Consumer protection laws are designed to safeguard the interests of consumers and ensure that their rights are protected in case of any deficiency in the goods or services provided to them. In India, the Consumer Protection Act, 2019 is a significant legislation that aims to protect the interests of the consumers and to establish an efficient mechanism for the redressal of consumer disputes. Before the Consumer Protection Act, 2019 came into force, the interests of consumers were protected under the Consumer Protection Act, 1986 (“Act“). Both these Acts provide a comprehensive legal framework for the protection of consumer rights, such as the right to be informed, the right to choose, the right to be heard and the right to seek redressal.

In the recent case of National Insurance Co. Ltd. v. Harsolia Motors and Ors.1, the Supreme Court (“Court“) has held that the Act does not exclude an entity from the concept of “consumer” only because it is a commercial enterprise. Any goods or services purchased for non-commercial purpose by a commercial enterprise, may be the subject of a consumer dispute under the Act. Whether anything is being done for “commercial purpose” depends on whether the goods or services are directly related to the activity that generates profits.

In the abovementioned case, Harsolia Motors and Rakesh Narula and Co. both purchased fire insurance for covers of INR 75,38,000/­- and INR 90,00,000/-, respectively. The goods of both these insured were burned during the Godhra riots in 2002. Rakesh Narula and Co’s claim for INR 54,29,871/- was accepted by the National Insurance Company Limited, however Harsolia Motors’ claim was denied. Both the parties brought complaints before the State Consumer Disputes Redressal Commission (“State Commission“). According to the State Commission, the insured did not fall under the definition of “consumer” as stated in Section 2(1)(d) of the Act. It was held that the complaint could not be upheld under the Act since the insured was operating a business from the premises to make profits, which is covered by the definition of “for commercial purposes”. The National Consumer Disputes Redressal Commission (“National Commission“) overturned the decision and ruled in favour of the insured after hearing an appeal. Aggrieved by the decision of the National Commission, the National Insurance Company Limited filed an appeal in the Court.

The Court has emphasized that to determine whether an insured qualifies as a consumer, the key factors to consider are whether the insurance service is closely related to the insured’s profit generating activity and whether the main purpose of the transaction in question was to generate profits for the insured. The Court also discussed the purpose of the consumer protection legislation, which is designed to protect consumers and enable them to participate in the market economy.

The Court examined the definitions of “consumer,” “person,” and “service,” and noted that the definition of “consumer” excludes the use of goods or services exclusively for the purpose of earning a livelihood through self-employment. However, a firm can still be considered a “person” under the law and may be able to claim consumer protection if the transaction in question falls within the definition of “consumer.” The Court also observed that the definition of “service” includes banking and insurance.

The Court clarified that whether goods or services were purchased for resale or commercial purposes is crucial in determining whether the insured qualifies as a consumer. In this particular case, the Court found that the insurance service did not have a direct connection to the insured’s profit generating activity, as insurance policies are designed to indemnify losses rather than generate profits. However, the Court noted that this determination should be made on a case-by-case basis and with regard to the specific transaction in question. The Court sent the case back to the State Commission to adjudicate the complaint of the insured, with a deadline of one year to do so.

The Court held that – “there is no such exclusion from the definition of the term ‘consumer’ either to a commercial enterprise or to a person who is covered under the expression ‘person’ defined in Section 2(1)(m) of the Act merely because it is a commercial enterprise. To the contrary, a firm whether registered or not is a person who can always invoke the jurisdiction of the Act provided it falls within the scope and ambit of the expression ‘consumer’ as defined under Section 2(1)(d) of the Act.” 

While elaborating on what is considered to be a commercial purpose, the Court gave an example of a hospital which hires medical practitioner for his services, it would be considered to be commercial purpose but when a person hires the same services for his ailment, it would not be held to be a commercial purpose. By interpreting the phrase “for any commercial purpose” broadly, it would entail that the goods bought or the services employed should be used in any activity that is specifically designed to make money.  Profit is the primary goal of a commercial purpose, but it would not be a commercial purpose if the items being purchased or the services being hired are not so done primarily to make profits.

The Court noted that it needs to be determined whether the goods were purchased for resale or for commercial purpose or whether the services are availed for any commercial purpose. If it is for the above two purposes, the insured would not qualify as a “consumer”. Applying the principle to the present case, the Court found that the insurance service did not have a direct nexus with the profit generation activity. It clarified that an insurance contract always indemnifies losses and hiring of insurance policy has no element of profit generation. It sent the matter back to the State Commission to adjudicate the complaint of the insured and do so expeditiously, no later than a period of one year.