Borrowers Availing Loans for Profit Are Not 'Consumers' Under Consumer Protection Act : Supreme Court
The Hon’ble Supreme Court of India has held that a borrower will not qualify as a 'consumer' under Section 2(1)(d)(ii) of the Consumer Protection Act, 1986, if the loan was availed for a profit-generating exercise. This ruling was delivered in the case of The Chief Manager, Central Bank of India v. Ad Bureau Advertising Pvt Limited, where the Court determined that a complaint filed by a borrower against a bank was not maintainable under the Consumer Protection Act, as the transaction in question was a "pure business-to-business transaction for a commercial purpose."
Background of the Case
A bench comprising Justice Sudhanshu Dhulia and Justice Prashant Kumar Mishra adjudicated on an appeal filed by the Central Bank of India against an order of the National Consumer Disputes Redressal Commission (NCDRC). The NCDRC had directed the Bank to pay Rs 75 lakh in compensation and litigation costs to Ad Bureau Advertising Pvt Limited for allegedly reporting the company as a defaulter to the Credit Information Bureau of India Limited (CIBIL) despite a settlement.
In 2014, the Central Bank had sanctioned a loan of ₹10 crore to Ad Bureau for the post-production of the Rajinikanth film Kochadaiyan. The loan subsequently became irregular, leading to litigation before the Debt Recovery Tribunal (DRT). Eventually, a One-Time Settlement (OTS) was reached for ₹3.56 crore. Ad Bureau contended that despite settling the amount as per the OTS, the Bank marked it as a defaulter with CIBIL, causing reputational damage and business loss. Consequently, it filed a consumer complaint before the NCDRC, alleging a deficiency in service by the Bank.
Supreme Court's Observations
The Supreme Court, while allowing the Bank's appeal, emphasized that the dominant purpose of the loan was profit generation. The Court rejected Ad Bureau’s contention that the loan was availed for self-use, which would have brought it within the ambit of a 'consumer' under the Explanation to Section 2(1)(d)(ii).
The Court observed:
"We are not convinced by this argument put forth on behalf of Respondent No.1 for the simple reason that, even if it is partly true that the loan was availed for a self-branding exercise, the dominant purpose behind brand-building itself is to attract more customers and consequently generate profits or increase revenue for the business. A bald averment that the company engaged in the post-production of the movie solely for the purpose of brand-building does not alter the fundamental nature of the transaction—i.e., the availing of a credit facility from the appellant bank—which was purely a business-to-business transaction entered into for a commercial purpose."
Legal Precedents Cited
The Court relied on previous judgments to support its decision. In Shrikant G. Mantri vs. Punjab National Bank [2022 LiveLaw (SC) 197], the Supreme Court had held that a stockbroker who availed an overdraft facility for his business could not be considered a 'consumer' under the Act. Similarly, in National Insurance Company Limited vs. Harsolia Motors & Ors. [2023 LiveLaw SC 313], the Court ruled that the dominant intention or dominant purpose of a transaction must be analyzed to determine if it is commercial in nature.
"From an analysis of the aforementioned decisions, it is quite clear that what is to be seen here is whether the dominant intention or dominant purpose of the transaction was to facilitate some kind of profit generation for the person who has availed the service. Therefore, it is our considered opinion that Respondent No.1 is not a 'consumer' in terms of Section 2(1)(d)(ii) of the Act."
Conclusion
The Supreme Court, while ruling on the issue of maintainability, clarified that it had not examined the merits of the dispute between Ad Bureau and the Bank. This judgment reinforces the principle that businesses availing loans for commercial purposes cannot seek remedies under the Consumer Protection Act, as the law is designed to protect individual consumers and not business-to-business transactions.