Commercial Entities & The Definition Of A Consumer

Pratham Kapoor

7 Feb 2024 11:30 AM GMT

  • Commercial Entities & The Definition Of A Consumer

    The market forces have changed from a seller market i.e., the earlier approach of “Caveat Emptor” which means Let the buyer beware, to a consumer market i.e., “Caveat Venditor” which implies “Let the seller beware.” A consumer is said to be a KING in the free market economy. Customers are the end users of a product or service. Any person who buys a product or service and...

    The market forces have changed from a seller market i.e., the earlier approach of “Caveat Emptor” which means Let the buyer beware, to a consumer market i.e., “Caveat Venditor” which implies “Let the seller beware.” A consumer is said to be a KING in the free market economy. Customers are the end users of a product or service. Any person who buys a product or service and consumes the product and accepts it is considered a consumer. An individual or group other than the consumer of a product or service who consumes the product and accepts it is called a consumer. Simply put, a customer can be said to be the end user of a product or service. Companies that produce services and products must identify and differentiate different types of customers when targeting their products for profit.[1] The Act that safeguards the interest of consumers in India is the Consumer Protection Act, 2019. The said Act seeks to provide for better protection of the interests of consumers and for that purpose, to make provision for the establishment of Consumer Councils and other authorities for the settlement of consumer disputes and for matters connected therewith. One of the objects for enacting the said Act was the right to be heard and to be assured that consumers' interests will receive due consideration at appropriate forums. To provide speedy and simple redressal to consumer disputes, a quasi-judicial machinery was sought to be set up at the district, State and Central levels.[2] The act itself also helps us to identify the entities who are not considered as a consumer. Any person who receives goods or services for free or anyone who buy goods or services with the intention of reselling them for commercial purposes. However, people who buy and use products to support themselves through self-employment are called consumers. You will be considered a "consumer" under the new law if you "purchase goods" and "pay for or use services" in exchange for money, but you will not be considered a consumer if you receive items for resale or other commercial purposes. Our main intention is to consider the fact of whether a commercial entity is considered as a consumer or not because the transaction it conducts in many scenarios can be interpreted as a commercial transaction that is done in benefir or for-profit motive by the commercial entity. But we need to keep in mind that the commercial entity while dealing with these issues do also suffer with many problems and do require a redressal mechanism that can help them get relief in case, they incur any hindrance. There have been many judgements in past that have considered commercial entity as a consumer and the recent supreme court judgement also gave recognition to the commercial entity of being a consumer and getting their problems solved through a proper redressal mechanism. While analysing certain judgements we would conclude whether a commercial entity is considered as a consumer or not. Generally, a commercial entity refers to an independent organization that engages in commercial activities for a product. It means buying, selling, and producing goods and services for the public with the primary objective of making a profit. Although profit is the main goal of profitable companies, some companies may include other social or environmental goals in their mission. However, profitability remains a key factor that distinguishes them from non-profit organizations and government agencies. The correct meaning of commercial purpose as inferred from the definition of Consumer Act has been defined by the Court in Lilavati Kirtilal Mehta Medical Trust v. Unique Shanti Developers wherein it stated

    To summarise, though a strait jacket formula cannot be adopted in every case, the following broad principles can be called out for determining whether an activity or transaction is "For a commercial purpose":

    (i) The question of whether a transaction is for a commercial purpose would depend upon the facts and circumstances of each case. However, ordinarily, "commercial purpose" is understood to include manufacturing/ industrial activity or business-to-business transactions between commercial entities.

    (ii) The purchase of the good or service should have a close and direct nexus with a profit-generating activity.

    (iii) The identity of the person making the purchase or the value of the transaction is not conclusive to the question of whether it is for a commercial purpose. It has to be seen whether the dominant inteption or dominant purpose for the transaction was to facilitate some kind of profit generation for the purchaser and/or their beneficiary.

    (iv) If it is found that the dominant purpose behind purchasing the good or service was for the personal use and consumption of the purchaser and/or their beneficiary, or is otherwise not linked to any commercial activity, the question of whether such a purchase was for the purpose of "generating livelihood by means of self-employment" need not be looked into.[3]

    In the recent case of the Supreme Court National Insurance Co. Ltd. v. HarsoliaMotors & Ors[4], the judges expanded on the interpretation of the phrase "for any commercial purpose" in Section 2(1)(d) of the Consumer Protection Act which helped to broadened the scope of a consumer. The outcome is expected to impact the adjudication of new cases brought under the Consumer Protection Act, 2019. The definition of a 'consumer' in Section 2(1)(d) of the previous Consumer Protection Act closely resembles that in Section 2(7) of the Consumer Protection Act, 2019, incorporating the exclusionary term "for any commercial purpose." As a result, there may be a significant rise in consumer complaints initiated by corporate entities under consumer protection laws. The court in the case Lilavati Kirtilal Mehta Medical Trust v. Unique ShantiDevelopers[5], gave an excellent judgement by defining an straightjacket formula. The same if is fulfilled by a commercial entity then it is considered as a consumer and it can go through the process of dispute resolution. The court in its judgement stated that the definition in section 2(1)(d) is exclusively the people to use goods and services "for self-employment purposes". It is excluded from the scope of "commercial purposes". In this case, the accommodation in the building constructed by Respondent was intended to provide comfortable accommodation for the nurses thereby increasing efficiency and providing better services to the hospital. The contention therefore was indirectly linked to a commercial campaign to increase hospital profits. Such sales do not fall under the self-employment category. The same issue was also highlighted in the case of Paramount Digital Colour Lab v. AGFA India (P) Ltd,[6] wherein the court stated that the term defined in Section 2 (1)d of the Act does not include a person who acquires goods for commercial purposes. The explanation of Section 2(1)(d) explains that to define “commercial purposes" it should not include the goods and service purchased and used by a person only to earn his living and being a sole trader and If these two provisions are read together, it can be concluded that if a person bought goods for consideration, not for commercial purposes, but only to earn his living by, such a buyer falls within the definition of the word "consumer". If a person buys goods for commercial purposes and not to earn a living by "self-employment" such buyer is not covered by the term "consumer"; within the scope of the definition. Thus, regardless whether a person falls under the term "consumer" not, in any case it would be a question of fact. Such a question of fact should be decided on the facts and circumstances of each case. The same has also been objected by the court in its judgement of Synco Textiles Pvt. Ltd. v. Greaves Cotton and Company Ltd.,[7]. It was argued that Parliament's definition of a "consumer" in the context of goods purchase excludes those acquiring goods for resale or any large-scale commercial purpose. The term "commercial" is broadly interpreted to involve activities with profit as the primary aim. The exclusion is not limited to resale but extends to cases where goods are bought for use in activities intended for significant profit generation. The intention is to limit the Consumer Protection Act's benefits to individuals buying goods for personal use or small ventures, excluding large-scale profit-driven activities. The case discussed involves a company purchasing generators for its edible oil manufacturing on a large scale, and the court agrees that this falls outside the definition of a "consumer" due to the close connection between the purchase and the commercial activity. The standby nature of the generators does not alter this conclusion. Therefore, the court upholds the decision that the appellant company is not entitled to consumer protection under the Act. It was also observed by the court in the case of Shrikant G. Matri vs Punjab National Bank comprising of Justice L. Nageswara Rao and BR Gavai wherein they stated that to be considered a "consumer" when obtaining a service for commercial purposes, the individual must demonstrate that the services were exclusively utilized for the purpose of sustaining their livelihood through self-employment.[8] As a result, it can be clearly understood that the idea whether a commercial entity fall under the definition of consumer in consumer protection act clearly depends upon the situation of the case as there is still not a proper settled law that defines the same and as a result it is still at the centre stage of being interpreted by different courts till the time a proper legislation comes into the place. A different narrative was also taken by the court in Laxmi Engineering Works v. P.S.G. Industrial Institute, wherein the court gave a remarkable thought to the idea of the explanation clause that acts as the sole reason for the dispute between the Commercial Entity and the Consumer Protection Act. It stated that “the Explanation, in our opinion is only explanatory; it is more in the nature of a clarification a fact which would become evid at if one examines the definition (minus the explanation) in the context and scheme of the enactment. As indicated earlier, the explanation broadly affirms the decisions of the National Commission. It merely makes explicit what was implicit in the Act. It is not as if the law is changed by the said explanation; it has been merely made clearer.”[9]

    While there is a recognition of the need to protect consumers in a traditional sense, the article underscores the ongoing debate regarding whether commercial entities should be considered consumers under the Act. The Supreme Court's decision in National Insurance Co. Ltd. v. Harsolia Motors & Ors narrows the scope of "commercial purpose," suggesting that businesses engaged in income-generating activities may be deemed consumers. However, the lack of a definitive legal framework leaves room for varied interpretations, with some cases recognizing commercial entities as consumers under specific circumstances. The article concludes that the issue remains unsettled, with different courts offering diverse perspectives, and the need for a comprehensive legislative solution is evident. The dynamics surrounding the definition of a consumer in the context of commercial entities continue to be a subject of judicial scrutiny and interpretation.

    Views are personal.

    [1] Research, P. R. S. (2021, December 2). The consumer protection bill, 2019. PRS Legislative Research. Retrieved December 2, 2021, from

    [3] 2023 Livelaw SC 313

    [4] 2023 Livelaw SC 313


    [6] (2018) 14 SCC 81

    [7] 1990 SCC OnLine NCDRC 3

    [9] 1995) 3 SCC 583

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