[By Subodh Asthana and Madhur Bhatt]
The authors are students at Hidayatullah National Law University.
The definition of a “Consumer” under section 2(7) of the Consumer Protection Act (“Consumer Act”) 2019 seeks to exclude any transaction consummated for “commercial purpose” with an exception afforded to the purchase of goods for self-employment. Conversely, Section 2(1)(d) of the Consumer Act 1986 after the Amendment Act of 2002 did provide an exception of Self Employment to any person engaging in buying goods and services. The authors in the first section of this blog would argue that such exclusion of services from the exception of self-employment in the Consumer Act 2019 is devoid of any reasonable classification by the Legislature.
Furthermore, in the second section of this piece, the authors would critically analyse the recent judgment of the Supreme Court (“SC”) in Shrikant G. Mantri v. Punjab National Bank (“PNB Case”). Although the SC in this case did consider buying of goods and hiring of services at the same pedestal but fallaciously held the impugned transaction for the hiring of services between the Appellant and the Respondent as a Business to Business (“B2B”) transaction, thereby ignoring the established precedents on the exception of commercial purpose under the statutory provisions of the erstwhile act (Consumer Act 1986).
Making a Case against Unreasonable Exclusion
Although the SC in the PNB Case applied the wrong reasoning except for the observation of treating purchase of services and goods at the same pedestal. This exclusion in the Consumer Act 2019 is clearly in clear contravention of the 2002 Amendment. It is pertinent to note that through this amendment, the legislature widened the scope of the “self-employment” exception by including hiring of services as well.
Thus, the exclusion of services from the self-employment exception in the Consumer Act 2019 is devoid of any reasonable classification particularly when the Legislature did not explain its intention for such ostracism.
Moreover, given the outburst of the service sector including the E-Commerce space in the contemporary era where the businesses and traders engage at a higher bandwidth sometimes at a personal level. The exclusion of these services from the self-use exception would leave a major chunk of traders without any remedy under the Consumer Act. It is pertinent to note that the legislature intended to only exclude the commercial transactions that are usually done at a large scale by the Corporations. The rigours of the same cannot be attracted to the traders carrying out the business for self-employment.
The SC in the case of Internet and Mobile Association of India v. Reserve Bank of India (“RBI Case”) held that no business can thrive without availing of any service by the service sector. It is not the submission of the authors that all B2B transactions must be excluded but when the SC itself has demarcated the boundaries of commercial transactions, then such exclusion by the Parliament seems baffling. Even in Australia, certain protections for businesses have been conferred under the Australian Consumer Law when buying goods or services for personal consumption. The same practice is prevalent in other common law countries as well.
Therefore, we assert that hiring of such services must be included in the self-employment exception as the service sector provide a lifeline for any business, trade or profession. The Parliament must take the necessary steps to fill out the void through an amendment.
In the following section, the authors would be highlighting the anomaly created by the SC in the PNB Case by giving a narrower connotation to the term “self-employment”.
The Decision in the PNB Case
In the present matter, the Appellant was engaged as a stockbroker. The petition was filed by the appellant before the SC alleging deficiency of services on the part of the Respondent-Bank under the Consumer Act. However, the bank objected to the maintainability of the petition by stating that the Appellant being a stockbroker is not a consumer under the provision of the Act and had availed the services of the bank for the commercial purpose.
The SC in the instant matter took a hysterical view of the dispute and held that the services of the bank were availed by the Appellants to increase their business profits and therefore labelled the impugned arrangement as a B2B transaction for carrying out commercial objectives. We would be arguing that the Division Bench of SC completely disregarded the exception of “Self-Employment” and principles envisaged by the court in established precedents in the following segments of this piece thereto.
Myopic View of the Dispute: The Scuffle Begins
We assert that the judgement in the PNB Case suffers from the patently fallacious view taken by the SC in interpreting the exception of self-use (inclusion of goods and services). Now given the similar treatment of goods and services, as observed by the SC in the PNB Case; the principles and interpretation to the same were simply overlooked by the Court in the PNB case and therefore we would be applying the same principles established in previous precedents to supplement our case.
Recently, a division bench of the SC in the case of Sunil Kohli and Ors. v. Purearth Infrastructure Ltd. held that “if the commercial exploitation of goods is being done by the purchaser of the goods himself for the exclusive purpose of earning his livelihood employing self-employment”, such a purchaser would come within the ambit of the Act and would be considered as a consumer under the Act.
Although it is evident from the above proposition that the SC and parliament have carved out an exception for self-employment in the ambit of consumer purpose and therefore every transaction carried out for the motive of the profit cannot be labelled as a B2B transaction. The SC in Cheema Engineering vs Rajan Singh (“Cheema Engineering Case”) r/w Laxmi Engineering Works vs. P.S.G. Industrial Institute, held that the test of self-employment is a matter of evidence that can be claimed by a person who is acting individually for offering personal services. Hence, if a person hasn’t employed any staff or doesn’t have a commercial setup then the transaction cannot be labelled as one for commercial purposes.
Consequently, in the PNB case, the SC ironically didn’t consider the afore-mentioned precedents in adjudicating the matter at hand. Had the Court considered the rationale of the above-mentioned precedents including the RBI Case, it would have looked upon the commercial setup of the Appellant of the PNB Case as a part of the evidence in line with the reasoning of the Cheema Engineering Case.
Commercial Element Missing in the PNB Case
Even though if we disregard the applicability of self-use for the hiring of services hypothetically then also the commercial element in the transaction is entirely missing which the SC failed to examine in the PNB case.
In the opinion of the authors, the SC in the PNB Case has determined the commercial element by implying what the goods and services are ordinarily used for rather than looking at the dominant purpose of the impugned transaction. It is pertinent to note that the SC in Lilavati Kirtilal Mehta Medical Trust v. Unique Shanti Developers has held that “The purchase of the good or service should have a close and direct nexus with a profit-generating activity”. We assert that in the PNB Case the dominant purpose behind subscribing such service was for personal use, particularly for “generating livelihood through self-employment”. Therefore, it was a far-sighted assumption of the SC to associate the subscription of the Overdraft facility by the purchaser with the motive of carrying out commercial objectives. If this assumption is allowed then all the unrelated transactions done by the businesses for facilitating their business would be termed as a profit-motivated transactions without even considering the dominant purpose of the activity. A mere subscription to the Overdraft services cannot create an intrinsic nexus with profit generating activity.
Conclusion
Firstly, the latest legislation of the Consumer Act suffers from an incongruity due to the myopic scope of the Self Employment exception. It is ironic to treat goods and services asymmetrically when it comes to the exception of self-use, especially after the perusal of the Consumer Act 1986, that intended to treat them equally.
Secondly, it could be observed that the SC is reluctant to consider the dominant purpose of the activity in adjudicating the dispute under the Consumer Act thereby discarding the numerous interpretations of “self-employment” and “commercial purpose” under the Consumer Act from time to time in various established precedents.
Considering the above anomalies, we think that it is the appropriate time for the Parliament to bring an amendment by keeping services and goods on the same pedestal and to provide a comprehensive definition of the term “self-employment” and “commercial purpose” because of the divergent views adopted by the SC starting from the Laxmi Engineering Case till the PNB Case and to settle the position of law once and for all.