Can a partnership firm or company be a consumer for house bought for employee?

[Anonymous]

Under the consumer protection act, can a partnership firm or a company be considered as a consumer for a residential house purchased by them for the purposes of residence of a partner or an employee?

[Dr. Ashok Dhamija]

As per Section 2(1)(d) of the Consumer Protection Act, 1986, “consumer” is defined as under:

“(d) “consumer” means any person who,—

(i) 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 such goods other than the person who buys such goods for consideration paid or promised or partly paid or partly promised, or under any system of deferred payment when such use is made with the approval of such person, but does not include a person who obtains such goods for resale or for any commercial purpose; or

(ii) hires or avails of any services 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 beneficiary of such services other than the person who hires or avails of the services for consideration paid or promised, or partly paid and partly promised, or under any system of deferred payment, when such services are availed of with the approval of the first mentioned person but does not include a person who avails of such services for any commercial purpose;

Explanation.—For the purposes of this clause, “commercial purpose” does not include use by a person of goods bought and used by him and services availed by him exclusively for the purposes of earning his livelihood by means of self-employment;”

Thus, the definition of “consumer” does not include a person who obtains such goods for resale or for any commercial purpose.

It is pertinent to point out that the Explanation to this definition clarifies that “commercial purpose” does not include use by a person of goods bought and used by him and services availed by him exclusively for the purposes of earning his livelihood by means of self-employment.

In this regard, in the case of Laxmi Engineering Works v. PSG Industrial Institute, (1995) 3 SCC 583, Supreme Court held as under:

“The National Commission appears to have been taking a consistent view that where a person purchases goods “with a view to using such goods for carrying on any activity on a large scale for the purpose of earning profit”, he will not be a ‘consumer’, within the meaning of Section 2(d)(i) of the Act. Broadly affirming the said view and more particularly, with a view to obviate any confusion — the expression “large scale” is not a very precise expression — Parliament stepped in and added the explanation to Section 2(d)(i) by Ordinance/Amendment Act, 1993. The explanation excludes certain purposes from the purview of the expression “commercial purpose” — a case of exception to an exception. Let us elaborate: a person who buys a typewriter or a car and uses them for his personal use is certainly a ‘consumer’ but a person who buys a typewriter or a car for typing others’ work, for consideration or for plying the car as a ‘taxi’, can be said to be using the typewriter/car for a commercial purpose. The explanation however clarifies that in certain situations, purchase of goods for “commercial purpose” would not yet take the purchaser out of the definition of expression of expression ‘consumer’. If the commercial use is by the purchaser himself for the purpose of earning his livelihood by means of ‘self-employment’, such purchaser of goods is yet a ‘consumer’. In the illustration given above, if the purchaser himself works on typewriter or plies the car as a taxi himself, he does not cease to be a consumer. In other words, if the buyer of goods uses them himself, i.e by self-employment, for earning his livelihood, it would not be treated as a “commercial purpose” and he does not cease to be a consumer for the purposes of the Act. The explanation reduces the question, what is a “commercial purpose”, to a question of fact to be decided in the facts of each case. It is not the value of the goods that matters but the purpose to which the goods bought are put to. The several words employed in the explanation, viz, “uses them by himself”, “exclusively for the purpose of earning his livelihood” and “by means of self-employment” make the intention of Parliament abundantly clear, that the goods bought must be used by the buyer himself, by employing himself for earning his livelihood. A few more illustrations would serve to emphasise what we say. A person who purchases an auto-rickshaw to ply it himself on hire for earning his livelihood would be a consumer. Similarly, a purchaser of a truck who purchases it for plying it as a public carrier by himself would be a consumer. A person who purchases a lathe machine or other machine to operate it himself for earning his livelihood would be a consumer. (In the above illustrations, if such buyer takes the assistance of one or two persons to assist/help him in operating the vehicle or machinery, he does not cease to be a consumer). As against this, a person who purchases an auto-rickshaw, a car or a lathe machine or other machine to be plied or operated exclusively by another person, would not be a consumer. This is the necessary limitation flowing from the expressions “used by him”, and “by means of self-employment” in the explanation. The ambiguity in the meaning of the words “for the purpose of earning his livelihood” is explained and clarified by the other two sets of words.”

In the case of Singhal Finstock (P) Ltd. v. Jaypee Infratech Ltd., 2012 SCC OnLine NCDRC 672 : [2012] NCDRC 672, decided by the National Consumer Disputes Redressal Commission New Delhi (NCDRC), the complainants had booked two apartments with the opposite parties in joint names and paid Rs. 8 lakh each. These residential plots were booked by the complainants for the residence of directors. In these circumstances, it was held by NCDRC that the complainants were not consumers and the complaint was held to be not maintainable and was dismissed accordingly. The purchase of the apartments was thus considered as for “commercial purpose”.

Likewise, in the case of General Motors India Pvt. Ltd. v. G.S Fertilizers (P) Ltd., 2013 SCC OnLine NCDRC 126 : [2013] NCDRC 112, it was held by the NCDRC that the case pertains to the purchase of goods admittedly for ‘commercial purposes’ since the car was purchased by a private limited company for its Managing Director.

In view of the definition of “consumer” in the said Act, and also in view of the above decisions, it should be clear that if a company or a partnership firm purchases a residential house for use of its employee or partner, as the case may, the same may be covered within the meaning of “commercial purpose” and, accordingly, for the purposes of purchase of such residential house, such company or partnership would not come within the definition of “consumer”. Accordingly, a complaint under Consumer Protection Act cannot be filed in such a situation, though other remedies (such as filing a civil suit) may still be available.     

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Dr. Ashok Dhamija is a New Delhi based Supreme Court Advocate and author of law books. Read more about him by clicking here. List of his Forum Replies. List of his other articles. List of his Quora Answers. List of his YouTube Videos.

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