Who Is a Consumer

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. The insurer said that a company insuring a commercial establishment avails the service for a commercial purpose.

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: its object is to indemnify against loss from an unknown or contingent event, not to generate profit. The complaint therefore had no close or direct nexus with any profit-generating activity, and the insured, though a commercial concern, was a consumer.

Why they matter here. Together they give the working test. Ask what the goods or services were bought FOR, and whether that purpose has a close and direct nexus with making a profit. A tailor's sewing machine, a taxi driver's car and a company's fire insurance are all within the Act; a factory's production line bought to run with employed labour is not.

Who is NOT a consumer

A person who buys for resale. A trader buying stock.

A person who buys or avails for a commercial purpose, subject to the self-employment exception.

A person who receives goods or services free. Since consideration is essential, though chapter [Medical Services under the Act] shows that free treatment in a hospital which charges others is treated differently.

A person complaining about something that is not goods or a service, for example a purely gratuitous act of a friend.

A worked example

Five complainants at the same District Commission.

Ravi, who bought a scooter for his own use, which does not start. A consumer under sub-clause (i).

Ravi's daughter, who was riding it with his approval when the brakes failed. A consumer as a user with the buyer's approval.

Sunita, who bought ten scooters to hire out to tourists, employing three drivers. Not a consumer: the purchase has a close and direct nexus with a profit-generating activity, and the self-employment exception does not fit because she does not use them herself.

Farid, who bought one scooter to work as a delivery rider himself. A consumer: goods bought and used exclusively for earning his livelihood by self-employment, on Laxmi Engineering Works.

A company, which insured its godown and was refused a claim after a fire. A consumer, on National Insurance Co. Ltd v. Harsolia Motors, because a contract of indemnity has no close and direct nexus with profit-generating activity.

What it does NOT mean

It does not require the complainant to be the buyer. A user or a beneficiary with approval is included.

It does not exclude every business. The test is the purpose and its nexus with profit generation.

It does not exclude online purchases. The Explanation covers electronic transactions, teleshopping, direct selling and multi-level marketing expressly.

It does not require full payment. A promise, part payment or deferred payment is enough.

Quick revision

1. Section 2(7) of the Consumer Protection Act 2019; section 2(1)(d) of the Act of 1986 in older cases.
2. Two limbs: buying goods, and hiring or availing services, in both cases for a consideration.
3. A user of the goods, and a beneficiary of the service, with approval, are included.
4. Excluded: resale, and any commercial purpose.
5. Explanation (a): goods bought and used exclusively for earning a livelihood by self-employment are not for a commercial purpose.
6. Explanation (b): online, teleshopping, direct selling and multi-level marketing transactions are covered.
7. Laxmi Engineering Works v. P.S.G. Industrial Institute, (1995) 3 SCC 583: the question is one of fact; the self-employment exception is generous but does not cover a venture run with employed labour for profit.
8. National Insurance Co. Ltd v. Harsolia Motors, 13 April 2023: the test is a close and direct nexus with a profit-generating activity, and an insurance contract of indemnity has none.

Test yourself

1. Who is a consumer under the Consumer Protection Act 2019? Section 2(7) defines a consumer in two limbs. The first covers any person who buys any goods for a consideration which has been paid or promised, or partly paid and partly promised, or under any system of deferred payment, and includes any user of those goods, other than the buyer, when the use is made with the buyer's approval; it excludes a person who obtains the goods for resale or for any commercial purpose. The second covers any person who hires or avails of any service for such a consideration, and includes any beneficiary of the service other than the person who hired it, when it is availed with his approval; it excludes a person who avails of the service for any commercial purpose. The Explanation provides that commercial purpose does not include use by a person of goods bought and used by him exclusively for earning his livelihood by self-employment, and that buying goods and availing services include transactions made online, by teleshopping, by direct selling and by multi-level marketing.

2. Explain the commercial purpose exclusion with decided cases. The exclusion keeps traders and businesses out of a forum designed for ordinary buyers, and it is qualified by the self-employment exception. In Laxmi Engineering Works v. P.S.G. Industrial Institute, (1995) 3 SCC 583, the Supreme Court held that whether a purchase is for a commercial purpose is a question of fact in each case; that goods bought and used exclusively for earning a livelihood by self-employment are outside the exclusion whatever the size of the machine, including where the buyer works it himself with the help of one or two others; but that a purchase for a larger venture run with employed labour and for profit is excluded, and that the Explanation is clarificatory and applies to pending cases. In National Insurance Co. Ltd v. Harsolia Motors, decided on 13 April 2023, the Court held that 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, and that a contract of insurance, being a contract of indemnity against loss rather than a means of profit, has no such nexus, so a commercial concern insuring its property is a consumer.

3. Is a person who did not pay for the goods ever a consumer? Yes, in two situations, both expressly provided for. A user of goods other than the buyer is a consumer where the use is made with the approval of the person who bought them, so a family member injured by a defective appliance may complain although the head of the household paid for it. A beneficiary of a service other than the person who hired it is a consumer where the service is availed with the approval of the person who hired it, so a patient whose treatment a relative paid for may complain in his own right, which is the point that makes Spring Meadows Hospital v. Harjol Ahluwalia, AIR 1998 SC 1801, work. What is not enough is a purely gratuitous supply, because consideration paid, promised, partly promised or deferred is an essential of the definition.