned senior counsel for the respondents supported the NCDRC’s findings, maintaining that the leasing of the flat confirmed the commercial nature of the transaction, thereby triggering the exclusion clause in Section 2(1)(d) of the Consumer Protection Act, 1986.
Court’s Analysis
The Supreme Court examined the definition of ‘consumer’ under Section 2(1)(d) of the 1986 Act, which excludes a person who obtains goods for “any commercial purpose.” The Court reiterated that the “dominant intention or dominant purpose of the transaction is determinative of whether the purchaser falls within the exclusion clause.”
Referring to the precedent in Laxmi Engineering Works vs. P.S.G. Industrial Institute (1995), the Bench observed that in the absence of a statutory definition, ‘commercial purpose’ implies activities connected with large-scale buying and selling for profit.
The Court relied heavily on the principles laid down in Lilavati Kirtilal Mehta Medical Trust vs. Unique Shanti Developers and Others (2020), stating:
“The purchase of the good or service should have a close and direct nexus with a profit-generating activity… 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.”
Furthermore, citing the recent decision in Shriram Chits (India) Private Limited vs. Raghachand Associates (2024), the Court clarified the burden of proof:
“The onus of proving that the person falls within the carve out must necessarily rest on the service provider and not the complainant… Since it is always the service provider who pleads that the service was obtained for a commercial purpose, the onus of proving the same would have to be borne by it.”
Applying these principles to the facts at hand, the Bench observed that the respondents failed to discharge this onus. The Court noted:
“The mere factum of leasing out the flat does not, by itself, demonstrate that the appellants purchased the property with the dominant purpose of engaging in commercial activity… It must be emphasized that the mere act of purchasing immovable property, even multiple units, cannot ipso facto attract the exclusion clause of Section 2(1)(d) of the 1986 Act unless and until it is proved that the dominant purpose behind such purchase was commercial in nature.”
Decision
The Supreme Court allowed the appeal and set aside the impugned judgment of the NCDRC dated May 11, 2023. The Court held that in the absence of proof showing a direct nexus between the purchase and a profit-generating activity, the appellants cannot be excluded from the definition of ‘consumer’.
The matter was remanded to the NCDRC with a direction to decide the consumer complaint on its merits in accordance with the law.
Case Details:
- Case Title: Vinit Bahri and Another vs. M/S MGF Developers Ltd. and Another
- Case Number: Civil Appeal No. 6588 of 2023
- Coram: Justice Prashant Kumar Mishra and Justice N.V. Anjaria
