Mere Leasing Of Apartment Does Not Bar Flat Buyer's Consumer Complaint Against Builder: Supreme Court

The Supreme Court has observed that mere leasing or renting of a residential flat does not automatically exclude the owner from the definition of “consumer” under the Consumer Protection Act, 1986, unless it is proved that the dominant intention at the time of flat purchase was commercial.

The Court clarified that the burden lies on the builder or service provider to prove that the dominant intention behind the purchase was commercial.

A bench of Justices Prashant Kumar Mishra and NV Anjaria delivered the judgment.

"The onus of proving that the appellants fall within the exclusion clause of Section 2(1)(d) of the 1986 Act rests upon the respondents, and the respondents have failed to discharge this onus on a preponderance of probabilities. The determinative question is whether the dominant intention or dominant purpose behind purchasing the flat was to facilitate profit generation through commercial activity, and whether there exists a close and direct nexus between the purchase and such profit-generating activity...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. The question of what constitutes 'commercial purpose' is a question of fact to be decided in the circumstances of each case based on the purpose to which the goods/properties were purchased", it said.

The Court further added,

"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. In absence of such proof, the appellants cannot be excluded from the definition of 'consumer' under the 1986 Act."

Factual Background

The appeal arose from a consumer complaint filed by Vinit Bahri and another against MGF Developers Ltd., relating to a residential project titled “The Villas” in Gurgaon.

As per claims, the respondent (builder) unilaterally changed the layout plan and later demanded payments from the appellants. In 2017, the appellants filed a consumer complaint against MGF Developers Ltd alleging deficiency in service and unfair trade practice. In its response, the respondent argued inter-alia that the appellants purchased the unit for commercial purpose and after taking possession of it, the unit had been leased out by them.

The National Consumer Disputes Redressal Commission held against the appellants, noting that they were not "consumers" since the unit had been leased out to someone else and the same constituted a commercial purpose. Aggrieved, the appellants moved the Supreme Court.

Issue

The top Court considered whether the NCDRC was right in dismissing the complaint filed by the appellants on the premise that they do not fall under the definition of 'consumer' for leasing out the subject property for commercial purposes, falling within the exclusion clause of Section 2(1)(d) of the Consumer Protection Act, 19864.

Court Observations

Perusing Section 2(1)(d) of the Consumer Protection Act, the Court noted that the term 'consumer' encompasses any person who buys goods or avails services for consideration, but excludes a person who obtains such goods for resale or for any commercial purpose. 

"While the 1986 Act does not exhaustively define 'commercial purpose', though the Explanation to Section 2(1)(d) carves out an exception for self-employment and earning livelihood, the dominant intention or dominant purpose of the transaction is determinative of whether the purchaser falls within the exclusion clause."

Referring to judicial precedents on the subject, like Lilavati Kirtilal Mehta Medical Trust v. Unique Shanti Developers and Shriram Chits (India) Private Limited v. Raghachand Associates, the Court concluded that the onus of proving appellants' exclusion from the ambit of "consumer" was on the respondent, but it failed to discharge the same.

The respondent failed to produce any cogent material showing nexus between the appellants' purchase of the unit and profit generating activity, the Court said.

Accordingly, deeming a decision on merits necessary, the Court set aside the NCDRC order and restored the matter for fresh consideration.