Commercial and Professional Services

The professional question: is the service provider inside the Act?

The rule. A professional is inside. Nothing in the definition of service excludes a person because he belongs to a profession, and the exclusions are only for free service and for a contract of personal service.

Facts. Indian Medical Association v. V.P. Shantha, AIR 1996 SC 550, decided on 13 November 1995 by three judges. The medical profession argued that it was governed by the Indian Medical Council Act and its own disciplinary bodies, so its services should be outside the consumer law.

Held. The fact that medical practitioners belong to a profession and are subject to the disciplinary control of the Medical Council of India or a State Medical Council does not exclude the services rendered by them from the ambit of the Act. Consultation, diagnosis and treatment are service, except where rendered free of charge to every patient or under a contract of personal service; and a contract of personal service, being one of master and servant, is different from a contract for personal services, which is not excluded.

Why it matters here. The reasoning applies beyond medicine: a professional's disciplinary code answers to the profession, and the consumer law answers to the client, and the two operate side by side.

The standard applied to a professional

Being inside the Act does not mean being judged harshly. Chapter [Medical Negligence] sets out the standard: a professional is judged by the ordinary competent member of his branch, an error of judgment is not negligence, and a practitioner who follows a practice acceptable to his profession is not liable merely because a better course existed. Jacob Mathew v. State of Punjab, AIR 2005 SC 3180, and Kusum Sharma v. Batra Hospital and Medical Research Centre, (2010) 3 SCC 480, are the authorities.

A worked example

Four complainants before a Commission.

A tailor whose new sewing machine fails. He bought it to work himself, so the self-employment exception applies and he is a consumer on Laxmi Engineering Works.

A garment factory with fifty employees whose industrial machine fails. The purchase has a close and direct nexus with profit generation; the factory is not a consumer, and its remedy is a suit.

The same factory, whose fire insurance claim is repudiated. It is a consumer on Harsolia Motors, because an indemnity contract has no such nexus.

A client who says his chartered accountant filed a return late and he was penalised. The accountant is a service provider like any other, on the reasoning of Indian Medical Association v. V.P. Shantha; whether there is a deficiency is judged by the standard of an ordinarily competent member of that profession.

What it does NOT mean

It does not mean every business is outside the Act. The nexus test decides.

It does not mean a professional is outside the Act. Disciplinary control by a professional body is not an exclusion.

It does not lower the standard for a professional. It is the standard of an ordinarily competent member of the profession.

It does not make the self-employment exception unlimited. A venture run with employed labour for profit is outside it.

Quick revision

1. Two different questions: is the complainant excluded as commercial, and is the provider excluded as professional?
2. Section 2(7) excludes resale and commercial purpose; the Explanation saves goods bought and used exclusively to earn a livelihood by self-employment.
3. Laxmi Engineering Works v. P.S.G. Industrial Institute, (1995) 3 SCC 583: a question of fact; self-employment is generous; a venture with employed labour is excluded.
4. National Insurance Co. Ltd v. Harsolia Motors, 13 April 2023: the test is a close and direct nexus with a profit-generating activity, judged by the dominant purpose; insurance is indemnity, not profit.
5. Indian Medical Association v. V.P. Shantha, AIR 1996 SC 550: a profession's own disciplinary control does not exclude its services from the Act.
6. The standard applied to a professional remains that of an ordinarily competent member of the profession.

Test yourself

1. When is a business a consumer under the Act? When the goods or services it obtained were not obtained for a commercial purpose, and the test is whether they have a close and direct nexus with a profit-generating activity, judged by the dominant intention or dominant purpose of the transaction. National Insurance Co. Ltd v. Harsolia Motors, decided on 13 April 2023, applied that test to hold that commercial entities insuring their premises and stock were consumers, because a contract of insurance is a contract of indemnity intended to make good a loss and not to generate profit. Laxmi Engineering Works v. P.S.G. Industrial Institute, (1995) 3 SCC 583, adds the other half: whether a purchase is for a commercial purpose is a question of fact, goods bought and used exclusively to earn a livelihood by self-employment are outside the exclusion however large the machine, but a purchase for a venture run with employed labour and for profit is inside it.

2. Are professional services covered by the Act? Yes. Nothing in section 2(42) excludes a service because the person rendering it belongs to a profession; the only exclusions are for a service rendered free of charge and for one rendered under a contract of personal service. In Indian Medical Association v. V.P. Shantha, AIR 1996 SC 550, the Supreme Court rejected the argument that medical practitioners were outside the Act because they are subject to the disciplinary control of the Medical Council, holding that consultation, diagnosis and treatment are service, and that a contract of personal service, which requires a relationship of master and servant, is different from a contract for personal services, which is not excluded. The reasoning applies to other professionals as well. Being within the Act does not alter the standard by which a professional is judged, which remains that of an ordinarily competent member of his branch, as Jacob Mathew v. State of Punjab, AIR 2005 SC 3180, holds.