Commercial and Professional Services

In one line

A business may be a consumer if the service it bought has no close nexus with making a profit, and a professional is a service provider like any other.

In the wording a student can write in an exam: a person who avails of a service for a commercial purpose is not a consumer under section 2(7), and the test is whether the service has a close and direct nexus with a profit-generating activity, judged by the dominant purpose of the transaction; a professional, on the other hand, is not excluded merely because he belongs to a profession subject to its own disciplinary control, so services rendered by doctors, and by other professionals for consideration, fall within section 2(42) unless they are rendered free of charge or under a contract of personal service.

The commercial question: is the complainant a consumer?

The exclusion. Section 2(7) excludes a person who obtains goods for resale or for any commercial purpose, and a person who avails of a service for any commercial purpose.

The exception. The Explanation provides that commercial purpose does not include use by a person of goods bought and used by him exclusively for the purpose of earning his livelihood by means of self-employment.

The test.

Facts. Laxmi Engineering Works v. P.S.G. Industrial Institute, (1995) 3 SCC 583, decided on 4 April 1995. A small-scale industrial unit bought machinery and complained to a consumer forum.

Held. Whether a purchase is for a commercial purpose is a question of fact in each case. Goods bought and used exclusively for earning a livelihood by self-employment are not for a commercial purpose whatever the size of the machine, and this covers a person who works it himself with or without the help of one or two others; but a purchase for a larger venture run with employed labour and for profit is excluded. The Explanation is clarificatory and applies to pending matters.

Facts. National Insurance Co. Ltd v. Harsolia Motors, decided on 13 April 2023. Commercial entities insured their premises and stock, suffered losses in riots, and complained when the insurer repudiated their claims.

Held. The test is whether the service has a close and direct nexus with a profit-generating activity, and the dominant intention or dominant purpose of the transaction must be examined. A contract of insurance is a contract of indemnity whose object is to make good a loss from an unknown or contingent event, not to generate profit, so the complaint had no such nexus and the commercial insured was a consumer.

How to use the two together. Ask what the service was taken for, and whether that purpose is closely and directly tied to earning profit. Buying a machine to run a factory with employees is; insuring the factory against fire is not; buying a machine to work oneself is not.