Consumer Protection Act | Keeping Bank Deposit Not 'Commercial Purpose' Merely Because Interest Is Earned : Supreme Court

The Supreme Court on Thursday (March 19) observed that merely earning interest on bank deposits does not automatically render the transaction “commercial” so as to exclude a person from the definition of a “consumer”; rather, it must be examined whether the deposit has a close and direct nexus with a profit-generating activity. A bench of Justices PS Narasimha and Manoj Misra clarified that simple bank deposits to park surplus funds in the bank would not be a 'commercial purpose' merely because interest is earned on them. Rather, when the deposits are being used to leverage the business transactions or to avail the credit facility, and banking services, then such deposits may be regarded as used for 'commercial purpose'. “In normal course, parking of surplus funds by a body corporate with a bank, either for safe custody or to comply with statutory mandate, as the case may be, is not reflective of a commercial purpose. More so, because ordinarily all deposits in a Bank earn interest. Hence, it would be too naive to hold that since the deposit earned interest, banking service was availed for a commercial purpose. However, it would be different where deposits are made to leverage a credit facility, or for availing other banking services, for business use. Deposit of the latter kind may amount to availing banking services for a commercial purpose.”, the court observed. The case arose from a dispute between a government undertaking and Vijaya Bank concerning a fixed deposit of ₹9 crore made in 2014. The appellant-government undertaking alleged that the bank had fraudulently allowed a third party to avail an overdraft facility against its Fixed Deposit Receipt (FDR) without authorisation. The bank subsequently adjusted the maturity proceeds of the FDR to close the overdraft, returning only about ₹50 Lakhs to the appellant. Aggrieved, the appellant approached the National Consumer Disputes Redressal Commission (NCDRC), which dismissed the complaint on the grounds that, the transaction was for a commercial purpose, and the dispute involved complex questions of fraud, unsuitable for consumer proceedings. The judgment authored by Justice Misra disagreed with the NCDRC's broad reasoning that earning interest on a deposit automatically amounts to a commercial activity. The Court held that deposits may be made for safe custody, statutory compliance, or temporary parking of funds, mere accrual of interest does not establish a profit-driven commercial intent. Instead, the Court emphasised the “dominant purpose test”, under which the nature of the transaction must be assessed based on its primary objective."What needs to be seen is the dominant intention or dominant purpose of the transaction i.e. whether it is to facilitate some kind of profit generation for the purchaser(s) and/or its/their beneficiary. If it is found that the dominant purpose behind the purchase of goods or services is personal use and consumption by the purchaser, and those are otherwise not linked to any commercial activity, the question whether such purchase is for generating a livelihood by means of selfemployment need not be addressed. However, where the transaction is for a commercial purpose, it may have to be considered whether it is for generating livelihood by means of self-employment or not.", the court observed.However, the Court justified the NCDRC's dismissal on the ground that complex allegations regarding fraud were involved. the Court held that the nature of the allegations, involving fraud, forgery, and unauthorized pledge of the fixed deposit, required detailed examination of evidence, which is not feasible in summary proceedings under the Consumer Protection Act.Dismissing the appeal, the Court held that while the NCDRC's reasoning on “commercial purpose” was flawed, the complaint was rightly rejected due to the nature of the dispute.HeadnoteConsumer Protection Act, 1986; Section 2(1)(d) and 2(1)(g) — Maintainability of Complaint — Commercial Purpose vs. Banking Service — Summary Proceedings — Fraud and Forgery - Commercial Purpose and Bank Deposits - The Supreme Court held that the mere earning of interest on a Fixed Deposit Receipt (FDR) does not automatically categorize the banking service as being for a "commercial purpose." - Parking surplus funds for safe custody or statutory compliance is not reflective of a commercial intent - if a deposit is made specifically to leverage credit facilities for business augmentation, it would have a direct nexus with profit generating activity and thus fall under "commercial purpose." Summary Jurisdiction and Complex Facts – Noted that proceedings before Consumer Fora are summary in nature and not intended to adjudicate complex factual disputes involving criminal or tortious acts like fraud, cheating, or forgery - Where a Bank sets up a subsequent contract of pledge against an FDR which the complainant alleges is fraudulent or based on forged documents such a dispute must be addressed ...

Consumer Protection Act | Keeping Bank Deposit Not 'Commercial Purpose' Merely Because Interest Is Earned : Supreme Court

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Yash Mittal

Consumer Protection Act | Keeping Bank Deposit Not 'Commercial Purpose' Merely Because Interest Is Earned : Supreme Court

Yash Mittal

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Yash Mittal

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